• Operators are encouraged to diversify, invest in areas of comparative advantage
The logistics sector has continued to witness a sustained slippage pattern over the past few years. This was occasioned by alarming infrastructure, political problems, high interest rates and a devaluation of the naira.
Indeed, a huge infrastructure deficit, government policies that undermine the ease of doing business, a poor road network, unstable electricity and multiple taxation have prevented the sector from reaching its full potential.
This situation is exacerbated by the increasing penetration of the Internet resulting in the emergence of social media networks and online retail stores such as Facebook, Twitter, Instagram, WhatsApp, jumia.com, konga.com, Mystore.com .ng, among others.
Increased internet penetration and the volume of online trading has increased significantly over the years, which has led to increased competition among local service providers in the country.
The development continued to beset the operations of the country’s logistics sector, just as the net profit of listed companies in the industry in recent years remained subdued due to rising operating costs and huge administrative expenses.
For example, a quick look at some of the listed companies in the sector showed that ABC Transport Plc’s earnings for the first quarter ended March 31, 2021 showed the group’s revenue fell to N1.356 billion from N2.265 billion. in the first quarter of 2020.
The group was able to reduce its loss by 42.17% to N73.075 million from N126.365 million in the first quarter of 2020. In addition, the company’s half-year performance for the period ended June 30, 2021 showed a reduction of 75 .23% loss to N97.9 million from a loss of N395.2 million in the first half of 2020, while half-year revenue also fell to N3.025 billion from N3.431 billion.
For the full year ended December 31, 2021, the company also recorded an 81.51% reduction in its loss from continuing operations to N88.549 million from N478.886 million in 2020, while revenue fell to N6.570. billion naira compared to 7 naira. 751 billion displayed in 2020.
Another company in the sector, Red Star, reported pre-tax profits of N98.53 million in the third quarter of 2020, compared to N156.66 million recorded in the same period of 2019, a decrease of 37, 10%. Its revenue also decreased to 2.6 billion naira, or 0.9 percent from 2.623 billion naira in 2019.
However, the company reported group pre-tax profit of N413.9 million for the year ended March 31, 2022, an increase of around 87%, from the N220.8 million recorded during the year. of the same period of 2021.
TransNationwide Express Plc started 2020 with a profit after tax of N9.591 million for the first quarter ended March 31, 2020, compared to N2.923 million in 2019, representing a growth of 228.12%. However, revenue fell by 10.45% to N191.021 million from N213.306 million in 2019. Direct cost was N82.918 million from N75.782 million in 2019.
The company returned to a loss position due to increased cost pressure during the half of 2021 with a post-tax loss of N48.663 million compared to a loss of N78.045 million in 2020. Revenue increased to 333.987 million naira compared to 317.312 million naira in 2020, representing a growth of 5.25%.
The company’s cost of sales increased by 24.47% to 174.026 million naira in 2021 from 139.808 naira in 2020, while administrative expenses amounted to 255.418 million naira in 2021 from 255.218 million naira in 2020.
For the full financial year ended December 31, 2021, the company recorded a post-tax loss of N39.711 million compared to a loss of N59.846 million in 2020. The pre-tax loss was N34.273 million against a loss of N74.400 million. in 2020.
In 2018, the value of the Nigerian logistics sector was estimated at 250 billion naira ($696 million), which is 50 billion naira ($140 million) more than the figures for 2017. This was according to the 2018 report on the logistics and supply chain industry, an indication that the sector is capable of becoming one of the fastest growing industries if the potentials are fully exploited.
The weekend operators argued that there is a need for the government to address the challenges standing in the way of the industry’s growth if new business opportunities are unlocked in the sector.
Specifically, the Chairman of the Initiative for Alternative Dispute Resolution of Issuers and Investors (IIADRI), Moses Igbrude, said that rising inflation, deteriorating infrastructure, high cost of diesel and gasoline continued to pose great challenges to businesses in the country, particularly logistics activities involving maintenance work and cost of operations.
According to him, since the scope for growth of the logistics sector depends on a huge development of infrastructure such as roads and safer airspace, the possibility of the sector operating 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 having a negative impact on the sector’s revenue generation and overall business operations.
“The cost of moving a container from the port of Lagos to Abuja is more than 200% higher than the cost of moving the same container from China to the port of Lagos.
Logistics is a major problem in Nigeria. Due to the many challenges associated with logistics business in Nigeria, banks no longer finance transportation business.
“When you approach banks for a loan, the chance of getting it is very slim. Currently the cost of diesel is unimaginable. Insurance coverage is another area that is essential if you want to be successful in the business, but this has also a higher cost. All of these challenges may not allow operators in the sector to operate optimally,” he said.
The National Coordinator of the Ibadanzone Shareholders Association, Eric Akinduro, said the loss-making logistics sector is a reflection of the uncertainties and instability seen in the country’s business environment, as the sector is not immune to what is happening in the economy.
“The risk of transporting goods across the country is now very high. Our highways are very porous and prone to attack. Here again, the deplorable state of our roads has led to the withdrawal of many logistics vehicles from the road.
“If you compare the repair cost to the anticipated gain, it is better for such a company to stop operations because in the end, the operational cost will reduce the profit margin.”
He urged companies in the sector to diversify their operations and invest in other areas of comparative advantage to enable them to spread risk and improve costs and services.