Source: Study team.

Logistics, regulation, competition. Among the logistics costs faced by the trucking industry are market entry barriers such as access restrictions, technical regulations, customs regulations, and cartels.⁵ In Africa, the overall political economy of freight logistics exacerbates problems in trade and transport facilitation that are found worldwide. Logistics are fertile ground for rent-seeking activities such as corruption, protectionism, and inefficient trucking services, which in turn become a barrier to entry of modern operators. All these factors increase fragmentation and inhibit the emergence of the seamless supply chains needed by importers and exporters. Countries become trapped in vicious circles where inefficient regimes sustain low-quality services (including transport and customs broking) and high transport prices.

Of the market entry barriers, freight-sharing schemes probably are most costly. The current system favors the use of large fleets, which consist mostly of old trucks in poor condition. Furthermore, it fosters corruption because the only way for a transport provider to increase its volume of cargo is to bribe the freight bureaus, the government entities charged with allocating freight among the various transport providers. Freight-sharing schemes also are the reason why direct contracting—a negotiated arrangement between shipper and transporter that is one of the best signs of better logistics—is almost nonexistent in Central Africa and is marginal in West Africa. The freight allocation system is entrenched in these subregions, and several attempts to abolish it have not been successful.

In West and Central Africa, large markups by providers in transport cartels⁶ are the main determinant of high transport prices. Cartels create a large gap between costs and prices and provide low quality. Operators in such markets achieve high profits despite low yearly utilization of their vehicle fleets and many nontariff barriers. Under such conditions, it would be expected that new operators would enter the market aggressively, but this does not happen. In fact, there is an oversupply of trucking capacity because outsiders find it hard to break into a market dominated by cartels and market access rules. In East Africa the trucking environment is more competitive and the market more mature. Major corridors in Southern Africa are the most advanced in terms of prices and efficiency of services, mainly because of a deregulated transport market.

Financing costs and import duties. Although the cost of financing is generally an issue for most sectors in Sub-Saharan Africa, neither the cost of financing trucks nor the level of custom duties (10 percent import tariff for large, new trucks) explains why truckers operate old fleets. Rather, old fleets persist in Central and West Africa because the regulatory systems in practice set a cap on truckers’ revenues, deterring investment in new, high-cost trucks.

Truck overloading. In some subregions, excess transport capacity resulting from the freight allocation and queuing systems results in low levels of truck utilization and high transport prices. The two main strategies that operators undertake to mitigate low truck utilization are using secondhand trucks and overloading the trucks. Overloading is known to be a critical factor in damage to road structure and is therefore an important issue in many countries worldwide. Interventions in Africa by the World Bank and other donors to control overloading generally have not been successful. The reason, as determined by this study, is that most stakeholders in the trucking business have a vested interest in operating with overloads.

The impact of road conditions. In Sub-Saharan Africa, poor roads are perceived as being the main cause of high variable operating costs, since they increase fuel consumption, increase maintenance costs by damaging the vehicles, reduce the life of tires, reduce vehicle utilization because of lower speeds, and reduce the life of trucks. Results from the study suggest that poor road conditions along the selected Sub-Saharan Africa corridors do not add much to operating costs of trucks.The surveys and data simulations using the Highway Development and Maintenance Model 4 (HDM-4) the standard model for analyzing road investments, indicate a mixed result. In Central and West Africa, where traffic is low and the truck fleets are old, as long as international corridor routes are paved and in reasonable condition, further improvement of road conditions do not result in significant reduction of transport costs. However, in some East African corridors with higher traffic levels and newer fleets, improving road condition or increasing road capacity has a greater impact on reducing transport costs.

Different types of transport companies coexist on the same corridors. However, in general, the cost structure in Sub-Saharan Africa, even in the more modern and better-organized companies is, in general, different from developed countries: in Africa, trucking companies’ variable costs are high while fixed costs are often low. Central and West Africa are the extreme cases with the variable costs to fixed costs ratios of 70/30, while in East Africa the ratio is 60/40. In contrast, in a developed system such as France, the variable to fixed costs ratio is 45/55. In all African corridors, fuel and lubricants are the main variable costs, accounting for at least 40 percent of total VOCS. Tires are another important cost factor, whereas bribes do not seem to play a major role as has been generally perceived on most African corridors.

Policy Recommendations

Policy recommendations need to distinguish between regulated and more mature market environments. In a competitive environment with high traffic volumes, measures to improve road conditions and limit fuel prices are likely to yield significant results. Furthermore, in such environments, measures aimed at reducing delays at the border or at weighbridges would also be useful as they would help increase truck utilization.

In regulated environments such as West and Central Africa, regulatory constraints (formal and informal) must be dismantled because they are the root cause of limited competition, poor service, and high transport prices. International experience has shown that deregulating the trucking industry is effective in generating more competition, lowering transport prices, and improving the quality of service in most cases (see table 2.1 in chapter 2).

West and Central Africa. In these subregions, the most effective measures to reduce transport costs are likely to be a decrease of fuel costs, an improvement of road condition, and, to a lesser extent, a reduction of border-crossing delays. Despite the perceived effects of informal payments,

Source: Study team estimation based on trucking survey data. NS = Not significant.

reducing them by 20 percent would have a marginal impact on transport costs. The analysis shows that improving road conditions from fair to good and reducing fuel prices by 20 percent could lead to reductions in transport costs by 5 percent and 9 percent, respectively (table 1.1).

However, such substantial reductions in transport costs would not lead to any reduction in transport prices because of the strongly regulated transport market in these regions. Therefore, any intervention should aim first at reforming cartels.

Breaking the regulatory status quo in many countries is difficult because of a coalition of interest groups against change. The corridors under review often are the main, and sometimes the only, transport mode for international and domestic trade. Therefore, truckers have strong leverage with high-level authorities who can block trade. Furthermore, some of these authorities own or indirectly control trucks or trucking companies and therefore benefit from the status quo and current market-sharing schemes.

Deregulating the trucking industry in West and Central Africa is less a technical than a political and social issue. The main concern is that under a liberalized, competitive market, the demand could be served efficiently by a much smaller number of trucks. This would lead to a drop in trucking employment and profits, since some companies (or owner-operators) would disappear and other would shrink. Participants in the stakeholders’ workshops in Ouagadougou and Bangui emphasized the importance of mitigating the social impact of a more efficient but smaller trucking industry. There is a chance that the coalition of interest groups opposing change in the transport market in most of West and Central African countries might accept reforms as long as compensation schemes are introduced with the purpose of paying, at least partly, the social costs of such reforms.

East and Southern Africa. In these subregions, thanks to the competi tive markets, and in contrast to the results in West and Central Africa, measures that would reduce transport costs would also lower transport prices. In East Africa, the most effective measures would be improving the condition of the corridor road and lowering fuel prices. Reducing the time of crossing the border would also have a positive although less significant impact. Reducing informal payments would have a minimal impact on costs, and no impact on transport prices.

In Southern Africa, reduction in border crossing time has the biggest impact on prices. This is mainly because the current delays in this corridor (especially at Beit Bridge and Chirundu) are at least twice as long (four days compared to a maximum of two) as at the Malaba border post in East Africa, and because of the more modern, pricier trucks used in Southern Africa. Creation of a one-stop border post would be the ideal solution for this corridor. The second most effective measure is a reduction in fuel prices, which has an impact similar to that in the East Africa corridor. Improvement in road conditions has a lower impact in Southern Africa because the road is in fair or good condition along the whole corridor. As in East Africa, reducing informal payments would have no large effect on the price of trucking services (see tables 1.2 and 1.3).

The study, therefore, concludes that the northern corridor in East Africa would be the only one where improving the physical condition of road would both (i) be economically justified, because it would substantially lower transport costs, and (ii) result in a decrease in transport prices. This conclusion also applies to the north-south corridor in Southern Africa subregion, but to a lesser extent. On the contrary, in West and

Source: Study team estimation based on trucking survey data. NS = Not significant.

Source: Study team estimation based on trucking survey data. NS = Not significant.

Central Africa, traffic levels are low and rehabilitation and upgrading cannot yet be economically justified for many sections of road. This is because cartels have steered the economic benefits of investment to a limited number of interest groups.

From recommendations to action. The measures listed above were tested by simulation analysis, and their importance confirmed in stakeholders’ workshops in all four subregions. Converting the recommended measures into actionable policies should be done in the context of individual corridor and country conditions. Furthermore, policies should be examined in detailed, customized studies; such examination is outside the scope of this study. The following fiscal and other incentives are illustrative of measures that could be considered:

• Create a more balanced tax structure. This would lower the price of fuel, shifting more of the tax burden to vehicle registration in those cases where fuel tax revenues largely exceed reasonable road user charges. Tax balance would be especially helpful in inland countries where high domestic fuel prices hinder trade and negatively affect the competitiveness of trucking industries.

• Change truck import duties to encourage the import of newer trucks or penalize the import of older trucks. This can be done either by adjusting the current setting of import duties, which is proportional to the price of trucks, to a lump sum import duty or by progressive increase of import duties with the age of truck imported.This would encourage the modernization of the trucking fleet (in a competitive environment).

• Find ways to provide direct monetary compensation to those truckers who would become redundant when a more efficient trucking market was established following deregulation.

• Role for the World Bank and development partners. Given the findings presented in this report, development partners, including the World Bank, should be encouraged to revise their development strategies. Transport services have been neglected for years under the assumption that reductions in VOC would automatically translate into lower transport costs, then transport prices. However, rent-seeking behaviors and poor governance of the trucking industry are central to many of the issues of low-income African countries. The list below suggests areas in which the donor community could help governments improve the efficiency of the transport market and eventually reduce transport prices.
• Support transport market deregulation. Support from development partners in this area would make the biggest impact in reducing transport prices in many countries in Africa. Successful institutional change such as breaking trucking cartels requires patience, continued policy dialogue, and strong support from development partners. Some partners might be inclined to drop their support if changes do not happen rapidly, but they should be aware that such actions could negatively affect several corridor projects.

• Support the collection of trucking industry data. Reliable data on the trucking fleet and operations are essential for analysis and policy formulation. Trucking surveys should be carried out periodically, probably every three to five years, as cost permits.

• Support a review of the effect of fiscal policies on transport services, especially in those countries where lowering the tax on fuel could be a useful instrument to reduce trade costs and to improve the competitiveness of the local trucking industry.

• Support the use of country-specific trucking data in the economic analysis and design of road maintenance strategies. Such analysis is, in most countries, done with the HDM-4 model, although country-specific trucking data are sparse. As a result, generic data with many assumptions are used in such model simulations. Data from trucking surveys could greatly improve the quality of the analysis and lead to more realistic results. One example is the need to introduce in the models the actual purchase price of the trucks, which in West and Central Africa often are bought secondhand, instead of using the price of new trucks. Using actual data would lead to different results, in particular reducing the possibility of overinvestment due to overestimation of investment benefit. If the investment analysis were done properly with realistic data, higher traffic levels might be needed to justify road improvements in some cases.

Following this introductory chapter, the study is organized as follows: Chapter 2 compares trucking in Africa with other regions. Chapter 3 reviews typical characteristics of the four study corridors, including an analysis of each corridor’s transport market structure. Chapter 4 assesses the main determinants of transport prices and profitability, and chapter 5 demonstrates the impact of cartels on transport prices and service quality. Chapter 6 disentangles the main determinants of transport costs, and chapter 7 assesses the impact of road conditions on transport costs. Chapter 8 discusses perceptions about the trucking market, and chapter 9 analyzes the main measures aimed at lowering transport prices. Chapter 10 reviews the implications of the study for economic and fiscal analysis and for monitoring of the trucking industry. Chapter 11 presents conclusions and recommendations for ways international development agencies can support policies and for measures that could reduce transport prices.

Notes

1. World Bank (1994). This report covered 42 completed projects in 13 countries, including 7 landlocked countries (Rwanda, Burundi, Malawi, Zambia, the Central African Republic, Burkina Faso, and Mali) and six littoral countries (Kenya, Tanzania, Cameroon, Benin, Côte d’Ivoire, and Senegal).

