Global Supply Chain February 2015 Issue

February 2015 Issue 12

ENHANCING THE BUSINESS OF LOGISTICS

SURVIVAL OF THE Emirates Sky Cargo Strategy for the year

UAE Airports Sky is the limit

Apparel Group

Supply chain operations

FITTEST Air France & KLM Cargo explore different avenues to stay in the game

INTRODUCING SKYSTABLES YOUR NEW EQUINE TRANSPORT SERVICE

Etihad Cargo, winner of 2014 Air Cargo Industry Customer Care Award, is proud to announce the launch of SkyStables, the brand new bespoke service for your equine shipments.

Right from booking to arrival, SkyStables will guarantee a safe, comfortable and convenient journey for your valuable horses, giving you the peace of mind you require.

With dedicated Equine Managers who supervise the handling teams both in the air and on the ground, you can now take advantage of our global freighter network, and ship from Abu Dhabi to destinations in Europe, Asia, Africa, Australia, and the Americas.

Visit etihadcargo.com for more information.

It is, without doubt, one of the harshest environments on earth: the Empty Quarter in the Kingdom of Saudi Arabia – the largest and most barren sand in the world, spreading itself over four Arab nations and covering 650,000 km2 which is comparable in size to France. Temperatures range It desert is, without doubt, one of the harshest environments on earth: the Empty Quarter in the Kingdom of Saudi Arabia – the largest and most barren sand from 50° to -1°C in the course of a single day and the sand and dust are relentless. The nearest city is 1000 kilometres away. So the construction desert in the world, spreading itself over four Arab nations and covering 650,000 km2 which is comparable in size to France. Temperatures range of a 256 kilometre road cutting through this wildnerness, linking Saudi Arabia to the Sultanate of Oman, called for an extraordinary solution. from 50° to -1°C in the course of a single day and the sand and dust are relentless. The nearest city is3 1000 kilometres away. So the construction The response: a eet of 95 Volvo machines was assembled. Together, they shifted over 130 million m of sand just to build the bridge of the road – of a 256 kilometre road cutting through this wildnerness, linking Saudi Arabia to the Sultanate of Oman, called for an extraordinary solution. an extraordinary feat in such harsh conditions, yet the quality and power of Volvo engineering was up to the challenge. The difculties created The response: a eet of 95 Volvo machines was assembled. Together, they shifted over 130 million m3 of sand just to build the bridge of the road – by the remote isolation of the worksite were answered with excellent customer support from FAMCO, the authorised Volvo dealer in Saudi Arabia, an extraordinary feat in such harsh conditions, yet the quality and power of Volvo engineering was up to the challenge. The difculties created which included the organisation of mobile 24/7 service workshops that moved forward with the construction operation. Discover a new way. by the remote isolation of the worksite were answered with excellent customer support from FAMCO, the authorised Volvo dealer in Saudi Arabia, which included the organisation of mobile 24/7 service workshops that moved forward with the construction operation. Discover a new way. www.emptyquarter.volvoce.com

Watch video www.emptyquarter.volvoce.com

Watch video

Exclusive distributor of Volvo Construction Equipment in the UAE and Saudi Arabia Al-Futtaim Auto & Machinery Co. LLC Exclusive distributor of Volvo Construction Equipment in the UAE and Saudi Arabia United Arab Emirates: 800 32626 Saudi Arabia: 800 1244414 Al-Futtaim Auto & Machinery Co. LLC e-mail: famco@alfuttaim.ae www.al-futtaim.com United Arab Emirates: 800 32626 Saudi Arabia: 800 1244414 e-mail: famco@alfuttaim.ae www.al-futtaim.com www.

famcosaudi.com

www.famcouae.com

We are one!

SIGNATURE MEDIA FZ LLE P. O. Box 49784, Dubai, UAE Tel: 04 3978847/3795678 Email: info@signaturemediame.com Exclusive Sales Agent Signature Media LLC P.O. Box 49784, Dubai, UAE Publisher: Jason Verhoven jason@signaturemediame.com Director: Deepak Chandiramani Deepak@signaturemediame.com Managing Editor: Munawar Shariff munawar@signaturemediame.com Art Director: B Raveendran ravi@signaturemediame.com Production Manager: Roy Varghese roy@signaturemediame.com

Printed by United Printing Press (UPP) – Abu Dhabi Distributed by Tawseel Distribution & Logistics – Dubai

It gives me immense pleasure to be writing this little piece. We are a year old! And it’s been a wonderful 12 months since we launched. It’s been a very dedicated, committed journey one which is continuing as we move up towards getting even better than this first year.

And there’s another meaning to the headline, we are one: the industry and us. We aim to continue and get better at being the voice of our supply chain and logistics industry, bringing more insight, better coverage, highlighting issues and challenges, finding solutions together, and putting the people that run this integral industry on the forefront. We will continue to bring to you unbiased views and opinions and multiple angles to a topic in order to portray the true picture.

As the industry gets busy with more business there are also those many stories to report on and talk about, we will bring you all that and more. So here’s to us and to many more successful years.

To commemorate our first year we have published our first annual - The Global Supply Chain Yearbook.

This is guide featuring a deep insight into the logistical preparedness in the GCC region for handling the expansion the next few years promise to bring as well as different sections on aviation, materials handling, shipping and management.

Hope you enjoyed the two issues and see you next month!

Munawar Shariff Managing Editor munawar@signaturemediame.com Contributor’s opinions do not necessarily reflect those of the publisher or editor and while every precaution has been taken to ensure that the information contained in this handbook is accurate and timely, no liability is accepted by them for errors or omissions, however caused.

Articles and information contained in this publication are the copyright of Signature Media FZ LLE & SIGNATURE MEDIA LLC and cannot be reproduced in any form without written permission.

FEBRUARY 2015 3

February 2015 Issue 12

ENHANCING THE BUSINESS OF LOGISTICS

19 06 News 12 Strong linkages: Plans to

improve infrastructure and expand the main airport

A good transport system is a key enabler in any economy

19 Survival of the fittest Air France/KLM Cargo is exploring different avenues to combat to lull in the air cargo business

24 Up in the air IATA’s perspective on the future of regional air cargo carriers

30 Emirates SkyCargo on track

32 Growth continues for air cargo

Air cargo traffic rebounds in 2014 after three years of stagnation as per Boeing’s World Air Cargo Forecast 2014-2015

39 Vertical take-off Dubai is climbing up the league of the world’s busiest international airports

49 Keeping it cool A look at Apparel FZCO’s supply chain operations for Tim Hortons and Coldstone Creamery

55 Ports of call AT Kearney’s report on how GCC ports are managing hyper-speed evolution

for more sturdy growth

An update on Emirates’ air cargo business outlook for the year

55 4 FEBRUARY 2015

30

32 39

2020 READY

Integrated supply chain solutions that move your business forward.

When it comes to integrated logistics solutions across the supply chain, you can trust Al-Futtaim Logistics to get your business moving ahead.

Automotive: Vehicles, Spare Parts, Machinery | Retail: Fashion, Hanging Garments, Electronics, High Tech, Furniture Engineering | Industrial | Project Cargo: Heavy Lift and Break Bulk | Humanitarian

P.O. Box 61450, Dubai, United Arab Emirates. Tel: +971 4 881 8288, Fax: +971 4 881 9157 e-mail: contact@aflogistics.com www.aflogistics.com

NAS is ground handler for Abidjan Airport National Aviation Services (NAS) a subsidiary of Agility, recently received its first contract award in West Africa. With the new contract, NAS has now expanded its operational network to 16 stations in nine countries.

Under the 10 year contract, NAS will provide ground handling services at the Felix Houphouet-Boigny International Airport in Abidjan as a part of a public private partnership with the Government of Cote d’Ivoire. NAS was awarded the contract based on their proven track record and the solutions proposed to turn the airport back to a regional hub as it was in the past.

The ground handling contract includes passenger services, ramp handling, cargo management and warehousing as well

Hassan El Houry, CEO, National Aviation Services with Gaoussou Toure, Minister of Transport, Government of Cote d’Ivoire at the signing

as other related airport services. The official signing ceremony took place in Abidjan with Cote d’Ivoire representatives, Gaoussou Toure, Minister of Transport, Abdourahmane Cisse, Minister of Budget, Nialé Kaba, Minister of Economy and Finance and Hassan El Houry, CEO, National Aviation Services.

Following the signing El Houry highlighted,“The Government of Cote d’Ivoire places development of its transport sector at the heart of its economic growth.

As the chosen ground handling partner, we can provide operational expertise, security and reliability required by the Abidjan Airport to reclaim its position as the aviation hub for West Africa.”

Abidjan airport currently handles close to 1.5 million passengers, 8,200 aircrafts and close to 20,000 tonnes of cargo. NAS Ivoire, led by newly appointed General Manager Olivier Berni will work through a six month transition period before taking over complete airport operations in mid-July.

Sohar eyes expanding role in packaging industries Sohar Port and Freezone plans to take full advantage of the expansion of its petrochemicals industries in order to attract downstream plastics manufacturers to the logistics hub, ahead of the construction of Oman’s first dedicated agricultural terminal.

This was the message delivered by Sohar officials to industry leaders and experts at Arabplast 2015 and GPCA PlastiCon 2015 trade shows, both held in Dubai recently.

