MarketWatch: Africa SKD

Africa: An untapped automotive market. Or so it has been termed by many over the past decade. In this MarketWatch blog post we will look at the status of the African automotive field; explore what is currently happening in some key markets in relations to SKD/CKD vehicle assembly and which opportunities this creates both for the OEMs and for their Logistics Service Providers; before showcasing how we at Kar-Tainer have positioned ourselves over the past couple of years to support all involved players.

Africa, particularly Sub-Saharan Africa, is home to some of the most populous countries in the world, housing some of the lowest vehicle populations around. Most of the countries in the region are also expected to see rapid economic growth over the coming years. Two factors which combined sets the precedence for huge investment interest and growth opportunity for the automotive industry.

South Africa has for decades been the automotive powerhouse on the continent, more recent years has also seen heavy automotive growth in North African countries like Morocco, Egypt, Algeria, Tunisia, and Libya. This has ultimately led to these countries having the highest vehicle populations on the continent.

If we compare car ownership per 1000 capita (spotty data collected from different reports from 2014-2020, summarized on Wikipedia), with the expected GDP growth in different African countries from 2019-2026, we can get a fairly good idea of where we can expect to see big growth in the Automotive industry in the coming years.

Recent years has seen a surge in SKD assembly operations being set up in different African countries, even beyond the more established North- and South-African automotive clusters.

Besides the more traditional truck, bus, and other heavy machinery assembly operations that have been present over a longer time, we can observe SKD/CKD assembly operations already in operation, or with intention to start operations in the near future in countries such as The Ivory Coast, Ethiopia, Egypt, Ghana, Angola Kenya, Nigeria and Rwanda. The list in the right-side table is by all means not all-inclusive, as OEM Strategies in Africa are developing swiftly, country specific regulations and situation changes, parallel import operations open and close, and a myriad of other factors affect plans and intentions. It does however give an idea of the development efforts that are on the way in some of the more interesting Sub-Saharan African nations in terms of SKD assembly. Ethiopia, Ghana, Kenya, Nigeria and Rwanda are all countries which has traditionally had small national vehicle bases and are also expected to see big economic growth in the coming years. This coupled with relative stability and ease of doing business, gives a understanding into why OEMs are choosing these countries as base for their SKD assembly in these parts of Africa. We will also keep these countries in mind when proceeding to look at the regulative rationale for setting up assembly operations in Sub-Saharan countries in the below segment.

Vehicle safety and emission concerns have been a big driver for stricter regulations on secondhand vehicle imports across most African countries over the last couple years. Some countries like South Africa, Egypt, Morocco, Algeria and Sudan even have a straight up ban on import of second hand vehicles, while age limitations, emission standards, and incremental tax and excise duty based on vehicle age is being used at a growing rate across the continent.

The need for newer, safer and more environmentally friendly vehicles are also leading countries to push for localized assembly and manufacturing of new vehicles. Tools like preferential import duty for components, SKD and CKD vehicles; tax holidays for companies investing in local assembly capabilities; and duty rebate schemes for CBU imports (i.e. any OEM assembling X amount of SKD or CKD vehicles in the country, will get duty rebates for importing X amount of CBU vehicles, enabling the OEM to focus on volume production of a small amount of models, while importing a wider range of models from other production bases), are being implemented at a greater extent. Below chart summarize how some of these factors and tools are playing out in our five focus countries:

The regulatory field is an ever-changing landscape, and we suggest looking into government sources in the specific markets for up to date details. Or check out the list of sources we used to compile this table in the bottom of the post. However, the above list outlines some of the tools different countries are using to attract investment from and establish national automotive industries. Starting from SKD assembly of different levels, before moving on to full CKD assembly, and hopefully full-scale local manufacturing with relevant infrastructure and tier suppliers in place over the coming years and decades. Check out our previous blog post The World of Automotive SKD for more insights on different levels of vehicle knock-down, and the differences on CBU, SKD, and CKD.

These five countries have a combined population of almost 430 million people but sold in 2020 just above 40.000 new vehicles, most of which were imported. Needless to say, there is an immense market potential present. Besides this they are all members of the African Continental Free Trade Area (AfCFTA) which commenced January 1st, 2021. An agreement which will give OEMs with manufacturing capacity in the region free access to not just the domestic market where they assemble or manufacture cars, but also to the wider Sub-Saharan African market. We expect to see several automotive clusters popping up across the continent over the coming years and decades, but for the time being SKD and CKD assembly operations will be the norm. This is also where we at Kar-Tainer position ourselves to support the industry through our returnable SKD solutions.

