Logistics Practices In Ethiopia - SLU.SE
Logistics Practices in EthiopiaFekadu M. DebelaExamensarbete 2013:09ISSN 1654‐9392Uppsala 2013
SLU, Sveriges lantbruksuniversitetSUAS, Swedish University of Agricultural SciencesInstitutionen för energi och teknikDepartment of Energy and technologyEnglish title: Logistics Practices in EthiopiaAuthor: Fekadu M. DebelaMain supervisor: Girma GebresenbetExaminer: Per-Anders HanssonCredits: 30 hpName of Course: Independent project degree in technologyCourse code: EX0417Serial title: Independent thesis 2013:09ISSN 1654-9392Uppsala 2013Nyckelord: Ethiopia, Logistics, Road, Rail, Air Freight, Dry port
AbstractThe ability to transport goods quickly, economically and reliably is vital to a nation’sprosperity and capacity to compete in global market.Ethiopia is a landlocked country in East Africa with a land area of about 1.13 millionsquare kilometers and a population of about 82.8 million. 85 percent of the populationis living in rural areas and the economy of the country is based mainly on agricultureaccounting for 45 percent of GDP, 80 percent of exports and 80 percent ofemployment.Ethiopian logistics system is characterized by poor logistics management system andlack of coordination of goods transport, low level of development of logisticsinfrastructure and inadequate fleets of freight vehicles in number and age, damage andquality deterioration of goods while handling, transporting and in storage. This coupledwith lack of sea port resulted in poor linkage of producers (farmers) to the consumers(market) and non-competitiveness of Ethiopian goods on global market, whichcompromised livelihood of the people and economy of the country. There is very highrate of traffic accident (first in the world) and congestion in cities and at cityinlets/outlets to which freight vehicles contribute significantly. Efficient and effectivelogistics system needs to be put in place to solve these socio-economic problems.The objective of this work is to assess the current status of logistics practices inEthiopia with the aim of identifying the gaps, potentials and constraints fordevelopment of effective and efficient logistics system. To meet this objective,qualitative assessment of the soft and hardware of logistics, freight logistics andtransport companies, organizations dealing with documentation of import and exportgoods and case studies of specific supply chains of major goods in Ethiopia are made.Information from secondary sources is used to carry out the assessment.Presence of road of high density and quality makes efficient distribution of goods easy.Customer orientation, low level bureaucracy at customs and trade facilitations expeditegoods flow. Availability of skilled manpower, conducive labor regulations andbusiness environment promotes economic activities. On most of these criteria,Ethiopian logistics system is found to be poor.There is urgent need for research on the problems, for which Excellence Center forFreight Transport and Logistics in Ethiopia (EthioLog) is established. Intermodaltransport system is the best solution and commencement of construction of 10, 000 kmrail line is an opportunity to use road-rail integrated intermodal transport system tosolve the logistics problems of the country.Key Words: Ethiopia, Logistics, Freight Transport, Dry Port3
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Table of contentsList of Abbreviations . . .vii1. Introduction . . 92. Objectives . . 173. Methodology .194. Status of Logistics Infrastructure and Planned Future Actions . 214.1 Status of Logistics Infrastructure and Gaps . . .214.1.1 Road Infrastructure . . 214.1.2 Rail Infrastructure . . . 224.1.3 Air Freight . . . 234.1.4 Marketing Structure . . . 254.1.5 Dry ports and Freight Stations . . .254.1.6 Warehouses . 254.1.7 ICT . . 264.1.8 Energy Production . . 264.2 Existing Transport Pattern at Different Levels of Chains . .274.3 Planned Future Actions by Ministry of Transport . . 304.4 EthioLog, Freight Transport and Logistics Excellence Center inEthiopia . . 315. Main Logistics and Freight Transport Companies . 335.1 Freight Vehicle Fleets and Age Distribution .335.2 Freight Transport Companies 355.3 Forwarding Companies .366. Organizations Dealing with Documentation of Import-Export Goods. .377. Case Studies of Specific Supply Chains . . 397.1 Coffee Chain from Farmers to Export Port.397.2 Sesame oil Seed Chain from Farmers to Port . .467.3 Grains Supply Chain from Farmers to Port. .487.4 Fertilizer Chain from Port to Farmers.517.5 Cold Chains.557.6 Route Optimization and Facility Location Analysis for majorImport/Export Goods . 577.7 Addis Ababa City Logistics and Congestion 628. Logistics Performance Indices of Ethiopia According to World Bank 679. Intermodal/Multimodal System with Special Emphasis on Ethiopia .699.1 Lessons Learnt from the US and Canada Freight TransportSystem 699.2 Lessons Learnt from European Freight Transport System .719.3 Lessons Learnt from Freight Transport System in other Parts ofthe World .759.4 Ethiopian Intermodal and Multimodal Transport System 7610. Discussion . .7911. Concluding Remarks and Recommendations . 81References . .825
