Global Logistics

Introduction

Logistics refers to the implementation of well-planned procedures and controlling, which includes efficient transportation as well as storage of products from the point of creation to the point of utilization through taking into consideration customer requirement of both inbound and outbound movements. In a general view, logistics is the management of things from one point (origin) of another point (production) to satisfy requirements of customers or companies involved. Thus, it can be said that logistics is a key component of an economy as a whole. Global logistics plays a very important role in shipping resources needed to enhance supply management in general. With the globalization of economies, global logistics has advanced at a very rapid rate. The report discusses overall issues affecting exportation of Canadian second-hand clothes to the Kenyan market. It will also further look into four main elements that affect logistics on the global scale.

Four Main Elements which Affect Logistics on a Global Scale

According to the council of Logistic Management, logistics mainly presupposed some complexity that requires analysis as well as visualization of the whole process so as to help minimize the use of resources effectively. With logistics entailing some vital processes in an organization like packaging, warehousing, as well as transportation, more analysis is needed to help safeguard the smooth flow of the entire process. However, for the above to happen, the following four components should be looked into in detail, and their impact assessed fully. These core four elements include customer services in the form of marketing, transportation cost, inventory management, as well as warehousing and storage within various organizations.

Customer Service (Marketing)

Customer service is a key component of most businesses. Without it, no business dealings can take place, and when they are no business trading means, no logistics is required. Customers are the ones who interact with companies in various ways. The level of customer service goes all the way to improving the level of satisfaction, thus in turn improving companies’ performance regarding supply of both finished goods and raw materials

Transportation

Without a proper transportation system, logistics cannot fully achieve its advantage. It is transportation that improves the efficiency of logistics; it helps in minimizing cost and improving the quality. It entails improving transportation in both public and private sectors. When a properly organized logistic system is in place, the competitive advantage of both the government and private enterprises improves a lot. Transportation systems make goods movable and improve efficiency to promote value addition to corporations. It affects the result of logistic activities that in turn influence production and sales level.

Inventory Management

Inventory refers to the stock of goods used in an organization. Inventory management refers to the set of strategies and control that screen the level of the stock and decide the level after that they ought not to pass. On top of the inventory management, procurement goes hand in hand with determining how logistics impacts the level of inventory management. The main focus of logistics is to move products from one point to another while the mode of transportation will influence the level of inventory in an organization. Through inventory, one can determine the size of storage required to keep stock, thus influencing logistics.

Warehousing and Storage

These two are integral components of the logistic system. Warehousing refers to the part of firm’s logistics, which stores both products produced and the raw material needed for the production of goods and services. An increased interest in improving the level of stocks in most companies relies heavily on its ability and available capacity to hold the raw materials needed for the production. Warehousing plays a pivotal role in reducing the time spent on moving the ordered stock, which in turn impacts the level of logistics processes in companies. Warehousing reduces the cost of carrying out logistic activities in companies. When there is enough storage capacity within an organization, it means that the company can decide to order products and transportation that in turn helps to reduce frequent ordering, hence lowering the amount of spent on the movement of goods and services in the long run. 

Surface Transportation Available within Kenya

The choice of Kenya as a perfect destination to import products was due to the amount of transportation system within that country. There are several means of transportation in Kenya that facilitate movement of goods and services plus people with ease. The transportation system is in full development in areas like air, road rail, as well as water. It has got an extensive network of road, good railway system, including the recent launch of standard gauge railway that aids with a faster and more reliable movement of goods.

On top of the above, Kenya has good air transportation system characterized by modern international airports. There are four international airports that make the connection as well as transportation of goods from one country to other easier. In 2012, Kenya through a partnership with the US added a tarmac runway at its local Wajir Airport to help expand it to comply with the internationally required standards. Kenya is not a land lock country; it has wider and deeper docking ports where bigger cargo ships can dock with ease. One of the most seasoned ports in East Africa, Mombasa, and Lamu ports are a factor in Kenya that makes the import of goods and services to the country easier. With Mombasa being a key commercial port with an internationally recognized stand, countries as far as Congo, Uganda, and Southern Sudan prefer using this port, hence increasing the market size in Kenya.

Distribution of the Product from Canada to Destination

For the products to reach consumers, an aspect of distribution should be taken into account. Goods have to go through a certain channel before reaching their point of destination. In Canada, there are traditionally four channels through which commodities can reach consumers. They include direct selling, indirect selling, use of wholesalers and distributors, as well as use of brokers and agents.

Direct Selling

It occurs when firms decide to sell their products directly to consumers in the market. It entails sending catalogs both manually and electronically or even with the help of telephone sales with the information relating to the product.

Indirect Selling

The common method most firms use, especially when they are new to the market. They use intermediaries as opposed to direct selling to end users. They use either cab chains or local institutions that better understand the market. On top of the above, they use retail stores to make their products exposed.

