Acquiring the right local subsidiary is key to growth
In 2012, only 101 of the world’s 220 countries achieved economic growth rates of 3.4% or higher. Of those 101, 35 were in sub-Saharan Africa – eight of which boasted growth of 8% or more. In 2014, according to the United Nations Department of Economic and Social Affairs, African economies should see average growth of 4.7%, compared to 1.5% in Western Europe or Japan, and 2.5% in the United States. According to a revised World Bank forecast, South Africa can expect growth of 2.7% at best. As Andre Jansen van Vuuren, Divisional Marketing Director of transport giant Cargo Carriers says, “It’s not rocket science: South African companies looking to expand should be taking advantage of booming African development. Especially when you consider that many African contracts are dollar-based – providing a valuable currency hedge.”
Van Vuuren bases this assessment on personal experience. In July 2012, Cargo Carriers acquired a 55% stake in Zambian haulage company, BHL, with an expanding footprint in Zambia, Namibia, the Democratic Republic of the Congo and Angola. Acquiring the Zambian subsidiary was crucial to Cargo Carriers’ ability to grow in the region, “Having a local operation, someone who understands the lie of the land better than we do, is vitally important,” says Van Vuuren. “Local knowledge makes it easier, and as springboard into Africa, it was definitely a good move.”
Initially focused on the mining industry, BHL is successfully expanding into the manufacturing and agricultural sectors, due in large part to Cargo Carriers’ assistance that enabled the increase in the BHL fleet from 75 to 126 trucks – effectively boosting BHL’s business by 60%. Both parent company and subsidiary are confident of long-term returns.
Burgeoning African middle class the next catalyst
As industrialisation continues across the continent, road transport becomes ever more important. Despite accelerating upgrades, the rail infrastructure is nowhere near capable as yet of handling the volumes if freight being moved in and out of ports, not to mention the increasing volumes of intra-African trade. Up to 80% of all goods within Africa are carried by road. In addition to industry and infrastructure, growing African economies are also producing a burgeoning middle class, creating steadily increasing retail demand and more supply chains reliant on road freight.
It will be several years before rail can shoulder more of the load, particularly considering the rapid development of import/export hubs in East and West Africa. In the interim, a golden opportunity exists for road-based logistics experts to service the market.
However, Africa’s road network presents its own unique challenges that can sink any operation that fails to take them seriously. “Lowering these risks,” Van Vuuren says, “was one of the reasons Cargo Carriers opted for co-ownership with a local partner, rather than trying to open a new division on its own.”
Safety, reliability, cost-efficiency: cornerstones of sustainable profit
For successful logistics firms, safety, health, environment and quality (SHEQ) standards are non-negotiable – particularly in sectors such as mining, which requires the transport of hazardous chemicals and fuel.
“It’s important when we acquire an existing African transporter that the local management shares the same values in these areas. When two businesses come together like this, we must be able to retain the very qualities that made them successful to start with, but also to improve their businesses by adding qualities they may have previously been short in. Obviously, capital for growth is one of these qualities, but so are systems and processes that drive quality, safety, health and social responsibility”, Van Vuuren says. The variable quality of African roads, and the vast distances between maintenance facilities, are also relevant. Buks van Rensburg, founder and now co-owner of BHL, considered it a priority when its fleet was upgraded in 2012.
“Your trucks need to be tough enough to handle bad road conditions,” he says, “but you don’t want something too complicated, either. The reason we elected to buy FAW trucks direct-from-source in China was that they’re actually less sophisticated than trucks we could have bought from Europe. The problem there is that they have such sophisticated computer diagnostics built in. If anything goes wrong, you need to call in an expert to service them – and the truck stands idle while you wait. The FAW trucks aren’t as dependent on complex electronics, so we are able to service and maintain them in our own workshops and minimise downtime on each vehicle.
“Not only are we saving 8% in fuel costs, but we’re also running at over 90% utilisation – compared to our 65% utilisation on ‘more sophisticated’ European vehicles. It all adds up to reduced costs that we can pass on to clients.”
A future dependent on innovation
Reducing fuel costs, turnaround times and downtime all helps reduce costs, but sustainable penetration into Africa requires constant innovation as well.
Van Rensburg’s entrepreneurial nous was another reason Cargo Carriers opted to buy BHL. A tipper/tanker configuration, built to Van Rensburg’s design, allows BHL trailers to carry bulk and liquid cargo simultaneously, or on alternate trips. So BHL can carry copper concentrate via tipper from mine to smelter, for example, and then return with a tanker full of sulphuric acid for the mine. The tippers can also be swapped for containers, allowing the trailer to carry flat-pack cargo. By increasing the trailers’ ability to carry back-loads and ensuring the tucks almost never run empty, BHL reduces costs even further.
“We’re receiving enquiries from existing customers in South Africa,” Van Vuuren says. “So the market is definitely there, and it’s growing – especially in SADC and East Africa.” As that market grows, it promises continued success to logistics outfits prepared to make local acquisitions, maintain safe, reliable fleets, and apply continual innovation to lowering cost.
“If there is another company supporting our values, we want to meet them,” invites Van Vuuren.