“With the planned construction of an agricultural terminal and anticipated influx of grain products that will accompany its completion, our aim is to attract new investment in food and food processing industries and create a cluster than can feed the region. Grain silos and a sugar refinery are already in the pipeline, and, as this sector grows, the opportunities for packaging companies to serve multinational

6 FEBRUARY 2015

businesses will grow,” said Executive Commercial Manager, Edwin Lammers.

In addition, the Liwa Plastics Project will provide polyethylene and polypropylene to packaging companies interested in setting up operations at Sohar. This US$3.6 billion steam cracker project is being developed at Sohar by Oman Oil Refineries and Petroleum Industries, and will be integrated with the existing refinery, aromatics plant, and polypropylene plant.

But packaging is not the only option, according to Lammers.

“High density polyethylene and PET can be extruded for use in large-scale water and other types of piping, for example. This bodes well for the region’s construction industry, though we do not envision Sohar being able to supply this industry just yet,” he said.

Royal Jet confirms delivery of second Bombardier Global 5000

Private charter company, Royal Jet, chaired

by His Excellency Sheikh Hamdan Bin Mubarak Al Nahyan, has taken delivery of a new Bombardier Global 5000 business jet.

The aircraft arrived at Royal Jet’s Fixed Based Operations (FBO)/VIP terminal at Abu Dhabi International Airport on 14th January. This is the second Bombardier Global 5000 business jet acquired by the Abu-Dhabi based operator, following the arrival of the company’s first Bombardier Global 5000 business jet in November 2014.

Captain Patrick Gordon, Acting President and Chief Executive Officer of Royal Jet said,“Our first Bombardier Global 5000 has been in service for the past two months and is already extremely popular with our clients. Having a second jet available will help us to meet the needs of Royal Jet’s increasing demand from clients and the growing business aviation industry in the Middle East. The regional corporate market is steadily growing and instead of flying with a commercial airline, in many instances it is a cheaper alternative to charter a private jet – such as the Global

5000 – for journeys within the region and further afield.”

The Bombardier Global 5000 business jet can carry up to 12 guests and provides more high-comfort living and working area than any of its peers. The cabin can also be configured to sleep seven guests.

The company is evaluating other airline manufacturers and Royal Jet is renewing its collaboration with Boeing and will take delivery of two new Boeing business jets in September and December 2015.

Aircraft from Airbus and Gulfstream will be considered as part of Royal Jet’s fleet replacement and expansion programme that will increase the fleet to 20 aircraft by the year 2020 at a cost of US$700 million.

Royal Jet has also recently taken delivery of a Bombardier Learjet 60 XR business jet in October 2014. Captain Patrick Gordon concludes,“Our fleet expansion is central to our long-term strategic plan that will allow us to expand our network to meet the growing demand and provide our guests with a superior offering and increased capacity.”

Tackling air space congestion Educating policy makers and influencing higher authorities on the importance of aviation were key actions highlighted at the Future Air Transportation Systems Summit 2015, held in Dubai recently. All panellists agreed on the positive impact the aviation sector has had on the UAE and regional economy. Economic growth from aviation will contribute US$53 billion to the UAE economy by 2020, providing up to 750,000 jobs.

Jeff Johnson,VP International and Middle East President for Boeing, explained that for the next 20 years, the UAE is next to US and China for the largest aviation market growth and that the UAE will need more than 55,000 more pilots and 62,000 more technicians. With such growth comes the need for the right infrastructure for airspace and air traffic management (ATM).

Mohamed Khonji, Regional Director from International Civil Aviation Organisation (ICAO) declared that collaboration, cooperation and commitment is needed from all key stakeholders to tackle ATM issues affecting the region. Ahmed Al Jallaf, Assistant Director General, Air Navigation Services (ANS), UAE General Civil Aviation Authority (GCAA) argued that stakeholders must convince Middle East governments about the importance of ATM and airspace congestion.

John Swift, Regional Director, NATS commented:“It’s interesting to hear ANSPs and airlines call for policy makers to recognise the contribution that aviation makes to national GDP and job creation. It is important that governments address ATM issues as a state level priority and not a niche transport subject.”

Rick Allen, SVP Operations, Etihad Airways, explained the unique airspace in the UAE and how it has the fourth largest and busiest wait point in the world. Allen argued that an entire new look at route structure is needed with more conversation with military airspace managers that control 40 per cent of the UAE’s restricted airspace.

The importance of training and education was also discussed. Johnson also said that governments need to focus on educating and training the next wave of air traffic control (ATC) and ATM managers, and also attract young people to the industry.

FEBRUARY 2015 7

Maximus to launch one-stop-shop; donates Ilyushin aircraft to Huda relief efforts Abu Dhabi-based Maximus Air, one of the biggest all-cargo air freight operators in the Middle East, is all set to launch a brand new one-stop-shop in 2015. The ambitious new service will combine the Abu Dhabibased air cargo specialists’ existing oversized cargo fleet with a global network of partners in offering a door-to-door delivery service for the very first time.

According to CEO Mohammed Al Qasimi, the service will have a simple pricing structure and competitive rates. It will also cater to virtually any shipment size, and is a conscious decision to diversify existing services, which currently revolves around large and heavy goods. He also feels that creating the single-window service would satisfy customer and industry demand.

“This is the first time Maximus will offer such a service and this is a key part of our strategy to grow and expand upon the success of our traditional business offering.

Naturally, oversized cargo will remain at the core of everything we do. However, once operational, the single window onestop-shop will open new markets that complement the usual array of large cargo that we can transport,” he said.

Freight carried by the service will include air freight, while forwarded sea freight, FCL, LCL, break bulk, and land transport within the GCC region will also be accommodated in the first phase. The one-stop-shop will also offer warehousing and SCM facilities, insurance, and packaging services.

In an effort to fulfil their CSR responsibilities, the operator has donated one of its aircraft to support a regional humanitarian campaign launched by President His Highness Sheikh Khalifa bin Zayed Al Nahyan earlier this month.

The campaign will focus on providing urgent relief to the hundreds of thousands of refugees in the Levant region, where heavy rain, snowfall and sub-zero

temperatures are forecast to follow the arrival of winter storm, Huda.

The campaign, named Tarahuma, has received widespread praise from the global community and leaders, including Save the Children. Having also garnered the support of the office of the Crown Prince of Dubai, a national committee has been formed and has set itself the target of assisting a million refugees.

Explaining the motivation behind Maximus’ current involvement in the UAE-led campaign, Al Qasimi said,“We are responding to a call made by His Highness, the Head of State, for all sectors of society to provide immediate assistance to our brothers in the Levant.”

ADCB finances Etihad’s first Airbus A380-800 Agility has broken ground on the construction of a distribution park on a 40acre site in the Tema Port Free Trade Zone Enclave in Accra, Ghana.

The Agility Distribution Park, one of a series of logistics hubs that Agility is building across the African continent, will provide international standard logistics infrastructure to local, regional and global companies operating in Ghana.

Speaking on this latest Agility investment into the region, Geoffrey White, Agility CEO, Africa, said, “Agility is committed to developing a network

8 FEBRUARY 2015

of quality Distribution Parks in Africa.

By providing much needed import and export routes in and out of Africa, Agility Distribution Parks will help companies operate in Africa with the reliable, modern and secure infrastructure they need to grow their business.” Offering 2PL, 3PL and 4PL solutions, Agility operates its own warehousing, and also designs and builds warehouses on its Distribution Parks for third parties to specific individual customer specifications.

White added,“Ghana is an attractive location to launch the network of new

Agility Distribution Parks, thanks to a long term stable and transparent Government, fast growing GDP and increasing prominence as a regional commercial hub in West Africa. Quality logistics infrastructure is a key driver of new foreign direct investment, stimulating improved trade flows, prosperity and job creation.”

The first phase of the park will be complete and operational in the last quarter of 2015, and when fully occupied will include 100,000 sq metres of bonded and non-bonded warehouses with ancillary services.

ENEC completes artificial reef off coast of Barakah The Emirates Nuclear Energy Corporation (ENEC) has announced the completion of the final stages of an artificially constructed reef, located 3.8 km from the shoreline of Barakah, the home of the UAE’s peaceful nuclear energy programme.

Developed in partnership with the National Marine Dredging Company (NMDC), and in line with guidance from ENEC’s environmental regulator, the Environment Agency – Abu Dhabi (EAD), the Barakah Artificial Reef Project is just one of the proactive environmental initiatives being implemented by ENEC to ensure the long-term sustainability of the natural areas surrounding the Barakah site.

The almost 6,700 sq metre reef, roughly the size of one football field, was constructed using recycled moulded concrete core-locs originally utilised in the assembly of Barakah’s coastal breakwater.

The lattice formation of the reef is designed to replicate a natural coral reef, and works to stimulate the local ecosystem by improving the existing seabed habitat, providing

additional shelter for marine life, and encouraging biodiversity. The enhanced habitat is expected to attract a range of marine species including algae, invertebrates such as barnacles, corals, and oysters, and a variety of small and large fish.

Mohamed Al Hammadi, CEO of ENEC, commented,“The completion of the Barakah Artificial Reef Project in the waters off the

coast of our site is an excellent example of the positive measures we are implementing in line with our Environment and Sustainability Charter.”

