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PREAMBLE
Logistics is defined by council of logistics management as the process of
planning, implement and controlling the efficient, effective flow and storage of
goods, services and related information from point of origin to point of
consumption for the purpose of conforming to customer requirements (Fikadu M.
2013).
The ability to transport goods quickly, safely, economically and reliably
logistics is seen as vital to success of business and to a nations prosperity and
capacity to compete in globalized economy.
W/ro Azeb Berhe is a sole proprietorship engaged in the provision of cargo
forwarding and transport services for the Ethiopian importers and exporters
mainly along the Ethio- Djibouti freight corridor. The services encompass
various packages of interrelated activities including shipping, forwarding,
trucking etc. which are of crucial importance for the import and export trade
movement. Trucking is considered to be one of the vital bases of operation of
my business.
In view of my critical significance, I (w/ro Azeb Berhe) have decided to acquire
Foton Power Trucks which shall be deployed in logistics/freight services. To
start with the plan is to buy 2/two/FOTON POWER TRUCK and this fleet size
shall be increased on phase by phase basis to higher capacity level in
perspective with the market growth.
The finance for the purchase of the Trucks is expected to be raised from Bank
on Loan basis. This feasibility study is therefore prepared to assess economic
viability of the project and to solicit the banks support in providing the
necessary finance needed for the purchase of the truck. The study begins with a
brief introduction of my business activities and proceeds with the main subject
of feasibility analysis including market assessment and financial appraisals.

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2. BACK GROUNG
I am recently planned to establish to support Logistics services in Ethiopia. I
expected a well-recognized and compete among major listed shipping and
logistics provider in the market.
2.1 Activities Currently Performed By W/ro Azeb Berhe and
my Husband
Currently, I am engaged in Hotel business in Oromia Regional State, Negele
Borena, Gugi Zone since 1988 E.C. and expanded this business to Addis Ababa,
located at Bole Sub City, around Ednamall within own building called Kidus
Building and also I have start one additional Hotel at Jigjiga Town in my G+5
under construction commercial Building. The Building has executed about 53%
i.e up to G+2 the building clearly completed and started operations.
Moreover, recently I have been also diversifies my business to Agricultural
business that found at Negele Borena zone and also the under way at Somali
Regional state around Jigjiga.
Besides, Ato Zafu Hishe; w/ro Azebs spouse is engaged in freight transport in
the name of Zafu Hishe Freight Transport, Construction machinery &
equipment rental and Retail trade in Agricultural Raw material, food, Beverage &
Tobacco in specialized stores with a total registered capital of birr 886,694.
Currently, Ato Zafu mainly works with FDRE Metals & Engineering Enterprise in
freight transport service from Adama to SNNPR and transport from Djibouti to
Addis Ababa.
My service has been giving inland transport service of the cargo by either
truck (train) from the point of origin to departure port and port of delivery to
final destination .
Moreover, I arranges import customs road freight and my firm handling
experience covers a vast range of products from small parcels to containers
and bulk commodities, metals, chemicals, personal effects, machinery and
consumables etc. On the other hand we have given logistics services, for both
international and domestic freight movements.

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In view of above, I am offering my customers the total transport/freight
complete range of services for Machine importers.
2.3 Vision of My Firm
My vision is to be a very competitive local logistics and shipping services provider
firm.
2.3 Mission of the Firm
My mission is to continuously provide my customers a competitive
advantage through local transportation and logistics services which will
meet and exceed my customers expectations of services through well
delivery graft.
2.4 Objectives of the truck purchase
The core objective of this feasibility study is to substantiate the commercial
viability of the purchase of a new trucks and to evaluate its economic
benefit.
In light of this broad perspective , the purchase program is intended to
address the following major issues which are essential for the My firm to
sustain and carry on my business activities success fully.
1. To be in a better position to serve its customers by strengthening credibility of
the services and eventually step up the market share.
2. To build up my core capacity and enable it comes up with the rapidly
increasing demand for truck services especially for transportation of
Machinery.
3. To increase the services quality and competitiveness in the market by fully
engaging in the forwarding and uplifting activities.
4. To improve the profitability and enhance my financial strength.
5. To maintain in house trucking capability that will supplement the logistics
services.
3. THE FEASIBILITY STUDY
This feasibility study is conducted to purchase a new cargo truck / Lobed and
discusses the following issues.

