Africa: container shipping's biggest opportunity

00:00:02: I was in China about four weeks ago and i met an owner of a business that's one of our biggest customers into Africa.

00:00:07: And he said, you know my job is the easiest in the world because my business is growing twenty percent per year... ...and the only thing I have to do it make sure that I move it through right African countries.. ..because those countries grow automatically.

00:00:28: Good see again Rolf!

00:00:29: A very warm welcome everyone joining this latest episode of Straight Talk A special episode for two reasons.

00:00:36: Firstly, we will be focusing on Africa to mark a special occasion of Hapag Lloyd which are celebrating its twentieth anniversary in South Africa this year.

00:00:45: and secondly We have a special guest Lars Jensen.

00:00:48: Now Lars is someone I've known many years.

00:00:51: He's one the world top container shipping analyst And i'm delighted he was able to join Rolf & me today.

00:00:57: So Lars could you tell us about yourself first of all?

00:01:00: Spain where You Are?

00:01:03: Well, I'm calling in actually from the Hapag Lloyd office here in Senegal and among the beginning phases of a journey that will take me through forty one countries in Africa during eighteen months.

00:01:14: And basically with a view to what is going to happen in Africa?

00:01:17: What are they?

00:01:17: container logistics opportunities?

00:01:19: because this In my view it's the largest growing area over the next couple of decades.

00:01:25: How you traveling around?

00:01:27: I'm travelling around in a thirty nine year old Volkswagen van.

00:01:31: So far, she's been treating me nicely.

00:01:32: The van is called Sally and Sally only had a few minor hiccups so far along fourteen thousand kilometers of journeys until this point.

00:01:40: I'm looking forward to hearing you bit more about that.

00:01:42: but Ralph i know using Africa as the continent have huge potential for the Canadian shipping industry.

00:01:48: How about Lloyd?

00:01:49: volumes have grown tenfold since you became CEO twelve years ago to an estimated million TEU this year.

00:01:56: so perhaps You could say a little bit about why do think it's proving to be such A good market and how you think is going to grow over maybe the next twenty years.

00:02:04: It's for sure that Africa has gone up to grow quickly.

00:02:06: I Think we can all debate About how quickly.

00:02:08: i mean just look at That continent, then?

00:02:11: How many people are there And how much wealth creation There will Be Over The Upcoming Couple of Decades.

00:02:17: ratio is actually of goods that are being transporting containers these days i mean.

00:02:22: I think thats anyway a little bit broader theme is everybody thinks we're at the end of growth in this industry.

00:02:29: but, Yes, if you look at some of the trades between Asia and the US or between Asia in Europe.

00:02:37: Those are fairly mature but there's so many places around The globe where we can still containerize a lot more And that's probably why Africa is.

00:02:45: I see it also as the single biggest Opportunity over the next couple of decades.

00:02:50: That's why we put a lot of time and effort on to that?

00:02:54: Yes, we grew now to a million to you.

00:02:56: But that of course should only be stepping stone to hopefully doing significantly more in the next five or ten years.

00:03:04: We talk about Africa as if it was one single market but obviously is not I think over fifty countries in Africa so they're all going to grow at different stages of development already.

00:03:14: Last maybe you can say what you've discovered so far?

00:03:17: No slightly early days on your voyage Your great trek What are your views about how much potential there is for the whole continent?

00:03:24: and where do you see the biggest areas of growth, then?

00:03:26: Where do you think it's going to be more difficult?

00:03:28: No.

00:03:28: The biggest area as a growth is gonna be concentrated around also countries that have their largest demographic growth in terms of population.

00:03:36: so well That was one key driver.

00:03:38: but You're absolutely right.

00:03:39: There's huge discrepancy between different countries.

00:03:43: Let me just make practical example that I've observed Morocco And this neighboring country Mauritania With Morocco very rapidly growing as a manufacturing hub in for example automotive and aerospace.

00:03:54: Where's the opportunities in?

00:03:56: Mauritania is a lot more linked to raw material extraction iron ore uranium copper quartz.

00:04:02: so very different drivers and dynamics, So even those two neighboring countries can be compared.

00:04:09: The other element not only are there fifty four countries different that also huge difference within the country themselves A country like morocco.

00:04:17: You can go out into the countryside, you will still find villages where some of the goods have been moved quite literally on carts driven by donkeys.

00:04:25: And then you go to big cities in coastal side and you might as well be small practical intent purposes being say Southern Europe when it comes to business

00:04:33: climate?

00:04:35: That was one thing I wanted.

00:04:36: ask both of you about infrastructure – both ports themselves and inland whether its road or rail.

