BREAKING THE DAM

LH Logistics Looks To Trounce Negatives In A Presently Troubled Delivery Sector

By  |  February 24, 2023

Tech-enabled logistics used to be a darling sector in the African startup ecosystem. But, a recent string of troubling events has turned the landscape into the valley of the shadow of doubts, especially in the Nigerian market. 

The first name that comes to mind is Gokada, a motorcycle-hailing turned last-mile delivery platform that has, since inception, tanked up USD 12.4 M in funding yet ran into bricks trying to raise further capital since its USD 5.3 M Series A in 2019. 

Gokada’s troubles go beyond fundraising. Though the company’s order volume grew a hundredfold and [its] revenues swelled ten times under its former leadership, the Lagos-headquartered business has turned unprofitable, triggering mass layoffs and rumors regarding a contemplated shutdown.

Likewise, Kenyan-born, Toyota-backed Sendy, a few months after discharging 30 percent of its workforce, shuttered on-ground operations in Nigeria and switched to an asset-light model that simply connects sellers to other logistics service providers. Though it is still operational elsewhere, it might be only a matter of time before Sendy completely cuts its Nigerian ties. 

The spell also bewitched Hytch, another Nigerian actor in the sector. It has brought its operations to a halt due to its unprofitability. Though the startup spent 10 months in the market, its leadership has entirely written off the logistics business, suggesting a comeback is not foreseeable

IFC and Goldman Sachs-backed Kobo360, easily the most funded logistics startup in all of Africa, is gradually losing its glam. The Nigerian startup is battling pandemic-infected economics, restrategizing, and looking to regain its once-was blitz. But the situation has left investors curious, especially as its co-founder Ife Oyedele resigned for well-kept yet unforgettable reasons. 

Ultimately, the African tech logistics loft is slowly inching down, and there is no telling when the descent would be reversed. However, that does not deter newer and smaller players, as they look to succeed where their bigger rivals have seemingly faltered. 

One such startup is Logistics Hub (LH), a Nigerian player that came to market during the pandemic. The female-led startup, though wary of the dire logistics situation, is eager to crack a last-mile delivery market proving tough for heavily funded counterparts. 

In this exclusive interview with WeeTracker, Anjolaoluwa “AJ” Jegede, CEO of LH, relates how the company is weathering the unforgiving storm. 

This interview has been condensed and edited for length and clarity

Give us a backstory of how your company came into being and what exactly it is doing in the logistics space. 

Anjolaoluwa: LH kicked off operations in 2020 but we built our first official platform in 2019. 

Before then, I used to run a small logistics business that delivered manually received orders. While doing this, I came to the realization that the problems the logistics sector faces have a lot to do with technology; digital solutions needed to be infused. 

Knowing this, we decided to digitize our processes, moving into a phase where we delivered more orders than we previously did. At first, it was a madhouse because there were different people and layers involved. 

Clients would often call to ask about the status of their merchandise, and tracking riders was quite the headache. The problem was big enough for us to agree that expanding the service would be a step in the right direction. 

So, the number one approach was infusing technology. The next step was to streamline our operations to cater to only business customers, which is why LH is today fundamentally a B2B platform. Ultimately, we are building a high-quality, end-to-end last-mile delivery solution for African enterprises. It is all about helping businesses of different sizes manage their logistics operations in real-time, removing manual processes from their activities. 

One of the things that we have realized, especially in Nigeria, is that sometimes we have to combine both individual and business deliveries. However, the demand between the two segments is quite different. Even in the B2B vertical, some businesses cannot survive based on on-demand requests for their deliveries, so unique offerings are vital to adequately meeting their needs. 

Pertaining to the size of this problem that the platform is trying to address, what is the unit economics in play? Is the market saturated?

Anjolaoluwa: The market is quite huge. According to statistics, we had 41.5 million MSMEs in Nigeria as of late 2021 and early 2022. 

This number keeps increasing month on month because we know that getting a job in the country is quite hard. Due to unemployment, a lot of people have resorted to doing business to make a living. 90 percent of these enterprises are in need of delivery solutions. 

I would disagree that the market is saturated because having logistics companies existing doesn’t mean that is the grand solution. At the end of the day, if you look at a lot of companies, say, restaurants, you would see that they have their own in-house logistics arm. 

If the market is indeed choked, why do we have a lot of businesses with their [own] delivery plays? The problem is big enough to allow them to compete.

The logistics sector has a low barrier entry, particularly for the ones that have smaller fleets of 1 to 5 motorbikes. And there are so many of them out there. They have complete control over their operations, and [their] systems. In some instances, they bite more than they can chew. They take orders from so many people, and at the end of the line, they disappoint different clients. 

One of the clients that we currently serve said they used to do deliveries by themselves. LH came in as their first third-party logistics service; they’ve been in existence for a number of years, quite a long time. One of the things that they emphasized was how much they’ve suffered at the hands of logistics companies and [that] they had to cut ties to become efficient. 

It has recently been revealed that some overly celebrated and heavily funded actors in the supply chain/logistics sectors are bending backward. Why? 

Anjolaoluwa: First of all, I would like to say that virtually all players in the tech startup space are finding it difficult. 

The economic climate currently is quite tough for not just the logistics sector but for different industries. A lot of companies are laying off staff, restructuring, and abandoning some markets. So I would say that the general economic situation is also a potent contributor to these operational issues. 

So for us at large, we have come to understand that pricing is a huge challenge. In pricing, you have to painstakingly analyze different sectors and different modes of delivery. I’m not talking about cars and motorbikes; I’m talking about how we charge, say, a food vendor. It will be different from how we charge a typical e-commerce actor. 

