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Interview with:
Mr Kewal Thapar,
Chef Executive Officer
Nairobi, July 28th, 1999
Contact:
Nairobi Cargo Center
Jomo Kenyatta International Airport
PO Box 19129, Nairobi, Kenya
Tel: +254 (2) 824943-47 / 51-52
Fax: +254 (2) 824955
Email: achlceo@africaonline.co.ke
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What is African Cargo Handling Ltd.?
African Cargo Handling Ltd. is a consortium of about 5-6 firms. Essentially, the firms or shareholders can be divided into two broad categories. One is the technical or sponsor firms and the other are our financial institutions that form part of our shareholding structure.
The technical partners are essentially Frankfurt Airport Authority (FAG) which now has been voted the second best airport in the world, both for ground as well as passenger handling. It is probably the largest airport that handles the maximum number of passengers. If you compare it to Shanghai, which has been voted the best, the volume of passengers handled by Shanghai is far lower than that of Frankfurt. In a way, if you are handling more people, then you can handle them more efficiently. That is the kind of strength that Frankfurt Airport Authority brings to the consortium. That is the technical expertise, the experience, it is a standard of service delivery that it brings to the consortium.
The other is British Oxygen Holdings Ltd (BOC). It has two segments to it. One is involved in gases and from that they did a basic backward integration when they went into manufacturing cold stores. From there they went to distribution and then onto cargo services. It I s just an extension from where BOC was and they went on to establish BOCDS (Distribution Services) and BOCCS (Cargo Services). That is the second part of the consortium.
What we do here is basically to ramp, i.e. ground handling operations as well as cargo-warehousing operations. We then have two very strong technical partners. One with extensive experience in ground ramp handling, airport management and security. The other has extensive experience in warehousing, cargo management systems, and computerization of these systems. I understand that BOC handle Marks & Spencer in the UK. It does all the distribution for them. You can then imagine the kind of expertise that they are bringing into the consortium.
Then we have African Cargo Ltd., a locally established company. It used to do freight forwarding, etc. They are the ones with the local expertise and tthe ones who had the vision. Thereafter, we have the financing institutions, which are a separate entity altogether. We have the Commonwealth Development Corporation (CDC), which is probably the largest financing institution in Africa, which has a number of financing institutions associated with it like the Acacia fund or COMAFIN, which is basically a venture capital.
Lastly, we have DEG. Since FAG was coming along. DEG and FAG move along in tandem. They decided that they wanted their presence here. DEG is already in involved in tourism in Kenya as well as in infrastructures. They wanted to diversify, so they have also taken an equity stake in our company.
The total project is US$ 21.4 million out of which US$10 million is equity and US$ 11.4 million is a loan which has to be repaid within a period of 7 years. That is broadly how it is.
We came into this business after seeing the opportunities that were there. Kenya has tremendous growth in the horticultural industry. The existing air site warehouse didn't fulfill the needs. Airlines such as Lufthansa, BA etc., have always said that there was not an international quality standard facility available here on the cargo warehousing or on the ground handling aspect. They were looking for that. It's not that there aren't enough companies available, it's just that quality standard was not there. There was also a gap between what was available at air site and what was available around the airport. Whilst you might have cold stores and other such warehouses around the airport, the capacity at the air site was more or less taken up. We saw the opportunity and we put forward a proposal to the government which was accepted by the Kenya Airports Authority saying that a second air site facility needed to be created. That is how Nairobi Cargo Center came to be born.
What we basically did was to begin operations on the ramp handling. Lufthansa was one of our launch customers. They said that they would come along with us on the day of our launching. Lufthansa is the largest cargo-handling carriers from Nairobi. It was earlier envisaged that we would begin ramp-handling operations and the warehouse all at once. We then had a quick look at it, prepared a business plan and decided that it did not make sense to begin both at the same time. Since we had money from the investors, we then bought ramp-handling equipment and literally within a period of 15 - 20 days we became the largest ramp-handling equipment owners of the airport. Along with the Lufthansa contract came the South African Airways cargo contract, since they operate out of Nairobi on a good share with Lufthansa.