By 2020, ENEC’s four nuclear energy reactors will provide approximately 25 per cent of the UAE’s electricity needs, saving up to 12 million tons of greenhouse gas emissions each year.

Shell completes global GTL base oil supply chain with new Middle East hub Shell has recently opened a GasTo-Liquid (GTL) base oil hub in Jebel Ali in the UAE: the first delivery of GTL base oil was made in late December 2014. Base oil is a key component in finished oils, and GTL base oil specifically enables the development of premium oils for engines, as well as in speciality products, including process oils and transformer fluids.

This new facility in Jebel Ali is Shell’s fourth GTL base oil storage hub alongside its existing hubs located in Houston, Hamburg and Hong Kong.

The new addition completes the full global reach and coverage of Shell’s supply of GTL base oil. The hub will cater to customers in the Middle East, and to certain markets beyond such as India and Pakistan.

Dennis Cheong, Shell Vice President Supply Chain, stated, “Shell Lubricants has a strong and

dependable global supply chain, producing high quality products and providing consistent delivery to our

customers: these GTL base oil hubs are an integral part of this.”

The GTL base oil is made in the Middle East at the Pearl GTL plant in Qatar, a partnership between Qatar Petroleum and Shell. The plant is the world’s largest source of GTL products. Sheikh Thani Al Thani, Deputy General Manager for Qatar Shell, said, “GTL products represent a pioneering innovation to increase the supply of highlydemanded liquid hydrocarbons.

They offer significant advantages in many applications as they are virtually sulphur free, colourless and odourless. We are extremely proud to be at the leading edge of innovation that produces these and future superior products.”

FEBRUARY 2015 9

Gulftainer surpasses 400,000 TEU milestone Gulftainer marked another significant milestone with the Sharjah Container Terminal (SCT) surpassing 400,000 TEUs (Twenty Foot Equivalent Units) in annual throughput during 2014. SCT has again recorded double-digit growth compared to last year’s volumes. The achievement was reached with an impressive safety record under challenging conditions including space constraints.

Iain Rawlinson, Group Commercial Director of Gulftainer said,“SCT has always marketed itself as ‘The Flexible Alternative’ and the individual attention we extend to our customers offers us an advantage over competitors.”

The 400,000th unit was discharged from Mag Container Lines’ vessel, ‘Mag Success’, one of the Terminal’s regular callers, which considers Sharjah as her base port. Speaking on behalf of Mag Line’s CEO, BDM Jamal Saleh congratulated the Terminal for its achievement. He said,“The announcement today reflects how Gulftainer and MCL have grown together over the years and, in partnership, managed to reach this target.

The continuous support, flexibility and

excellent operational performance MCL receives from Gulftainer, both operationally and logistically, has contributed greatly to this achievement.”

The milestone was achieved on the shift of Duty Superintendent Mehmood Malik, the longest serving employee at over 38 years at the Terminal and part of the team when the first TEU crossed the quay.

Mehmood has witnessed several records and milestones and recalls handling 2,500 TEUs in 1976,“At that time we could not imagine reaching the levels of throughput we have today, so this is a very special moment for me.”

SCT, which is managed and operated

by Gulftainer on behalf of the Sharjah Port Authority, has the honour of being the site of the first container terminal in the Gulf, commenced operations in 1976. SCT is located in the heart of Sharjah and is an ideal gateway for import and export cargo with direct links throughout the Gulf, Asia, Europe, Americas and Africa.

The strong performance of the Sharjah economy has supported the growth of many of SCT’s customers, enabling them to

increase their throughput and contribute to a record year for the Terminal.

SCT’s figures have been further boosted with the arrival of new services throughout the year, including UASC’s Gulf India Service (GIS1), which now connects Sharjah with Sohar in Oman, Mundra in India and Karachi in Pakistan, which has boosted in the national carrier’s volumes through SCT in November and December.

Gulftainer’s current portfolio covers UAE operations in Khorfakkan Port and Port Khalid in Sharjah as well as activities at Umm Qasr in Iraq, Recife in Brazil, Jeddah and Jubail in Saudi Arabia and in Tripoli Port in Lebanon, which will be operational in April 2016. It also marked another milestone in 2014 with its expansion to the US by signing a long-term agreement to operate the container and multi-cargo terminal at Port Canaveral in Florida.

With a current handling activity of over six million TEUs, the company has set an ambitious target to triple the volume over the next decade through organic growth across existing businesses, exploring green field opportunities and potential M&A activities.

Lufthansa Technik receives Airbus A350 maintenance approval Coinciding with the launch of commercial flight operations of the Airbus A350 to Frankfurt, Lufthansa, Technik has received approval of the European airworthiness authority EASA (European Aviation Safety Agency) as Maintenance Organisation for the new aircraft type (Part 145 approval). The leading maintenance, repair and overhaul (MRO) provider now offers routine maintenance services in Frankfurt.

10 FEBRUARY 2015

“We are excited about the entry into service of this newestgeneration aircraft with its promising technologies,” said Wolfgang Weynell, Senior Vice President Corporate Sales at Lufthansa Technik. “We are very well prepared to maintain the A350, with its carbon fibre structures and its state-of-theart engines and systems.”

For some time now, Lufthansa Technik has been preparing

meticulously for the technical support of the Airbus A350.

The company’s Frankfurt and Munich facilities will be able to provide airlines with an extensive package of maintenance and repair services, including troubleshooting and the elimination of technical defects, software management, and both the planned and unplanned replacement of components, engines, and auxiliary

power units (APU), in addition to routine checks. Lufthansa Technik will also supply spare parts as needed at both hubs.

In addition, Lufthansa Technik is preparing the storage and provision of Rolls-Royce Trent XWB spare engines and Honeywell HGT1700 APUs in and from Frankfurt to ensure fast help for A350 operators in the event of planned or unplanned engine or APU replacements.

HE Ahmed Mahboob Musabih tours Jebel Ali Customs Centres HE Ahmed Mahboob Musabih, Director of Dubai Customs, paid an inspection visit to Jebel Ali Customs Centres. He was accompanied by Abdullah Mohammad Al Khaja, Executive Director of Clients Management Division, and Butti AlJumairi, Executive Director of Human Resources, Finance and Administration Division.

Yousuf Al Hashemi, Director of Jebel Ali Customs Centres Management, gave a presentation on the key challenges, achievements and initiatives put forth by the management during 2014. Some encouraging statistics were also highlighted, particularly in relation to employee satisfaction, which increased from 61 per cent in 2013 to 88 per cent last year.

Commenting on the presentation, the Dubai Customs’ Director underlined the importance of maintaining and improving the accomplished employee satisfaction rate, as well as providing a conducive working environment, thereby creating customer happiness and loyalty – rather than mere satisfaction – consistent with the directives of His Highness Sheikh Mohammed bin

During DC Director’s inspection visit

Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai.

Musabih also met with employees and inspectors at their working sites, commending everyone’s efforts, and stressing DC’s commitment towards leveraging human capital capacities and enhancing service levels. Musabih’s visit also included the client service centre and inspection centre in Dubai Logistics City, where he urged the staff to step up positive engagement with clients, listening to their opinions and catering to their needs to improve customs services and promote Dubai’s competitive edge in terms of trade facilitation.

At the end of the visit, the Director of Dubai Customs thanked DC staff and inspectors, calling upon them to double their efforts in order to take customs performance to the next level by harnessing the spirit of innovation and creativity.

Ahmed Mahbbob Musabih meeting officials of Jebel Ali Customs Centers to kick off his tour in presence of Abdullah Al Khaja and Butti AlJumairi

Resilient supply chains in Africa – the key to success in 2015 Gulf Marketing Group (GMG), one of the Middle East’s leading holding companies, recently announced an AED 150 million deal with SAP, the global enterprise software and software-related services provider, for a major long-term business transformation programme.

Successful companies in 2015 will be those that can adapt to the fast changing global environment, such as unstable currency markets, the fast growing global population, and rising number of internet users, and make them work in their favour, according to Sumesh Rahavendra, Head of Marketing for DHL Express

Sub Saharan Africa.

Rahavendra advises decision-makers to focus on these key areas: Annual planning and reviewing: This lays the foundation for an efficient supply chain as it assists business owners to see the bigger picture and enables them to be flexible in the face of changing business needs. All potential risks must be identified and assessed, no matter how improbable.

It is equally important to review the past year to ascertain what impacted their supply chain, and what can be

improved upon to avoid unnecessary interruptions in the future. Another area to look at is seasonal spikes in business which may require additional resources.

Reverse logistics: This is often overlooked, however, effectively managing the flow of returned goods and packaging is the key to reduce unexpected costs.

International supply chain management: Trading across borders can present a number of challenges, unique to each country. In Africa, these include congestion in major cities, such as Lagos and Nairobi,

customs inconsistencies with regards to product classifications and duty and tax exemptions, which can lead to complex customs clearance processes, and a lack of air connectivity with just over 12% of cities served by just one flight a week. It is important to understand these challenges and make the necessary plans to circumvent potential delays.

He says that in order to maximise a business’s bottom line, decisionmakers should aim to take a more holistic approach to managing supply chain risk and achieve greater visibility, flexibility, and control.