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To assess whether there is enough market for the new purchase
truck
To identify the capacity and type of trucks that the market require
To evaluate whether the proposed type and size of trucks are really
suitable for the existing and future trade of my business
To see whether the trucks are economically and financially feasible
4. MARKET ANALYSIS
The foreign importer freight of Ethiopia is the primary target of my freight
servises.
Major features like national trucking service developments and the volume
and pattern of the countrys trade movement have an influence on the
business performance. Therefore, a good understanding of all the attributes of
the countrys freight market will be highly relevant in identifying the type and
size of the truck to be purchased and its prospective deployment route.
The final aim is to explore the available opportunity and identify the capacity
that the intended purchase shall be equipped with to sustain and promote my
market share and profitability.
Here attempt is made to review the characteristics of demand for dry cargo
transport trucks and the opportunities available for expansion.
The demand for heavy truck services is directly related to the countrys domestic
and foreign trade. Due to the current suitable trade policy of the country and the
promising infrastructure development, the countrys domestic and foreign trade
transaction shows an increasing trend.
According to the national bank of Ethiopia annual report of 2014/2015, Ethiopia
has recorded a rapid economic performance of 10.2%, continuing the double digit
growth trend of the last decade with a broad contribution of all sectors.
Accordingly, industry grew by 21.6%, services 10.2% and agriculture 6.4%.
Their contributions to the annual growth were 3.0%, 4.3% and 2.5%, respectively.
Following this growth the International trade is increased by 33% and import
by28% (due to devaluation of birr against USD and other foreign currency) since

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2011. However according to UNECA REPORT the supply of dry cargo trucking
service increasing by 10% and it is short of 25% from the demand of dry cargo
transporter (Asnake, 2011). That means dry cargo uplifting access in so much
short of the level of demand of the economy.
Recently, in Our Country the Government policy has encourage and give priority
for Manufacturing and Building and Construction Sector. Hence, the demand for
Building and Construction and Manufacturing Machineries has extremely
increased from time to time.
Therefore, Dry cargo trucks giving transport service for Machinery, commodities,
foods aid, manufactured goods, fertilizers, cargo etc. definitely have significant
role in the country economy. This is a great opportunity for my business
expansion into this huge market.
With regard to the benefits of dry cargo truck transport service, notable issues
are that it is route free (trucks can travel where ever route they choose), the
freight tariff is decided by the market , there is high volume of dry cargo in the
market as compared to liquid cargo. Even if the share of the volume of dry cargo
in the market as compared to liquid cargo from the countrys total import and
export goods is very high (bulk and containerized amounted more than 71.8%
( desta e, 2009)), the market is seasonal mostly high from October to june and
reaches peak in May and June because of the government and some private
companies budget realization. However this does not mean that the trucks are
idle in other season rather it is simply to indicate the demand level variation.
In general in view of the countrys extensive economic development programs
and increasing production and consumption base, the domestic and foreign trade
is expected to grow further that leading to a much higher demand for heavy
truck transport services.
5. MARKET OPPORTUNITIES
In addition to the demand for heavy track services discussed above, the
following activities taken place in Ethiopia right now are additional opportunities
for my Freight service to enter easily into the market.

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Construction of great Ethiopia renaissance dam needs billons of metric ton
steels, cement and other dry material with in poor heavy truck transport
service availability.
As of UNCTAD hand book, 2008 more than 70% of Ethiopia dry cargos
trucks are obsolete with poor management, so it has a positive impact for
business firms entering with new and well organized management of
vehicles.
Transporters problem in feet capacity and service quality.
2005 IGAD and neighboring country ministerial declaration for regional
integration through road infrastructure and trade helps to participate in
the inter country transport.
ECX has been making all commodity exchange to be handled through it. It
decides every commodity to be transported to the respective centers and
need adequate service.
The huge commercial farm development in Ethiopia.
Infrastructure development and the need for material imports.
No economies of scale exist the existing private transporters and
association (Kifle and et al,2009)
By looking all these facts and opportunities of market it can be understandable
that new trucks will operate effectively.
5.1 Trade Direction
The structure of Ethiopias domestic and foreign trade is a direct reflection of the
structure of the domestic economic policy and economy as a whole. The policy is
export oriented agricultural based economy. As an agrarian economy, the
country is mainly dependent on agricultural products for its export such as
coffee, hides and skins, cereals etc. The cargo import on the other hand
predominantly involves liquid cargo like fuel and gas oil, manufactured and
semi-processed consumer and intermediate goods. Therefore, this structure of
trade of the country dictates the direction of heavy truck transport services my
firm target has great potential.