00:04:41: that must really challenging.

00:04:43: there aren't many big container port is a vast continent and there are not that many big container ports around it.

00:04:49: And you can't develop this until you've got all of the infrastructure, or the inland logistics as well.

00:04:54: so Rolf I know that you have invested in hapex investing in terminals.

00:04:58: but Can you say a bit more about how do see development going?

00:05:01: How to overcome these obstacles

00:05:04: It's clear still requires a lot investment In pretty much every country.

00:05:09: A lot has been done over last years.

00:05:10: We also see more terminal projects But it's definitely not enough because just look at the last couple of years.

00:05:17: I think last you know if we've seen twenty percent growth into Africa, into West Africa... ...I Think again this year.

00:05:23: We also see a very strong growth in those markets and that with sometimes still very immature infrastructure beyond the port will mean they'll take quite some time before that infrastructure is really there where it should be.

00:05:38: And, also means moving goods in and out of Africa will remain more challenging than for example... ...moving them to Europe or the US or China for this matter.

00:05:50: I think thats just something that's going to stay.

00:05:52: Of course not every country has the same.

00:05:55: We talk about africa but i think last year traveling forty one countries are correct right?

00:06:01: Forty One Countries that are all very, very different than also in various stages of maturity.

00:06:09: That's the challenge we have with Africa but it is clear there will be a lot growth and we need a tonne investment infrastructure over the next couple of decades

00:06:19: Will you yourself prepare to invest in some kind of infrastructure?

00:06:24: We'll have to invest those projects that come up.

00:06:27: I think Africa needs a lot more investments not only from us In this industry, and I think you see also growing interest in those markets.

00:06:36: And a fair bit has been done over the last years but there's still A lot of work ahead of us.

00:06:43: But i guess Lars You'll see that first hand as well when traveling.

00:06:47: Yeah!

00:06:47: You can see a lot of infrastructure development That is lacking.

00:06:50: to give just few examples You have road links from the coast inland into Africa Some of those roads I was driving along what's called the Highway of Hope.

00:07:00: I think it is more open than highway in some locations that are servicing especially landlocked countries like Marley, Burkina Faso coming up to the coast.

00:07:08: definitely infrastructure improvement needed for the growth That will come by the way.

00:07:13: trucks you see moving there To your point earlier on very few container trucks.

00:07:17: a lot of this is not containerized yet It still moves into good old-fashioned form.

00:07:22: When we then go to the Coast side You see the disparity between very modern ports.

00:07:27: Let's just take ten years up in the north as one of the world's largest hubs, and then you come to ports that don't even have mobile harbor cranes but are entirely reliant on mid-ships coming in... ...you've got ports like Newark Shock at the capital of Mauritania which actually has a relatively modern well functioning container terminal.

00:07:45: for lack of breakwater outside the terminal means they could about fifty days here where their port can work because the swell is coming in.

00:07:53: So it's not just a matter of private companies investing in more container terminals.

00:07:58: It is also a matter either government or public-private partnerships to develop inland infrastructure, develop breakwaters and whatever else that takes for the whole system to work better than what was today.

00:08:10: You mentioned ships.

00:08:11: now I'm going ask about that.

00:08:12: but lots of these ports will need geared ship sort of ships you have in Asia Europe on Pacific trades?

00:08:19: Do they build new ships with... geared equipment on them?

00:08:23: I think we see less and less gear chips into Africa.

00:08:26: There's still some gear chips needed for a couple of the smaller ports, but by-and-large the fleet that serves Africa these days is no longer geared.

00:08:36: But having said that there are all kinds of limitations.

00:08:40: if you look at waiting times in congestion like productivity or yard congestion as seen here many places That's definitely going forward Because if we look at a market that's going to grow and we can argue whether it is gonna be five percent, ten percent or fifteen percent per year.

00:08:56: It's already very difficult... ...to keep up with those kind of growths in China.

00:09:01: so what you imagine?

00:09:02: how difficult this is in Africa?

00:09:03: And thats not gonna change materially over the next probably five-ten years.

00:09:08: Overall about the cargo are we isn't going to invest as much as an inland inward inbound market Balanced market are the pending export, so is it mostly consumer goods going into African countries?

00:09:22: If you look at today.

00:09:24: It's mainly really an import market by and large The imbalance is huge.

00:09:29: Yeah!

00:09:29: The number of commodities that gets exported Is still rather limited.

00:09:33: They take your point last on some automotive and aerospace guys in Morocco But they're still the exception I would say compared to many of the other countries, whereas mainly commodities that are being exported in many cases also seasonal.