Where automotive markets expand, opportunities and challenges alike will arise for the logistics sector as well. Be that from long inland hauls, a lack of infrastructure, complicated customs procedures, or capabilities more specific to Automotive Logistics and SKD packaging, transportation and handling.

The Logistics Performance Index, updated on a bi-yearly basis by the World Bank can give some indications on which challenges you might encounter when providing logistics services to the automotive supply chain in a given country. Are you importing SKD kits to Nigeria for example; make sure to work with good customs brokers. Are you bringing goods into land-locked Ethiopia; ensure you calculate enough time for delivery as most import goods enter through the neighboring country Djibouti before being transported over land to Ethiopia. Same goes for Rwanda, though transport solutions and delivery speed from the port of Mombasa in Kenya to Rwanda is usually a bit more efficient.

There are many aspects of providing good automotive logistics services beyond these, perhaps one critical aspect is having capabilities on both ends of the supply chain. Looking at the OEMs present in the African SKD field we find major OEMs from Germany, Japan, the US, France, Korea, and China. Though parts and vehicles may not always be shipped over from home market of the particular OEM, and from experience we see German and American OEMs likely to utilize their production bases in South Africa for SKD exports to other Sub-Saharan African markets; Japanese OEMs perhaps from their Southeast Asian plants, while Chinese OEMs which are dominating the Ethiopian landscape will be exporting from their domestic plants in China. Point being logistics companies with a strong presence both in origin and destination markets are well positioned to offer good service to their OEM customers.

The more specific capabilities needed from the logistics service providers side to take advantage of the opportunities following the growth of SKD and CKD vehicle assemblies in Sub-Saharan Africa relates in a big extent to material handling, vehicle knock-down, packaging, transportation and return logistics operations. The processes will of course depend on the knock-down degree of the vehicles shipped: If at a advanced SKD or CKD level where bodies in white or painted bodies are taken directly from stamping plant or paint shop for export to assembly market, the initial handling is often done by the OEM itself, and the key aspect is having proper packaging equipment which secures the vehicle body and optimizes container space usage. If the vehicles are at a DKD or basic SKD stage, a logistics service provider would likely be required to also perform the vehicle knock-down process, pack up all parts belonging to the individual vehicle and safely secure it all either in one, or in separate containers. Where most LSPs, Freight Forwarders, Shipping Liners, etc. are experts at preparing cargo and moving it around the world, most will lack the right equipment to ship SKD vehicles in a safe, efficient, and economical manner. This is where Kar-Tainer's capabilities can complement any logistics company looking to enter the African SKD market.

At Kar-Tainer we have solutions ready to go for any type of automotive SKD shipment. Be that from loading three or four painted SUV bodies in one container; to fitting cabin, load plan and all related parts of a pickup truck on cassettes ready for transport. We have solutions for shipping two, three or four vehicles per 40-foot high cube container, depending on the model you are planning to ship.

Our cassettes allow for pre-staging the vehicles (and parts) on cassette prior to container loading. A process which saves time, increases vehicle safety during loading and transport, and ensures no personnel has to operate within the container during loading process. Our cassettes are built in steel, which provides an exceptional long product lifetime, and enables them to be re-used over and over again. A fully returnable product. We ensure container space is fully optimized, and no expendable, one-time use packaging material is needed. This eventually saves cost and reduced CO2 emissions in the supply chain.

Our cassettes are offered on a leasing basis, meaning there is no investment requirements for either the OEM or the logistics service provider when implementing our solution in your SKD supply chain. We also have an established network across Africa which supports on equipment return logistics. While not getting involved in the up-front logistics, this enables us to offer a full-scale equipment service, all the way from product design and personalization, to operational implementation, and even to returning the equipment to place of origin, ready for consecutive use.

Through our development and manufacturing base in South Africa, we are perfectly located to support any operations on the African continent. And through our sales offices in Asia, Europe, and the US, you are ensured to have a Kar-Tainer representative available at an arms-length for your planning and implementation needs on any side of your supply chain.

Are you a supply chain professional at an automotive OEM, or a logistics service provider planning for your next SKD moves into the African Continent? Get in touch with your closest Kar-Tainer representative or reach out to us through the website contact forms to learn more of how we can support your activities.