Management Magazine
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Adequate warehouses key to economic growth

Manufacturers in Kenya are losing nearly a fifth of their sales due to inappropriate use of warehousing

By Zachary Ochuodho

The development of e-commerce in Kenya has had a profound impact on the warehouse space market over the last decade. Statistics indicate that six per cent of all purchases made in 2017 were e-commerce transactions, and Kenya is leading alongside South Africa and Nigeria.

The growth of e-commerce in Africa’s economies has been fueled by availability of 300 million smartphones, and this points to the rising demand for adequate and modern warehousing. According to the digital market outlook report by Statistica 2017, e-commerce in Africa is projected to rise to USD28,942 million by 2022.

This increment is expected to drive new demand in Kenya’s logistics market, as online sellers seek quality warehousing space to store and dispatch goods efficiently in order to meet digital customer order deadline.

A report by Tilisi Development unveiled recently on warehousing shows that manufacturers in Kenya lost nearly a fifth of their sales due to inappropriate use of warehousing, and that the demand for warehousing is more compared to the supply.

“The shortage was occasioned by more demand of 23.7 million square feet (sq ft) and less supply of 6.9 million sq ft,” notes the report that was unveiled last month.

The report notes that 56 companies in the manufacturing, pharmaceuticals, horticulture, logistics and retail admitted they had sort for new warehousing in 2017/18 arising due to inadequacies.

Warehouse problem in Kenya

Kavit Shah, co-chief executive officer, Tilisi Development said although most reports on warehousing in Kenya indicate that there is a shortage due to excessive demand compared to supply, the information is inadequate and shallow. He observed that warehousing problems in Kenya span from lack of enough space, wrong locations, wrong types of buildings to wrong infrastructure and servicing.

He notes that the negative impact on the companies’ businesses is set to grow, based on the continuing above-average growth in logistics industry turnover in Kenya, which reached USD9.4 billion in 2015, having risen by an average 13 per cent a year in the five years from 2010.

“The growth driver of the warehousing expansion has been the growth in the retail industry,” said Shah, adding that with Kenya’s retail industry forecast to increase by 34 per cent from 2015 to 2021, the pressure on warehousing and logistics is set to become more acute.

The report indicated that businesses surveyed have suffered commercial setbacks caused by the warehousing shortage in Kenya. He said there is a link between quality warehousing and infrastructure.

“When a country suffers from minimal hinterland connectivity, has no dedicated freight corridor, uses the same railway line for passengers and freight, congestion at the ports, poor customs processing and service levels, fragmented transport, outdated warehousing and minimal air cargo, it cannot compete effectively in the international market,” said Shah.

 Demand from shippers

Meshack Kipturgo, Siginon group managing director concurs with him adding that Kenya is currently experiencing increased demand from shippers who are seeking safe storage for their shipments for distribution or onward transit to neighbouring countries.

Kipturgo attributes this increasing demand to Kenya’s unique geographical position in the region as a key transit point for cargo destined for the local market and the region.

He says there is need for improved and seamless movement of goods. “Unless the warehouse infrastructure is significantly improved, logistics will continue to be a bottleneck for the growth of trade and manufacturing sector.”

Shah notes that most companies in Kenya focus on warehousing which primarily assures the customer of cargo safety as well as ease of accessing the goods. Key facilities include warehouse safety, parking and security to protect cargo from theft or damage while in the warehouse.

Johnson Denge, Manager, Cytonn Real Estate says there is a rising demand for quality warehouses is Kenya. He says demand for Grade A warehousing facilities is on the rise due to losses incurred in the industry because of inappropriate warehouses.

A key concern on warehouses in Kenya, he notes, include reliable and cheap energy, availability of clean water, security, storage facilities with adequate parking space, drainage system and large roads.

Denge says a few existing warehouses are designed to use efficient energy, yet the cost of electricity in Kenya is more expensive than in competing nations.

 Zachary Ochuodho is a freelance writer based in Nairobi. Email: zaowuor@gmail.com

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