2. West Africa: Cotonou–Ouagadougou, Cotonou–Niamey, Tema–Ouagadougou, Lomé–Ougadougou, Lomé–Niamey; Central Africa: Douala–Bangui, Douala–N’Djaména; East Africa: Mombasa–Kampala–Kigali; Southern Africa: Durban–Lusaka–Ndola.

3. Burkina Faso, Niger, the Central African Republic, Chad, Uganda, Rwanda, and Zambia.

4. The following field visits were carried out in June 2007: Burkina Faso/ Niger/Benin, Cameroon/Central African Republic, Zambia/South Africa, Kenya/Rwanda.

5. In Africa, because of the thinness of some markets, cartels form more easily than in Asia or Europe. However, market thinness does not necessarily induce the existence of cartels, as the case of Rwanda demonstrates.

6. Cartels are composed of independent organizations or companies formed to limit competition by controlling the production and distribution of a product or service. Cartels can set monopoly prices, which induce abnormal markup.

CHAPTER 2

Trucking in Africa Compared with Other Regions

The performance of transport corridors in other regions, especially those in developing countries, can provide useful clues to assess the operations and costs of road transport in Africa. To this end, this chapter provides a brief comparison of road freight operations and markets on transport corridors in Africa with those in other regions. Subsequent chapters of this report analyze in more detail the situation in Africa.

The situation in no country or region is fully comparable with that in Africa, yet in each region specific similarities or policy reforms in road freight have been carried out that are of interest to Africa. Central Asia’s countries have long distances to the sea, and many are landlocked as in Africa. Latin America has also two landlocked countries (Bolivia and Paraguay), which need to cross long distances to reach an ocean port. This region also offers useful experiences on transport deregulation, as does Central and Eastern Europe. Indonesia’s deregulated road freight market is also of interest, especially due to the large proportion of small trucking companies. The Southeastern European countries trade mostly with countries outside their region, which is similar to the situation in Africa. In Pakistan, utilizing mostly old vehicles, many bought secondhand as in Africa, truckers manage to achieve very low transport costs and offer their services at low prices. Furthermore, Pakistan’s road infrastructure on the main corridors is comparable in quality to that of the main corridors in Africa.

Transport costs on the main international corridors are not outrageously higher in Africa than elsewhere. But the paradox lies in the fact that with low wage levels, transport costs and prices should be much lower and probably the lowest in the world, as the trucking industry is intensive in labor.

Moreover, the four African subregions (West, Central, East, and Southern) are on average below other regions in the world with respect to transport quality, West Africa being the worst and Southern Africa being the best within Africa.

Global Comparisons

Transport prices. As shown in figure 2.1, transport prices in Africa are, on average,¹ higher than in South Asia or Brazil. Prices (per ton-kilometer (tkm)) on the Central African Douala–N’Djame´na route (linking Cameroon with Chad) are more than three times higher than in Brazil and more than five times higher than in Pakistan. Only the Durban–Lusaka corridor in Southern Africa approaches the price level of other regions of the world.

Figure 2.1 Average Transport Prices: A Global Comparison in 2007

11

8

7

6

55

average transport prices(in US cents per tkm)

12

10 8 6 4 2

43.5

2

0

region/route

Source: Study team compilation of data from various sources.

Transport costs. Table 2.1 demonstrates that contrary to prices, transport costs on the main international corridors are not outrageously high. For instance, transport costs in Africa are not excessively higher than in Western Europe. Table 2.2 shows that indeed, variable costs in Africa are higher because of (i) high fuel costs; (ii) age of truck fleets, which leads to much higher fuel consumption; and (iii) road conditions that are probably the worst in the world. However, offsetting high variable costs, fixed costs are much lower in Africa than in Europe because of much lower wages and lower capital costs associated with aged trucks.

Despite such low wage levels, transport costs and prices were not much lower than in developed countries because of high variable costs. The trucking industry is labor intensive and, as such, the lower wages in Africa help to keep total transport costs down (see table 2.3).

Quality of service. A yearly survey of international freight forwarders allows the creation of a Logistics Performance Index (LPI).² The LPI, which is a useful indicator of quality of service, integrates a number of quality attributes into a single number. As shown in figure 2.2, the four African subregions considered in this study rank on average below other regions in the world on transport quality, West Africa being the worst and Southern Africa the best within Africa.

Transport price and quality. Comparing transport prices and the quality of service as measured by the LPI shows that Africa’s transport is both more expensive and lower in quality than developed countries such as France and United States (figure 2.3). In the figure, the greater the LPI, the better the transport quality. The United States has an LPI of 3.84, whereas Africa ranges between 2.19 (West Africa) and 2.73 (Southern Africa). The Central African region is an extreme case of high prices associated with low quality.

The above findings are striking. Within individual markets it can be expected that higher-quality services command higher prices, since they normally cost more. Yet, as noted above, the comparison with other

Table 2.1 Comparative Transport Costs, Africa and Europe (Eastern and Western) in 2007

Source: Trucking Surveys for Africa, Comité National Routier (CNR) for Europe.

Source: CNR for France. Trucking surveys for Central and East Africa. Notes: East Africa truck price (in US$) corresponds to a heavy truck.

n.a.

= Not applicable

a.

Douala–N’Djaména corridor.

b.

Mombasa–Kampala corridor.

c.

Data for 2006.

d.

Based on interviews.

e.

Data from HDM-4 for African corridors.

f.

Ratio of the number of kilometers with payload over the total number of kilometers of a truck. Data are based on rather similar truck capacity; African companies usually importing trucks from Europe after several years of use.

g.

Calculations for immobilization time before loading for African routes come from the trucking surveys when loading at ports, in particular the following question: What was the average amount of time you waited to pick up freight once inside the port?

Source: CNR for France and Germany. Trucking surveys for Chad and Kenya. For France and Germany, monthly wages include bonuses.

Figure 2.2 Transport Quality Worldwide Based on the Logistics Performance Index in 2007

transport quality

(LPI)

3.91

4.0

3.5

3.14

3.01

3.0

2.73

2.49

2.5

2.27

2.19

2.0

West	Central	East	Southern	Latin	Eastern	United	Western
Africa	Africa	Africa	Africa	America	Europe	States	Europe
			region

Source: World Bank, LPI (2007).

Figure 2.3 Transport Services in Africa—Expensive and Low Quality in 2007

12

2
1.5	2.0	2.5	3.0	3.5	4.0	4.5
			transport quality
			(LPI)

Source: World Bank and task team compilation from various sources.

countries shows that transport services in Africa are both pricier (in most cases) and significantly lower in quality.

Efficiency. Figure 2.4 compares truck utilization in Africa with that in selected developing countries. The figure shows, on the one hand, a large disparity among the African countries, with South Africa’s trucks traveling almost three times as many miles as trucks in Malawi. On the other hand, trucks in other developing countries also show a large disparity in truck utilization, with Pakistan’s trucks doing twice as many miles as China’s trucks. It is striking that the trucks in the higher-income countries in Eastern

Figure 2.4 Average Truck Mileage in Selected Developing Countries in 2007

MalawiNigerChinaCzech RepublicEthiopiaHungaryPolandCameroonColombiaNigeriaIndiaIndonesiaKenyaPakistanSouth Africa

country

Source: Londoño-Kent (2007) and trucking surveys for African countries.

Europe are not utilized efficiently. This is mainly explained by the fact that there are relatively few trucking companies established in these countries that operate across borders. Thus, yearly mileage within countries remains lower than it would be if the companies would operate transnationally.³

Regional Perspectives

Trade. An important aspect of the operations and performance of international transport corridors is the nature of trade. In Africa, partly because of the similarity in production between the neighboring countries and partly because of infrastructure and other barriers to trade, most trade is international and not subregional. This means that trade logistics encompass not only land transport, but also ports and shipping issues.

On other continents, there are varying situations. In Latin America, an important part of exports in Bolivia and Paraguay go as final destination to neighboring countries, Argentina or Brazil. In Southeastern Europe, there was little trade among the countries. Sub-regional trade comprising only about 6 percent of total external trade in 2000.⁴

Operational issues. In the Southeastern European transport corridors, the key problems directly related to international road transport include some that are common to Sub-Saharan Africa, such as excessive waiting times at the border for clearing customs, and others that are more peculiar to the region. Such problems include difficulties in obtaining visas for professional drivers, lack of bilateral trip permits, and slow implementation of innovation in logistics.

Central Asian countries have the longest distances to an ocean port of any region in the world. The capitals of four Central Asian countries are 3,000 kilometers or more away from an ocean port. By comparison, distances to a port in Africa are mostly in the 1,000–1,500 kilometer range, with only three countries (Zambia, Rwanda, and the Central African Republic) being in the 1,500–2,000 kilometer range.⁵

In Latin America, the two landlocked countries, Bolivia and Paraguay, have some similarities with the international corridors in Africa in that they need to transit through other countries for export-import trade. The main international trade corridors run through Bolivia, which uses ports on both the Pacific and the Atlantic to connect with overseas markets. Paraguay’s main route for both exports and imports is from Asunción to the duty-free port of Paranagua in Brazil. There is also important corridor traffic by road between maritime countries. For example, Brazil’s trade crosses Argentina to reach Latin American countries on the Pacific or to use their ports for overseas trade with Asia. The cost of crossing international borders varies greatly in Latin America, with some of the higher-cost (both in monetary and time dimensions) border crossings occurring between maritime countries (for example, between Argentina and Brazil), rather than between Bolivia or Paraguay and their transit countries.

South Asia shares many similarities regarding trade and international transport with Sub-Saharan Africa: (i) both regions have a gross domestic product (GDP) per capita below US$1,000 (average US$684 for South Asia and US$830 for Sub-Saharan Africa); (ii) both regions trade less than 10 percent of the exports and imports within the region; and (iii) both have poor-quality transport facilities and services along international trade corridors. Yet there are important differences in how the corridors operate. In South Asia, a key factor explaining why transport corridors operate poorly is that national policies of most countries in the region prohibit access of foreign trucks. As a result, freight needs to be transshipped at the border from one country’s trucks to the next country’s trucks. Road transport costs in South Asia are the lowest in the world. However, the high cost of transshipment at the border, coupled with other problems in the logistics chain, negate the benefits of low trucking cost when international transport is concerned. Transshipment not only dramatically increases transport cost, but also poses a high risk to the condition of the cargo.

Pakistan’s National Trade Corridor (NTC) provides an excellent example of the operations of a national corridor, with a mix of good and bad features.⁶ The NTC links the Afghan border, close to Peshawar, through Lahore to Karachi and Port Qasim, with a link to Khunjrab. The NTC handles the major part of Pakistan’s external and internal trade. In many respects, Pakistan’s external transport and trade facilitation systems provide an adequate level of connection with the global economy. For instance, Pakistan’s sea freight rates are in line with regional and international levels; its sea transit times are better for some major markets than for its competitors, and worse for others (largely a result of geography and distance); and its road transport rates are some of the lowest in the world. However, the system has a number of weaknesses that result in high cost and poor quality of service to the users. Major weaknesses include high port costs and rates; high dwell time for inbound containers; poor road transport services, with long transit times and unreliable service quality; the use of old and technologically outdated trucks, a result of import regulations and tariff structure; and poor road infrastructure with low capacity and quality not suitable for rapid and reliable truck services. Unfortunately, one of the main reasons for the low trucking costs in Pakistan is not efficient operation but a very high level of overloading, causing major damage to the roads. Some of these weaknesses can be removed by investments, but others require policy changes and freedom for the private sector to make its own decisions and investments.

Market Regulation, Competition, and Prices in the Trucking Industry

The prices charged for transport services and the quality of service depend substantially on the regulatory regimes and competitiveness in the trucking industry. International experience shows the benefits of strong competition in the trucking industry.