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5.2 Operation level Issues.
I am going to enter in to both short haul and long haul operation. Short haul
operation includes all domestic transportation activities and services while the
long haul takes international trade facilitation and transportation services.
As described in the opportunities section Ethiopias regional and infrastructural
development create road network to different part of the country which helps for
short haul transport. Moreover, due to regional integration and the use different
neighboring port roads, transportable goods are available from center to Moyale ,
Kenya, Gala and Dewale, Djibouti, Metma, Sudan or Gambela etc and my
business will have more operating market.
5.3 Future Demand Projection
The demand projections summarized in the table below, which is adapted from
UNECA(2014) report, are made based on 2012/13 actual performance of the
countrys import cargo that are transported by heavy trucks. The method of
projection used is the compound growth rate model and projected by simple
recreation method.
In the base year total import and export is 7059 thousands metric tons and
cargo truck transported is 5592 thousands metric tons.
In light of the projected market, and to take advantage of this situation the
company has planned to buy and deploy 2 Power trucks.
Table-1: Dry cargo demand projection based on UNECA: Africa trade
policy center (ATPC) Data.
Year Import(000 tones) Export(000 tones) Total(000 tones)
Dry cargo On land dry cargo
2012/13 5592 1467 7059
2013/14 6293 1673 7966
2014/15 7077 1907 8984
2015/16 7957 2174 10131
2016/17 8942 2478 11420
2017/18 10045 2825 12870
2018/19 10749 3164 13913
2019/20 12154 3544 15698
2020/21 13370 3969 17339

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2021/22 14707 4445 19152
2022/23 16177 4978 21155
6. THE MARKET ASPECTS
The above attempt is made to show the overall situation of the freight in Ethiopia
and its trends. Basically the intended truck purchase is to complement the
Freight services and as such it is believed that my business will be able to
deploy the trucks gainfully in its own in house cargo without much of a need to
look for cargo from the open market.
The objective of acquiring own trucks is mainly to deduce the use of out sourced
capacity and strengthen my firm economic sanding. With the purchase of the
trucks it is expected that I will benefit from saving of cost outlays expendable to
hire trucks and above all enjoy economic leverage resulting from improved
services of running won trucks.
I and my husband have now established a lasting business relationship with
major importer and organizations especially with FDRE Defense Engineering and
created a guaranteed market base.
Over the last 9 years (2000-untill now) period I and my husband has worked
with FDRE Defense in freight service and other importers.
7. IDENTIFICATION OF THE REQUIRED TRUCK
This portion of the study attempts to identify the type and size of truck
convenient to the current market. Careful selection of the type of truck helps in
utilizing the trucks capacity to its fullest level, and also in minimizing costs to be
incurred during cargo handling operations, and hence enhance profitability and
market share of the business.
The main factor that determines the type of truck to be purchase is the type and
size of target cargo.
The tonnage capacity of the dry cargo trucks will be 40 ton or 400 quintals for
such capacity is highly required in the market.
8. COST BENEFIT ANALYSIS

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In this section, the benefits to be derived and the costs to be incurred as a result
of the operation of the truck until the end of its lifetime will be identified, valued
and evaluated to determine whether the project is profitable or not.

8.1 Identification and valuation of costs


Under this project, the stream of costs include all expenses made to own and
operates the truck as well as to manage the service handle the cargo. These
costs are divided into three main categories: capital cost (initial investment cost),
truck-operating cost and overhead costs.
In order to calculate the costs of a truck with less effort and time, we employ the
average cost of similar type and size of heavy truck.
8.1.1 Initial investment and source of finance.
The amount of capital required to purchase heavy truck mainly depends on its
size (lifting capacity), type and age. Based on the current market condition their
price is estimated to be birr 3.3 million for one dry cargo lifting truck.
Regarding the source of finance domestic bank loans are considered with the
usual lending practice that demands above 30% of the total capital of the project
to be covered by owner as an equity contribution.
Accordingly, 30%of the investment capital will be financed by the bank loan with
a lending rate of 15% and five years of repayment period.
8.1.2 Trucks operating costs
Trucks operating costs comprise major category costs such as drivers cost,
technical cost, supply cost, insurance and depreciation costs.
8.1.2.1. Driver costs
Driver costs refer to salary, allowances, overtime of the truck driver.
Table-2: Driver cost per year per truck (000 birr)