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List of SDEPPPPRSDPTATEU/FEUUNCTADUNECAURRAPWTOEthiopian Commodity ExchangeEthiopian Roads AuthorityEthiopian Railways CorporationEthiopian Rural Travel and Transport ProgramEthiopian Shipping Lines Share CompanyEuropean UnionFull Container Load, Less Than Container LoadFederal Democratic Republic of EthiopiaFull Truck Load/Less than Truck LoadFreight Transport and Logistics SystemGross Domestic ProductHouseholdIntermediate Means of Transportkilo metermeterMaritime Affairs AuthorityMillionMinistry of Finance and Economic DevelopmentMinistry of Agriculture and Rural DevelopmentMinistry of TransportMinistry of Trade and IndustryMetric ToneMaritime and Transit Service EnterpriseOrigin /DestinationPlan for Accelerated and Sustainable Development to End PovertyPrivate Public PartnershipRoad Sector Development ProgramTransport AuthorityTwenty/Forty Feet Equivalent UnitUnited Nations Conference on Trade and DevelopmentUnited National Economic Commission for AfricaUniversal Rural Road Access ProgramWorld Trade Organization7
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1IntroductionThe ability to transport goods quickly, safely, economically and reliably(logistics) is seen as vital to success of businesses, and to a nation’sprosperity and capacity to compete in globalized economy. Logistics isdefined by council of logistics management as the process of planning,implementing and controlling the efficient, effective flow and storage ofgoods, services and related information from point of origin to point ofconsumption for the purpose of conforming to customer requirements. Theintegration of two or more logistics with in a network to create value,enhance efficiency and satisfy customers is called supply chainmanagement.Analyzing and assessing logistics and supply chain practices will helpdiscern important issues such as emerging trends and areas of concern(Srivastava, 2006), which will help in taking remedial measures.Cilliers and Nagel (1994) made assessment of status of logistics in SouthAfrica using individual company’s logistics excellence and how companiesintegrate into and the excellence of a supply chain they are part of. Theyused data gathered by questionnaire survey from key people in logisticsindustry. The elements of business logistics are treated well but manyimportant factors such as infrastructure, availability of human resource inthe market, customs, etc are not taken in the assessment. Diaz and Perez(2002) carried out empirical and statistical analysis on data obtained byquestionnaire survey to identify the key characteristics that resulted inoperational, market and state inefficiencies that constrained logisticsdevelopment in Venezuela. They also basically dealt with business logisticsand integration into a supply chain. They considered external factors such asthe effects of infrastructure, macroeconomic uncertainty (due to short-termeconomic policies), human resource scarcity, inefficient customs, presenceof foreign competitors and unidentifying foreign markets as threats tologistics development but the variance was low and they concluded thatfactor analysis has limitations in the explanatory power. Srivastava (2006)carried out study on state of logistics and supply chain practices in India bydirect observation, informal discussions and interviews with middle and topmanagers of companies and information gathered from secondary sources.He also dealt basically with business logistics and supply chain integration.His focus was on a) supply chain collaboration and partnership b) supplychain structure including facilities network design for transport and logisticsc)forecasting and demand management to cope with supply chaincomplexity in a cost-effective and delivery-efficient way and d) use of ICTto facilitate supply chain integration and performance. Probably the most9
comprehensive study that objectively considered most of the importantfactors in the assessment is that made by Bookbinder and Tan (2002) wherethe authors proposed attributes of a world class logistics system (Table 1),applied cluster analysis to data from secondary sources to classify Europeanand Asian countries into three levels (tiers) of logistics excellence.Table 1: The 20 specific attributes (criteria) that determine logisticstiers(Bookbinder and Tan, 2002)GeneralSpecific attributesDescriptionattributesI.1.Distribution 1.The distribution of goods isInfrastructureinfrastructuregenerally efficient/inefficient2.Infrastructure maintenance and2.Infrastructure development is/is not adequatelymaintenanceplanned and financedand development3.Water transportation meets/does3. Water transportation not meet business requirements4.Cargo