FEBRUARY 2015 11

COUNTRY REPORT BAHRAIN

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COUNTRY REPORT BAHRAIN

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FEBRUARY 2015 13

Overall, the Ministry of Transport (MOT) has responsibility for the development of the island’s transport system, as well as facilitating the movement of people, goods and information

14 FEBRUARY 2015

The economy appears to have bounced back from the downturn precipitated by the unrest of early 2011, and this is evident in the growing volume of sea and air traffic.

Moreover, in response to the island’s political crisis, the GCC countries announced a $10bn fund to support Bahrain’s economy, providing various forms of financial support to the government on generous terms. Much of this money is in turn finding its way toward infrastructure spending, with a view to create jobs for the local population and enhance competitiveness.

Regulatory environment: Overall, the Ministry of Transport (MOT) has responsibility for the development of the island’s transport system, as well as facilitating the movement of people, goods and information. As such, its remit encompasses land, sea and air transport as well as postal services.

In December 2012 the ministry launched a reorganisation programme, bringing a number of hitherto separate bodies under one umbrella and merging a number of sub-departments, as well as rebranding its identity and logos. This was in accordance with the ministry’s own Strategic Plan for 2013-15, which aims to enhance regulation, improve safety and increase capacity among staff. Over the longer term, transport development in Bahrain is informed by Vision 2030, a comprehensive development strategy drawn up by the island’s Economic Development Board (EDB) in 2008, which aims to double Bahraini household disposable income by 2030 and develop a much stronger private sector. In particular, Vision 2030 recognises that infrastructure and connectivity are key to realising these goals.

The Civil Aviation Authority (CAA) acts as the regulator for the aviation sector in the kingdom, while Bahrain International

COUNTRY REPORT BAHRAIN

$300m to $1bn. As of May 2013, the tender has not been awarded, although nine bids have been submitted.

Although there is no national champion in the shipping industry, Bahrain is a shareholder Sea transport: in United Arab Shipping Company (UASC), In 2009 Bahrain opened a new port at Hidd, which is jointly owned by the governments to replace the ageing Mina Salman Port of Kuwait, Iraq, Saudi that had been built in the Arabia, Bahrain, Qatar 1960s. Management of the and the UAE. The new facility was transferred Overall, demand company’s headquarters to APMT in a 25-year on port capacity is are located in Kuwait. contract. Although the UASC has introduced port was impacted by the higher than supply, new lines in 2013, events of 2011, when falling which illustrates an including West Africa, business brought a drop Australia and the in throughput, the return optimistic business western seaboard of investment in 2012 has environment,” Marco of the US, as well as resulted in a rising volume introducing direct of trade.

Neelsen, MD, APM connections between In 2012 KBSP handled Bahrain and Jeddah, 525,000 twenty-foot Terminals Bahrain, Port Said and Turkey, equivalent units (TEUs), said. “Bahrain can avoiding the need for compared to 375,000 TEUs in 2011, and 443,000 tonnes take advantage of this trans-shipment.

Other international of general cargo compared scenario by playing a shipping lines serving to 216,000 tonnes of general cargo in 2011. Due to the vital role in facilitating KBSP include China’s Hanjin, Germany’s fact that a high proportion trade through the Siemens, Denmark’s of the island’s imports arrive Maersk, Switzerland’s by sea, these figures are Northern Gulf.

MSC and France’s CMA, indicative of the noticeable among others. The total economic recovery in tonnage registered under the Bahraini flag is Bahrain in 2012, with growing industrial fairly small, about 750,000 tonnes according production feeding through into greater to GOP estimates, and is divided among volumes passing through the port. approximately 400 vessels.

“Overall, demand on port capacity is The GOP is in the process of preparing higher than supply, which illustrates an a new maritime code that will update optimistic business environment,” Marco the country’s shipping regulations and Neelsen, the managing director of APM incorporate into law the provisions of Terminals Bahrain, told OBG.“Bahrain can a number of international maritime take advantage of this scenario by playing conventions to which Bahrain is a signatory, a vital role in facilitating trade through the but which have not been applied yet. Work Northern Gulf.” on this new code commenced in 2008 and is expected to be complete around 2015.

LNG: An innovative online ship registry portal is In addition to the container and general expected to open by the end of 2013. terminals, Bahrain is actively considering establishing a liquefied natural gas (LNG) terminal at KBSP, in a bid to ensure security Aviation: of supply for the industrial sector. In 2012 At the beginning of 2013 Bahrain was local press reported that Bahrain was due to home to one operating national carrier: issue a tender to construct an LNG terminal Gulf Air. The airline was founded in 1950, with the capacity to import up to 400m cu with the governments of Qatar, Abu Dhabi feet a day, with cost estimates varying from and Oman taking stakes in the company The King Fahd Causeway, which links Bahrain to Saudi Arabia, is operated jointly by both governments.

Airport (BIA) is operated by Bahrain Airports Company (BAC), a state-owned firm that is structured as a public limited company in which the state holding firm, Bahrain Mumtalakat Holding, is the sole shareholder.

The General Organisation of Sea Ports (GOP), which under the MOT rebranding is due to become the Ports and Maritime Affairs Directorate, formerly operated the old port at Mina Salman, and now acts as the ship registry and is responsible for ensuring compliance with safety regulations and various international maritime conventions.

The country’s main port, Khalifa Bin Salman Port (KBSP), is currently operated by Danish firm APM Terminals Bahrain. The road network comes under the Roads Projects and Maintenance Directorate, which is part of the Ministry of Works (MOW), but the island’s small size means that there are no large highways operated on a concession basis.

FEBRUARY 2015 15

via its website announcing that it was in 1974, although the most prominent hub suspending all operations and had remained in Bahrain. applied for voluntary liquidation, at the Gradually, however, these shareholders recommendation of the board following an withdrew one by one to set up their own extraordinary general meeting. airlines and develop their own hub capacity The carrier, which had just four aircraft, – the last being Oman in 2007. This left was negatively affected by regulations put Bahrain as the sole shareholder in Gulf Air in place at the height of the political crisis and meant that the airline was forced to in 2011 – which banned flights to Iraq, Iran bear the costs of a network designed for a and Lebanon – as well as by the subsequent significantly larger catchment area while reluctance of many travellers to visit or competition within the region sharpened transit through Bahrain. Although carriers considerably. were eligible for compensation by the As a result, Gulf Air regularly posted government for losses that were incurred losses that ultimately had to be borne by under this measure, the company claims the public purse. Gulf Air is held as part of that this had not Bahrain Mumtalakat Holding. been forthcoming.

As a non-listed company, its Moreover, the financial results are not in In addition to the events of the Arab the public domain, but a 2012 aforementioned Spring in 2011 report by a market intelligence Bahrain Air group (the Centre for AsiaMina Salman Bridge, forced to suspend its routes Pacific Aviation) forecast that to a number of the carrier was estimated to a number of new other destinations, experience losses in the region flyovers and relief including Damascus. of $500m in 2011.

The company roads are under stated that with Restructuring: construction in and the CAA reducing In an effort to stem these losses, Gulf Air announced around the capital of the number of slots available to a period of extensive Manama. However, Bahrain Air while restructuring toward the end still demanding of 2012, which is due to take Bahrain stretches payments of past three years to implement fully. just 50 km by 30 km, debts owed to The carrier plans to shift from a long haul and transit focus severely constraining the government, the shareholders to concentrate on short-haul capacity to build felt there was flights within the MENA region no other option and to the Indian subcontinent, new roads but to liquidate as these are both more lucrative the company. and less costly to operate.

However, in April 2013 local logistics firm In order to experience additional savings, Almoayed Wilhelmsen filed a lawsuit Gulf Air has revised its aircraft orders with against the company’s decision to enter Boeing and Airbus to focus on smaller, voluntary liquidation, claiming that it narrow-body craft, saving an estimated was owed BD25,000 ($65,800) by the $2.5bn, and has set an aim to trim its company and calling for a declaration of outgoings by 24% during 2013. bankruptcy instead.

Changes:

Bahrain Air was founded in 2008 and formerly operated on a low-cost, pointto-point model. In early 2013, it offered over 40 routes, mostly serving MENA and South Asia. However, on February 12, 2013, the company released a statement

16 FEBRUARY 2015

Airports: BIA, which was first founded in the 1930s, is owned and operated by BAC, which is itself a subsidiary of the state holding company Bahrain Mumtalakat Holding.

Since 2009, however, Hochtief Facility

Management, a subsidiary of German engineering group Hochtief, has been engaged as the airport’s facility manager, with the contract due to run until at least 2016. According to the latest figures available, in 2012 some 8.48m passengers passed through the BIA, an increase on the 7.8m seen in 2011. Over the same period some 256,826 tonnes of cargo passed through the airport, however, a decrease compared to 322,000 tonnes in 2011.

BIA was built in 1994, when its capacity was set at 3.5m passengers a year.

Subsequent annual expansions have since raised its capacity to 8m-9m passngers.

Although BIA remains one of the smoother airports for transit within the region, which is partly attributable to its smaller size, both its age and ever-rising traffic dictate that it will have to be expanded again at some point down the road.

While the authorities have long recognised this, the most pressing concern for the government in terms of transport has long been the future of Gulf Air, meaning that the future of the airport has received less attention than might otherwise have been the case. While the expansion project remains at the scoping and design stage, the MOT recently approved the allocation of BD335m ($882m) for the expansion of the airport and the refurbishment of the existing terminal. While BIA currently has just one runway, BAC projections forecast that this should suffice for the next 20 years or so.