Many countries have over the past two decades introduced substantial reforms to their trucking markets, by essentially deregulating the industry. Selected examples are described below.⁷

Mexico. Until 1989, trucking in Mexico was strongly regulated, as in most of Latin America. Regulation was thought to promote fair pricing, prevent dangerous cost-cutting competition, and control quality of service. In practice, regulation served to restrict competition and limit supply to a few firms, resulting in high prices and poor service.

The government decided to deregulate trucking and did this gradually with changes effected over a two-year period (1989–90) with very positive impact.

Significant outcomes of the deregulation were as follows:

• Many new truck operators entered the market. Within a few months of completing the deregulation process in 1990, some 30,000 permits were issued for new entrants.

• Within five years, road transport prices had dropped by 23 percent in real terms.

• Trucking services improved in frequency, access, and speed of delivery.

• More flexible pricing of both truck and rail increased competition in the provision of transport services and helped to lower overall transport costs.

Today, after almost two decades of deregulation, the benefits remain, although some problems remain to be fixed, such as the need for states and local governments to complete harmonization agreements, the lack of which affects market structure and facilitates the rebuilding of cartels.

Indonesia. As part of a major liberalization of the transport market, road transport prices were freed in 1985. Since then, prices have been set by the market. Liberalization caused a large increase in the number of truck operators, creating a competitive market. The majority of public transport companies own only a small number of vehicles, although some operators own relatively large fleets. One of the restrictions to route freedom is that freight vehicles are required to obtain licenses to cross provincial boundaries, but such regulation does not seem to cause major economic distortions.

The Czech Republic, Hungary, and Poland. Road freight transport was one of the first sectors to be privatized and liberalized in most of the Central and East European countries. Hungary, followed by Poland and then the Czech Republic, was the earliest to adopt pro-competition reforms. Hungary and Poland passed laws granting free entry to the trucking market in 1988, as did the Czech Republic after 1990. Market forces freely determine transport prices. The combination of privatization and liberalization, which included deregulation reforms such as elimination of rate and route controls, led to the entry of many new trucking operators with competitive prices and better-quality services. A consequence of the new competitive environment included several innovative logistics services initiated by the trucking companies, resulting in faster delivery times and less breakage or spoilage of cargo. In most cases, the more significant service innovations were started by the larger, internationally connected trucking companies.

France. The 1986 deregulation of road transport in France led to dramatic lowering of road transport prices, as shown in figure 2.5. Comparing the relevant cost and price indexes, the figure clearly demonstrates a parallel trend of cost and price movement before the deregulation and a sharp divergence after the deregulation.

Morocco. Initial conditions of the transport services market matter for the success of transport liberalization. Morocco is a relevant example in this regard since liberalization induced strong price decreases but also diminished transport quality.

For decades, road freight transport was strongly regulated, with the monopoly of freight allocation carried out by the Office National du Transport (ONT). However, because of the ONT fleet’s low productivity, many individuals invested in trucks and oversupply gradually increased.

Figure 2.5 Cost and Price Trends before and after Market Deregulation in France, 1980–97

150 140 130 120

index

110

100 90 80 70 60

deregulation

50

year

cost index price index

Source: Darbéra (1998).

In 2003, the Law 16-99 entered into force and abolished the monopoly of freight allocation for the ONT, and transport prices became deregulated.

Because of the initial large oversupply, along with exacerbated competition and low professionalism among individual operators, transport prices decreased for years and reached a level below transport costs, with a subsequent low quality of transport service. As a result, the Moroccan fleet has continued to age, drivers have remained untrained, and informal service predominates.

As a result, the Moroccan transport market is characterized by the following:

• a predominance of the informal sector, estimated at 70–75 percent of total freight transport in Morocco

• atomized supply with 90 percent of companies operating one or two trucks

• aging trucks (with 13 years as a median fleet age)

• average transport price below transport costs on most national corridors

An African experience: Rwanda. The only deregulation experience in the African region so far took place in Rwanda in 1994, and it had a huge effect on transport prices, confirming the impact that cartels have had elsewhere. After deregulation of international transport, prices declined by more than 30 percent in nominal terms and by almost 75 percent in real terms when taking into account the continued increase in input prices (figure 2.6). The impact in Rwanda was probably stronger than in most other countries because before deregulation road freight services were a monopoly of a parastatal trucking company (STIR) that was able to set high prices without any restraint (Mwase 2003). Furthermore, 1994 was also the bloodiest period of the Rwandan Civil War, when for all practical purposes a road freight fleet had ceased to exist.

Deregulation not only resulted in lower prices, but also led to growth in the Rwandan fleet. This is in contrast to common fears that deregulation, which liberalizes market entry, leads to eradication of the fleet owned by truckers from landlocked countries. In the case of Rwanda, the fear was even stronger given the disappearance of its trucking fleet at the height of the Civil War in 1994. In fact, deregulation helped to achieve a rapid recovery of the domestically owned fleet. A distinctive feature of the business strategy followed by Rwandan truckers has been

Figure 2.6 Average Transport Prices from Mombasa to Kigali

(US$, constant and current)

300 250 200 150 100 50 0

800 700 600 500 400 300 200 100 0

US$/ton

US$/ton

198919901991199219931994199519961997199819992000200120022003200420052006

years

Source: Data from the Northern Corridor Transport and Transit Authority (NCTTA).

Figure 2.7 Number of Registered Heavy Trucks in Rwanda

400

372

350

317

298

300 250

234 240 190 189

200

178 150

112 100

69 50 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2007

year

number of trucks

Source: Data from NCTTA.

their specialization in specific goods to capture niche and profitable markets, such as petroleum products. This largely explains why the current fleet is equal to the level prior to deregulation of international transport (see figure 2.7).

Malawi. This was a case of attempted protection of the local trucking industry against competition from truckers from other countries, mainly South Africa. With that purpose, the Malawi government established a surtax on domestic transport in Malawi. Under the current tax system, the domestic transporter collects the surtax on transport from the customer.

The surtax in fact served no purpose, other than hurting farmers who had to pay the surtax for transport of their production, reducing their profit margins, and providing the local truckers with additional profit for their services. Market regulations in any case provided a strong entry barrier to South African truckers entering into the Malawi transport market, where the government intended to protect the domestic road transport providers. In the hypothetical case of real competition, the South African operator would have remained much more competitive than the local operator, as shown in table 2.4.

Thus, overall, trucking deregulation has been successful, leading to more competition, lower prices, and better services, while attempts to artificially protect local transporters (Malawi) have had perverse consequences. Table 2.5 summarizes the reform experiences.

Table 2.4 Comparison of Malawi and South African Fleet Competitiveness

Combination vehicle	Malawi New	Malawi Used	South Africa
Km/year	100,800	100,800	100,800
Load in tons	28	28	28
Payload utilization	75%	75%	75%
Ratios, cost per km	US$	US$	US$
Tires	0.110	0.110	0.060
Fuel and top-up oil	0.560	0.560	0.300
Maintenance	0.130	0.150	0.120
Overhead	0.100	0.040	0.100
Depreciation	0.230	0.060	0.120
Capital	0.540	0.100	0.060
Transit fees	0.170	0.170	0.125
Insurance	0.210	0.002	0.080
Licenses and permits	0.010	0.010	0.015
Driver wages	0.010	0.010	0.100
Total per km	2.064	1.21	1.080
Tkm	0.098	0.058	0.051

Source: Tera International (2005).

Table 2.5 Summary of World Experiences in Transport Services Deregulation

Country Main achievements Background

Czech Republic, Entry of many new operators Hungary, Poland Prices determined by market Innovative logistics services

France Dramatic reduction in transport prices

Indonesia Entry of many new operators Prices set by the market Most trucking companies small

Mexico Entry of many new operators Transport prices dropped by 23% in real terms within five years Trucking services improved in frequency, access, and speed of delivery

Morocco Transport prices dropped dramatically Abolition of government monopoly of freight allocation

Rwanda Transport prices fell by 75% in real terms Rapid recovery of locally owned fleet

Major reform in 1998–90. Road freight transport was one of the first sectors to be privatized and liberalized in Central and Eastern European countries.

Major reform in 1986. Some 10 years after deregulation, overall prices increased by 40%, transport prices fell by over 10%.

Major reform in 1985. Vehicles were required to obtain licenses to cross provincial boundaries, but there was no major impact.

Major reform in 1989. The deregulation process was gradual over a period of two years.

Freight allocation abolished in 2003. Large initial oversupply was not reduced and led to atomized and low quality of service, but prices were reduced.

Major reform in 1994. Reform occurred after the genocide, when the public trucking fleet had practically vanished.

Source: Task team compilation from various sources.

Notes

1. Average transport prices are difficult to disaggregate because transport prices or freight rates/tariffs are dependent on several factors including the following: (i) return cargo—if backload is ensured, freight rates are lowered; (ii) cargo types—tankers, oil products, machinery, and containers are more expensive to transport than general cargo in bags; (iii) commercial practices/discounts—there are often large discrepancies between published tariff schedules and what customers actually pay; (iv) seasonal demand—prices are seasonal and are highly sensitive to supply/demand, especially for certain export commodities and some imported finished goods.

However, although there are some possible biases and problems concerning data reliability, transport prices are rather homogeneous along the studied routes in the trucking surveys. Along a corridor, prices obviously vary: for instance, in

U.S. dollars per ton-kilometer, from Mombasa, average prices are set at 4 cents per ton-kilometer for Kenya, 8.5 for Uganda, 9 for Rwanda, 11 for Burundi, and 12 for Democratic Republic of the Congo (from Goma) (Oyer 2007).

1. The LPI measures perceptions of the logistics environment of 140 countries on several dimensions (such as transport price, infrastructure, and customs). The survey uses an anonymous, Web-based questionnaire that asks respondents to evaluate their country of residence, as well as eight countries they are dealing with, on the following logistics dimensions: international transportation costs, domestic transportation costs, timeliness of shipments, tractability of shipments, transport and IT infrastructure, customs and other border procedures, and logistics competence.

2. CNR (2005).

3. World Bank (2004).

4. Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. These figures are quoted in Snow et al. (2003).

5. World Bank (2007b).

6. Presentation of these examples draws substantially on three papers: Londoño-Kent (2007), World Bank (1994), and Dutz (2005).

CHAPTER 3

Key Logistics and Market Characteristics of the Transport Corridors

Logistics in Africa are organized along key trade and transport corridors originating from the ports of entry and exit to the hinterland.¹ In this chapter, the various transport corridors are characterized as follows:

• geography (entry ports and landlocked areas served)

• corridor institutional structure and the degree of competition between corridors and transport modes

• shipping connections

• regulatory regime and market structure

Table 3.1 shows the key international trade corridors from ports to their hinterlands. Table 3.2 shows the economic importance and volume of traffic for the relevant corridors.

The trucking environment and market structure in West and Central Africa are characterized by cartels offering low transport quality, while in East Africa the trucking environment is more competitive and more mature. Major corridors in Southern Africa are the most advanced of all the study corridors in terms of competitive and efficient services.

Corridors

Table 3.1 The Four Key Transport Corridors in Africa: Ports and Countries

	West Africa	Central Africa	East Africa	Southern Africa
Main ports of entry	Abidjan, Tema, Lomé,	Douala	Mombasa, Dar-es-Salaam	Durban, Maputo, Beira, Dar-es-Salaam
	Cotonou,
	Dakar
Landlocked countries served	Mali, Burkina, Niger	Chad, Central African	Uganda, Rwanda, Burundi, Democratic	Botswana, Malawi, Zambia,
		Republic	Republic of Congo (east)	Zimbabwe, Democratic Republic of Congo (south)

Source: Task team compilation.