handling throughput4. Air cargoII.Performance5.Customs 5.Hinders/does not hinder theadministrationefficient transit of goods6.Process management (quality,6. Process management time to market, . . . is/is notemphasized in your country)7.Customer 7.Emphasize/does not emphasizeorientationcustomer satisfaction adequatelyIII.Informationsystem8. New informationtechnology9.ElectroniccommerceIV. Humanresources10. Labor regulationsV. Businessenvironment8.Implementation meets/does notmeet business requirements9.Is/is not sufficiently developed forbusiness opportunities10.Regulations (hiring and firingpractices, minimum wages, etc) are11. Immigration lawstoo restrictive/are flexible enough11.Prevent/do not prevent your12. Skilled laborcompany from hiring foreign labor13. Industrial disputes12.Is/is not available in yourcountry’s labor market14. Industrial relations 13.Low/high working days lost per15. Employee training 1000 inhabitants per year16. Worker motivation 14.Labor relations are generallyhostile/productive15.Is/is not high priority incompanies16.Identifies/does not identify withcompany objectives17. Export credits and17.Are/arenotavailableatinsurancereasonable prices for companies18. Exchange rate interested in exportingpolicy18.Hinders/supportsthe10
19. Cost of capitalVI. Political20. Political stabilitycompetitiveness of enterprises19.Hinders/doesnothindercompetitive business environment20.Risk of political instabilityenvironmentAssessment of status of logistics practice in Ethiopia will be made in thispaper from observation and secondary sources using the criteria in Table 1and some additional criteria specific to the Ethiopian case.11
Logistics Related Constraints in EthiopiaEthiopia is a landlocked country located in Eastern Africa bordering theSudan, Eritrea, Djibouti, Somalia, and Kenya (Fig.1) with a land area ofabout 1.13 million sq. km and a population of about 82.8 million in 2009(The Global Competitiveness Report, 2010), out of which only about 16 %live in urban areas. It has a tropical monsoon climate with widetopographic-induced variations. The country has wide topographic featuresvarying between an altitude of 4,620 m above mean sea level (Ras Dejen) toabout 120 m below mean sea level (Denakil Depression) (Fig.2) with a verydifficult terrain (highlands criss-crossed by numerous river valleys and theGreat Rift Valley) which made the provision of transport facilities veryexpensive.Fig.1. Location of Ethiopia (MOT, 2009)(Kemal, 2010)Fig.2. Closer view of EthiopiaIn the context of Ethiopia’s topography and pattern of settlement as well asits dependence on other countries’ seaport for import and export, transportplays a crucial role in facilitating socio-economic development of thecountry. The Addis Ababa-Djibouti railway (781 km old line of nonstandard gauge of 1067mm) is the only railway that the country owns withDjibouti, but recently the Government has initiated the development ofrailway network with the establishment of Ethiopian Railways Corporation(ERC). Ethiopia has one of the most successful airlines in Africa providinglocal and international transport services for passenger and freight.Road transport is the mode of transport that the country relies on for bothdomestic as well as international transport services. Recognizing theimportance of the road infrastructure, the Government has launched theRoad Sector Development Program (RSDP) in 1997 to address the12
constraints of the low coverage of road network and standards. The networkwhich was about 26,550 km at the beginning of RSDP in 1997 has increasedto 46,812 by the year 2010.Ethiopia is one of the poorest and least developed countries in the world.According to Growth Competitiveness Index of World Economic Forum,Ethiopia stands 119th among 133 countries surveyed (The GlobalCompetitiveness Report, 2011). Its economy is based on agriculture,accounting for 45% of GDP, 80% of exports, and 80% of total employment.The biggest sources of foreign trade are coffee, flowers, oilseeds, grains andleather.The main development objective of the Ethiopian Government is povertyeradication through accelerated and sustainable development. In about 20years, Ethiopia's vision is to reach the level of middle-income countries. Thelong journey towards achieving socio-economic transformation has alreadycommenced with the implementation of effective economic policies andstrategies. Ethiopia’s economy is growing over 10% and the GDP per capitais estimated to be USD 390 in 2009. Yet, in spite of high rates of growthmost Ethiopians live in poverty. Periodic droughts, soil degradation, highpopulation density, high levels of taxation and poor infrastructure (WorldBank, 2010) and hence serious imbalance of payments in the country’sforeign trade are the main obstacles to sustainable economic growth (Cilliersand Nagel, 1994).Moreover, as agricultural economy, promotion of agricultural market isamong the key strategies of