Wholesalers and Distributors

Under this method, a distributor within a specific country buys a product from another country and later sells the same commodities to retail stores. A wholesaler has to look for the market of specific products and convince it to stock the products in their stores.

Brokers and Agents

This method involves firms using brokers to sell their products. Firms can choose to use this form of methods to sell their products effectively. They provide the sales force for the firm and, in return; they receive a commission on goods and services they sell. It can be either through wholesalers or retailers approaching a firm and agreeing to the sale of their products to either direct consumers or other wholesalers and earn a commission.

Mode Selection: Advantages and Disadvantages of Each of Them

The above methods used to distribute company’s products usually have a positive impact; however, this does not mean that they do not have weaknesses in them. For example, in the direct means of distribution, the company sells their product directly to consumers in Kenya, and this will help save time while doing business. It also allows firms to get feedback directly from consumers without involving an intermediary. The cost of processing the entire distribution system is also low. Nonetheless, the direct mode of distribution is usually challenging in nature as it requires that the firm meets all costs when looking for the storage cost, as well as advertisement cost

In the indirect selling category, firms usually enjoy freedom since the intermediaries are the one meeting all costs. These subsidiaries pay storage and advertisement costs within Kenya. However, this mode of distribution is not favorable as such since these intermediaries lower the firm’s profitability. Firms do not get immediate feedback from the customer.

When using wholesalers and distributors, firms are not tasked with looking for the market for their products as it is the role of a distributor to look for the market for the firm’s product. It is a factor that lowers the cost incurred by them in an attempt of getting new markets. Distributors incur advertisement cost and listing cost. However, in this category, the product is only identified with the distributor; hence, the firm loses the title on its products from customers.

Under the mode of the use of brokers and Agents, a firm uses agents and brokers to get to their customers, while the sales force is mainly provided to the firm by agent, thus allowing the firm not to incur the cost of labor and lower their expenses. However, the most crucial disadvantage with this mode of distribution is that it is very expense since these people have to be paid salary and bonus in the form of commission on each and every sale they make.

Working Conditions in Kenya

The overall working condition in Kenya is on the path to improvement guided by the 2010 constitution and the labor laws in Kenya while official working hours per week are 52 hours, but the normal working hours consist of 45 hours a week and 6 hours on Saturday. It also stipulates that a person can work at night, but should not work for over 60 hours in a week. Minors are not eligible to work. However, any person under 16 years cannot work for more than 6 hours a day, i.e. 36 hours a week.

People willing to work overtime and on Sundays and public holidays should be paid twice their basic hourly rate and no one should be forced to work over time. Section 27 of the Employment Act of Kenya states that an employee must at least have one day of rest in at regular intervals he/she works.

Within Kenya, the Public Holidays Act Section 4 also clearly states that if the holiday falls on Sunday, on the immediate succeeding day employees are entitled to rest.

Trade Restrictions

Trade restrictions refer to artificial barriers to trade between two countries, which is a result of protectionism policies employed by other countries to safeguard their market. In the Kenyan market, corporate tax is levied at 30% and a withholding tax on dividends is 5%. A Value Added Tax levied on both import and export is at a standard rate of 16 %. On top of the above, Excise duties are charged on various products, including tobacco, second-hand clothes, and beer. Since Kenya is a member of African Growth and Opportunity, its market is open for various potential firms from America and Canada, thus giving any firm from Canada free access to the market as a whole.

Expense of Shipment of Goods, Transportation Costs, Handling Expenses (Pier Charges, Wharfage Fees, Loading and Unloading Fees)

Canada and Kenya have had a well-established trading relationship with trading reaching a far peak of $139.9 million in 2013 with $110 million in export and more than $22.6 million in import in Kenya. Even though with such kind of booming trading relations between them, various costs still impact trade between these two countries.

The cost of shipment of the above commodities includes the cost of customs clearance, VAT tax paid on imports, as well as excise duties paid at the major point of entry. Transportation cost for the second-hand clothes from Canada to Mombasa includes insurance cost and storage cost during the time of transportation of the products. Lastly, at the port handling expenses on products concern offloading and securing warehouses.

Below summarized the cost of shipment, transport costs, as well as handling cost while transporting goods to Kenya.

Methods of Payment for Logistics Fees

In Kenya, just as in many other countries where export and import trade usually takes place, a method of payment for the logistic fee depends on the nurture of the product imported into the Kenyan market, as well as urgency relating to needs of customers of products. The logistic fee is drawn to cater for the bill of exchange, promissory note, inspection, sampling, delivery note, as well as warehouse receipt. Most of these payments covered on a company check. However, payment can also be wired through wire transfer or credit card with the latter being subject to an administrative fee. Most of these payments emerge once the goods already arrive at the point of clearance as they are done to aid quick release.

Principal Carriers to Transport the Product

With Kenya being accessible from Canadian by two means of transport apart from the road and rail, the principle carrier for the company’s product will depend on the demand of customers. Since fees levied on various modes vary a lot, air transport for this product is not possible due to expensiveness and since clothes are not perishable, thus making transportation by water a perfect and cheaper choice.