Table 3.2 The Four Key Transport Corridors in Africa: Key Economic Data

Annual GDP per imports Annual GDP Population capita (US$ exports Region and country (US$ billion) (million) (US$) million ) (US$ million)

West Africa

Togo 2.2 6.1 359 1,026 743 Benin 4.3 8.4 508 1,120 577 Ghana 10.7 22.1 485 6,610 3,869 Niger 3.4 14.0 244 825 512 Burkina Faso 5.2 13.2 391 1,132 449

Central Africa

Cameroon 16.9 16.3 1,034 4,282 3,922 Central African Republic 1.4 4.0 339 174 126 Chad 5.5 9.8 561 2,150 3,219

East Africa

Kenya 18.7 34.3 547 6,540 5,126 Rwanda 2.2 9.0 238 667 228 Uganda 8.7 28.8 303 2,370 1,145

Southern Africa

South Africa 239.5 46.9 5,109 68,412 64,904 Zimbabwe 3.4 13.0 259 1,785 1,443 Zambia 7.3 11.7 623 1,835 1,192

Source: World Development Indicators, World Bank. Date of all countries except the Central African Republic corresponds to year 2005, and Central African Republic to 2002. Amounts are in current market prices, U.S. dollars.

West Africa

Economic importance. West Africa comprises several gateways (Ghana, Benin, Côte d’Ivoire, Senegal, Guinea, and Togo) and three inland countries (Burkina Faso, Mali, and Niger). The 2002 crisis in Côte d’Ivoire, which resulted in the closing of the international road and rail routes starting from Abidjan, caused a rerouting of freight to other ports in Togo, Benin, and Ghana. For Burkina Faso, the rerouting resulted in Lomé and Tema increasing their share of the country’s trade (for Lomé, from 20 percent in 1999 to 50 percent in 2004, and for Tema, from 7 percent to 36 percent during the same period). The crisis also affected Mali traffic, and as a result Burkina Faso became a transit country for Mali trade.

Trucking environment and market structure. West Africa is characterized by strong market regulation through freight bureaus and shippers’ councils (see chapter 5 and annex 4 for more details). The quality of transport services is uniformly low. There are no large trucking

Figure 3.1 A Typology of Transport Corridors in Africa Based on Market Access

Source: Task team. Note: Figure 3.1 defines a typology of corridors with market access at the core of the distinction.

companies and few new trucks, yet transport prices are relatively low (case 2 in figure 3.1).²

Central Africa

Economic importance. Traditionally, the regional transport industry in Central Africa, particularly with respect to transit traffic, has been shared between the road and road-rail corridors originating from the gateway port of Douala and the rail-river-road corridors between Pointe-Noire (the Republic of Congo) or Matadi (the Democratic Republic of Congo [DRC]) and Bangui in the Central African Republic (rail-river) up to N’Djaména in Chad. However, the rail-river corridor has lost all its market shares of the Chadian trade since the early 1990s and has become marginal for the Central African Republic trade (except for oil products through Matadi).

The regional transport industry thus is mainly dominated today by two road and road-rail corridors that link the port of Douala to the capital cities of the Central African Republic and Chad. These corridors provide the economic lifeline between the coastal (Cameroon) and the two landlocked countries (Chad and the Central African Republic). Besides the two capital cities, two other subregions play a crucial role for international trade. These are the southwest region in Chad, where most of the country’s cotton exports and all the country’s oil exports are produced, and the southwest forest region in the Central African Republic, where the logging industry is concentrated. Thus, Douala is one of the most important ports in West and Central Africa.

Trucking environment and market structure. Central Africa’s international transport is characterized by cartels. Transport quality is low but prices are high despite the fact that prices may differ widely along corridors of the region. In this subregion, freight bureaus and transport associations are very powerful and do not allow many truck operators to bypass the system (case 1 in figure 3.1).

The Northern Corridor in East Africa

Economic importance. The long-established northern corridor runs from the port of Mombasa via Nairobi to Kampala, with extensions to the Democratic Republic of Congo, Rwanda, and Burundi. Mombasa, the largest port in East Africa, is well endowed with equipment and facilities, has a natural port whose berths do not require constant dredging, and has an adequate dock infrastructure. Mombasa now handles more than 13 million tons a year. Although intraregional trade in the East African Community (EAC) has been growing fast in recent years, it contributes only 20 percent of the trade volume in the subregion, while more than 80 percent of the trade flows are still going to and coming from outside the region. This corridor is now taking a new political and economic dimension with the recently reformed EAC, the regional organization of Kenya, Uganda, and Tanzania.

Trucking environment and market structure. East Africa is a competitive and mature market with “rates determined by market forces,” especially for corridors originating from the port (Oyer 2007) (cases 3 and 4 in figure 3.1).³ The largest professionalized trucking companies account for approximately 20 percent of total market shares according to our estimates,⁴ which is comparable to any mature trucking market in Europe or North America. There are about 20 large companies that operate more than 100 trucks each. The largest Kenyan company owns a fleet of 600 trucks. These large companies obtain loads from long-term direct contracting (from one to three years). Their yearly mileage to Kampala can reach more than 100,000 kilometers, which is much higher than the average mileage in Central Africa (at most 60,000 kilometers per year).

Transport quality in East Africa is higher than in Central or West Africa, with larger and more modern truck fleets. However, on average, transport prices are lower, especially services to Uganda. There is no abnormal disconnect between prices and costs along the Northern Corridor (up to Kampala).

The North-South Corridor in Southern Africa

Economic importance. Four main trade corridors link Zambia and the southeast Democratic Republic of Congo to the subregion and overseas markets. These are Dar-es-Salaam, Walvis Bay, Beira, and the north-south corridor through Durban. The north-south corridor serves a dual purpose: First, it serves as an intraregional trade route between Zambia (and further southeast, the Democratic Republic of Congo and western Malawi) and its neighbors, Botswana, Zimbabwe, and South Africa, and as a link to the port of Durban for overseas imports and exports. From south to north, the two main border crossing points are Beit Bridge between South Africa and Zimbabwe, and Groblers Bridge/Martins Drift between South Africa and Botswana. Beit Bridge is the busiest border post in the region, handling as many as 500 trucks per day, whereas volumes through Martins Drift are about half that number.

Freight demand in Zambia has been rising rapidly with the opening of new mines, the increase of copper prices, and the growth of the economy (see annex 5). In 2005, approximately 1.6 million tons were exported, and 3.3 million tons were imported. The main exports from Zambia are mineral and agricultural commodities. The main imports, volumewise, were mineral products, chemicals, heavy mining equipment, and manu factured goods. However, valuewise, Zambia’s main imports were machinery and mechanical appliances, fuels, electrical machinery, and vehicles.

Although the port of Beira in Mozambique is closer than Durban for most Zambian shippers, Durban is more convenient as it can be accessed directly by reliable road infrastructure and with channel-dredging equipment. Durban’s port equipment and lower maritime transport rates make it also attractive for Zambian shippers.⁵

Durban is the largest port in the area, accounting for at least three-quarters of the total capacity provided by the various ports serving the corridors in the subregion. The Durban–Lusaka corridor route is then the most utilized corridor for Zambia.

Trucking environment and market structure. The Southern Africa corridor is the most advanced of all corridors in this study, both in terms of regulatory regimes and efficiency of logistics services⁶ (cases 4 and 5 in figure 3.1).

The transport market and operations in Southern Africa are of great interest for other countries in the subregion because they combine liberalization with enforcement of quality and load control rules applicable to all trucking operators.

Operations to and from Southern Africa are governed by bilateral agreements. Unlike West and Central Africa, the Southern African agreements do not establish quotas. This enables direct contracting between shippers and transporters and creates incentives for transporters to be more efficient. The agreements contain the following provisions, among others:

• restrict the carriage of bilateral trade to carriers from the two countries

• prohibit cabotage

• provide that the regulatory authorities of the two parties shall share information concerning traffic development

• define the types of permits that may be issued, namely 14 days, short term (3 months), and long term (12 months)

• state that cargo rates and charges shall be determined by the market

• provide for the establishment of a joint route management group to determine transport needs on a route, among other things

Notes

1. Southern Africa is slightly different as a significant proportion of the import traffic into neighboring countries originates from the industrial core of South Africa and not from overseas through Durban.

2. Prices are relatively low compared with international standards, but this does not prevent profitability.

3. As in Central Africa, prices and profits may widely differ. Some oligopolies may be found on some marginal international routes, for instance after Kampala.

4. This is confirmed by Oyer (2007) who surveyed 15 percent of Kenyan trucking companies.

5. Since Durban is the hub port of the subregions, operators often prefer to truck containers directly from this port over longer distances instead of adding a feeder link to less well served but closer ports.

6. For the Durban–Johannesburg corridor, the rail market remains relatively important with 20 percent of the total market share (CSIR 2006, 18).

CHAPTER 4

Main Determinants of Transport Prices and Trucking Profitability

This chapter presents the findings obtained from the data gathered in the trucking survey relating to prices and profitability. The main findings from the study indicated that transport prices in Sub-Saharan Africa differ widely depending mainly on market regulation and structure. In a strongly regulated and noncompetitive environment, prices and profits are especially high, trucking along many international corridors being a strong seller’s market and a profitable industry for most companies in Africa.

Heterogeneity of Transport Prices in Africa

Transport prices differ widely in Africa. In Southern Africa they are, on average, two to three times lower than in Central Africa. Some subregions such as Central Africa are characterized by a large spread in transport prices, explained by the fact that some large trucking companies subcontract to truckers at a much lower price, and others operate in a complete informal market with low prices and extremely low transport quality.

Transport prices and time. These vary greatly between subregions. Central Africa is the most expensive, West and East Africa have similar prices, and Southern Africa is the cheapest. Transport time is also a good indicator of quality of service. There are discrepancies in transport times from cargo arrival at the port to the hinterland destination; the highest delivery speeds are in West and Southern Africa whereas the lowest reported speed is in Central Africa (see table 4.1).

Price factors. Data from the trucking survey provide clues about the importance of cartels as a preeminent price factor in Africa, but there are other important factors in international transport. The findings also signal that transport practices, prices, and costs mainly are route specific.

The Importance of Rail Competition for Road Freight Prices

On the main international corridors, an absence of rail services creates opportunities for the trucking industry to inflate its prices. That is why intermodal competition on these corridors is critical. Increased competition from rail services benefits transport users primarily through comparable or lower transport costs.¹ Actual or potential competition from road operators drastically limits the railways’ pricing power,² even in the situations where railways enjoy commanding market shares (World Bank 2006).

Figure 4.1 compares rail and road prices in East and Central Africa. In East Africa, road prices are established by trucking companies and take

Table 4.1 Transit Time and Transport Price (from Gateway to Destination)

Transit time
from ship				Transport
Distance			arrival to final	price (in US$
Gateway	Destination	(km)	destination	per ton)
West Africa
Lomé	Ouagadougou	1,050	6–8 days	60–70
Cotonou	Niamey	1,000	6–8 days	65–95
Central Africa
Douala	N’Djaména	1,830	12–15 days	200–210
Douala	Bangui	1,450	8–10 days	200–210
East Africa
Mombasa	Kampala	1,145	5–6 days	90
Mombasa	Kigali	1,700	8–10 days	100–110
Southern Africa
Durban	Lusaka	2,300	8–9 days	90–130
Durban	Ndola	2,700	9–10 days	130–170

Source: Surveys of trucking companies and international logistics operators. Note: Because of traffic imbalance, export prices are at most equal to import prices. However, in most cases, export prices are lower than import prices because to avoid coming back empty, truckers prefer to give discounts to get backload.

Figure 4.1 Road-Rail Price Competition in Main International Routes

(US$ per ton-kilometer)

US$

20 15 10 5 0

Mombasa– Mombasa– Mombasa– Douala– Douala– Douala– Nairobi Kampala Kigali Yaoundé Ngaoundéré N'Djaména

East Africa Central Africa

truck

rail

Source: Trucking survey and own calculations. Prices are per container.

into account rail prices. Therefore, competition between rail and road transportation does exist.³

Similarly, in Central Africa, rail prices are comparable to road prices. As in East Africa, trucking companies surveyed acknowledged that rail competition plays a role in the setting prices, especially for heavy and bulk commodities.⁴

Profitability Determinants

Trucking is a profitable industry for most companies in Africa, especially along the main international corridors (see table 4.2). Managers of trucking companies acknowledge, for example, that paying back costs of a new or less than three-year-old truck takes less than three years. In the many African countries where transport demand, as a result of economic growth, is booming, truckers can rapidly recover costs. Road transport has turned to a strong sellers’ market almost everywhere in Africa.

