Online shopping

Delivery costs are a major barrier to switching to online shopping

Technology

Delivery costs are a major barrier to switching to online shopping


E-commerce and delivery service concept. FILE PHOTO | NMG

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Summary

  • E-commerce players say the expense of transporting goods from a store to a shopper is a major drag on the industry’s growth.
  • Rising fuel prices in Nairobi with poorly planned transport infrastructure – characterized by traffic jams on major roads without separate lanes for cycling – have not helped matters.
  • The 2020 United Nations Conference on Trade and Development ranked Kenya seventh in Africa for creating an enabling environment for e-commerce facilitation.

Kenyans who prefer to order goods online are struggling with high logistics costs that are slowing the growth of e-commerce in the retail space in an economy where households are struggling to reduce their disposable income.

E-commerce players say the expense of transporting goods from a store to a shopper is a major drag on the industry’s growth.

“The biggest obstacle to the growth of e-commerce is the cost of logistics. The cost is still very high and we have a population that does not have enough disposable income,” says Sendy Co-Founder and Managing Director, Mesh Alloys.

Rising fuel prices in Nairobi with poorly planned transport infrastructure – characterized by traffic jams on major roads without separate lanes for cycling – have not helped matters.

Diesel and petrol, for example, are selling at record prices of Sh115.60 and Sh134.72, respectively, per liter following a monthly upward revision of Sh5 which took effect on Tuesday.

The latest review follows economic sanctions imposed on Russia for its brutal war in Ukraine, which has created mismatches between supply and demand, driving global crude prices to levels that government-run fuel subsidies ‘State can not fully absorb.

Even before the latest fuel price hike, a buyer ordering a product worth 1,000 shillings online had to, on average, part with 300 shillings, or around 30% of the cost of the goods, to have it delivered.

“The cost of transporting this item should not be as high as we are seeing. We are working to make it really affordable in the future,” Mr. Alloys said.

“We are very optimistic… and we will help develop this industry. The technology is there, there is social media and a lot of commerce going on there.

The 2020 United Nations Conference on Trade and Development ranked Kenya seventh in Africa for creating an enabling environment for e-commerce facilitation.

This is down from fourth position on the continent a year earlier, according to UNCTAD’s 2020 business-to-consumer (B2C) e-commerce index.

Mauritius and South Africa retained their respective top two positions in Africa, according to the report, while Nigeria slipped from third in 2019 to eighth last year.

Tunisia, Algeria, Ghana and Libya edged out Kenya to take third, fourth, fifth and sixth positions in the index used by UNCTAD to assess a country’s readiness to support procurement secure online.

Kenya’s score on secure internet servers, which act as a proxy for e-commerce stores such as Safaricom’s Jumia and Masoko, fell to 46 from 49 in 2019, but better than 37 a year earlier.

A score close to 100 signals an improvement in online shopping support policies and vice versa.

Nairobi’s score on reliable postal delivery of purchased goods fell from 47 to 46, while internet penetration remained stable at 82 for the third year.

However, the index of share of Kenyans using the internet fell from 18 to 23, but the percentage of internet users buying online decreased to 19% from 24% in 2019.

“To facilitate more inclusive e-commerce, African countries would benefit from catching up in all policy areas,” UNCTAD analysts wrote in the report.

“In the case of internet access, less than a third of the population in Africa uses the internet compared to three quarters in West Asia.”

In addition to internet penetration, the growth of online shopping has benefited from the ease of mobile money payments on platforms such as #ticker:SCOM M-Pesa and Safaricom’s Airtel Money.

Major sectors of the economy such as financial services, retail and wholesale, agriculture and healthcare have integrated mobile payment platforms into their payment systems, mainly for convenience and speed.

“M-Pesa not only enables P2P transfers and withdrawals, but also payment options and connectivity to formal banking services and access to credit,” Safaricom says in the latest annual report. “It also facilitated international transactions.”

The growing transactions in the digital marketplace have drawn the attention of tax authorities who have set their sights on companies using the internet to sell products.

The Kenya Revenue Authority has focused more on the digital market after statistics from the 2020 Economic Survey showed that the value of mobile commerce transactions tripled to 6.96 trillion shillings in 2019 from 1 .75 trillion shillings in 2016.

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