Importers, exporters suffer as logistics rates increase

When the first cases of COVID-19 were announced, business ground to a halt as many countries declared lockdowns. Although most countries have eased restrictions, importers and exporters are still feeling the pinch of high rates, writes Edward Kayiwa. It is an indisputable fact that the Covid-19 pandemic has exposed a number of vulnerabilities in the global logistics supply chains, such as disruptions, port congestion, capacity shortages and increasing ocean freight rates.

This has left both manufacturers and consumers, especially in Uganda frowning, the end seemingly distant, due to unscheduled production disruptions in China and soaring shipping rates occasioned in part by the global covid-19 pandemic.

Since the covid-19 outbreak in late 2019, the covid pandemic has left the global economy on its knees, as governments, especially in key raw material sourcing economies, announced strict lockdown measures to control its outbreak.

And although progressively, many countries are easing the lockdown measures, full recovery of the economies and resumption of production has not been met, since the pandemic effects can only fade with time.

Locally for instance, manufacturers are operating at 70% capacity, according to the Uganda Manufacturers Association.

However, hope is still alive that the moment the global economy fully reopens, the current disruption, especially in China, will subside, although the law of demand and supply is expected to strongly apply, meaning that shipping costs are unlikely to come down soon.

“It is true that there are many containers stuck in China and this has disrupted everything. Prices here are shooting through the roof and there is nothing we can do about it. However, we are hopeful that soon, things will get back to normal, because we see majority of the global population getting immunised,” Stephen Asiimwe, the executive director of the Private Sector Foundation Uganda, said.

He said although stabilising the logistical supply chain is likely to be a gradual thing, it will definitely happen and in time, all current challenges will be sorted.

And although Asiimwe is hopeful, traders such as Rukia Najjuma, an importer of shoes and jeans trousers from China, has a tale to tell.

“When I ordered the first container of jeans, the prices were different. Because of the disruptions in the logistical chain, I was unable to get the container on schedule. Later, I was told I had to pay again because the rates had changed,” she said.

This, Najjuma said forced her to abandon the second order for shoes, because the rates were high, meaning the final price was likely to be unaffordable to her customers.

For instance, she said, a pair of shoes which she normally sells at sh90,000 would have gone for sh140,000, a 44% jump, making them typically unaffordable.

“Most of our imports are from China, and therefore, any disruptions in that economy can seriously affect us. Although their economy has is said to have recovered, some aspects have not yet regained colour,” she said.

PORTS CONGESTED

At the end of 2019, the Chinese government closed off Wuhan province, a major production and export hub, in order to fight and control the spread of the covid pandemic, which is believed to have started the covid threat.

The quarantine blocked not just products made in the Wuhan area, but also exports originating elsewhere that had to pass through Wuhan to get to the ports.

And although later, the restraint on Wuhan was lifted, the global logistics supply chain was already affected in negative ways.

“The ports in China are now congested. When you order for goods, sometimes they openly tell you to expect delays. This is causing us frustration and over expenditure,” Andrew Sserunkuuma, a jewellery importer, said.

Fred Kajura, a customs brokerage officer at Spedag Interfreight Uganda Ltd, says shipping lines all over the world are overwhelmed, although on the other hand, they are making a killing from it.

Kajura said:” They have a lot of cargo, because you can order cargo in July and it gets shipped in September. For now, cargo is coming in in bits and not at once. Also, shippers are not maintaining a stable rate. Every two weeks they change it and it is pegged against the dollar.”

He said many shippers do not have enough facilities such as containers, which is presenting a big problem in the management and shipment of cargo from overseas.

He said they have clients who ordered for merchandise towards the Christmas season, but arrived in January, meaning that their capital is tied for a year, since they can only sell that batch this Christmas.

As touching costs, he said previously, a 48ft container cost $1,800 (about sh6.4m) but now it goes for $10,000 (about sh36m).

Likewise, a20ft container used to cost $1200 (about sh4.2m) but now goes for $6,000 (about sh21m).

Andrew Bwiira, a logistics consultant, says the truck drivers’ strike, which lasted about four weeks last month, pushed the cost of logistics up. Fuel prices which shot up then have not gone back yet.

He said because of this, lessons must be drawn from the 70km jam that built up at the Kenya-Uganda border in Malaba.

He said the most logical solution to such challenges include the railway and inland waterways which are by far cheaper than freight on road.

For instance, transporting a tonne of goods on MV Kaawa across Lake Victoria from either Kisumu to Portbell or Mwanza to Portbell costs $20 (about sh72,000) per tonne and the vessel has a capacity of 880 metric tonnes (22 wagons each with 50,000 litres of fuel) translating into one million liters of fuel per voyage.

He said the resumption of wagon ferry services on Lake Victoria has shortened the distance from Kisumu to Porbell to a 17-hour voyage and

from Mwanza to Port bell an 18-hour voyage, unlike in the past where Eldoret was the nearest source of fuel.

“The other alternative can be rail, which has two routes, the central route (Mombasa-Kampala via Malaba) with the lead time of four to fi ve days at very competitive rates for all steel, containerised and conventional cargo as well as the southern route (Dar-es-salaam-Kampala via Port bell),” he said.

It should be noted, however, that these alternative routes are all functional and relatively cheaper than road, but only require government investment like the purchase of rolling stock, procurement of new wagon ferries and barges, speeding up the rehabilitation of the existing meter gauge railway, and revising the tripartite agreements with Kenya and Tanzania to facilitate trade.

LET’S DEPLOY TECHNOLOGY

Daniel Birungi, the executive director of the Uganda Manufacturers Association, says supply chains are now recognised as central to business survival, success, and growth, rather than an opportunity to just reduce costs.

However, over time, they have been plagued by congestion, delays, accidents and a number of other misfortunes, which could easily be solved by employment of artificial intelligence.

He said artificial intelligence (AI) has the potential to decrease human error, make operations quicker and lessen emissions.

“AI can also be used to detect vessel route inefficiencies and recommending alternate routes to ensure minimal error in transit times. It is also used to predict future equipment needs, long-term yard utilization, container damage, number of gate visits, and more,” he said.

Looking ahead in 2022, it is estimated that the pressure on global supply chains will continue, and the light at the end of the tunnel is not to be expected until the second half of the year, at the earliest.

With an enormous backlog for industry and richly-filled order books, shipping prices will, for now, remain elevated well above pre-crisis levels.

According to experts, global supply chains should, therefore, expect another few months of extreme market conditions before the situation pacifies.

Source: New Vision

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