Profits are a function of market size and the number of market parti cipants. In Africa, because of the thinness of some markets, the cartels are easier to form than in Asia or Europe. However, this does not necessarily induce the existence of cartels, as we demonstrated in the case of Rwanda.

Fixed costs are abnormally high for Africa along the Douala–Bangui and the Ngaoundéré–Moundou corridors due to the extremely low yearly vehicle mileage (used as a proxy to measure efficiency of trucking service provision)—not because truckers use new trucks.

Standard deviation measures are especially high for prices. As noted above, this can be explained by the strategy of some large trucking

Table 4.2 International Transport Prices, Costs, and Profit Margins (from Gateway to Destination)

Pricef			Variable	Fixed	Profit
Route gateway–		(US$	cost (US$	cost (US$	margini,h,c
destinationa		per km)	per km)	per km)	(percent)
West Africa	Tema/Accra–	3.53g	1.54	0.66	80
(Burkina	Ouagadougou	(2.01)	(0.59)	(0.64)
and Ghana)	(Ghana)
	Tema/Accra–	3.93	1.67	0.62	80
	Bamako (Mali)	(1.53)	(0.23)	(0.36)
Central Africa	Douala–N’Djaména	3.19	1.31	0.57	73
(Cameroon	(Chad)	(1.10)	(0.32)	(0.30)
and Chad)	Douala–Bangui	3.78	1.21	1.08	83
	(Central African	(1.30)	(0.35)	(0.81)
	Republic)
	Ngaoundéré–	5.37	1.83	0.73	118
	N’Djaména (Chad)	(1.44)	(0.25)	(0.44)
	Ngaoundéré–	9.71	2.49	1.55	163
	Moundou (Chad)	(2.58)	(0.64)	(0.43)
East Africa	Mombasa–Kampalab	2.22	0.98h	0.35	86
(Kenya and	(Uganda)	(1.08)	(0.47)	(0.14)
Uganda)	Mombasa–Nairobic	2.26	0.83	0.53	66
	(Kenya)	(1.36)	(0.17)	(0.19)
Southern Africa	Lusaka–	2.32	1.54	0.34	18
(Zambia)	Johannesburgd	(1.59)	(0.41)	(0.40)
	(South Africa)
	Lusaka–Dar-es	2.55	1.34	0.44	62
	Salaame (Tanzania)	(0.08)	(0.52)	(0.51)

Source: Trucking survey data and own calculations. Exchange rates come from International Monetary Fund-International Financial Statistics. Note: Prices are in US$ per kilometer because most companies have the same truck capacity and similar (over)loading practices on a corridor. Moreover, because of questions in reporting overloading, prices in US$ per kilometer are probably much more reliable than prices per ton-kilometer. Prices and costs were obtained from reported truckload (approximately 30 metric tons). Values include trucking services (three or more trucks) and truckers (one or two trucks). Standard deviation is in parentheses.

a.

Destination country is in parentheses.

b.

First segment of the northern corridor

c.

Second segment of the northern corridor

d.

First segment of the north-south corridor

e.

Second segment of the north-south corridor

f.

Some indicative prices are set by ministries of transportation in Africa but are not used. Prices set by freight allocation bureaus in Central Africa may be more respected.

g.

Prices from the trucking survey are similar to the ones given by the Conseil Burkinabe des Chargeurs (see table below). Depending on the tonnage (official or real), prices per ton-kilometers may be more or less higher.

h.

Data should be taken cautiously since some companies may omit some costs or, conversely, double count some costs.

Unit	Official data from Burkina Faso shippers' council		Survey
	FCFA	US$	US$
Ton	26,000–30,000	52–60	59
Container	1,300,000–1,400,000	2,600–2,800	2,000

Note: Exchange rate US$/FCFA = 0.002.

i. Data are consistent with Oyer (2007), who found US$1.10 per kilometer for Kenyan routes, without including overheads and management costs or border-crossing and bribes costs.

companies, especially in a regulated environment, to subcontract freight to truckers at lower prices.⁵ Consequently, some small subcontractors and truckers charge a low price and can hardly be profitable whereas some well-known trucking companies benefit from the regulated price and consequently reap large profits. Subcontracting also explains why old and new trucks travel along the same corridor. In most cases, new fleets indicate abnormally high markups, whereas old trucks belong to the subcontractors of a well-known trucking company.

Even though prices are relatively low in West Africa on the main international corridors compared with those in Central Africa, this does not prevent the trucking business from being profitable. Truckers keep production costs low through the combination of low capital costs (purchase of secondhand trucks) and minimal maintenance expenditures while maximizing revenues through overloading.

Success can rapidly turn into failure in the African transport industry and vice versa. If all the right conditions are attained (a “good” manager who gets access to the load, “good” drivers who find loads by themselves while limiting negative impacts to the truck, and a “good” truck that is reliable and cheap to maintain), then profitability can be high as the return on investment may average three years. Truckers who are unable to attain such conditions will not be profitable.

The various pricing strategies are all the more interesting, standard deviation being much lower for variable transport costs. In other words, most companies bear more or less similar variable costs, which by far are the most important determinants of transport costs.

Transport prices determinants.Table 4.3 confirms most of the findings from descriptive statistics. However, there is a very strong disconnect between costs and prices, especially for Central Africa, where neither variable nor fixed costs explain the high transport prices in the subregion. In fact, for Central Africa, the usual prices determinants are not statistically significant if we accept (i) that overloading induces higher transport prices and (ii) that there is a tariff premium for international corridors compared with national corridors. More surprisingly, higher transport prices are reported for roads in better condition. For example, roads along the Ngaoundéré–Moundou corridor are in very good condition and have high prices.This is most likely due to informal market-sharing agreements (see the section on market regulation).

Similarly, in West Africa, it is difficult to explain how transport prices are not closely correlated with transport costs, which are closely related to road conditions and variable costs. High fixed costs may explain high transport prices, which probably are related to the fact that some operators

Table 4.3 Regressions to Identify the Main Determinants of Transport Prices

West Africa		Central Africa	East Africa
Dependent variable: transport prices
Variable costs	0.73	–0.09	0.11
	(0.84)	(0.37)	(0.58)
Fixed costs	1.25**	0.15	3.38**
	(0.63)	(0.15)	(1.38)
Yearly mileage	34.85	–3.01	4.24
	(20.14)	(7.15)	(4.80)
Average load	0.08**	0.12**	0.05**
	(0.03)	(0.01)	(0.02)
Road condition	–3.87	10.16**	–31.64**
	(5.83)	(1.08)	(6.91)
Fleet size	0.10**	–0.01	–0.01
	(0.02)	(0.01)	(0.00)
National	3.68**	–1.23**	–3.56**
	(1.60)	(0.40)	(0.74)
Constant	–1.95	–4.89**	26.35**
	(5.11)	(0.91)	(5.95)
R2	0.57	0.78	0.55
Observations	73	120	56
Routes	4	6	3

Source: Task team estimation based on the trucking survey data. Note: ** implies significance at the 5 percent level and * at the 10 percent level. Standard deviation is shown in parentheses.

work with foreign companies that have special niches of the market enabling them to charge higher prices. This hypothesis is corroborated by the fact that larger fleet sizes charge higher prices. Foreign or large shippers require a large fleet to gain access to local companies. Furthermore, as in Central Africa, overloading induces higher transport prices. However, contrary to Central Africa, international corridors seem to be cheaper than national corridors. This is probably related to the fact that in the trucking survey samples, national corridors are mainly operated by the Ghanaian fleet, which is in better condition than the Burkina Faso fleet that operates internationally. In any case, cheaper international corridors demonstrate that transport prices are probably much more reasonable in West Africa than in Central Africa.

The northern corridor in East Africa presents a different story, one of the main determinants of transport prices being road condition. To corroborate donors’ investment policies along the northern corridor, we can demonstrate that on roads in poor condition, transport companies charge much higher prices. As in West Africa, the extent of fixed costs explains transport prices, which demonstrates that many operators have a good sense of their fixed costs (contrary to the situation in Central Africa). Similar to the other subregions, overloading induces higher transport prices. Finally, like in West Africa, international corridors seem to be cheaper than national corridors, which means that companies operating in the subregion charge a premium price. The main reasons for this premium are explained in the following sections. In any event, international transport in the northern corridor seems to be much more costly than national Kenyan transport.

Profitability determinants. Trucking along international corridors is usually a profitable industry for most companies in Africa. There is a strong disconnect between costs and prices, but profits are relatively well explained by costs level (see table 4.4). Consequently, since price settings are more or less exogenous, the most profitable companies in Africa are the ones able to operate on routes with abnormal prices or with a certain degree of cost efficiency. That is why, in East Africa, trucks operating on roads in good condition are profitable (probably because of the fact that

Table 4.4 Regressions to Identify the Main Determinants of Margins

West Africa		Central Africa	East Africa
Dependent variable: margins
Variable costs	–0.59	–0.78**	–1.00**
	(0.41)	(0.20)	(0.39)
Fixed costs	–0.28	–0.36**	1.75*
	(0.31)	(0.08)	(0.93)
Yearly mileage	20.63**	0.59	4.56
	(9.77)	(3.81)	(3.24)
Average load	0.03**	0.06**	0.04**
	(0.02)	(0.01)	(0.01)
Road condition	–2.41	3.38**	–21.24**
	(2.83)	(0.58)	(4.66)
Fleet size	3.3E–02**	–3.3E–03	–4.6E–03*
	(1.1E–02)	(3.0E–03)	(2.8E–03)
National	1.84**	–0.28	–2.44**
	0.78	0.21	0.50
Constant	0.74	–1.30**	17.81**
	(2.48)	(0.48)	(4.02)
R2	0.29	0.50	0.42
Observations	73	120	56
Routes	4	6	3

Source: Task team estimation based on the trucking survey data. Note: ** implies significance at the 5 percent level and * at the 10 percent level. Standard deviation is shown in parentheses.

on roads in good condition, operators charge similar rates). Profitability is even more pronounced for international corridors. In Central Africa, higher fixed and variable costs result in lower margins. For all the subregions, overloading creates higher profits, which explains why this practice is so widespread. In Central Africa, as for prices, higher profits are reported for roads in better condition. Once again, this is probably because of informal market-sharing agreements. Finally, companies operating on national corridors in West Africa are more profitable than subregional corridors, which reiterates the fact that transport prices may not be so high for Burkina Faso companies when their costs are taken into account.

In a competitive environment like the international corridors in Southern Africa, margins are set at 10–15 percent, which means that any savings in transport costs can have a positive impact on trucking profitability and transport prices.

Prices are inflated through the whole logistics chain. In a regulated environment, even though profits from freight forwarders may be lower, transport remains largely profitable. Any overhead or abnormal payment is automatically included in the price for the end user. Integrated services—which include shipping lines activities, port operations, logistics platforms operations, freight forwarding, and sometimes rail concessions—usually give a better quality of service but considerably inflate prices on several segments of transport, such as port operations or logistics platforms. These integrated global operators frequently prevent other operators from increasing their market share and use their market power to keep prices at high levels.

Notes

1. One fundamental aspect of road-rail competition that affects tariff differences between these two modes relates to government’s existing policies toward road users. Although it is not the intent of this work to address legislation, we note that long-standing policies to provide road infrastructure to users at less than full recovery costs create serious competition imbalances in the transport sector. Road infrastructure is usually financed through the government’s general budget, implying significant cross-subsidies from nonroad to road users, leaving only a fraction of total costs to be financed by road users. This may not have mattered in the past as railways were owned and operated by governments (that is, total subsidies for road and rail were roughly the same). However, the introduction of private operators, which are expected to fully cover their infrastructure maintenance and rehabilitation

2. costs through users’ fees, should alter significantly governments’ thinking in this area.
1. The impact of road-rail competition appears, nevertheless, to differ noticeably from one corridor to another as the spread between average road and rail prices varied in 2003 from 44 percent (Sitarail) to 213 percent (TRC) (World Bank 2006).