When we began our ramp handling operations, we were fortunate enough to have clients because we just took over the Lufthansa equipment and their staff and started operations. We then entered into another sub-agreement with an existing firm, bought its existing equipment and took over its contracts. Overnight, by November 30th,1998 we became the largest cargo-handling operation
Why did you choose Kenya?
There are two parts to our business, the cargo warehousing and the ramp-handling, which involves loading and unloading aircraft with specialized equipment. Kenya Airfreight Handling is a cargo warehousing company.
We began ramp handling on November 1st, 1998 and today we are handling about 150 aircraft freight monthly which considering the Nairobi market is very high.
I think a lot stems from Kenya's location. It's more geographical than anything else. I do not mean to say that either Kampala or Dar-Es-Salaam are badly placed, but if you look at Kenya, everything north of Kenya is in a bit of turmoil. Sudan, Somalia, Eritrea, Kenya are not in the best of positions, so you've got the north side damped down, absolutely clamped. There is not much happening there. Then you look to the East of Kenya and you have got Uganda, Burundi, Rwanda, Congo, Zambia, and I don't think they are very bright prospects in terms of trade.
In Uganda, horticultural exports are at an all time low. Fish used to be a big export until there was a ban on fish from Lake Victoria by the EU. The export of fresh horticultural produce etc., from Uganda and the rest have always been low. The quantum has never been the likes of Kenya. Over the last two years, if you go to a warehouse in Frankfurt or Amsterdam you will find it filled with flowers from Kenya. If you go into a supermarket such as Salisbury's or Marks & Spencer's, they no longer label their beans French beans, but Kenyan beans. The association with Kenyan products has happened because Kenya has been able to capture the market. The Kenyan horticultural industry, despite the El Nino, has taken off in the last two years. It is now the single largest earner of foreign exchange in this country. Tourism has fallen off simply because of political and other reasons which have not affected the horticultural industry. Kenya is doing well and it has the potential to do even better. Our own partner, CDC owns a farm here, and they have projections to increase to 30,000 tons/annum in 2 years time.
When this facility was designed it was felt that
the cold store was an absolute necessity. Everybody
wanted faster and quicker delivery, quality service.
At the end of the day, they did not want half the
produce to end up in a European airport and have
a quality control inspector saying that half the
produce should be destroyed because they are not
fit for either consumption or use. Now they have
based their quality inspectors out from the UK here.
They label and price the products here so that they
go to the supermarkets directly without having to
go into a warehouse in the UK. They are cutting
the supplies chain down and the only do this by
ensuring that there is an efficiency level at every
stage. |
That is the combination again. This stems from the fact that we are the only operators in Kenya that does ramp handling and warehousing. The others do either ramp handling or warehousing. We are a one-stop-shop. You come, deliver your goods in and out they go. If an airline is contracted in both the ramp handling and cargo, we will not only ensure the airline that the goods are picked up from the exporters' warehouses, processed within our warehouses or loaded onto the aircraft, but we will ensure that everything happens within the time frame agreed upon. The same thing happens on the way back. If there are imports coming in, from the time we unload them to the time they are brought into the warehouse, the time span will be six hours, maximum.
What could you offer to the American exporters that are starting to penetrate the Kenyan market?
There are only two selling points of this entire facility. We are not into a price war situation. Our rates are competitive, i.e. benchmarked to current rates. We are not higher than any one else at the air-site. It is quality-service delivery, and at the end of the day what is important in the Kenyan market is security of goods. The unique selling point stems these two points.
Can yu tell us about your security measures?