00:09:48: So the imbalance is very significant typically but it's not abnormal.

00:09:52: I mean we've seen this in many markets as well and then will need to see how they develop over years.

00:09:58: As Lars has said you know there still a lot cargo can be containerized here In Africa.

00:10:03: i was travelling India some year ago.

00:10:05: I was already surprised about how much can still be containerized, because i thought that would probably be a bit more advanced.

00:10:12: But in Africa when you travel around there last... You'll see one of the other trucks could easily moved by a container as well?

00:10:19: Maybe one way to illustrate this is at least adding a few numbers onto it.

00:10:23: if we look at what we've been thinking about global container shipping for many decades There's always been talk on the so-called multiplier effect.

00:10:31: How much does container trade grow versus trade growth measured in GDP, and that multiplier has been steadily declining as global markets have been more maturing.

00:10:41: But I was looking up the data.

00:10:42: if i compare now twenty-twenty six to twenty nineteen before everything went daywire The whole world except for Africa Has had a multiplier slightly below one indicating fine.

00:10:54: most markers are mature but the multiplier on africa over last seven years is still two.

00:10:59: so container volumes are still growing at twice of what the economic world is, very much showing that there's a solid and ongoing containerization process still very much alive.

00:11:10: Yeah I guess you'll see some of this...I don't know Lars how are you looking at it?

00:11:14: but also in markets like India and that time?

00:11:18: You will also still see multipliers.

00:11:19: At least when i look at our data they're above one.

00:11:22: We tend to underestimate them because we only look at China US which is of course very mature probably with a multiplier.

00:11:29: thats actually below.

00:11:31: I always used to think of Africa as being one end of a north-south trade, but presumably that's not true anymore.

00:11:37: The trade must be coming from Asia and South America?

00:11:40: Is it much more complicated than just North-South Europe to

00:11:43: Africa?".

00:11:43: I

00:11:44: would say... But Lars can probably say something about the trade or cargo into Africa.

00:11:52: still for significant chunk comes out of Asia A significant chunk comes out of Europe and then some also come from India in the Middle East, particularly on the east coast.

00:12:02: I would say much less out-of-Latin America and almost nothing out North America to be fair.

00:12:08: so it's really focused today on Europe Asia being dominant And then on the East Coast certainly also india playing an important role.

00:12:14: but plus i guess you have probably more data at hand than that.

00:12:18: That is basically true, I mean if you drill it down to individual country levels.

00:12:22: You have seen a shift.

00:12:23: usually what i do at least on this journey Is compare the situation now with five years ago together baseline and it is clear that especially the far east has grown significantly in dominance for the imports compared even where we were five years before.

00:12:38: but perhaps me was a little bit surprising when i dug into numbers.

00:12:42: yes there's certainly trade imbalance larger import than exports.

00:12:47: Differencing growth is not as large, one might actually expect.

00:12:52: Again if we look over five years here... We're looking at maybe forty-three percent growth in imports but still thirty two percent growth and exports.

00:12:59: But the absolute imbalance it's a big loss.

00:13:03: I mean even if import grows only little bit faster than export then the imbalance gets worse.

00:13:10: What

00:13:11: about perception?

00:13:12: It may be unfair.

00:13:13: there was a perception that Africa perhaps unfairly as well.

00:13:18: There's a lot of corruption with political instability and obviously we know sadly there is also civil unrest, war in parts of it.

00:13:25: so that must make it much more difficult to A-serve the market but also decide which markets are developing where you just

00:13:34: can't.

00:13:34: really I don't think Africa is your only continent that goes into geopolitical challenges these days.

00:13:41: or also all the other factors that you just mentioned, I think play a role these days in other places as well.

00:13:47: I would probably be more optimistic there because when i look at Africa today and if compare it with when I traveled to Africa for first time which is about twenty years ago.

00:13:59: then the situation of Africa my view has not deteriorated yeah?

00:14:03: You still see that the continent have its challenges but what's been done?

00:14:08: on infrastructure?

00:14:09: It doesn't go at the pace that China moves, for example.

00:14:13: But if you look also at the ports these days and even some of the highways in Africa they are definitely different than what it was twenty years ago... quite a lot more modern now.

00:14:27: So it is coming, just not at the pace that we would all like to move probably but... It's definitely changing and also illustrates how much potential there still in those countries are growing?

00:14:39: In years to come.

00:14:40: I mean i met an interesting story about four weeks ago when I'm with owner of business one our biggest customers into Africa.