NO Cost type Amount


1 Salary 60
2 Allowance 240
3 Miscellaneou 42
s
Total Driver cost 342

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For the rest of the years, the cost is assumed to grow at the rate of 2.5% per year
in average.
8.1.2.2. Technical Costs
The technical cost components of dry cargo truck include ordinary repair,
maintenance, spares, survey and inspections.
Estimated technical cost for the first five years per truck is birr 100, 000, 00. But
after five years spare part cost will be included.
8.1.2.3. Supplies cost
Supplies cost consist of fuel, tyre, grease and lubricant oils.
Table -3: The estimated supplies costs for a truck per year for the first year (000
birr)
NO Cost type Amount
1 Fuel 900
2 Tyre 200
3 Grease and lubricants oil 90
Total supplies cost 1190
Supplies costs are calculate based on my practical experience. The truck litter
per km fuel consumption rate with current fuel price and 10% of the fuel cost for
lubricant and oil cost were considered. For the rest of the years, the supplies
costs are assumed to grow at the rate of 2.5% per year in average.
8.1.2.4. Insurance
Including under this cost category are costs such as truck and driver insurance.
It is assumed that similar type and size of truck experience will not have
significant differences to get new truck insured. Therefore annual insurance cost
of those trucks is used arrived at the cost of the proposed purchased trucks.
Thus, the estimated total insurance cost per year for a truck is:
-Insurance.Birr 53,000.00
For the rest of the years, the cost of insurance is assumed to grow at the rate of
2.5% per year.
Straight-line depreciation method is applied to calculate the annual depreciation
cost consequently, the value of the truck is divide by its lifetime, value is
deducted from the total purchase price to arrive at the annual depreciations cost.

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8.1.3 Overhead costs
Overhead cost are all indirect costs incurred to coordinate and manage the
operation of the truck. Overhead cost has been considered to an amount 5% of
the total costs of the truck. And for the rest of the years it is assumed to grow by
2% year.
8.2 Identification and valuation of benefits
There are four main factors that determine the amount of benefits that can be
derived from operating a truck. These are:
a. The number of voyage to be performed by the truck
b. Level of trucks capacity utilization
c. freight rate and
d. Input cost. These factors and the related assumptions are discussed
below.
8.2.2. Capacity Utilization
It is most likely that the load factor of dry cargo lifting capacity is 400 quintal per
voyage per truck.
The Power truck rate is determined by the market. At first year, the average
freight rate is at current market price birr 125 per quintal with 900 km for dry
cargo truck. Assuming the existing favorable government transport policy to
continue, the current freight rate is expected to continue through and probably
will increase depending on the input cost over lifetime of truck.
8.2.4. Scrap Value
As a matter of fact it is common knowledge that heavy trucks serve for around
10 years considering current road way while topographic conditions remain the
same. The truck is assumed to be sold in the scrap market for second hand
market just after the end of its life time.
So a heavy truck services life on asphalt road has been taken to be 10 years
with consideration of a 20% salvage value end of its service life.
8.3 Investment Profitability analysis

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So far Projects direct costs and benefits are calculated in pecuniary terms at the
prevailing market prices.
Investment Profitability analysis is mostly made using the following four
methods commonly applied in project evaluation. They are Average Rate Return
and payback period as well as the Net present value and Internal Rate of Return
methods. The Last two methods are discounted while the first two are not.

Table-4 Cash flow of investment shows the expected yearly return of the investment
Revenue Operatin Cost inc Net Capital Total Net cash
Year

(Birr) g Interest Cash Cost Cash flow Pv at 10%


Cost (Birr) flow (Birr) out flow
(Birr) (Birr)
0 960,00 960,000 -960000
0
1 3000,00 1529000 186500 113500 448000 231300 687000 624552
0 0 0 0
2 3151875 1767225 203602 111585 448000 248402 667850 551911
5 0 5
3 3230672 1811406 201300 121766 448000 246100 769666 578250
6 6 6
4 3311439 1856691 199109 132034 448000 243909 872348 595814
1 8 1
5 3394225 1903108 197030 142391 448000 241830 975917 605947
8 7 8
6 3479080 1994115 199411 148496 199411 1484965 838263
5 5 5
7 3566057 2043968 204396 152208 204396 1522089 781136
8 9 8
8 3655209 2095067 209506 156014 209506 1560141 727806
7 1 7
9 3746589 2147444 214744 159914 214744 1599145 678197
4 5 4
1 3840254 2201130 220113 163912 220113 1639123 631882
0 0 3 0
Total 11,778,24 6,613,757.
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The total Earning 10 years is expected to be birr 11,778,244.00 from 3.3 million
investments. However we should discount it weather this amount is feasible/not
8.3.2 Average Rate of return (ARR) Method

