Logistics Sector in Uganda: Joram Nyanzi Presents Leading Freight Forwarder Fracht Uganda SMC

Interview with Joram Nyanzi, Country Director at Fracht Uganda SMC Ltd

What is the major challenge you face to develop your business?

Financial capital is our biggest challenge. To start business here, you need to be financially solid, either from savings or from having made money elsewhere that you can inject into the business. In freight forwarding, you need a lot of cash to pay off the transporters, the port authorities, etc., and most of the clients we work with want us to extend credit for up to 90 days. If we extend credit up to 90 days, then we need to have enough money to run our business for 120 days to stay afloat.

Fracht Uganda is part of a large parent company. Are you independent in Uganda?

Fracht Uganda is a legally independent entity in Uganda. However, the ownership is 100% by the same shareholder that owns the Fracht Switzerland Group.

Does Fracht Switzerland Group help to provide capital?

Yes, that is true. Whatever we need in terms of capital is sent to us by the Group. Of course, they do not have bottomless pockets. Whatever money we receive, we must use to make good business decisions and get returns. The challenge comes then when you have to wait for the 90 days, yet you have growing business. We have been in operation for only 8 months in Uganda. The business is growing extremely fast, but the drainage on our capital is also a lot. So, we are working on retaining business that brings in funds but also does not keep our money tied up.

Do you get funding from banks as well?

As Fracht, we do not use commercial banks. We always go back to our head office. It is our company policy.

How do you plan to overcome this challenge?

What we have done is to take this on as a sector, not as a company, because it is affecting everyone in our sector. Our clients like to use us as banks. They say they will give you 100 containers every month, but need 90 days credit, and still do not pay you until the 120th day. They are running their business on our money. As a business, we are taking smaller steps to adjust the way we deal with our clients. We have been talking to our colleagues and we have all realized that we are losing money instead of making money and we are spending a lot of time running other people’s business. Long term, the approach we are going to take as an industry will have to change so that our clients realize that this practice is not fair to us and we cannot give them effective service if our financial standing is affected at this level and constrains us in this way.

Is this an issue only in Uganda or in other countries in the region as well?

If clients have a hierarchy, forwarders are at the bottom. First, they pay their suppliers, then the government taxes, then the bank, and then the freight forwarders last. It is a practice everywhere. But we are also guilty of allowing this to happen because we use it as a marketing draw. One forwarder offers 60 days, then the next offers 90 days to compete. We have brought this upon ourselves. Slowly, we are trying to turn it around.

You are quite new in the market in Uganda. How do you attract clients that are already using your competitors? Is it easy to attract them?

It is not easy. Personally, I have worked in the industry for 20 years now. I used to work for another big multinational which was also Swiss. My other director also used to work for another two big multinationals. Between the two of us, we have accumulated 50 years of experience. Through that, we have been dealing with clients who know what we can do. Since this is a service industry, people expect that service from individuals. We have managed to bring a number of accounts with us because of our personal relationships. The way our market is set up, there is only a maximum of five professional forwarding companies in the country. Out of those five, there are two that are reliable. The big clients had only two options, really. We came in to provide a third option. We are offering the same standards, we are a multinational, and we are Swiss. One of the two are Swiss and the other is French, so we are offering another Swiss option. This brings more business to us. Because we are new, we are giving solutions and we have assembled a team of young people who have worked for these other multinationals. We are definitely getting business.

What is the state of the sector in light of the current COVID crisis? What do you bring to your clients that is different?

My objective is to be a top brand in our sector. Right now, we are coming up, but in three years’ time, we want to be the brand and market leader. We have to do this by making good profit and being able to serve our clients well so they stay with us and we can build on that.

Of course, now, with the advent of COIVD, a number of things have changed without any prior notice or planning. Most of our clients actually did not realize what the impact was going to be. We have come to realize that when the news came out and said, for example, that having access to the ports and crossing the border have new restrictions, most of our clients did not see this as impacting their business. They were still pushing us to perform. However, the number of available trucks has gone down because many drivers are being tested and coming back as positive and then taken off the roads. The lead times between the port and Kampala are getting longer. A truck that could make three trips is now only making one trip. All of these things were slowly eating into our efficiency, but the clients did not want to hear our warnings. Now, where the clients are feeling it is the accumulated impact. For example, for the cargo that has been delayed in port, those port storage charges are hitting them now. For the materials that they expected to arrive in one week, it is now taking three weeks. So, the production is affected and the cost of transporting the materials is going up because of the extra charges. It now being a transporters market, we can dictate the price now. If I own a truck, you need my trucks now more than I need your business because there is more business than available trucks. The rates for transporting cargo from the ports to Kampala are going up. So, as forwarders, what we are trying to do with our clients is to be as transparent as possible and show them all these implications of all these things that have happened, as well as look for the benefits that the different governments have put into place. For example, the Kenyan government through the Kenya Ports Authority has allowed importers to get a discount on storage and there is a very elaborate process on how an importer in Uganda can benefit from that. The Ugandan government has also put into place some benefits. We want to present all this information so our clients can access of some of these measures. We are also reassessing our business plan. We were previously more focused on getting involved in transporting imports. Now, we are pushing more into exports. When you have exports, there is less pressure on moving that cargo out of the country compared to getting products into the country. The cargo that is coming to the country is too much for the capacity available. When they bring in that cargo, there are less exports to get out. If we can use the trucks we would have used for imports and move them to exports, we are able to give competitive rates to those export clients. We want to find these benefits and also pass them onto our clients so that they can stay in business. Initially, we were scared. With COVID, us being new, we were worried we would not have enough business to stay in operation. The opposite actually happened. We were able to double our budget because a lot of business came in and we actually had to turn some new clients down. In Uganda, the clients move around. If you have a challenge, for example, you tell them the trucks are taking longer to come so their container will take longer to arrive, they will just go to the next company. Some of those came to us because we were new in the market and they had heard the same things from other companies then came and tried us. We were lucky in that we came in when clients were shopping around and we were well set up to deliver on our promises.