2. The governments of Kenya and Uganda concluded and support a joint rail concession between Mombasa and Kampala.

3. There is a strong correlation between average freight hauling distance and rail market share: the longer the route, the stronger a rail operator’s market share (World Bank 2006).

4. This dualism is common to many industries and is based on a product differentiation strategy. Probably standard deviation is high because both trucking companies and truckers were interviewed and have different pricing strategies.

CHAPTER 5

The Impact of Cartels on Transport Prices and Quality

The trucking survey indicates that a large markup or profit margin by transport providers, made possible by the current regulatory regime, is probably the main determinant of high transport prices along some international corridors, such as that in Central Africa. The large disconnect between the transport cost incurred by the service providers and the cost to the users (transport prices) signals the existence of a distorted transport market with a cartel.¹ Profits achieved despite low yearly utilization of the transporters’ vehicle fleet and many nontariff barriers suggest that new operators would aggressively enter the market. Yet, this does not necessarily happen; the total fleet size does not increase. Furthermore, oversupply remains rampant. This is explained by the fact that operators already participate in the current system of market regulation (formal and informal) and outsiders may find it hard to operate in a market where compliance with operational regulation and market access rules is necessary.

The trucking industry in Sub-Saharan Africa faces various regulatory constraints, such as market entry barriers, market access restrictions, technical regulations, and customs regulations (table 5.1). However, market access restrictions through freight-sharing schemes have the largest impact on the performance of the trucking industry. The current system gives power to large fleets in poor condition and fosters corruption—the

Table 5.1 Main Regulatory Barriers in Sub-Saharan Africa

	West Africa	Central Africa	East Africa	Southern Africa
Licenses	Not restrictive	Market entry Not restrictive	Not restrictive	Not restrictive
	(especially for nationals)	(especially for nationals)	(especially for nationals)
		Market access
Bilateral agreement Quotas/freight allocation	Yes Yes	Yes Yes	No No	Yes No
Queuing system Third-country rule a	Yes Prohibited	Yes Prohibited	No Prohibited	No Allowed in some countries b
Technical regulation (road-user charges, axle load, vehicle standard, import restriction)	Problem of harmonization of axle-load regulation	Problem of harmonization of axle load enforcement	Problem of harmonization of axle load regulation, delays at weighbridges	Prohibition of secondhand imports in South Africa
Customs regulation	Cumbersome transit procedures inducing border-crossing delays	Cumbersome transit procedures inducing border-crossing delays	1. Prohibition for trailers in transit to pick up backloads in Kenya 2. Cumbersome transit	Cumbersome transit procedures inducing border-crossing delays
			procedures inducing border-crossing delays

Source: Study team compilation of data from various sources.

a.

The third-country rule allows operation of trucks registered in a third-party country to transport goods between two other countries.

b.

South Africa, Zimbabwe (on a reciprocal basis), and Malawi (during a defined period of time).

only way to increase transported volumes is to bribe the freight bureaus. This situation also explains why direct contracting, one of the best signs of better logistics, is almost nonexistent in Central Africa and marginal in West Africa. The freight allocation system is entrenched in these sub regions and several attempts to abolish it have been unsuccessful.

The different levels of truck utilization in Sub-Saharan African sub regions are the result of oversupply of transport capacity, which explains differences in transport prices. The two main strategies that operators use to mitigate regulatory burdens are the use of secondhand trucks and overloading. See box 5.1 for an illustration of how this system was abolished in the case of France.

Impact of Freight-Sharing Schemes

Market entry through the licensing process is relatively easy. Indeed, trucking companies and operators do not identify the licensing process as a main constraint of the sector. Moreover, except in Kenya and Uganda, licenses to operate internationally remain marginal expenses in total VOCs. Oversupply in many landlocked countries (see below) tends to demonstrate that market entry and credit access to finance trucks are not a major constraint to market entry.

However, customs regulations have a major impact on truck utilization and therefore on VOCs.² For instance, Kenya bans trucks used for international transit from transporting domestic goods on return trips, which leads to cutting in half the average payload utilization on the Mombasa–Kigali route.This is detrimental to trucking industry profitability. Moreover, cumbersome transit regimes induce delays at the borders, which can seriously limit truck utilization.³

Notably, the main regulatory issue concerns operational rules and market access restrictions, mainly through freight-sharing schemes. The regulatory environment of landlocked countries in West and Central Africa is centered on two related regulations:⁴

• a transit bilateral treaty, which establishes quotas for the fleets of the coastal and landlocked countries

• a formal/informal queuing system (“order of loading” or tour de rôle⁵) that allocates freight to transport companies, requiring the operator to be affiliated with a transporter association

Even though the tour de rôle is perceived negatively by most stakeholders in landlocked countries, the bilateral quotas are supported to protect truckers

Box 5.1

History and Impact of the Queuing System in France

The queuing system in France originated with inland water shipping. Established in 1936, the system was codified by the law of March 22, 1941. Queuing was applied to the road transport sector after the establishment of the regional freight bureaus (BRF) in 1961.

Freight bureaus receive transportation requests from shippers. After centralizing requests regionally, a list of vessels is assigned chronologically to the transport requests. The chronology of assignment mainly depends on when a carrier’s availability registration arrives at the freight bureau.

The queuing system was set up by a decree of July 28, 1965, to “ensure the proper functioning of the freight transportation market and allow transport coordination.” The BRF* took over coordinating supply and demand of transport, a task that cafés had once performed unofficially. Each carrier was registered on arrival at the BRF and then received a priority order to load freight.

Requests to the BRF for transportation always had to come from a transport broker. The request was displayed on a blackboard with key information (tonnage, destination, type of goods, and so forth). If a carrier was interested in fulfilling this request, an announcement was made in the office. If no other carrier claimed the same freight, the batch was assigned to the carrier that registered first. If the freight was claimed by another carrier, the first registered carrier got the load; however, two subsequent vehicles from the same carrier could not be loaded without a prescribed minimum delay. This system was established to prevent large companies from controlling the BRF.

What was the impact of such a system? The BRF increasingly became responsible for delays and poor transport quality. Indeed, guarantees of work made carriers complacent and competition nonexistent, which undermined transport service quality. Queuing did not lead to an optimal distribution of traffic or give incentives to provide better service, but led to an oversupply of trucks in a context of freight shortage. Oversupply could oblige a trucker to stop running a truck for a month or more. That also discouraged investment in new trucks, which created high risk for future revenues. The queuing system gave more power to large fleets in poor condition and fostered corruption, because the only way to increase transported volumes was to bribe the freight bureau.

In France, this system was abolished 20 years ago in the road transport sector and five years ago in the inland water shipping sector.

Source: Based on Souley (2001).

* France was divided into 19 regions. A national center, CNBRF, coordinated the work of the regional BRF.

from inland countries. In fact, in many countries in West and Central Africa, authorities have tried to tackle the problem by declaring the system (order of loading) unlawful. However, these attempts have not been very successful, mainly because the quota system gives a legal basis to restrictive practices.

A main justification for the queuing system is fairness and the possibility of sharing transport profits with small operators. The rationale is then social. Despite the fact that supporting services provided by national operators in developing countries may be laudable, in many cases the perceived benefits of market regulation in Sub-Saharan Africa are captured by a few people at the expense of the whole economy (see box 5.2 for the example of maritime transport).

Box 5.2

Captured Market Regulation: Cargo Reservation Schemes in Maritime Transport

The United Nations Convention on the Code of Conduct for Liner Conferences (UNCTAD 1975), which entered into force in 1983 with ratification by 78 countries, established the “40/40/20” Rule in maritime transport. The main provision of the rule was that shipments carried between two state parties had to be shared in the following way: 40 percent for shipowners established in the country of origin, 40 percent for shipowners established in the country of destination, and 20 percent for shipowners from other countries (cross-traders).

Justification of the rule

This cargo reservation scheme was promoted to encourage the development of the shipping industry in developing countries and to counteract the anticompetitive behaviors of the liner conferences,* which were cartel-like arrangements. The rule was meant to give developing countries the opportunity to participate in the carriage of their trade as a method to decrease the trade deficit in services as well as to induce international trade (Fink et al. 2002). With the acceptance of the Liner Code during the 1970s, the European conference members cooperated with the African maritime authorities to share traffic with new national African shipping companies.

Impact of the rule in developing countries

In general, the Liner Code has been counterproductive (Chasomeris 2005; European Commission 2005) because local shipping industries did not take off. As a result of the Code’s distorting practices, maritime transport prices increased. The

(continued)

Box 5.2 (Continued)

“40/40/20” Rule led to a protected market for African shipping companies, an oligopolistic rent for European shipping lines, and strengthened vested interests in the sector. In reality, the rule created several national shipping companies without ships, which sold their country’s share of cargo to foreign shipping lines without accepting any responsibility for the quality or cost of the services provided (Harding et al. 2007). In addition, the Liner Code sometimes was used as a justification for discriminatory practices that created market distortions. In some instances, the Code provisions were misused to justify the extension of the “40/40/20” Rule to the whole of liner trade or even to bulk transport.

The end of the rule

During the 1980s, it became increasingly difficult to keep some European and Asian members of the conferences out of the market, and in 1992 the European Court ruled that the liner conferences were illegal monopolies. In many West and Central Africa countries, the lifting of the “40/40/20” Rule has led to increased competition with Europe, which ultimately has led to decreased transport prices (Pedersen 2001). As a result of maritime transport liberalization (still only de facto in some countries) and the end of the rule, national shipping lines that had been established under the umbrella of the Liner Code greatly diminished in size and importance and were usually taken over by foreign shipping lines or went bankrupt.

Source: Task team based on Souley (2001).

* Shipping companies have organized themselves since the 19th century in the form of liner conferences, which fixed prices and regulated capacity. They are associations of shipowners operating on the same route served by a secretariat.

In road transport, bilateral transit treaties with quotas and freight allocation and the queuing system play the same role that the “40/40/20” Rule played in maritime transport.This system and rule lead to poor service and low productivity, with no incentives to improve efficiency.⁶ So that transport quality could be assessed in such an environment, a measure of transport quality was developed that was based on trucking survey results.⁷ The measure is a proxy for a transport quality index and is based on factors known to influence transport quality.⁸ It includes the education level of the head of the company, the number of years in the industry for the head of the company, the perception of the importance of domestic competition, the importance of load obtained through contracting, the use of a tracking system, the fleet age and size, and the number of employees (see results in figure 5.1). According to this index, transport quality seems to be highest in Kenya and Uganda and lowest in Chad and Burkina Faso.

While bilateral freight allocation protects the trucking industry of landlocked countries, it creates de facto cartels and slows down market and regional integration. Furthermore, the protected operators often do not meet regulatory requirements. For instance, the Nigerien fleet is not appropriate to handle freight peaks and for various reasons is less competitive than are coastal countries’ fleets.

In practice, authorities and trucking companies acknowledge that bilateral quotas are not enforced in the case of Niger.⁹ Adoléhoumé (2007) estimated a 36 percent market share for the Nigerien fleet on the Togolese corridor in the first six months of 2007, whereas it should have been in theory two-thirds. The same figures are given for the Central African Republic and Cameroon. On the ground, landlocked countries’ fleets do not carry more than 50 percent of total traffic because the fleets are inadequate and uncompetitive.

Adoléhoumé also estimated that the Nigerien fleet of articulated trucks is on average 29 years old, and its operating costs per vehicle-kilometer are some 30 percent higher than the Beninese or Togolese fleets. Shippers who are forced to use local fleets have to pay a surcharge that reflects higher prices, lower quality, or bribes (if shippers want to use their own transporters). These costs are detrimental to the interests of landlocked economies.

Figure 5.1	Transport Quality Index Based on the Trucking Survey Results
0.7
	0.60

transport quality index

0.6

0.5

0.45

0.42

0.38

0.4

0.33

0.32

0.3

0.25

0.2

0.1

0.0

Burkina Ghana Cameroon Chad Kenya Uganda Zambia Faso country

Source: Trucking survey and own calculations.

