Pursuing a growth strategy in a volatile environment
Our client on this assignment is a leading integrated logistics company offering warehousing, transport, customs sheds and aviation logistics
The client had recorded steady growth since inception over twenty years ago, but was now faced with big decisions that had the potential to spur the business to significant growth over the next five to ten years, or years or significantly reverse the gains that the company had made to date. This unfavourable situation was caused the rapid developments and unpredictable shifts in government policy within the East Africa Community (EAC) states around the following:
1. the Northern Corridor Transit and Transport Agreement
2. the Standard Gauge Railway (SGR)
2. planned development of Special Economic Zones (SEZ)
4. planned expansion and development of Mombasa port
5. planned expansion and development of the Lamu Port South Sudan–Ethiopia (LAPSSET) corridor
6. planned expansion of Jomo Kenyatta International Airport (JKIA) and that of other local airports
Clarity on all these was critical for the business since logistics is capital intensive - and therefore funded long-term, is time-sensitive and can obtain huge losses from the smallest mistakes or miscalculations.
The prevailing uncertainties made it difficult for the business to commit to any long-term investment, which threatened to render it uncompetitive, since especially, the logistics industry is also largely unregulated and therefore exposed to unregulated competition. The real competitive edge in logistics is capital, which in the prevailing volatility was also exposed to severe risk.
The client was therefore looking to review its business strategy to determine how it would sustain its growth, profitability and return to shareholders in this most volatile and unpredictable environment.
We obtained a risk-weighted strategy and business plan through mathematical models that determined the optimum performance levels of the various businesses given their respective constraints in different scenarios. This specifically required detailed work around the following:
1. understanding the volume and nature of local and transit cargo through the port of Mombasa
2. evaluation of the full impact of the Standard Gauge Railway on road transport, warehousing and on container freight station (CFS) operations
3. assessment of in-ward and outward logistics demand from the planned development of special economic zones in different parts of the country
4. evaluation of the impact of the expansion of the port of Mombasa, as well as that of the port of Dar-es-sallam, on cargo logistics in the region
5. evaluation of the impact of the development of Lamu port, and that of the other LAPSSET infrastructure projects on different supply chains and their subsequent impact on the region's logistics business
6. Determination of the business' optimum resource capacity, location, governance and management structure, pricing and performance management
The business adopted the integrated strategy and business plans, and as part of the larger group strategy gave up a portion of one of its businesses to a strategic investor, who injected substantial cash into the business. This enabled the business to reduce its debt exposure, increase its working capital and cushioned it from the intermittent the shocks created by the unpredictable changes in the operating environment.
The business also went on to implement various changes in its structure, which included a major relocation of management to Nairobi from Mombasa, reorganisation of the commercial function, review of its business mix, repricing and the introduction of web-based logistics solutions, among others, through which the business has reasonably maintained its performance within expected levels.