Mending the logistics sectors hitch

By Fanta Tadesse

As majority of global trade transported by sea, ports become critical gateway infrastructure which connects an entire nation with its inland transportation network; roads and rails. In Ethiopian context, a land locked, dry ports (inland ports) are playing significant role in connecting neighboring sea ports with inland markets. The dry ports (inland ports) are usually use as a feeder to the nearby markets. Hence, developing strong, logistics and transport infrastructure connecting sea ports with inland ports and inland ports with nearby markets are key element for economic growth. Furthermore, the spillover effect of logistics sector service on GDP is in fact significant.
Currently Ethiopia’s global logistic ranking index stands at 124th which mean is low at any standard. This demonstrates Ethiopia’s weak and in – efficient logistics service. Which has significantly played a part in rising local price of commodities direct impact of logistics cost. In most case the blame for the poor performance goes to cov’d 19, and more recently to Russia – Ukraine war. But there are many more basic facts that should be managed by the country policy makers. Outsourcing the setbacks fully on external factors will never bear fruit rather it distances solutions.
The role ports play extends beyond a nation, and influences a neighboring country as well. Specifically sea ports have a very important effect on the activities of neighboring landlocked countries. Efficient performances of ports, as well as their whole logistic supply chain, determine how expensive or reasonable their services are to landlocked countries. High transit costs, which may include monetary costs, or costs in time, may ultimately stifle trading activities of landlocked countries, something that will negatively affect their economic development. This is illustrated by the disparity in trade volumes (60% lower) and transportation costs (50% higher) in landlocked countries than in port hosting nations (UNCTAD, 2003b).
To compensate for the huge influence of sea port harboring nation’s incursion of cost on logistics service, Ethiopia should invest much to modernize its infrastructure. For a land-locked country like Ethiopia modernizing physical infrastructure and creating favorable conditions is not a matter of choice it is a must do business, if the nation needs to be competitive in global market and make its local market competitive enough for the benefits of its people.
The line share of Ethiopian bulk is transported from neighboring countries seaport by land transport. Although, Ethiopia is striving to improve road infrastructure with in its border of cross country roads it also takes the dedication and good will of countries at the opposite sides which are in fact sea harboring nations, to make the road infrastructure favorable and contribute positively to the economy. With no doubt Working on logistics hard infrastructure will improve the overall logistic service. In fact for more efficiency, productive and effective transportation equipment are also a must, this will significantly reduce lead-time subsequently costs of logistics.
Although physical infrastructure plays a vital role in improving the logistics sector service, setting and implementing an encouraging policy even contributes much higher part. The government shall contribute positively for the improvement of the sector through huge investment and facilitation. But is it unimaginable for the government alone to secure success in improving logistics sector.
Motivating Policy
Apart from improving physical infrastructure, policy implementation is crucial matters as well. Years have gone-by since Ethiopia has adapted a free market economy. The recent structural reforms such as (privatization, reduction of government expenditures and devaluation) may seem the economic reform is getting deep rooted. This Principle should apply to all sectors with firm binding regulation. Allowing the active participation of private or private public partnership in the logistics sectors including participation of private firms in port service may make the logistic sector more competitive. Though, it is unwise to think privatization alone will be a sole solution maker for all the logistic sector hiccups, it is an eye-opener and a great milestone to bring the much needed improvement. To make the process complete and successful the action shall be accompanied by strong binding legal frame work.
Why Privatization
Privatization which literally means, the process aimed at shifting functions and responsibilities, in whole or in part, from the government to the private sector, can stimulate the logistic sector. The main reason for privatization is the search for efficiency in management and operations through reduction in operational costs, improvement and development of port services and facilities (D. Song et al., 2001a). In a bid to achieve this, various privatization strategies usually result in an injection of capital, technology and managerial resources and expertise.
Talking of inland ports in their current role as key connections in the inland ports logistic supply chain, it would imply that their efficiency definitely affect the performance of businesses in the rest of the system. Private sector ports in many parts of the world have proved that they are more productive especially when it comes to efficient use of resource in comparison to inputs for the intended service. Private firms produce more goods or services in relation to the amount of materials and employees needed even with less competitive advantage as compared to public owned firms.
In aspiration for better customer satisfaction private firms have demonstrate more success story than public sector in delivering service more effectively. Extended lead time of importable and exportable goods are the main challenges of the local traders this time. With less bureaucratic chain of command the private firms are more favorable partner to work with for commercial entrepreneurs. Apart from these reliability matter may also need strong attention that can fairly treated in private sector with clear responsibility taker.
Again form marketing perspective competition is one way to secure customer satisfaction by providing better service / product, and cost effective product and service. Monopoly has never proved success and efficiency in most service. Advocators of privatization in fact devote every success story to private firms through competitors.
For private firms to remain active in the market they should undergo a continuous improvement in service/product they deliver. In order to survive the severe completion private firms are much willing to undergo continuous improvement. For private firms endure competition they must consistently undergo changes in adapting themselves to the very latest state of art in operation and introduce new technologies in their business, subsequently stimulate local economy, development and modernization.
The performance of private firms in selected logistics service sector-custom clearance and unimodal freight forwarding service – in Ethiopia have demonstrated good success story . Thus this is a prove that private firms will deliver better if not the best service comparatively if given the opportunity.
From the above realities, though privatization may improve port performance and competitiveness a balance should always exist between public and private sectors (Tongzon & Heng, 2005). But for the private firms to take the risk of huge investment support from the public sector is a must.
On the other hand among the advantages of publics’ ownership, state monopoly, is a source of prestige for the society. Although, it is irrational from business point of view, resource utilization in public ownership firm is unfair. However ,the public sector practices of recruiting more people in the public company, as it is seen everywhere in public sector, that increase business running cost, through over employment, is also seen as an advantage to minimize unemployment in the country. Yet this results in inefficiency and persistent labor under productivity. On top of these public owned firms face challenges among other divided interests, i.e. commercial interests as against the multiplicity of governments’ interests such as employment, political interests. – Nationalistic or local view to strategizing port improvement programmes rather than a global view which fits in with changing times (Baird, 2002).
In the recent history of Ethiopia the transfer of public firm to private firms face significant challenges, from lack of transparence to less productivity of the transferred firms. A privatized firm doom to frailer mean it put barrier and minimizes trust between the public and private sector. Transparency and offering support for the private firms contribute in successful management of the entire privatization policy. The successes of privatization and increment in productivity of privatization firms will help build trust of society at large even diminish resists to transfer of firms from public to private sector.
I believe that privatization is not a sole cure to all challenges faced in the sector. But current state monopoly takes longer and lags improvement this nation aspires for: effective and efficient logistics service that positively contributes to the economy. Thus for better dynamism and smooth adaptation middle ground between the private and public organizational structures will brings better benefits that can satisfy both the private sectors commercialism and the public sectors broader social economic drive. Through reform and strategic thinking it is possible to allow private firms participation in selected service and in manageable ways, in order to convince the general public this can be achievable.
One way is through lease or management contracts: in this approach normally no transfer of ownership of assets. Private sector management, on some agreed up on business, technology and skills are provided for a period for a fee (compensation). For instance, allocation of revenue – the inland ports primary source of revenue is the charges imposed on port users and depends on the actual throughput volume. Often, under a concession arrangement, the private operator pay a concession fee to the public authority and deliver service and collects the port user charges. In fact there are different models to be used to allow private sectors participations in port service. It only takes through thinking and clear objective to choose which to use among the alternatives.

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