The bilateral quota system is prone to strengthen bribes because the trucking association in charge of enforcing quotas “sells” market shares and freight to truckers and trucking companies ready to pay the highest bribe. This helps explain why bilateral quotas are not enforced. Further, in the case of Niger, the trucking association frequently sells freight to non-Nigerien companies.¹⁰

Direct contracting—that is, a medium- or long-term contract between a shipper and a trucking company—is one of the best signs of good logistics. However, direct contracting is almost nonexistent in Central Africa and limited in West Africa to some institutional shippers, which bypass the queuing system (see table 5.2). Stakeholders and representatives of transport associations usually agree that such contracts are the only way to develop an efficient transport industry. That is why the importance of direct contracting is an excellent proxy to assess modernization, or the lack of, in the trucking industry.

Central and West Africa are clear examples of the negative effects of freight-sharing schemes on transport prices and quality. However, the freight allocation system entrenched in these subregions would not be easy to abolish. In Niger, there was a recent attempt to abolish the queuing system. A government decree¹¹ states that (i) the two-thirds and one-third rule to distribute traffic between local transport companies and the maritime transport companies is still in effect, but (ii) all trucking operations

Table 5.2 Main Methods Used by the Trucking Industry to Get Freight

(percentage by subregion)

Through public-By phone/fax private and through By trucks waiting at Through institutions in contracts lorry parks and independent charge of freight from finding their freight agents allocations customers own loads Others

West Africa 42.7 21.0 16.2 1.9 18.2 Central

Africa 35.7 11.4 2.1 24.1^a 26.7 East Africa 12.7 20.7 27.3 5.1 34.2 Southern

Africa 12.5 1.1 16.4 0.8 69.2

Source: Trucking survey and own calculations. Data for Zambian fleet for Southern Africa. Note: It is difficult to capture the exact role of freight bureaus from the trucking survey. Interviews suggest that bureaus are more important than surveys because truckers with old fleets benefit from the current system.

a. This percentage, as well as the percentage of freight procured through independent agents, can be construed as part of the freight procured through allocation bureaus. Indeed, agents that “negotiate” with freight bureaus and truckers waiting at lorry parks depend on paperwork issued by the freight bureau.

within the Nigerien two-thirds are open to full competition.¹² Yet a workshop organized by the government on the Nigerien transport industry with all stakeholders to discuss the decree was boycotted by trucking associations.¹³

Up to now, the decree is nothing more than a signal. Indeed, the tour de rôle never had any legal ground and was designed by the Nigerien truckers to be self-imposed. Hence, its implementation requires willingness from Nigerien trucker association representatives. The queuing system will persist as long as transport associations have leverage, thanks to the bilateral transit agreement, which gives them the power to avoid direct contracting between the shipper and the transporter.

Occasionally, smart outsiders can enter this closed market, creating some competition. However, entering the market this way generally means long waiting times at the port and possible risks of retaliation from the trucking association or freight bureau.

Truck Age and Utilization

The large difference in transport prices (and costs) between Southern Africa on the one hand and Central and West Africa on the other is clearly correlated with the level of truck utilization and the oversupply level, which mainly depends on the existence of cartels. Although trucking companies in Southern Africa are able to utilize their vehicles at levels similar to European transporters (10,000–12,000 kilometers per month), operators in Central and West Africa utilize their vehicles at lower rates (sometimes as low as 2,000 kilometers per month).

The dismal truck utilization in West and Central Africa implies that the profitability of the trucking operations comes from other factors. One factor is the low capital investment where operators purchase old trucks.Table

5.3 shows that only 34 percent of truckers or trucking companies financed their vehicles, partially through a bank loan in Central Africa, and only 21 percent in West Africa. The cost of a truck, more so than financing costs, may explain why truckers buy low-cost and old vehicles. Figure 5.2 shows that fleet age is highest in West and Central Africa. These subregions also have the lowest yearly mileage because of cartels and oversupply.

Truck overloading. Another critical variable in the profitability of trucking is the load per truck.To maximize loads and revenues from limited trips and low vehicle utilization, operators need to overload their vehicles. Since the revenue of the transport providers is generated on a per-ton basis and the marginal cost of overload is low, overloading does make sense.¹⁴

(percent)

Table 5.3 Method of Financing Truck Purchases

Financed by
Financed by		company	Financed by	Financed
a bank		cash flow	personal savings	informally
West Africa	21	58	47	8
Central Africa	34	42	46	13
East Africa	53	53	54	5
Southern Africa	7	56	56	11

Source: Trucking survey and own calculations. Note: Sum of columns exceeds 100 as often more than one method of financing is used for truck purchase.

Figure 5.2 Fleet Age and Yearly Mileage

(by subregion)

truck fleet age (years)

35 30 25 20

15

10 5 0

0 50,000 100,000 150,000 200,000 250,000

yearly mileage

Source: Trucking survey and own calculations.

Most stakeholders in the trucking business have a vested interest in operating with overloads:¹⁵

• The driver is a direct beneficiary because he or she is paid cash for extra tons loaded but not declared. This may double or triple his or her salary (from FCFA 50,000 to FCFA 100,000 or even FCFA 150,000 per month).

• The head of the trucking company knows about this practice but disregards it as long as it does not have much impact on the truck.

• The intermediary also has a direct interest, his or her commission being calculated on the load for which he or she intermediates.

• The shipper also benefits since the load logged at the border will be the legal one, resulting in large savings on tariff duties.

• Law enforcement agents (including customs agents) who overlook the obvious overload are adequately rewarded.

The only loser of this systematic overload is the economy of the country, either directly through lower import tax revenues or indirectly through rapid road destruction.

Niger’s public authorities, for example, have relaxed their policy regarding overloading penalties. According to regulations of the West African Economic and Monetary Union (WAEMU), a penalty of US$120 per overloading ton should be enforced on top of a flat penalty fee. However, in 2005, the government adopted a national regulation that reduced drastically the penalties for overloading. According to the old regulations, a truck with a 65-ton load (common in West Africa) should have been penalized more than US$1,000; the new regulation has reduced the overloading fee to US$25. This policy adjustment certainly benefits trucking companies and truckers, but it heavily taxes the general public, who have to pay for the premature deterioration of the country’s road assets.

The use of weighbridges to control loads has been ineffective, and not just in Niger. As shown in table 5.4, several road sections with weigh-bridges are in no better condition than sections where there are fewer or no weighbridges. There is sufficient evidence to assume that overloading is the main cause of road deterioration and, therefore, that the weigh-bridges are not being utilized effectively to control overloading.

Table 5.4 Infrastructure Condition and Load Control

Percentage of road
section in good or				Number of
Region	Origin	Destination	fair condition	weighbridges
West Africa	Tema/Accra	Ouagadougou	82	no data
	Tema/Accra	Bamako	61	no data
Central Africa	Douala	N’Djaména	45	7
	Douala	Bangui	53	6
	Ngaoundéré	Moundou	100	0
	Ngaoundéré	N’Djaména	61	2
East Africa	Mombasa	Kampala	86	4
	Kampala	Kigali	75	2
Southern Africa	Lusaka	Johannesburg	100	no data
	Lusaka	Dar-es-Salaam	no data	no data

Source: Task team calculations. Note: Good or fair condition reflects the percentage of the section that could be traveled at 50 km/hour in all seasons.

A vicious circle of transport prices and costs. The combination of the regulation framework and the operators’ mitigation strategies, including overloading, is illustrated in figure 5.3. Three main issues affect risk for truckers and shippers:

• limited market and oversupply, which makes freight scarce

• cumbersome public procedures (freight-sharing schemes, controls on goods in transit, border controls), which lead to truck underutilization

• high costs of inputs and technical risks (linked to old fleets operated on roads that may be in poor condition), which make truck utilization costly

• Truckers’ mitigation strategies are centered on the following issues:
• cartel formations • overloading

• the use of secondhand vehicles

Cartels

Truckers have misconceptions about the benefits of cartels. One of cartels’ negative consequences is oversupply. Indeed, this system attracts more truckers because of the potential profits and increases technical risks because of the fleet age and overloading practices. Freight bureaus are

Figure 5.3 The Vicious Circle of Transport Prices and Costs in a Strongly Regulated Environment

Main issues Risks Mitigating strategies

Source: Task team.

unconcerned, because as long as their fees (official and nonofficial) are paid, freight is allocated irrespective of whether oversupply is rampant. Consequently, there are too many trucks and not enough freight.

Moreover, many transporters may ultimately suffer instead of benefiting from the regulatory regime, since commercial trucking becomes less attractive to users. Indeed, shippers have to pay a high price for a low service quality—a strong incentive for widespread own-account transport. Representatives of transporters’ associations usually single out own-account transport as one of the main reasons for market oversupply and unfair competition. However, they usually acknowledge that own-account transport is the result of the transport industry’s poor performance.¹⁶ For shippers, the main mitigation strategy is to develop own-account transport, which makes freight even more scarce for professional truckers. That is also why the model of trader-transporter is so widespread in West and Central Africa.

Fleet Size

What is the ideal fleet size for landlocked countries? Under the current traffic allocation assigning two-thirds of international freight to landlocked countries, their fleets are up to three times larger that needed for satisfactory levels of productivity for the capital invested in trucks.

Even considering long turnarounds and fleet characteristics, several landlocked countries have larger truck fleets than they need to meet current demand. This is partially explained by cartels. For example, the Central African Republic has a (theoretical) fleet of 600 trucks¹⁷ for approximately 200,000 tons of exports and less than 100,000 tons of imports. Assuming about one-third of the fleet is composed of inactive or out- of-service trucks, this leaves about 395 trucks as the adjusted current active fleet. However, the demand—measured by current import/export volume—would only require 125 good-quality trucks to carry the current freight volume. In West Africa, the total Nigerien fleet is approximately 4,500 trucks. Applying the same one-third factor to discount trucks not in service, the operational fleet would still be three times larger than needed. With around 1 million tons of imports and two-thirds of the traffic for the Nigerien fleet, than 100 trucks per day are needed. Fewer with a turnaround of 15 days, its ideal size should be about 900 trucks (see table 5.5).

If freight quotas between coastal and landlocked countries’ fleet were ended, the market share for Niger’s and Burkina Faso’s fleets would likely

Table 5.5 Current Trucking Demand and Ideal Supply, Central African Republic and Niger

Adjusted					Oversupply/ideal
current			Oversupply		fleet as percentage
Country	fleeta	Demand	ratio	Ideal fleet	of current fleet
Central African	395	125b	3.15	100c	6%
Republic					(25 trucks)
Niger	2,970	905	3.30	455	15%
					(450 trucks)

Source: Adoléhoumé (2007) for Niger data and Ministry of Transport for the Central African Republic data.

a.

Adjusted means total fleet less one-third.

b.

140,000 metric tons of exports are loaded in Belabo (return transport time from Central African Republic (CAR) to Belabo is at most 5 days); 90,000 metric tons of imports come from Douala (return transport time Douala to CAR is about 15 days). Without an overload of at least 10 percent (30 metric tons), we can estimate the average daily demand for 12 trucks to go to Belabo and 8 trucks from Douala. Because of long turnaround times, the total demand is (12 5) + (8 15), of which two-thirds is for the CAR fleet.

c.

At the same current demand. Without overloading, we can estimate the average daily demand for 20 trucks to go to Belabo and 15 trucks from Douala. Because of shorter turnaround times, the total demand would be (19 3)

+ (12 8), of which two-thirds is for the CAR fleet.

decrease. Because of higher capacity resulting from increased truck productivity, the oversupply ratio in these countries would be higher than three, at least until their fleets gradually were downsized.

Notes

1. A cartel is a consortium of independent organizations or companies formed to limit competition and set monopoly prices by controlling the production and distribution of a product or service. Cartels induce abnormal markups.

