Logistics sector reels under pangs of parlous infrastructure, high interest rates

• Operators urged to diversify, invest in areas of comparative edge

The Logistics sector has continued to witness sustained sliding profile in the last few years. This has been occasioned by parlous infrastructure, policy issues, high interest rates and naira devaluation.

Indeed, a huge infrastructure deficit, government policies that undermine ease of doing business, poor road network, unstable electricity, and multiple taxation have led to the sector not being able to achieve its full potential.

This is exacerbated by the rising Internet penetration leading to the emergence of social media networks and online retail stores like Facebook, Twitter, Instagram, WhatsApp, jumia.com, konga.com, Mystore.com.ng among others.

The increased internet penetration and volume of online trades have grown significantly over the years, leading to enhanced competition among local service providers in the country.

The development has continued to assail the operations of the nation’s logistics sector, just as the bottom-line of the industry’s quoted companies in the last few years remained subdued due to rising operational cost and huge administrative expenses.

For instance, a cursory look at some of the listed firms under sector showed that ABC Transport Plc’s result for the first quarter ended March 31, 2021 indicated that group revenue declined to N1.356 billion from N2.265 billion in Q1 2020.

The group was able to cut its loss by 42.17 per cent to N73.075 million from N126.365 million in Q1 2020. Also, the company’s half year performance for the period ended June 30, 2021, showed 75.23 per cent cut in loss to N97.9 million from N395.2 million loss in H1 2020, while revenue for the half year also dropped to N3.025 billion from N3.431 billion.

For the full year ended 31 December 31, 2021, the company also posted 81.51 per cent cut in its loss from continuing operations to N88.549 million from N478.886 million loss in 2020, while revenue dropped to N6.570 billion from N7.751 billion posted in 2020.

Another firm under the sector, Red Star reported pre-tax profits of N98.53 million in 2020 Q3 compared to N156.66 million recorded in the same period in 2019, a 37.10 per cent decline. Its revenue also declined to N2.6 billion, 0.9 per cent from N2.623 billion in 2019.

However, the company declared a Group Profit Before Tax of N413.9 million for the year ended 31 March 31, 2022, an increase of about 87 per cent, from N220.8 million recorded in the same period of 2021.

TransNationwide Express Plc began 2020 with a profit after tax of N9.591 million for the first quarter ended March 31, 2020 as against N2.923 million posted in 2019, accounting for a growth of 228.12 per cent. However, revenue dropped by 10.45 per cent to N191.021 million from N213.306 million in 2019. Direct cost stood at N82.918 million from N75.782 million in 2019.

The company returned to a loss position on increased cost pressure during the half year of 2021 with a loss after tax of N48.663 million from loss of N78.045 million in 2020. Revenue grew to N333.987 million from N317.312 million in 2020, accounting for 5.25 per cent growth.

The firm’s cost of sales rose by 24.47 per cent to N174.026 million in 2021 from N139.808 in 2020, while administrative expenses stood at N255.418 million in 2021 from N255.218 million in 2020.

For the full year ended December 31, 2021, the firm posted a loss after tax of N39.711 million from a loss of N59.846 million in 2020. Loss before tax stood at N34.273 million as against loss of N74.400 million in 2020.

As of 2018, the value of Nigeria’s logistics sector was estimated to be N250 billion ($696 million), N50 billion ($140 million) higher than the 2017 figures. This was according to the 2018 Logistics and Supply Chain Industry report, an indication that the sector is capable of becoming one of the fastest growing industries if the potentials are fully harnessed.

Operators at the weekend argued that there is need for the government to address the challenges militating against the growth of the industry if further business opportunities would be unlocked in the sector.

Specifically, President, Issuers and Investors Alternative Dispute Resolution Initiative (IIADRI), Moses Igbrude said rising inflation, decaying infrastructure, high cost of diesel and petrol have continued to pose great challenges to businesses in the country, especially the logistics business resulting in maintenance and operations cost.

According to him, because the room for growth in the logistics business is hinged on huge infrastructural development such as roads, safer airspace, the possibility of the sector performing optimally is in doubt due to the country’s huge infrastructure deficit.

He also pointed out that the increasing rate of insecurity in various parts of the country is also impacting negatively on the sector’s revenue generation and the entire business operations.

“The cost of moving a container from Lagos port to Abuja is over 200 per cent higher than the cost of moving the same container from China to Lagos port.

Logistics is a major problem in Nigeria. Because of the numerous challenges associated with logistics business in Nigeria, banks are no longer funding haulage business.

“When you approach banks for a loan, the possibility of getting it is very slim. Currently, the cost of diesel is unimaginable. Insurance cover is another area that is a must if you are to succeed in the sector but this also comes at a higher cost. All these challenges may not allow operators in the sector to perform optimally,” he said.

National Coordinator of Ibadanzone Shareholders Association, Eric Akinduro said the logistics sector recording losses is a reflection of uncertainties and instability witnessed in the nation’s business environment as the sector is not immune from what is happening in the economy.

“The risk involved in moving goods around the country now is very high. Our highways are very porous and prone to attack. Again, the deplorable condition of our roads has led to the withdrawal of many logistics vehicles from the road.

“If you compare the cost of repair to anticipated gain, it is better for such business to halt operations because at the end, the operational cost will depress the profit margin.”

He urged companies under the sector to diversify operations and invest in other areas of comparative advantage to enable them to spread risks and improve costs and services.