A clean face: Once a design has been selected, the earliest that work is likely to begin is some time in 2014, with construction taking around two to three years to complete. One option that is apparently being considered is to build the extension first, then a temporary terminal building, which would allow the refurbishment of the old terminal to be completed much more quickly.

Another possibility is to reconfigure the layout of the existing airport and alter certain procedures to minimise disruption while work is ongoing. Although it remains too early to say what exactly the new terminal will feature, the aim is to raise capacity to around 13.5m passengers a year, compared to 9m currently, and add 13 new

COUNTRY REPORT BAHRAIN

gates, 40 more check-in counters and four more baggage reclaim belts. While Gulf Air is drawing down its fleet and network, the authorities wish to keep as many destinations reachable from Bahrain as possible, and therefore are keen to see other carriers fill in the gaps left.

Although new routes are unlikely to come onstream in 2013 given logistical constraints and continuing wariness among investors, BAC is holding discussions with a number of carriers with a view toward 2014. In 2012 BIA boasted connections to over 40 destinations, served by 26 passenger carriers and 10 cargo carriers.

Over the longer term BAC aims to diversify its revenue stream away from purely aviation-related business. The airport complex covers 5.6 sq km, and much of that is undeveloped.

“Our development plans and repositioning of the BIA as a result of the recent realignment in the aviation sector in Bahrain are going to be more focused on enhancing the passenger experience, retaining the airport’s competitive advantage and striving to increase the airport’s profitability by striking a balance between aero and non-aero revenues.” Mohamed Yousif Al Binfalah, CEO of BAC, told OBG.

Logistics: Indeed, logistics, as a key industry that is fairly labour-intensive, is a field that the Bahraini government has been keen to support in recent years. The island offers a number of advantages to logistics companies looking for a regional base.

The first is its strategic location, which is convenient for the giant Saudi market and other GCC countries, as well as the generally high quality of infrastructure.

Setting up a business in Bahrain is considered easier than in many other countries, which is partly because there are fewer procedures involved. Most logistics firms that OBG spoke with considered the Customs department relatively efficient and to have a helpful attitude toward solving problems. Competition in the industry is healthy and there are many smaller firms. In addition, the sector has a high proportion of Bahraini employees, which most companies estimate at around 70%.

Infrastructure upgrades: In addition to the aforementioned Mina Salman Bridge, a number of new flyovers and relief roads are under construction in and around the capital of Manama.

However, Bahrain stretches just 50 km by 30 km, severely constraining capacity to build new roads. Over the longer term, the authorities are looking to develop the public transport system, which now is limited to taxis and a few bus services along key routes. Many buses are old and considered poor in terms of frequency and reliability.

As a result, Bahraini roads are far more congested than they might otherwise be.

As well, the rising population, which the EDB projects to increase from around 1m in 2013 to 1.5m in 2020, will necessitate greater investment in public transport. In 2010 the MOW outlined a 20-year plan to develop a BD3bn ($7.9bn) public transport network consisting of trams, buses and a light railway network, although the events of 2011 put this on hold. Under the scheme, the light railway will consist of six lines and be developed in three phases: the first involves building a 13-km stretch of light railway and an 11-km tram line.

By 2030, the year when the system is slated for completion, the lines will link the airport with the population centres of Muharraq, Manama, Isa Town and Riffa, and thus to Qatar and Dammam in Saudi Arabia. The new airport is due to include a bus terminal, which will form the backbone of a revitalised public transport network in the island nation. Air-conditioned bus shelters, which have proved to be successful in Abu Dhabi, are another possibility to entice citizens out of their cars.

Laying rail: In additional to this commuter rail-type service, Bahrain is also planning to link to the GCC Railway. The pan-GCC rail network, due to be completed by 2018, will stretch over 2000 km and enable the transport of goods from Kuwait to Salalah in Oman and from Jeddah in Saudi Arabia to the Fujairah Port in the UAE. Total investment in the GCC network is estimated at $30bn. The Bahraini section of the network will consist of rail connections to both Dammam in Saudi Arabia, already a railhead, and a new rail link

to Qatar, which is likely to share a route with the planned Qatar-Bahrain Causeway. This will stretch 45 km and cut the car journey time between the two countries from four and a half hours to just over half an hour by car. Estimated costs for the new causeway stand at around $5.5bn.

An accord was signed in 2008 between Bahrain and Qatar to build the causeway, but it remains unclear how much each country will contribute to the cost. The credit crunch and upgrades to plans have meant that work had yet to commence on the project as of May 2013. However, as part of its winning bid to host the 2022 FIFA World Cup, Qatar has committed itself to completing at least 40% of the project by 2018 and to finishing the road and rail sections of the bridge in time for the event. The new road and rail links are likely to have a great multiplier effect on Bahrain and help ensure its position as a transport hub for the Upper Gulf.

Outlook: Transport continues to play a key role in the kingdom’s bid to attract foreign investment, and in turn, the continued investment inflows are testament to the quality of the country’s infrastructure. While Bahrain’s sole active airline continues to suffer in the face of sharp competition, the decision to proceed with the airport expansion demonstrates confidence in the kingdom over the longer term.

Maritime transport and logistics have rebounded from 2011 and the country is likely to remain a significant transport hub for the Upper Gulf, although not on the same scale as some other centres in the region. Over the short term, bottlenecks on the King Fahd Causeway are set to continue to present challenges for firms in Bahrain. However, over the long term these issues should be resolved. Meanwhile, the causeway to Qatar promises to give the local transport sector a significant and muchwelcomed boost.

Originally published by Oxford Business Group (OBG) in The Report: Bahrain 2013, published in June 2013, Transport Chapter. For economic news about Bahrain and other countries covered by OBG, please visit http://www.oxfordbusinessgroup. com/economic-news-updates

FEBRUARY 2015 17

New Heights in

OPERATE & INTEGRATE WORLD

RECORD

5,000 TONS

HEAVIEST ITEM BY ROAD

LARGEST FLEET

1, 800 TRUCKS 2,200 TRAILERS

2 MILLION

FREIGHT

TONS PROJECTS CARGO

EXECUTED ANNUALLY

2 MILLION

SQM TERMINAL WAREHOUSING

FACILITIES

The journey that started with a single truck seems a distant memory. Since 1965 our fleet grew over 1,800 trucks and 2,200 various types of trailers such as flatbed, low bed, extendable and semi-hydraulic. In addition to other types of trailers such as conventional hydraulic, SPTs and SPMTs. Our terminal and storage capacity is over 2 million SQM with more than 6.9 million MT of exports a year.

Our formula of success is to keep everything 'in-house' starting with employing the right calibers, owning state of the art equipment and utilising the latest technology. Then, we are left with the daily task to integrate all of our resources to offer our clients a holistic logistics & SCM solution.

Heavy Lift Transportation Freight Forwarding Terminal & Warehousing

Please visit www.almajdouie.com to find out more about our integrated services. Tel: +966 13 8198111

COVER STORY

Survival of the

Air France/KLM Cargo is playing it smart by exploring new and different avenues to combat to lull in the air cargo business. AnneSophie Duret, Project Manager – Middle East, Gulf and Indian Subcontinent, Air France KLM Cargo talks to GSC about their strategy and outlook for 2015

Stanislas Brun, MD Middle East, Gulf & Indian Subcontinent, Air FranceKLM Martinair Cargo

F

ollowing the economic recession, the international air cargo business has been slowing down. However, it’s a different story in the Middle East as we have seen growth in the industry in the last few years.

In 2014, there was a regional FTK (freight tonne kilometre) growth of about 14 per cent, compared to a global average of only two per cent.

However, according to Anne-Sophie Duret, Project Manager - Middle East, Gulf and Indian Subcontinent, Air France KLM Cargo, air cargo in our region still faces the fundamental problem of overcapacity, especially in Asia and the Middle East.“Export flow stagnates, which is a major challenge for all the Middle East cargo carriers.

For imports, the GCC region has still a huge potential; and the region continues to invest in modern cargo infrastructures in order to keep our three main hubs (Dubai International and Dubai World Central - DXB/DWC, Abu Dhabi - AUH and Doha, DOH) as major international commercial gateways. In addition to import flows, regular flows are also transiting via these hubs.”

In terms of infrastructure and projects, there are a lot of developments happening in the GCC. Development of a cargo specific airport with DWC and its mega cargo terminal, Expo 2020, the upcoming World Cup in Qatar, Saudi Arabia, which continues to spend on infrastructure, heavy investments in modern warehouses in the Gulf countries,

FEBRUARY 2015 19

etc, are just some indicators of the direction of the growth in the region.

Growth also means a rise in competition, and it becomes difficult for operators like Air France / KLM Cargo to compete with local players.

“Competition in the region is fiercer than ever and it is indeed challenging for operators such as AFKLMP Cargo. Local players increase their capacity, their fleet, and open new destinations almost every month.

Our costs are not the same, and we have to find other avenues to overcome these challenges. In our region, yields have been in a state of collapse for decades, and airline cargo departments have been making losses,” explains Duret.

But the situation is not all bleak.