Key Transport Facilities (Ports, Airports, etc.) Available in Kenya

Availability of transportation facilities are in a perfect place in Kenya, for instance, the country has four major international airports counting Jomo Kenyatta International Airport, Mombasa International Airport, Eldoret International Airport, and, also, Kisumu International Airport. They provide a perfect way for transporting the company’s products with ease to Kenya. Regarding the ports, Kenya has got Mombasa port that is in the required standard acceptable for the port. The process is underway to expand the other port in Lamu, thus adding more accessibility of the country from Canada.

Special Challenges for Shippers and Carriers in the Region

Kenya is situated in East Africa with a distance of almost 12,992 km from Canada when accessing it by air and 8,434 nautical miles when navigating it through the water. With no direct flight from Canada to Kenya, most carriers use connection routes that involve first moving to Europe and then to Kenya.  A delay may arise especially when the product is needed urgently by customers. Another challenge the carriers face is that out of the four airports in Kenya three of them cannot handle big cargo planes, which leaves leaving Kenya with only one airport to handle their logistics.

With shippers, the shortest route to Kenya is via the Mediterranean Sea through the Suez Canal and then into the Indian Ocean; this, however, exposes ships to various additional costs, for example, at the Suez Canal they have to pay levies to allow them to access it. Another bigger challenge faced by shippers is insecurity, mainly in the Somali waters, posed by the Alshaab Militia group operating in Somali. This insecurity exposes shippers to pirates who in turn exhort money, thus making this transportation by water more expensive to use.

In case a product is moved to Kenya, the above mentioned challenges pose the greatest threat to the product. Sometimes the product may not reach the destination at all. On the brighter side, these challenges can be averted. The security situation in Kenya is improving. Recently, some of the world leaders have toured Kenya. Security breaches and terrorism have been a thing of the past for Kenya. Once the product enters Kenya, there is a great ready market for it. Kenyans cherish new stuff and the product will sell quickly. Also, Kenya has the highest economy in the East Africa region. It is considered as the gateway to East Africa, thus if you ship products to Kenya, the rest of Eastern Africa will open up for the product easily. 

Other Issues Specific to Global Logistics

Most of the company’s trading partners are developing countries, which directly affects directly logistic views in Canada. Shifting political environment, unstable economies coupled up with the lack of basic infrastructure together with limited enterprise management are some of the core issues proving that crucial decisions are needed for global logistics to be at par with other sectors. There should be more expansion of local partners, as well as improvement in the supply relationship to help integrate logistics on the global operation level.

Thus from the above challenges outlined this leave a lot to be done not only in the sector of logistic between Kenya and Canada but on the overall trading partnership between Kenyan market and Canadian companies. Volatile environment informs of an unstable political environment created by high insecurity, high rate of inflation mean that a company has to incur additional cost while importing their product to a foreign market. With Kenya just recuperating from terrorist activities pose by Al-Shabaab terror group as well as high inflation rate, a lot of caution is needed will importing good to their market.

Conclusion

With various benefits accruing to a company involved in global logistic such as improvement in customer satisfaction and innovation, low of transportation, low cost of inventory management cost as well as minimizing the storage cost. A firm that engages in global logistic has a higher competitive advantage as compared with others. From the above analysis, importation of company’s goods into Kenya market is not an exception to this. Even though some challenges such as threat pose by the pirate in the Kenyan waters, long distance between Canada and Kenya which translate into a high cost of shipping are some of the hindrances. Still demand and the wider market created by Kenya as well as the contribution made by her neighbors make the overall logistic of company goods into Kenyan Market worth trying.

On top of the above vast and properly developed infrastructure informs of the good inland roads, improve railway system through standard gauze railway system from the port of Mombasa to the country’s capital makes accessibility of the country’s market much easier.  A factor that helps in making the customer satisfaction level for the second-hand clothes from Canada very easy.

Lastly with trade increment between Canada and Kenya as from 2013 with a peak of 139.9 million in total trade earning, this set up makes Kenya a favorable trading partner for the country as well as for the company.

Finally, global logistics creates a major playing ground upon that countries build their economic partnership. From the above analysis of the contribution that Kenyan Market creates to Canadian Product and vice versa is huge and of great benefit. I would personally make shipments to Kenya. The country is secure and easily accessible, be it from land, or sea or air. It has a great transport system and a ready market for many products. Their willingness to buy new products make Kenya a perfect destination for shipments. Also, Kenya is the gateway to the greater Eastern Africa, I would ship products to Kenya and the rest of the Eastern Africa will open up and embrace the product. It is evident that vast market created by Kenya economy it will be advice able for the importation of Canadian products to carry on since this will improve profitability of the company as well as satisfaction of the demand need by the company’s customers in Kenya.

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