00:14:48: My job was easiest in world because my businesses grow twenty percent per year And the only thing I have to do is, you know make sure that they move it through right African countries because those countries grow automatically twenty years.

00:15:03: If i run a decent business then... You know..I will always continue to grow twenty percent also for next ten years.

00:15:09: and he had build up his business from scratch To very large businesses over last fifteen or twenty year.

00:15:15: But very interesting to see his perspective where he said, in the end it's all about what are markets that you tap into and where do play.

00:15:22: That drives through a large extent your success And I think this is why everybody is so much focused on Africa.

00:15:30: and I think that's why Lars was going visit at least forty one countries there To see What the heck happening?

00:15:36: Maybe he has go back again after five years for another year and half because then lot of things will have changed.

00:15:42: So, just to drill down a bit.

00:15:44: Which areas or which countries do you think offer the most potential?

00:15:48: Obviously in South Africa are already well established there and they're about celebrate your twentieth anniversary serving that area.

00:15:55: but what should be other big growth opportunities?

00:15:58: as far as you concern Rolf?

00:16:00: I'll start with that.

00:16:01: then Losia probably chip-in.

00:16:03: If we look at last couple of years also upcoming three to five years West Africa will more likely continue to grow faster.

00:16:12: that clearly goes faster than South Africa.

00:16:15: East Africa is less developed at this point in time, but certainly over-time also has considerable potential because it's still going to grow from a lower base.

00:16:24: then the West.

00:16:25: Apart form as Lars said.

00:16:27: beginning look into demographics.

00:16:29: The countries with most inhabitants will need the most goods.

00:16:32: so thats where growth and size of market in absolute terms would be bigger.

00:16:37: So you come to Nigeria

00:16:41: Again, I would point also demographics is a key driver in what we see here.

00:16:46: We need to recognize there are very different logistical dynamics if you look at West Africa versus Southern and East Africa.

00:16:53: Southern and Eastern Africa have been dominated by relatively few but very large countries whereas West Africa is enormously fragmented in terms of very different countries which means from practical standpoint it is relatively easier to develop a network with a lot of point-to-point connections into southern and eastern African nations, whereas West Africa is much more prone to the more traditional up-and-spokes setup.

00:17:17: Which also what we have seen developing in recent years where large modern terminal facilities have introduced ultra-large container vessels precisely into this region as well.

00:17:27: And that's another competitive dynamic should be kept in mind because there are so many smaller nations here.

00:17:35: If just a few of these nations see their economy grow a lot faster because they might make paperwork easier.

00:17:43: They have competitive advantage versus the neighboring countries will then be pressured to also do trade reforms so you enter into a more positive spiral.

00:17:53: not to say here that all west african nation are the same and we'll do the same, they don't know.

00:17:57: there's certainly some at least an easy or somewhat difficult but just to say that dynamics in West Africa.

00:18:03: He's materially different than if we look at southern and eastern Africa.

00:18:07: Just following up on that, so is there also scope or are they already developing a coastal trade?

00:18:13: A

00:18:15: little bit but not too lot to be fair.

00:18:17: I mean most of the export out of africa goes through other continents And most of import comes from other places.

00:18:23: There's a little bit But it really isn't a lot.

00:18:27: One thing I

00:18:32: just wanted to ask you, and this may sound like a silly question.

00:18:35: A lot of your big ships are now going around Africa because they can't go through or not going though the Suez Canal so much.

00:18:42: might that also help develop some African markets?

00:18:45: Might you change perhaps what's on different trade routes?

00:18:50: Theoretically it is an option but first we see increasingly we go back through Suez.

00:18:56: So there isn't long-term solution.

00:19:00: let's say, engine for growth.

00:19:04: Of course it is possible to do that but personally I don't find this very logical.

00:19:11: so we've seen some of its happening opportunistically over the last couple years and also done because if you go around Africa anyway then might as well stop in one or two places But still.

00:19:23: typically ships that goes Europe are big.

00:19:26: The core size in Africa is too small unless you drop off at a hub.

00:19:32: but also the harp and spoke infrastructure that Lars referred to is existing in some places, but certainly not around the content.

00:19:39: One thing I wanted you ask too obviously Rolf your wanting to grow Hapag Lloyd traffic?

00:19:44: You bought Nile Dutch and Deutsche Africa line so presumably thats helped as you're establishing or developing a market place there.

00:19:52: Of course, it helped us especially also to get some more boots on the ground because one of things we shouldn't forget is that as we've said Africa's a complicated place with many different countries.

00:20:05: If you talk about Africa and think they're all the same but as Lars just alluded too there are very very different.