Duret admits that they have been making significant changes, albeit in different directions, to level the playing field.“The situation demands that we change our habits and focus on necessary improvements in terms of offers and internal organisation. For one, from January this year, AIR FRANCE KLM MARTINAIR Cargo has added three extra B747 Combi frequencies from Amsterdam Airport-Schiphol Competition in the (AMS) to and from Dubai International region is fiercer Airport (DXB). than ever and it is We are today the main official main indeed challenging deck capacity from for operators such as DXB as origin.

Our merger with AFKLMP Cargo. Local India, under the name of the new players increase their MEGIS market capacity, their fleet, and (Middle East, Gulf and Indian open new destinations Subcontinent), almost every month offers much more capacity from India via the Middle East stations.”

Duret also stressed about the importance of proper Revenue Management systems, and focusing on relevant projects such as e-business development.“Finally, our

20 FEBRUARY 2015

worldwide network, a combination of Air France, KLM and Martinair Cargo, along with decades of experience in this business, helps us to combat the situation and retain our customers,” she adds.

It is important to constantly reinvent oneself to generate more business, improving, adapting and generating new concepts and ideas.“The ‘customer preference - next generation’ is now being implemented in the new MEGIS market for a better focus on our customer expectations – clear

processes for problem resolution, a proactive approach, closer relationships with our customers and suppliers, remaining competitive and committed to improve our customer preference,” she explains.

This is easier said than done, however, given how demands tend to fluctuate. There is still some instability between imports and exports, and the only way to combat that is to be flexible in terms of the offerings.

“Our expertise in air transportation with well-defined products, including tailor-made solutions (tri-party

COVER STORY

contracts), is still well-known and appreciated in our market. We are more and more a belly and combi dominant carrier. However, our freighters are still deployed, considering the seasonal businesses (perishables, latest electronic product releases, etc),” says Duret.

“Since 2005, we have combined our French and Dutch air cargo carrier, and we have to think in terms of Air France KLM and Martinair Cargo, as an ‘airline group’, not just for our strategy and our commercial policy, but also our pricing and the quality of

Air France KLM Martinair Cargo increases its main deck offer to Dubai International Airport From January this year, Air France KLM Martinair Cargo has added three extra B747 Combi frequencies from Amsterdam Airport-Schiphol (AMS) to and from Dubai International Airport (DXB). It now offers increased flexibility to carry main deck commodities to Dubai International Airport (DXB) and to Al Maktoum Airport (DWC), which their freighters already use. It is now the only scheduled airline to offer 21 main deck pallet positions a week directly to Dubai International Airport (DXB).

service we provide to our customers.

Even if some of our stations have a stronger link with one or another station,”she explains. At the moment, Air France / KLM Cargo operates MD11F, B747F and B777F (the MD11F will soon be phased out). The B77Fs are the most fuel efficient carrier.

The outlook for 2015 is not much better than 2014, with the issue of overcapacity still creating a struggle in the air cargo business, but with significant changes underway, that problem could soon find a solution, concludes XYZ.

FEBRUARY 2015 21

‫تشدد آن صوفي أيضا على أهمية األنظمة‬ ‫املالئمة والصحيحة إلدارة اإليرادات‪ ،‬والتركيز‬ ‫على املشاريع ذات الصلة مثل تطوير األعمال‬

‫اإللكترونية‪ ،‬وتضيف‪’ :‬أخيرا‪ ،‬تساعد‬ ‫شبكتنا العاملية وهي مزيج من اخلطوط اجلوية‬ ‫الفرنسية و‪ KLM‬و مارتن اير كارغو‪ ،‬باإلضافة‬ ‫إلى خبراتنا التي متتد لعقود في هذا املجال‪،‬‬ ‫كلها تساعدنا على مكافحة الوضع احلالي‬ ‫وعلى االحتفاظ بعمالئنا‪‘.‬‬

‫من املهم مبكان القيام بعملية إعادة‬ ‫التجديد الذاتي باستمرار خللق املزيد من فرص‬ ‫األعمال التجارية‪ ،‬ولتحسني وتوليد مفاهيم‬ ‫وأفكار جديدة‪ .‬اآلن تشهد سوق ‪MEGIS‬‬ ‫اجلديدة مجهودات ملموسة لتحسني التركيز‬ ‫على توقعات العمالء‪ ،‬من خالل االلتزام‬ ‫بعمليات واضحة لتسوية أي مشكلة‪ ،‬وإتباع‬ ‫النهج االستباقي حلل أي مشكلة قبل أو فور‬ ‫وقوعها‪ ،‬ولتحقيق عالقات عمل أوثق مع‬ ‫العمالء واملوردين‪ ،‬والبقاء في وضع يسمح‬ ‫باملنافسة وحتسني معدل تفضيل العمالء‪.‬‬

‫‪22 FEBRUARY 2015‬‬

‫‪COVER STORY‬‬

‫البقاء لألصلح‬

‫تعمل خطوط الشحن اجلوي التابعة لتحالف اخلطوط اجلوية الفرنسية و كي‬ ‫إل إم (أو اخلطوط اجلوية امللكية الهولندية) بذكاء إذ تعمل على استكشاف‬ ‫سبل جديدة ومختلفة للتغلب على تقلبات قطاع الشحن اجلوي‪ .‬حدثتنا آن‬ ‫صوفي ديوريه‪ ،‬مديرة مشروعات الشرق األوسط ومنطقة اخلليج العربي وشبه‬ ‫القارة الهندية في خطوط الشحن الفرنسية ‪ ،KLM /‬عن استراتيجية الشركة‬ ‫وتوقعاتها لعام ‪.2015‬‬

‫منذ حدوث األزمة االقتصادية العاملية املاضية‪ ،‬و أبو ظبي‪ ،‬و الدوحة) لتكون مبثابة املنافذ‬ ‫ومنو قطاع الشحن اجلوي الدولي يتباطأ‪ .‬مع‬ ‫التجارية الدولية الكبرى‪‘.‬‬ ‫ذلك‪ ،‬يختلف الوضع كليا في منطقة الشرق‬ ‫من حيث البنية التحتية واملشاريع‪ ،‬هناك‬ ‫األوسط‪ ،‬فكما رأينا جميعا‪ ،‬شهدت هذه‬ ‫الكثير من التطورات التي حتدث في دول‬ ‫الصناعة منوا ملحوظا في السنوات القليلة‬ ‫مجلس التعاون اخلليجي‪ ،‬مثل‪ :‬تطوير مطار‬ ‫املاضية‪ .‬في عام ‪ ،2014‬كان هناك منو إقليمي مخصص للشحن في دبي وورلد سنترال‬ ‫‪( FTK‬طن شحن ‪ /‬كيلومتر) بنحو ‪ 14‬في‬ ‫ومحطة شحن ضخمة‪ ،‬معرض اكسبو‬ ‫املائة‪ ،‬مقارنة مع املعدل العاملي البالغ اثنني في ‪ ،2020‬كأس العالم املقبلة في قطر‪ ،‬اململكة‬ ‫املائة فقط‪.‬‬ ‫العربية السعودية التي ال تزال تنفق على‬ ‫رغم كل ذلك‪ ،‬ترى آن صوفي ديوريه‪،‬‬ ‫البنية التحتية‪ ،‬واالستثمارات الضخمة في‬ ‫مديرة مشروعات الشرق األوسط ومنطقة‬ ‫املستودعات احلديثة في دول اخلليج وغيرها‪،‬‬ ‫اخلليج العربي وشبه القارة الهندية في خطوط وكل هذه ليست سوى بعض املؤشرات على‬ ‫الشحن الفرنسية ‪،KLM /‬‬ ‫اجتاه النمو في املنطقة‪.‬‬ ‫أن الشحن اجلوي في‬ ‫هذا النمو يعني أيضا زيادة‬ ‫املنافسة في املنطقة أشد‬ ‫منطقتنا العربية ال يزال‬ ‫حدة التنافس‪ ،‬ليصبح من‬ ‫مضى‬ ‫وقت‬ ‫أي‬ ‫من‬ ‫وأصعب‬ ‫يواجه مشكلة أساسية‬ ‫الصعب على مشغلني مثل‬ ‫مثل‬ ‫للمشغلني‬ ‫بالنسبة‬ ‫تتمثل في الطاقة الزائدة‬ ‫خطوط الشحن الفرنسية ‪/‬‬ ‫غير املستغلة‪ ،‬وخصوصا‬ ‫خطوط الشحن الفرنسية ‪ KLM‬املنافسة مع الالعبني‬ ‫‪ .KLM /‬املشغلون‬ ‫في مناطق آسيا والشرق‬ ‫احملليني‪ ،‬أو كما وصفتها آن‬ ‫األوسط‪ ،‬وعن ذلك‬ ‫صوفي بقولها‪’ :‬املنافسة في‬ ‫الحاليون يعملون على‬ ‫تقول‪’ :‬ميثل ركود تدفق‬ ‫زيادة قدراتهم‪ ،‬وتكبير املنطقة أشد وأصعب من أي‬ ‫الصادرات حتديا كبيرا‬ ‫أسطولهم‪ ،‬وفتح وجهات وقت مضى بالنسبة للمشغلني‬ ‫جلميع ناقالت البضائع في‬ ‫مثل خطوط الشحن الفرنسية‬ ‫جديدة كل شهر تقريبا‪.‬‬ ‫الشرق األوسط‪ .‬بالنسبة‬ ‫‪ .KLM /‬املشغلون احلاليون‬ ‫للواردات‪ ،‬لدى دول مجلس التعاون اخلليجي يعملون على زيادة قدراتهم‪ ،‬وتكبير‬ ‫إمكانات هائلة‪ ،‬بينما تستمر املنطقة في‬ ‫أسطولهم‪ ،‬وفتح وجهات جديدة كل شهر‬ ‫االستثمار في البنى التحتية احلديثة للبضائع‬ ‫تقريبا‪ .‬التكاليف لم تعد مثل ذي قبل‪،‬‬ ‫من اجل احلفاظ على بقاء ثالثة محاور‬ ‫وعلينا أن جند سبال أخرى للتغلب على هذه‬ ‫رئيسية (دبي الدولي ودبي وورلد سنترال‪،‬‬ ‫التحديات‪ .‬في منطقتنا‪ ،‬كانت العوائد في‬ ‫‪FEBRUARY 2015 23‬‬