What makes you different from your competitors? Why should clients choose you?

Our competitive advantage is the fact that we have the resources that the big players have, and our capacity has not yet been exhausted. When you go to the big players in the market, you find that they have been in the market for a long time and with so many big accounts that their capacity has been almost completely exhausted. They do not have room to get quick solutions for new clients or for older clients who have changed lead times or better service. We have been able to come into this market with large resources because of the back up support from our head office and we are able to come up with better solutions and give our clients access to a team of experienced people. We also have not overbudgeted ourselves with large overheads. With the big players, they have terminals, fleets of trucks, so they have to maintain big prices to sustain their overhead. The ability to utilize the resources we have is our competitive advantage in the market.

What are the challenges you face being a new player?

The first challenge, which can be an advantage, is that some of the clients we take on ask our experience, our previous clients, and how they can trust us with a big account when they know other people who have been in Uganda for more than 40 years. We have been lucky in that Sikander Lalani was one of our first clients because he knew our director from before. The Madhvanis have also worked with us in the past and knew us. Working with these two big players, we have been able to ride on that and win more accounts. There are, of course, other corporate entities that will not give you their contract unless you have five years of experience. We have a great base team of directors and heads of departments, but we need to grow our team as well because our business is growing. But it is not easy to find people who think like us. They want to work like bureaucrats and be laid back and they find they cannot work with the vision of how we want to serve our clients. Our growth is also affected by our inability to identify the right talent to join us. Other challenges are COVID related. We have delays on the road when trucks are not able to turn around fast enough. The cost of business is going up because trucking companies also have to meet the added expenses so they increase their rates. However, the infrastructure is getting better thanks to the government. The Kenya Ports Authority is becoming more customer oriented. So, we are not facing as many challenges in that regard as we used to.

What sort of people are you looking for to provide these services?

The way we are set up, we want to have our clients getting information instantly. In our business, information flow is very important. We look for customer service executives that can manage that information and coordinate the different stakeholders, for example, our internal operations department with the trucking companies, with the port, and deliver updates back to the client. We need someone who can communicate well, both verbally and written, but who can also understand the business and know the solutions to the challenges that might come up. We also look for operations people to coordinate trucking, project how many trucks we need, how many containers we have and which will be ready when, dealing with the Uganda Revenue Authority in terms of customs declaration, etc. Those are the areas that we recruit for as the business grows.

Where is Fracht present in the world?

The head office is in Basel, Switzerland. They are represented across almost all the countries in Europe. Worldwide, they are present in China, India, the US has several offices, South America in Brazil, Argentina, and other countries there. The area where they were missing was Africa. The oldest office in Africa is two years old and Fracht Uganda is the youngest at 8 months old. We have representation in South Africa, Zambia, Kenya, Tanzania, Rwanda, DRC, Burundi, as well as offices on the west coast in Ivory Coast, Nigeria, and Cameroon.

What is one of your success stories?

There are quite a few milestones that we are proud of. The first is that in our first year of opening, we were able to get our own customs license. This is not a usual achievement because it requires a number of things to be in place in order to qualify for the license. It has given us more confidence to approach clients and be able to tell them that we are licensed, we do not subcontract, and we are able to do projects on our own. The other achievement is that we were able to eat into the market share of the companies that have been here for the last two decades in Uganda and get some of those big clients like Roofings, Kakira, Uganda Breweries, and other big taxpayers. That has given us confidence that we are able to deliver and has also shown that to our clients. When you open, you promise a lot to your clients. But then when it comes to actual delivery, you need to sow that you can complete that promise. So far, we have done a number of big shipments. We have set up the logistics for the Madhvanis to set up a large bottling line. We are working with Sogea, a French company, who is putting up a water treatment plant which will be the biggest in Uganda. We are delivering logistics better than their previous service provider who was the oldest in the market. Our team is still small, but everyone is driving in the same direction and we are proud of them.

Project yourself to the medium term, three years’ time. What do you want to achieve for the company? What will the sector look like?

The next three years are going to be interesting. There will be a lot of innovation. The fact that we are still new, I see ourselves aligning our business plan to fit more into the new way of doing business, having the most robust IT systems, having a team that is able to deliver on not just our objective, but on how the clients want to be served. My objective is to be a top brand in our sector. Right now, we are coming up, but in three years’ time, we want to be the brand and market leader. We have to do this by making good profit and being able to serve our clients well so they stay with us and we can build on that.

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