The security aspects are controlled basically at three points. Our own investigations and our own experience of what happens at the airports is that you could loose goods between the aircraft and the warehouse. From November up to today we have not lost any goods. The last two points are within the warehouse and at customs. We have installed a full fledged closed circuit TV system throughout the facility: in the ramp area, parking, shelving areas, customs inspection area, offices, all of them monitored 24 hours a day. We have made abundantly clear that while our staff may be better paid, if they make one mistake they are through with the company. As a rule we have not pinched staff from any of our competitors, the reason being that we wanted to set those quality standards. That is how DLC is a technical service partner because it provides the training for all the cargo management systems on the security. We make sure that they do not come with a pre-established notion that prevails anywhere else. It has been a lot of money spent on this particular aspect. It has been a very conscious management policy. It is very easy to go out into the market and tell someone that you will pay them 10-15% if they will join you. It creates bad blood. It may cut down your training costs, but at the end of the day, you bring out an entirely different working environment which is a combination of various companies and you will never be able to mold it to the way you want it to be.
Do you intend to consolidate your business by getting alliances with airlines, freight forwarders, courier companies, etc., such as Kenya Airfreight Handling has?
We don not have an alliance with any airline. We are the agents of the airlines. Our clients are the airlines. We will enter into an agreement with any airline that wants to come in. What we agreed with Lufthansa was to become their launch partner. If any airline wants to come in, they are free to come in. We are beginning to offer other airlines quality service and we tell them that if we cannot keep up to our quality levels, there is a penalty clause, unheard of in the Kenyan market: If we cannot get out a plane within 15 minutes of the expected departure time, then we are ready to give back x% of the total income. If you are offering quality service, you can put your money where your mouth is and ensure that there is a degree of security of the goods.
We have the obvious advantage of private entrepreneurs. We are more flexible in our decision-making; we have the equity backing of very large and profitable finance organizations, etc. The reason why we have created this large infrastructure -also known as "Godzilla" on the market - is basically to have it as a show-piece, a model. We want to establish this as as a hub to then to establish other smaller hubs in the region.
How are letting Kenyans and non-Kenyans know that you are here?
We do not have any difficulty in letting people know because the infrastructure has been created in record time, everybody has seen this come up in 13 months. We have come up on time and within budget. As our chairman said at the inauguration, it's a feat, which is not only great for Kenya, it is a feat anywhere in the world. We have been strict and ruthless with our contractors by telling them that they have to get it done within the stipulated time. We said we would begin operations in June, and we did. That gives us a degree of credibility in the market.
Secondly the airlines we currently handle are quality airlines. The ones to come will again be quality airlines. We have a great stake in saying all the time that our standards are world class, nobody is better than us, etc. That is the kind of image that the airlines project and that is why they would like to be associated with us. We in turn would like to be associated with them.
DHL is a tenant. It has 1/5 of our warehouse, where they do their own sorting etc. When they found out that we were going to do this, they wanted to be part of the grand scheme, though they are a non-equity member, they are launch partners and customers.
Can you give us some figures regarding your organization?
By September this year, we will be handling about 200 aircraft of which 140-150 will be wide bodied. We have about 196 employees to date and we will go up to 240 - 260. The number of permanent expatriate staff is about 3-4. You can see the level of commitment we provided to the Kenyan government by employing indigenous people.
What are your future plans?
I think that just before the end of this year we should realistically have the possibility of starting at least one more similar venture in the region.
We are currently in the process of looking to three or four countries. At the inauguration, the investors said: "Thank you very much, you have done a good job, but it's now time to move on". To them, this is done. As far as their commitment, they have done more or less 80% of what needed to be done. They are now looking to leverage, as quickly as possible, in neighboring areas. We are looking at Zimbabwe, Addis-Ababa, and if possible Uganda. What we will do in these places is probably a combination of the same or variations of this. If a company or government tells us to handle their airport, we build an airport and we have FAG or somebody who has all the expertise to do it. If you have preferred plans and preferred airlines, they move along with you everywhere, so it can be done. |
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© World INvestment NEws, 1999.
This is the electronic edition of the special country report on Kenya published in Forbes Global Magazine.
November 29th 1999 Issue.
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