2. An estimate of the impact of various measures is presented in chapter 10 of the report.

3. For more details on the impact of transit regimes on the trucking sector’s competitiveness, see Arvis et al. (2007).

4. See annex 4 for more details.

5. Contrary to bilateral quotas, the tour de rôle has no legal basis whatsoever.

6. A landlocked country limiting access to its freight market for foreign companies self-imposes higher transport prices on its trade. Transport cannot be optimized with backloads, and transport providers, assuming no backload, charge higher prices one way.

7. It would have been better to assess transport quality from end users, but it is difficult to get reliable data on transport quality from surveys of firms, such as investment climate assessments.

8. The index is calculated as a weighted average of indexes using the following weights:

9. This situation also was corroborated for Burkina Faso’s trade flows during the stakeholders’ workshop in Ouagadougou in February 2008.

10. International own-account transport is usually allocated to Beninese companies. Shippers willing to overload prefer to use Beninese or Togolese fleets, which are younger.

11. Ministerial decree number 09/MT/DTT-MF of February 2007.

1. The most important articles of the decree are the following: “Article 2: Within the two-thirds quota allocated to trucks registered in Niger, the importer is authorized to load its cargo on its own truck or any Nigerien trucker’s trucks of its choice with trucks registered in Niger (with valid transport and registration documents). Article 4: The CNUT is in charge to monitor the repartition between Nigerien trucks and those from the transit country and will report it to the Minister of Transport.

2. All changes in truck assignments that violate the freight repartition as done by the Comité Paritaire will be fined according to the law.”
12. Some companies attempt to enter the market without being part of a trucking association and of the queuing system, but usually on very limited niches.

13. The willingness for all parties to overload trucks to maximize profits does not favor containers, because their fixed maximum capacity prevents overloading. That is why containerization rates remain low in most parts of Africa.

14. Despite being unable to estimate overloading in detail, Oyer (2007) found a strong positive correlation between vehicle operating costs for heavy trucks and cargo factor.

15. This point was discussed at length during the stakeholders’ workshop organized in Burkina Faso in February 2008.

16. Figure given by the CAR Ministry of Transport.

Weighting
Parameter	coefficient
Education level of the head of the company	2
Experience in the industry of the head of the company	1
Perception of the importance of domestic competition	2
Importance of freight load obtained through contracting	2
Use of tracking system	1
Fleet size	1
Fleet age	3
Number of employees	1

CHAPTER 6

Transport Costs Determinants

This chapter analyzes the factors influencing road transport costs. It starts by discussing the way companies organize and operate, and follows by suggesting a typology of companies, which is important since transport companies’ organization affects both fixed and variable costs. It then presents a comparison of transport costs between the various corridors, and concludes with an analysis of variable and fixed costs as well as factors influencing them.

Based on the trucking survey carried out in this study, different typologies of transport companies coexist on the same corridors. In general, the cost structure in Sub-Saharan Africa is opposite from those in developed countries. In Africa, trucking companies’ costs are mostly variable, while fixed costs are generally low. The extreme cases of high variable costs to fixed costs are in Central and West Africa (about a 70/30 ratio) whereas in East Africa the ratio is 60/40 between variable to fixed costs.

In all African corridors, the cost of fuel and lubricants are the main variable costs, accounting for at least 40 percent of total VOCs. Tire cost is also an important factor. On the other hand, bribes do not seem to play a major role on most African corridors.

In East and Southern Africa, transport costs are severely affected by the opportunity cost of delays (at border crossings, weighbridges, and ports) and long custom procedures.

Typology of Trucking Companies in Africa

The way companies organize themselves and operate influences their costs, both fixed and variable. Table 6.1 describes the typology of trucking companies, ranging from formal, professional companies to informal, owner-operator companies. Different types of trucking companies operate on the same corridor and face different costs, making it necessary to determine whether each type can compete and be profitable.

Operating Costs in the Subregions

Variable costs represent the bulk of total transport costs in Central and West Africa, with a minimum average ratio of 70/30 for variable/fixed costs; the main components of variable costs are fuel and tires.

Table 6.2 illustrates how the cost structure differs between African countries and developed countries. In developed countries the trucking industry is labor intensive, which explains why numerous companies in Western Europe employ cheap labor from Eastern Europe. In Africa, variable costs dominate, mainly fuel, tires, and, to a lesser extent, bribes in Central and West Africa. The cost of capital may also be a problem in East Africa.

Transport costs. Table 6.3 shows the average operating costs of selected routes in the four study corridors. The spread in transport costs is smaller than for transport prices. In general, variable operating costs¹ in African countries range between US$1.22 and US$1.83 per kilometer with the exception of high variable costs on the Ngaoundéré–Moundou route (US$2.49) and low variable costs on Mombasa–Kampala (US$0.98). On the other hand, fixed operating costs maínly depend on the routes. As shown in the table, daily fixed costs in Africa can vary threefold, from US$21 to US$73, but this variation is small compared to fixed costs observed in Europe or the United States.

Along Central African corridors,² routes that are comparable in distance and average fleet age (9–11 years) include Douala to N’Djaména (1,830 kilometers) and Douala to Bangui (1,450 kilometers). These routes have similar variable average operating costs, between US$1.22 and US$1.31 per kilometer. However, they do not have similar fixed operating costs since relatively newer fleets operate to Bangui compared with those operating to N’Djaména.

Comparable routes starting in Ngaoundéré (Cameroon) with final destination in Chad are Ngaoundéré–N’Djaména (750 kilometers) and Ngaoundéré–Moundou (460 kilometers). These routes have similar low fixed costs, around US$22 per day, but face different variable operating costs.This is mostly explained by the higher expenses in tires, maintenance

Table 6.1 A Typology of Trucking Companies in Africa

Characteristics

Freight

forwarding Own-account

and transit transport Fleet operation Type of company activities service Fleet size Fleet financing characteristics Comments

1. Modern— Yes No own-account 10 to 100+ Cash flow, leasing, professional transport and bank financing

1. Modern—informal Yes Own-account 10 to 100+ Mainly leasing sec

2. transport ondhand vehicles with guarantees from traders
2. Formal—powerful No Usually no own-A few to dozens Various financing but account mainly cash flow transport

High mileage (over 80,000 km/year)

High fixed costs

Usually own new trucks

High mileage

Lower fixed costs than professionals

Lower total costs

Mix of new and secondhand trucks

Low mileage (50,000–70,000 km/year)

Low fixed costs except if prices are extremely high and allow for fleet improvement

Mix of new and secondhand trucks

High fixed costs; low to high transport prices depending on market regulation

Cross-subsidy of activities and informality, which enables companies to offer lower transport prices and have large fleets

Companies’ power (ties with political decision makers, position in trucking associations, law enforcement agents, including customs, police, and tax agents) allows them to circumvent rules. Huge profits in a regulated environment

(continued)

Characteristics

Table 6.1 A Typology of Trucking Companies in Africa (continued)

Freight
forwarding		Own-account
and transit		transport			Fleet operation
Type of company	activities	service	Fleet size	Fleet financing	characteristics	Comments
4. Own account	No	Own-account	Depends on	Included in the fund-	Low mileage
		transport	the extent of	ing of main activities	New or secondhand
			industrial		truck; depends on the
			activities		company strategy
5. Informal—	No	No own-account	Limited to 1–3	Cash flow	Low mileage	Low transport prices because
individuals		transport	trucks		(50,000–60,000	of oversupply of transport
					km/year)	Low quality of service to
					Low fixed costs	remain competitive; informal
					Low revenues	costs (bribes) are a major
					Secondhand trucks	cost factor

Source: Task team compilation.

Table 6.2 Transport Costs Composition

(percent)

Cost France Chad Kenya

Fuel 25 50 21 Maintenance and tires 9 22 10 Depreciation and insurance 12 8 24 Toll roads/road-user charges 5 11 1 Staff costs 35 6 19 Administrative and overhead costs 14 3 25

and others Total 100 100 100

Source: CNR for France, trucking surveys for Chad and Kenya.

Table 6.3 Truck Operating Costs in the Four Corridors

Variable Fixed Yearly Average Route gateway/ cost cost ratio FC/VC truck fleet Corridor destination (US$/km) (US$/day) (%) age (years)

West Africa Tema/Accra– 1.51 30 10–89 13 (Burkina Faso and Ouagadougou (0.59) (16) Ghana) (Burkina Faso)

Tema/Accra–Bamako 1.67 36 10–89 9 (Mali) (0.23) (23)

Central Africa Douala–N’Djaména 1.31 49 17–82 11 (Cameroon and (Chad) (0.34) (30) Chad)

Douala–Bangui (the 1.22 73 25–74 9 Central African (0.34) (43) Republic)

Ngaoundéré– 1.83 22 7–92 15 N’Djaména (Chad) (0.27) (8) Ngaoundéré– 2.49 21 5–94 19 Moundou (Chad) (0.64) (6) East Africa Mombasa–Kampala 0.98 61 68–31 7 (Uganda and (Uganda) (0.46) (30) Kenya) Kampala–Kigali 1.47 40 56–43 10 (Rwanda) (0.84) (30) Southern Africa Lusaka–Johannesburg 1.54 55 61–38 9 (Zambia) (South Africa) (0.41) (39) Lusaka–Dar-es-Salaam 1.34 71 75–24 10 (Tanzania) (0.52) (54)

Source: Trucking survey data and own calculations. Exchange rates come from IMF-IFS. Notes: FC = fixed costs; VC = variable costs; figures are averages with standard deviation shown in parentheses.

costs (old fleets operating to Moundou), and bribes.³ On the Ngaoundéré–Moundou route, some trucks are almost 20 years old, despite the fact that a new, rehabilitated road is open to traffic (financed by the European Union).

In East Africa, a great discrepancy in the operating costs, both variable and fixed, exists on different corridors. A similar discrepancy exists within the same corridors between different trucking companies, mainly between those established in Uganda and Kenya. Kenyan companies face higher fixed costs than Ugandan companies. This is explained by Kenya’s recent acquisition of a new fleet (incurring high depreciation and financial costs), low variable costs due to a more modern and efficient fleet, and good road conditions on the main corridors.

Operating costs in Southern Africa are similar to those in East Africa. Fixed costs and variable cost ratios are higher compared with those in the rest of Africa. The Zambian fleet, although older, manages to achieve higher yearly mileage than in East Africa, which creates certain cost disparities between these two subregions.

In West African countries, costs are relatively similar between national corridors. Variable operating costs in both cases are one standard deviation away from the average. Fixed operating costs are low, and the cost structure is similar to that of the Chadian companies.

Calculations in this study are based on trucking survey data and compute all costs,⁴ which explains why our estimated fixed transport costs are much higher than transport costs estimated with models such as the HDM-4 (an extensively used methodology in many studies). It is worth noting that because the HDM-4 uses data for new trucks as an input, variable maintenance costs are higher than our estimates. However, fuel and lubricant costs are much higher in our estimates (using actual data of old trucks with less fuel efficiency) than the usual values calibrated using new trucks in the HDM-4. Overall, our estimated variable costs are higher than the ones developed by HDM-4. Table 6.4 compares the values obtained using the two different approaches.

Table 6.4 Comparison of Transport Costs for a Heavy Truck Using Alternative Methods of Analysis

(US$ per vehicle-km)

West Africa				Central Africa				East Africa
Costs	TS	HDM	Diff.	TS	HDM	Diff.	TS	HDM	Oyer	Diff.
Variable costs	1.77	1.02	173%	1.30	0.99	131%	0.98	1.08	0.95	91%
Fixed costs	1.02	0.14	749%	0.57	0.24	236%	0.35	0.17	0.15	201%
Total costs	2.79	1.16	241%	1.87	1.23	152%	1.33	1.25	1.10	106%

Source: Trucking survey data and own calculations. Notes: TS = trucking survey; HDM = highway development maintenance model; Oyer (2007); Diff = difference.

The Importance of Variable Costs

Vehicle operating costs show a ratio of about 30/70 between fixed and variable costs in Central Africa, 40/60 in East Africa, and 15/85 in West Africa (table 6.3). Overall, operating costs for a heavy truck are as high (in Southern Africa) and sometimes much higher (in Central Africa) than in Europe.