00:20:11: so that means you need to have boots on-the-ground Also beacuse of logistics complexity which means our office footprint has been growing quite aggressively over the last years, and we'll continue to do that also in the years to come because there's only way to serve that continent properly.

00:20:28: But I guess Lars you will have seen meantime with your travels more people are putting boots on their ground.

00:20:34: And thats where of course the Nile-Dutch & Deutsche Afrika Linea acquisitions helped us Because With That We Acquired Several Hundred Experts On The Africa Trade

00:20:43: Maybe To Act.

00:20:43: That What i've Seen So Far On The Parts Of The Journey I've Seem Years Also.

00:20:48: Who's on the ground that also needs knowledge of what are this?

00:20:51: specific operational procedures in individual ports?

00:20:55: because even within.

00:20:56: The same country, you have a rational procedure is an individual port at different?

00:21:01: it is different.

00:21:01: who do we need to reach out?

00:21:03: if i can change stuff it is difficult for me to reach up to.

00:21:07: something has gone astray with costumes documents

00:21:09: looking ahead.

00:21:10: Where do you see Africa becoming?

00:21:12: maybe a big marketplace overall, as say Europe is at the moment or North America?

00:21:17: Has it got that much potential?

00:21:19: where would you both see The Marketplace in twenty years time.

00:21:23: You know depends on how optimistic your look of that.

00:21:26: but I mean if we take step back i think the number Of people who will live in africa In twenty years We'll probably be well above a billion.

00:21:36: So i think its not unthinkable.

00:21:39: then market like Africa gets the same type of container traffic as we see today into the US with three hundred seventy five million people.

00:21:46: Whether that will completely materialize or whether it would take a little bit longer, I think that remains to be seen.

00:21:52: but for sure yeah?

00:21:54: The growths that you'll see over in the next one two three decades will very significant still until those markets.

00:22:01: You agree?

00:22:02: Absolutely agreeing.

00:22:03: and prior going on this journey i tried model at that case was just import growth And that was purely based on demographics and what I think is an extremely conservative view of how many containers do you import per capita.

00:22:18: That talks for more than a tripling of the volume springing African imports up to the same level as we see in Europe today, when I say Conservative from the International Monetary Fund just updated their GDP outlook for Africa... ...that also calls for a tribling.

00:22:33: but as we talked about earlier here We right now still see a multiplier effect of two.

00:22:38: So if that is the case, and you'll see more containerization That would be called for a factor of six in increase.

00:22:44: so I think a tripling Is actually conservative projection.

00:22:48: or what's going to happen here?

00:22:50: So Lars tell us little bit about your plans For next month also.

00:22:54: i can't ask them all than that but where are on off-to-next?

00:22:57: Well Right Now i'm exploring cynical looking forward To learn some more About this country.

00:23:01: And If everything Plans out well i will Be heading into Some of the inland countries in Mali, Burkina Faso first.

00:23:07: It's very important for me to note those are some of a few countries I will not be driving into.

00:23:11: this security situation does not warrant that so we'll have to unfortunately fly and try out.

00:23:16: but then i would continue along the West African coast visit places like Gambia Guinea-Bissau Guinea-Conakry Sierra Leone and Liberia And then continue on the west african coast.

00:23:26: as mentioned before This is a region of the world with a lot relatively small countries very different dynamics

00:23:33: And presumably Rolf will be following his adventures and getting information being fed back to you.

00:23:39: We do, it's actually quite interesting.

00:23:41: I mean of course for Lars there is some kind of a mixture of business and personal motivation to make this trip but its' actually quite intersting.

00:23:50: what the input or information that we get out of travelling so many countries.

00:23:59: But sometimes there's again something where you say, okay.

00:24:01: Yes we hadn't thought about that and it also helps us to keep some focus on this market That I have always believed in.

00:24:07: yeah We see it Also happening now probably more than last couple of years then the year before.

00:24:12: And and that's for It's going To be very interesting to See what is Going to happen?

00:24:17: If You would Talk Again In five Years Time or ten Years time.

00:24:19: This Market Is Again Going to Be Very Different but Will Still be Talking About Infrastructure problems and congestion, limitations that we have here on there.

00:24:30: But from a much different base than what you see today?

00:24:33: Well Lars it's certainly been great talking to you.

00:24:35: I'm actually delighted to catch up with you again perhaps in five years time but perhaps little bit sooner then that.

00:24:41: And Rolf yes thank-you so much for your time!

00:24:43: Again i think this is really interesting marketplace and i've been really delighted to speak to both of you.

00:24:48: Thank You very

00:24:55: Much!