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This method compares the average annual profit with the total investments when
there are two or more alternative the one with a higher rate of return is preferable
Table 5 Dry Cargo Trucks average rate return analysis
No Cargo truck Expression Amount in (000) & in %
1 Investment in birr 3,300 The average
2 Total net profit in birr 11,778
3 Life time (years ) 10 return of the
4 Average annual profit 2/3 1177.8 investment is
5 Average rate of return (4/1) 35.7%
35.7% based on
the total investment and
cost
8.3.3 Net Present Value (NPV) Method
Net present value method measures the different between the present value of
the projects future cash inflows and outflows. The project is commercially
acceptable if its present value is a positive value when selecting along
alternative projects the one with the largest net present value for implantation.
As we see from table-4 above, the total present value in birr is 6,613,757.8 and
the Net Present Value (NPV) in birr is 5,653,758.00
However, this fact alone does not justify the high NPVs usefulness Because net
present value method does not relate the resulted magnitude to the total
investment needed to produce these positive effects Therefore it becomes,
important to relate the absolute of the projects net benefit to its investment by
dividing the net present value by discounted value of the total investment.
1. Investment (in 000 Birr )____________3300
2. NPV(in000birr)______________________5653.8
3. NPV/Investment _____________________ 1.71
According, the projects net benefit to its total investment ratio is 1.71. The ratio
indicates that the investments of one birr results in different value of 1.71 birr
over their lifetime. So the investment is very productive and Profitable.
8.3.4 Internal Rate of Return (IRR) method

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Internal Rate of Return is the discount rate reduces the net present value of a
project to zero. It is very helpful to the decision process as the IRR can be
compared to the cut- off rate (market interest rate) below which no investment is
acceptable . Thus the truck purchase being evaluated will be acceptable if IRR is
greater than or equal to cut rate which is equal to the actual rate of interest on
long term loan in the market.
The actual IRR from our data is equal to 33.40% which is higher than cut of point
(rate 15%) or bank loan in the capital market.
The actual IRR from our data is equal to 33.40% which is higher than the cut of
point (rate 15%) or bank loan interests.
8.3.5 Payback period
The payback period is how long it will take to recover amount invested in project
(it is recommended to use discounted flows to calculated payback period)
As it is indicated in the table under cash flow analysis payback period of the
loan is around 2 years and 9 months.
Therefore within the given market analysis the company is profitable and the
loan is so feasible with short period of time.
Therefore within the given market analysis the business is profitable and the
loan is so feasible with short payback period.
9. CONCLUSION
In Ethiopia road transport is growing and becoming the dominant sub sector
over the other sub modes for the last couples of decades presently the share of
road transport sub sector accounts for about 95% revealing that the massive
transport is becoming carried out through it in the country.
The majority of the vehicles in this country have low carrying capacity of freight
Out of the freight vehicles exist in this country 66% of them have a carrying
capacity of less than 120 quintals out of these, majority of them have between
16-120 quintals.
When we see the market structure of heavy trucks which are small in number
and have small carrying capacity are expected to carry a large volume of dry

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good of the country Dry goods are includes manufactured goods food aids
commodities cargo fertilizers etc It indicates that there is a demand of heavy
trucks in the market that encourage investors to invest in the area.
It is most likely that the load factor of lifting truck even if its capacity is 400
quintals per voyage per truck.
The purpose of this feasibility study is to purchase a new dry cargo truck and to
submit it to bank to get a bank loan.
The basic assumptions made in the profitability analysis are following
Purchase price of a truck
o 3.3 million birr for one power truck (total)
60 annual round voyage for the dry cargo truck
Source of finance
o Local Bank Loan = 30%
o 70% own source
o 2 years and 9 months repayment period
o 10% discount rate
1.1. Average Rate of Return __________________________35.7 %
1.2. Payback period __________________________________2 years and 9 months
2. NPV & IRR
2.1 Net present value (000. Birr) (NPV)_________________653.8
2.2 Internal Rate of Return (IRR)(%)_____________________33.4 % (+Ve )
**IRR is a positive value and high from the discount rate
The economic analysis based on these assumptions, made so far shown that
Dry cargo truck investment is financially feasible in all dimension of
measurements.
10. RECOMMENDATION
As the analysis above, the power truck purchase is feasible. Therefore as
long as the truck meets most of the requirements specification /or its
specification are to the advantages of the investor, reasonable level of
flexibility is very important in purchase procedures

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In general as mentioned earlier buying FOTON POWER TRUCK has better
benefits due to the following reasons.
It is rout free the owner can assign the truck where ever the like.
Freight tariff is determined by the market
There is high volume of dry cargo
In addition there is a possibility of demolishing the dry cargo truck and
change to tank truck and finally we recommend that because of the
above mentioned reasons the purchase of dry cargo truck during this is
more feasible.

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