‫حالة تراجع مستمر على مدى عقود‪ ،‬وكانت‬ ‫إدارات الشحن اجلوي حتقق خسائر‪‘.‬‬ ‫على أن الوضع ليس قامتا متاما‪ ،‬إذ تعترف‬ ‫آن صوفي أن شركتها أدخلت تغييرات إيجابية‬ ‫كبيرة‪ ،‬وإن كان ذلك في اجتاهات مختلفة‪،‬‬ ‫وعن ذلك تقول‪’ :‬إن الوضع احلالي يتطلب‬ ‫أن نغير عاداتنا ونركز على إدخال التحسينات‬ ‫الالزمة من حيث العروض التي نوفرها ومن‬ ‫حيث التنظيم الداخلي للشركة‪ .‬على سبيل‬ ‫املثال‪ ،‬بداية من مطلع شهر يناير ‪،2015‬‬ ‫أضافت الشركة ثالث رحالت لطائرات شحن‬ ‫بوينج ‪ 747‬كومبي إضافية من وإلى مطار‬ ‫أمستردام شيفول ومطار دبي الدولي‪ .‬منلك‬ ‫اليوم أكبر سعة شحن رسمية رئيسية انطالقا‬ ‫من مدينة دبي‪ .‬لدينا كذلك االندماج مع‬ ‫الهند حتت اسم ‪ MEGIS‬اجلديد (الشرق‬ ‫األوسط واخلليج وشبه القارة الهندية)‪ ،‬ونقدم‬ ‫سعات أكبر بكثير من الهند وعبر محطات‬ ‫الشرق األوسط‪‘.‬‬

IATA UPDATE

24 FEBRUARY 2015

IATA UPDATE

Up Get a perspective on the future of air cargo carriers from Chris Goater, Manager, Corporate Communications for Europe, Middle East & Africa, IATA

in the air How are regional carriers faring in terms of capturing cargo demand?

The Gulf carriers are expanding rapidly. In November, Freight Tonne Kilometres (FTKs) performed by carriers in the Middle East grew by 12.9 per cent. That represented 38 per cent of the entire global growth in FTKs that month. For the whole year, to November 2014, growth across the Middle East was 10.7 per cent - comfortably the fastest of any region of the world.

A recent Dubai-based newspaper report said, “The region has contributed to an over 64 per cent increase in global freight capacity in the 12 months till November 2014.� Please comment.

The reference to the 64 per cent increase comes

FEBRUARY 2015 25

from the IATA Air Freight Market Analysis report for November. Freight capacity has increased significantly in the Middle East in 2014; growth for the year to November was 10.7 per cent. Among other regions, only Asia-Pacific has added any significant capacity (5.6 per cent), and, to a certain extent, Europe as well (2.9 per cent). The increase in capacity is driven by airlines expanding their fleets rapidly. However, load factors have held up during the course of the year. The freight load factor for the Middle East is 44.5 per cent, just slightly below the global average of 45.6 per cent.

How are air cargo volumes set to improve in 2015 as compared to last year?

Air cargo volumes are expected to increase by around 2.3 million tonnes in 2015. In terms of freight tonne kilometres, we are

26 FEBRUARY 2015

forecasting a rise of 4.5 per cent globally.

The signs are that the Middle East will grow faster than this.

Who are the top air cargo carriers in the region? What is your take on their strategies, expansion plans and ability to attract business?

IATA cannot comment on the individual strategies of our member airlines. But the geographic position of the Gulf hubs certainly gives airlines in the region excellent opportunities to link fast-growing markets in Africa and Asia, while also serving larger mature markets in Europe and the Far East.

How are fuel prices going to affect business in the short and long term?

The recent fall in the price of oil will help to reduce costs. Due to the effects of hedging

IATA UPDATE

as a result of the increases in capacity and competition from other transport modes.

We are forecasting a fall in cargo yield of 3.3 per cent in 2015.

What factors do you think could affect the regional air cargo carriers’ business this year?

Overall, the expectation in terms of volumes is for a good year.

The air freight upturn But the increase in capacity means that yields are still has not been evenly declining for air freight. Cargo spread, with over 90 revenues will increase very slightly to US$63 billion (AED per cent of Novem231.4 billion), but this is still less ber’s 4.2 per cent than the peak in 2011, when year-on-year growth cargo revenues hit US$67 billion (more than AED 246 billion). carried by airlines in The increase in volumes is based on a continued just two regions: Asia expansion of the global Pacific (55 per cent economy. But there are a number of risks to global of the growth) and economic confidence.

Geopolitical instability, for the Middle East example in Russia/Ukraine (38 per cent) and in Syria and Iraq, is still a concern. The oil price could rise again as swiftly as it fell. Europe is facing deflation and very slow growth. Middle East carriers will not be immune if these factors weigh more heavily on global demand. (among many other factors), the fall in oil so the full benefit will not be felt straight How technically advanced in terms prices does not immediately completely away. But the fall is welcome as carriers are of air cargo is this region as per filter through to jet fuel prices for airlines, continuing to see pressure on freight yields international standards?

The region is very technically advanced.

Year on Year Comparison Nov 2014 vs. Nov 2013 YTD 2014 vs. YTD 2013 Airports, along with the cargo supply chain, FTK AFTK FLF FTK AFTK FLF have been investing heavily in state-ofAfrica 10.3% -2.7% 38.0% 6.2% 1.2% 31.8% the-art facilities for handling time-andAsia/Pacific 6.2% 3.1% 62.9% 5.4% 5.5% 58.7% temperature sensitive goods. Dubai is Europe 0.9% 2.7% 52.7% 2.1% 2.9% 48.0% Latin America -0.9% -1.5% 49.3% 1.1% -1.3% 44.8% particularly advanced with the use of the Middle East 13.0% 17.3% 47.4% 10.8% 10.7% 44.9% electronic Air Waybill (e-AWB) – Emirates North America -0.5% -1.5% 44.4% 2.7% -1.1% 40.2% is the number two in the world for e-AWB International 4.6% 4.0% 53.5% 4.7% 4.0% 49.2% volumes. From a standing start, Qatar Africa 10.5% -2.9% 36.3% 6.1% 0.9% 30.5% Airways has been expanding its use of Asia/Pacific 5.9% 4.0% 59.0% 5.4% 5.6% 55.4% e-AWB at a tremendous rate, going from Europe 0.9% 2.6% 51.5% 2.0% 2.9% 46.8% 3 per cent to 28 per cent in the year to Latin America -0.7% -0.5% 46.2% 0.5% 0.4% 41.9% November. Saudi Arabian Airlines have Middle East 12.9% 17.1% 46.9% 10.7% 10.5% 44.5% embraced it even faster. There is no doubt North America -0.3% -2.6% 38.3% 2.3% -0.5% 35.2% that the commitment to new facilities and Total Market 4.2% 3.3% 49.6% 4.4% 3.6% 45.6% the most efficient processes is a big factor in FTK: Freight-Tonne-Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor; All Figures are expressed in % change Year on Year except the cargo success of carriers in the region.

FLF which are the load factors for the specific month.

FEBRUARY 2015 27

Air freight market analysis

C

oncerns have been rising about the health of the global economy at the start of 2015, and business confidence has weakened. But there was little sign of major cause for concern in IATA’s November 2014 air freight data. Its continued growth reflected the broader acceleration of world trade that began in mid-2014.

Weakness in air freight is usually one of the first signs of economic weakness.

Growth did slow in November, but not by much. Air freight volumes (Freight Tonne Kilometres flown) were up 4.2 per cent in November compared to a year ago. This was down on October’s 5.4 per cent, but

28 FEBRUARY 2015

the year-on-year growth reduction was the effect of a strong monthly rise in November 2013. The market expanded from October to November at a solid pace.

During the first half of 2014, air freight volumes and world trade overall went through a weak patch, but there was a marked acceleration during the second half of last year. Notably, this improvement in cross-border trade during the past six months has taken place while domestic industrial production growth remained stable.

The acceleration in the second half of 2014, of world trade relative to domestic production, comes after several years of

interruption to the previous upward trend.

This flat-lining of the trade production ratio has been bad news for demand for air freight in recent years, dampening the strength of the cyclical upturn in air freight last year. It is too soon to say whether the last half year signals a diminution of the adverse impact of recent on-shoring and trade protectionism, but it is certainly a development worth watching.