Ethiopia. The post harvest loss which isestimated to range from 15% to 70% are mainly attributed to poormanagement and control including packaging, value added handling andprocessing, and transport. These losses depress and compromise theexporting potential of the country and the livelihood of farmers whichnecessitates the introduction of modern supply chain management system(EthioLog Concept Note, 2010).Economic growth and trade depend on transport. Virtually no productioncan take place unless inputs such as raw materials, labor, and fuel are movedto production centers. Without transport infrastructure, manufacturedproducts cannot be delivered to consumers, nor can a wide variety ofservices be carried out. The road infrastructure in Ethiopia and the freighttransport vehicles in terms of size, age and capacity, are not sufficient tosupport the growth in the economic activities.As an integral part of national production and distribution system, anadequate transportation network is necessary to provide a means ofservicing domestic and international markets.As a landlocked country, Ethiopia is dependent on seaports of othercountries for its export and import. Although, due to the existingcircumstances the country is depending mainly on port Djibouti, futurepossibilities of using Port Sudan, Berbera, Assab, Massawa and Mombasamay be investigated with respect to the available transport infrastructure andgeographical proximities. The cost of freight transport is an important factorin the competitiveness of a country’s economy. With high transport costs,13
large economies of scale will remain unexploited, and production willtherefore be inefficient. The estimated total cost of border crossing inAfrica is the equivalent of the cost of inland transport of over 1600km(Harmon et al, 2009). Experience from developing regions such as LatinAmerica and Asia suggests that combined trade liberalization and asupportive trade-transport chain tend to create a virtuous cycle of lowercosts, increasing trade volume, and economies of scale and scope indistribution and production activities ( Konings et al, 2008). Efficient tradelogistics are also important for attracting foreign direct investment, which inturn can increase a country’s export capacity. With current trends inreduction in maritime transport cost and more advanced logistics technologythat compensates for the handicap of intercontinental distances, lack ofdirect sea-access presents growing challenges to the global integration andgrowth prospects of many landlocked developing countries. The problemmostly affects the poorest countries: 20 out of 54 low-income economies arelandlocked, with a majority of them in Sub-Saharan Africa (Arvis et al,2007 ), one of which is Ethiopia. The port charges at the monopolisticDjibouti port have become unbearably high for Ethiopian import and exportgoods.The idea of dry port is emerging in the country to tackle the constraintsrelated to ports and for cost effective use of the transport infrastructure. Theneed for freight and logistics system is, therefore, fundamental to manageand control the material flows with in the country, to and from ports, andlogistical activities at the dry ports.In this new era of economic development, both soft and hardware oflogistics infrastructure are lacking in the country. Inadequate humancapacity in the emerging economic and supply chain management system ingovernmental and private organizations is among the major bottlenecks inthe field of freight transport and logistics activities in Ethiopia. In order torealize the objectives and ensure that the country's vision and dream cometrue, a coordinated and concerted effort on innovative freight transport andlogistics system at national level is critical to aspire beyond what is requiredby the MDGs.The constraints associated with logistics system in Ethiopia could becharacterized as follows:a. Underdevelopment of logistics management systemb. Inadequate fleets of vehicles (means of transport) for goodstransportc. The market possibility of the country is hampered by poorlogistics systemd. Very high traffic accident (the highest in the world) in whichcontribution of goods transport is significante. Congestion in cities and at inlets/outletsf. Lack of coordination of goods transport (which resulted inlow load rate)14
g. Damage of goods and quality deterioration while in storage,packaging transporting, and post harvest loss in food items(up to 70%)h. Transport of animals (walking up to 10 days)i. No or little study has been made related to logisticsj. Lack of Organiza
ECX Ethiopian Commodity Exchange ERA Ethiopian Roads Authority ERC Ethiopian Railways Corporation ERTTP Ethiopian Rural Travel and Transport Program ESLSC Ethiopian Shipping Lines Share Company EU European Union FCL/LCL Full Container Load, Less Than Container Load FDRE Federal Democratic Republic of Ethiopia .
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