Having a flexible pricing model helps us to stay up to balance. In absoluteness, we need to balance our cash flow—that’s the number one priority. Then, number two is control. This often causes several issues for logistics providers because having to decide when people work at every point in time is an unsustainable way to do business. 

Case in point, if you’re working in a bank, the company tells you you’re going to resume at 8:00 AM and close at 5:00 PM. Here, you understand the set rules, which exist because a business process needs to be created. 

In a standard organization, you understand that people have to obey the rules because once you give people the free will to do whatever they like whenever they please, you will see that there will often be chaos. 

Can you speak more about how LH, as an upstart in the presently challenged market, is circumventing the situation? 

Anjolaoluwa: Even when we work with third parties like property partners, we have to set the rules, and the rules have to be followed.

Through this medium, workers are not going to dictate when it is convenient for them to be on duty. That way, the delivery business is seamless, and staff, especially riders, are available as and when due to deliver orders. 

The third priority is operational excellence. Having studied the logistics sector, we have a deep understanding of how it operates. For one, riders are quite different from other workers; their minds work differently. We took some years to just learn these ropes. Some things seem so simple but are very critical in the [actual] playing field.

It is vital to understand the mindset of a rider. That is one of the core things that we had to do at the beginning. We didn’t just jump into expanding as we wanted to. We also took a rather slow approach in the sense that we expanded gradually. Though LH has been operating since May 2020, we had just one client for two years. 

Not that we didn’t have other clients, but we were deliberately turning down offers because we wanted to ensure that, number one, we’re building a solid foundation and, number two, that we’re understanding the markets properly before expanding and, you know, taking on more demand. 

Given the current market dynamics, which of these work better for LH—owning assets of its own or completely relying on the help of third parties?

Anjolaoluwa: At large, currently we have a mix of both. That means we have assets from third parties while owning and controlling ours. 

The percentage of assets owned by third parties is [like] 60 to 70, while the rest is at the business’ disposal. We intend to reduce the third-party percentage to 28 and increase ours to 80.

The reason we do a mix of both is that we have a clientele that we need to control. We need to have total control over certain things just so operations can move as efficiently as possible. Plus, we also need to have our own contribution system. We own some of the assets so that in a case where partners decide to stop working for a meantime or [for] good, it would not cease our operations. 

Should we totally depend on third parties, it means that the platform can get into serious trouble in the event that they decide to take or break or go out of business. Having our own assets helps us to have some level of control, which is unarguably healthy for business. 

Nevertheless, the advantage to having third-party partnerships is that it [actually] helps when it comes to expanding, as it would be easy and non-reliant on capital injection. So, for us, this piece is critical. Not relying totally on third parties, but being more suited to having more of your fleets on third-party platforms, is the best asset play.

Speaking of capital injection, how has the company been funded? Has the startup been bootstrapping? Also, how’s the team formation? 

Anjolaoluwa: We started off bootstrapping and kept it like that up until last year. But we’ve raised some equity funds from two VCs and some angel investors. 

We got the angels in the middle of 2022, while the VC funds came in towards the end of the year. Currently, we have Sovereign Capital and DFS Lab as funders. 

As per the team setup, there are two co-founders, including myself. My co-founder recently resigned from his full-time job to join the company on a basis because of the nature of what we are building. 

Then, we also have 11 other team members across different functions. We also intend to increase our engineering team and expand our story and our engineering team by next month—also because of what we’re currently building.

What kind of challenges has the business experienced so far? There are several players in front of LH and they have struggled for one reason or the other. 

Anjolaoluwa: Number one on the list is the lack of faith from consumers and investors. There’s somewhat a bad reputation out there concerning logistics. A lot of them think a logistics company is just bad; they are not truthful, and they don’t keep to their word. Typical. 

Also, investors have [their] reservations because all the issues that have happened in the past have left funders finding it hard to believe in new and upcoming logistics companies being any different.

Number two is the three-layer multiplicity of paperwork that the local, state, and federal governments require for one to have a bike on the road. The number of documentation you need to have in place is quite ridiculous. And, sometimes, you will see that local governments wake up one morning and say there is a new paper. No proper communication? We don’t know how authentic it is. 

Most times, it feels like they just print these papers in their offices using them to find errors and demand money. When riders are caught on the road for papers that probably just came out that month ago, there is often a problem. That’s even when there is no form of information being passed around the ecosystem. 

One will find you touts that cannot even read those papers but have the courage to demand fines to the tune of tens of thousands. Most of these local and state government officials work with touts on the road, making it hard for delivery personnel to work. 

Lastly, there are long-standing infrastructural deficiencies hurdling tech logistics. As an upstart, how does LH overcome them?

Anjolaoluwa: One of the things that we have done is introduce bicycles into our fleet for shorter-distance deliveries. With bicycles, we don’t need diesel or fuel, which actually helps in reducing the costs of purchasing parts. Moreover, repairs are quite lower compared to motorcycles. 

Number two is that we also started getting stronger motorbikes, the type that can withstand our routes because most of our routes are, ironically speaking fantastic. Normal bikes are not strong enough to withstand wear and tear. 

When there are lots of repairs to the bikes frequently, maintenance costs go through the roof. So we started going for the stronger bikes and we simply acquired some Bajaj, which are quite good and sturdy. They are better placed to withstand the toughness of our roads. 

We also reduced our coverage to between zero to ten kilometers. So most of our deliveries, most of our deliveries move within this radius and it works for a good number of our clients. 

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