Elvis Chukwudi Okonji is the pioneer managing director and chief executive officer of GPC Energy and Logistics Limited. In this interview, he bares his mind on the impact of Covid-19 on the haulage industry, how the industry has been able to navigate the
What have been the effects of COVID-19 on the energy and logistics industry?
On the heavy-duty truck haulage industry, COVID-19 had a direct impact on revenue projections and consequently liquidity, and profitability projections industry-wide. For example, we achieved about 73% of our turnover projection for the Financial year 2020 as a fallout of COVID-19 and other economic inefficiencies such as port congestion. However, crisis in the industry was averted due to the essential nature of services it renders. Palliatives and essential commodities needed to reach the vulnerable and trucking facilitated this flow at the peak of the crisis. It is important to note that the industry fared better than a lot of other industries. Most suffered irreparable damages that have led to bankruptcy. We can therefore imply that the industry is recession-proof.
In 2021, and on the back of foreseeable global recovery, the industry must brace up for high energy prices and other business inputs stemming from inflationary pressures and possible devaluation of the local currency.
What are the measures put in place by the industry to cushion the COVID-19 effects on businesses?
Post Covid-19, we expect industry players to deepen their core competence, build strategic reserves, review their finance strategy, diversify, enshrine situation analysis, and risk management to guarantee sustainability. We also envisage modifications to contractual clauses relating to endemics and pandemics.
The industry is highly leveraged, labour and capital intensive. Covid-19 brought to the fore the risk of pandemics and nature forcing an immediate shutdown of businesses. Given the huge obligations associated with heavy-duty truck haulage, strategic cash reserves to cover a minimum of 6months – 12months operations is ideal to sustain operations well into an unforeseen occurrence. The operability of these reserves will be player specific bearing in mind the negative impact of double-digit inflation rates on future value.
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The pandemic also brought to the fore the need to position logistics companies for more sophisticated sources of financing. We envisage a gradual switch in the industry’s heavy reliance on bank financing to the capital market. Bonds and equity issues will become more desirable to hedge long term interest rate and foreign exchange risks while commercial papers may be sought to bridge short term financing needs. Equity raising will improve leverage within the industry and position it for increased participation.
Recently, an industry player raised N12billion through the bond market which was guaranteed by Infra Credit. This points to the increasing level of sophistication of transport companies. We at GPC, are in discussions to list a N50 billion bond program to facilitate our rapidly expanding business. Tenors of 7+years suited for long term financing and depreciation of assets are more realistic in this market. The critical resource for the industry are trucks which are predominantly imported from Europe and China. Thus, the industry is heavily reliant on foreign exchange. Dwindling reserves and instability in oil prices thereby pose a major risk within the industry. Diversification into potential foreign exchange-earners such as agriculture and cross border logistics to mitigate foreign exchange risks are medium-term industry trends. Industry players acknowledge the need to stay alert
to threats and trends within their internal and external environment. Increased collaboration is expected amongst industry players as a tool for business analysis and decision making.
In what ways is the government intervening or contributing to the growth of the logistics industry?
Unfortunately, this is one sector that has not received adequate attention from the government despite its strategic significance to the economy and critical economic metrics. Logistics/transportation costs feed directly into distribution expenses of manufacturers which are subsequently transferred to consumers via price adjustments. This is reflected in the persistent rise in food inflation to 20.57% and transportation CPI to 319.4%. With spiralling inflation, rising energy costs, double-digit interest rates, local currency devaluation, the paucity of foreign exchange for raw material imports, congested ports, high incidence of touting, double taxation, there might be no end in sight to escalating food and commodity prices. For example, transport cost for a 40ft container within Lagos has risen from N120,000.00 to N1.3million due to the increased journey time associated with port congestion, high cost of diesel (N250 per litre), and other inefficiencies. Transporters are left no option but to transfer these economic inefficiencies through price increases to manufacturers and penultimately, consumers.
The government must realize that transportation is the linkage between imported, manufactured, and cultivated goods to final consumers. Thus, without the sector, trade is impossible. It must therefore declare a sectoral emergency and implement sector-wide reforms, concessions, and subsidies to limit the impact of these economic inefficiencies on transporters, manufacturers, and its citizenry. We recommend the creation of a transport bank to support the sector with tailored financing solutions at single-digit interest rates.
On a positive note, the recent idea of the infrastructure company of Nigeria (Infraco.) with a capital base touted at N15 trillion is a welcome and innovative initiative. This will boost infrastructure investments and spur economic growth. One of the bottlenecks bedevilling the sector is bad roads. We envisage that with proper funding and concession of transport infrastructure, the current state of Nigerian roads will improve. The reduction in import tariff to 5% is also laudable.
Whilst applauding these initiatives and improvements, they must be backed by an unambiguous legal and institutional framework for sustainability to avoid an erosion of gains accruable from them.
We also implore the government through the National Bureau of Statistics (NBS) and the Central Bank (CBN) to make available accurate statistics and industry data to support planning within the industry with its increasing level of sophistication.
Recently, NBS released reports that show Nigeria is out of recession, what do you think led to this development?
The development is a welcome one. Oil production has dipped continuously to 1.56mbpd thus, we reason that the recovery emanated from expansion in agriculture and telecommunications output. This also points to the growing importance of the non-crude oil sector and consistent investments in it.
For telecommunications, WFH, video conferencing, interviews, online schooling, webinars, seminars, etcetera are heavily dependent on data. These trends which have gained acceptance increased revenues due to the sector considerably. Post COVID-19, we envisage these trends will persist due to anxiety over more resistant strains of the virus.
How do you see GPC Energy and logistics in the next 5 years, I mean what is your plan for this company in the nearest future?
In 2020, we reviewed our corporate strategy as the fulcrum for organizational success. Since then, we have made deliberate attempts at continuous improvement along people, financing and financing options, risk management, reserves, portfolio analysis, and service capabilities.
We are positioning GPC Energy and Logistics Limited as conglomerate with a valuation of $1billion by 2030. However, our medium-term goal is to become the market leader in heavy-duty truck haulage services in Nigeria targeting annual revenues of N30+billion. This we will drive through service excellence, superior financial performance, intelligent brand positioning, and opportunities presented by the liberalization of African trade through AFCTA.
It is important to clarify that GPC was set up as an Energy and Logistics company. However, since inception, our focus has been on logistics with a specialty in enterprise transport solutions within the heavy-duty truck haulage industry. Thus, our growth in the last 10years has been derived from only one line of activity which we were legally incorporated to play.
From this analogy, you will agree that the growth prospect before GPC is enormous. However, we aim to expand organically leveraging our captive market to mitigate shocks associated with expansion into segments or sectors which we will decide to venture into.
Transportation is input dependent with diesel, spare parts and accessories, Lubricants and labour accounting for up to 45% of revenues. We consider these linkages as viable expansion options whose integration will sustain our growth trajectory, enhance planning, and transfer long term cost advantages.