The air freight upturn has not been evenly spread, with over 90 per cent of November’s 4.2 per cent year-on-year growth carried by airlines in just two regions: Asia Pacific (55 per cent of the growth) and the Middle East (38 per cent). African airlines experienced

IATA UPDATE

the second strongest year-on-year growth rate in November, but carry only a small part of the world’s air freight, and moreover, their growth has been slowing.

Uneven airline performance reflects uneven growth in trade flows. The two regions of recent strength in trade have been the US and Emerging Asia. Other regions remain relatively weak. There have also been special factors which have influenced the data, such as congestion at US West coast ports that led to some temporary switch to air, and the sanctions on Russia which have affected trade flows in goods like perishables.

Asia-Pacific airlines were only the 3rd

fastest growing region in the FTKs they carried in November, but that increase over the year still represented over 55 per cent of the total expansion in the market.

This is the most important region for air freight, mostly because a large part of the world’s manufacturing takes place in this region, but increasingly because there are increasing numbers of middle-income consumers. Government policy is also trying to encourage more consumption in economies like China, though business confidence has weakened. India, under a new government, has seen business confidence improve in recent months. Japan, whose economy had been weakened by

the recent consumption tax increase, has seen some recent improvement in business confidence. Emerging Asian economies have seen a sharp rise of imports in the past six months, which likely reflect these economic developments. This has been a welcome development for airlines in this region, which have also seen load factors improving.

Middle East airlines have been responsible for carrying 38 per cent of the increase in FTKs over the 12 months to November. Trade has been increasing with Middle East economies, but a large part of the airlines business is due to their success at attracting air freight to go through Middle East hubs. Airlines in this region contributed over 64 per cent of the increase in worldwide air freight capacity in the 12 months to November, as they add aircraft to their fleets. As a result, load factors in this region declined.

North America is one region of the world where economies appear to be strong and accelerating. Growth is strong for a mature region and trade, both exports and imports, have continued to show robust growth.

However, the North American airlines have been cutting back on capacity, as they seek to improve financial performance. Load factors have been improving in this region.

However, their FTK volumes were flat.

Europe remains weak. The Eurozone is once more close to recession and worries are increasing about another Euro crisis, while in the East of the region there are sanctions on Russia and its economy is already in recession.

The North Atlantic and markets to Asia remain sources of potential growth, but the negative impacts of weak home markets are large. As a result, European airlines have seen very little growth in the FTKs they carry and face declining load factors.

In Latin America, there are major economic problems in Brazil and Argentina, as well as a number of the smaller economies. Air freight, for the airlines in this region, shrank in November. African airlines, although carrying a small part of worldwide FTKs, saw a significant improvement in load factors during November as they grew air freight volumes carried by 10.5 per cent and trimmed back their capacity.

FEBRUARY 2015 29

INTERVIEW

Emirates SkyCargo on track for more sturdy growth Pradeep Kumar, Emirates Senior Vice President Cargo Revenue Optimisation and Systems, shares his views on the air cargo business in the UAE

Please give us an overview of Emirates’ air cargo business from the last quarter of 2014 till date.

Emirates SkyCargo’s business in the last quarter to date has been strong, which is largely due to the increase in the amount of cargo moved over the festive season. We expect to finish our financial year 2014-2015 ending March 2015, with growth over the previous financial year, in which Emirates SkyCargo’s tonnage increased by eight per cent to reach 2.3 million tonnes.

What, according to you, is the short-term and long-term effect of the current fuel price on the overall regional air cargo industry?

The decline in crude oil prices is expected to stimulate growth in air freight through mode conversion, and it will also become a catalyst for cost efficiencies in the supply chain.

As the region attracts more carriers, how are air cargo businesses going to be affected?

Dubai, and the UAE, is poised for continued growth in the air cargo sector. Dubai has already established itself as one of the leading air cargo hubs in the world. For Emirates

30 FEBRUARY 2015

SkyCargo, we continue to invest in our growth, a key part of which was the move of our freighter operations to its own dedicated cargo facility, Emirates SkyCentral, at Dubai World Central. The move provides us with the required infrastructure, space and opportunity to further expand capacity.

What measures are being taken at Emirates to prepare for operational excellence this year?

Emirates SkyCargo always focuses on providing our customers with the right solutions to meet their needs and specific requirements, coupled with excellent service.

Our focus this year will be no different.

INTERVIEW

Over and above, we will continue with the refurbishment of facilities and equipment of an existing cargo building as well as the extension of Emirates SkyCargo’s Cargo Mega Terminal at Dubai International Airport, which should be completed by May 2015. This further ensures that we have right infrastructure in place to support our growth. We also continue to invest in assets and equipment to provide customers with an unbreakable Cool Chain process at both Dubai and DWC Airports. For example, last year we also launched an internally developed and cost effective LD3 container that keeps temperature sensitive cargo cool when transported on the ground and in the air. Dubbed the ‘White Container’, it’s the

latest addition to Emirates SkyCargo’s Cool Chain portfolio, and has been designed specifically as an intermediate temperature control solution, which is ideal for generic healthcare products and food perishables.

As per the Boeing World Air Cargo Update 2014-2015, nearly 80 per cent of the air cargo traffic runs on east-west trade lanes. What then is the need to expand on your wide body freighter fleet in the coming years?

Emirates SkyCargo currently operates a fleet of 14 freighters – 12 Boeing 777Fs and two B747ERF aircraft. Our current plan is to increase the fleet by one more Boeing 777 freighter in the near future. Our freighter fleet plays a very important role in our

business, and accounts for about 35 per cent of Emirates SkyCargo’s revenue. Freighters give us flexibility, enabling us to do charters, have scheduled services to non-passenger and passenger destinations, as well as deploy them where there are opportunities. They also support the more than 200 wide bodied aircraft in the Emirates passenger fleet that provides us with belly hold capacity across a network of more than 140 destinations.

Our freighter services operate to all major regions of the world. We currently have over 45 freighter destinations, 13 of which are freighteronly destinations. These are Atlanta, Basel, Chittagong, Djibouti, Eldoret, Hanoi, Kano, Lilongwe, Liege, Mexico City, Quito,Viracopos and Zaragoza. Hong Kong is a key cargo destination and hub, with Emirates SkyCargo having over 20 freighter flights per week.

FEBRUARY 2015 31

BOEING WORLD AIR CARGO FORECAST 2014-2015

r o f s e u n i t n o c Growth Air cargo traffic rebounds in 2014 after three years of stagnation. After two years of either flat or slightly negative traffic growth, demand for air cargo transport began to grow slowly and steadily during the second quarter of 2013. Boeing’s 2014-2015 forecast on air cargo looks at performance around the world. Here we feature on our region – the Middle East

32 FEBRUARY 2015

T

he uptick in traffic continued into the second half of 2013 to end the year 0.9 per cent above the 2012 traffic total. Growth has continued to gather strength in 2014, nearly recovering the long-term trend rate. World air cargo traffic is forecast to grow an average 4.7 per cent per year over the next 20 years to reach a total of more than twice the number of revenue tonne-kilometres (RTK) logged in 2013. The number of airplanes in the freighter fleet will increase by more than half by the end of the forecast period.

Nearly 80 per cent of longhaul air cargo traffic (routes longer than 4,500 kilometres) flows on these east-west trade lanes. Most of the cargo carried on these routes is transported on large widebody freighters. Air cargo traffic on these vital routes slackened during the global economic downturn, causing the yields of most large-freighter

operators to fall. In response to flagging demand and declining yields, operators curtailed largefreighter flights, in some cases parking their widebody airplanes.

There were as many as 70 parked 747-400 and MD-11 freighters during the slowest period. In the third quarter of 2014, however, operators began to return these two models to service as traffic volumes picked up.

Weak economic activity and slack trade curbed air cargo traffic growth Two principal causes are responsible for the weak air cargo growth between 2011 and 2013: an underperforming world economy and lackluster growth in trade, particularly trade in the commodities that are traditionally carried as air cargo.

World economic activity, as measured by gross domestic product (GDP), grew only 2.1 per cent per year between 2008 and

BOEING WORLD AIR CARGO FORECAST 2014-2015

FEBRUARY 2015 33

BOEING WORLD AIR CARGO FORECAST 2014-2015

annual growth in 2015 2013. Even since rebounding Dubai, in the United and then to exceed in 2010 from the global Arab Emirates, is the longterm average economic slowdown of 2008 for several years and 2009, world economic the largest air cargo before settling down growth has lagged behind centre in the region to the historic trend its historical trend of 3.2 per cent annual growth. Weakness and one of the largest for the remainder of the forecast period. in consumer demand and re-export hubs in the World air cargo in business investment in traffic began to grow Europe, North America, and world. Doha, in Qatar, again during the Japan accounts for much and Abu Dhabi, in the second quarter of of the slowdown. Growth

By July 2014, in China, India, Brazil, and United Arab Emirates, 2013. traffic had grown 4.4 other developing economies per cent compared has also slowed to varying follow Dubai in with the first seven degrees. traffic volume. New months of 2013, World economic activity which is generally in began to pick up in late infrastructure will line with the trends 2013, particularly in the reinforce the region’s of world economic United States and China, and trade activity. and continued to build role as a hub Persistence of this momentum during 2014. trend through the end of 2014 would mark World GDP growth is forecast to accelerate the first full year since 2010 in which air to the long-term average rate of 3.2 per cent

34 FEBRUARY 2015

cargo traffic has grown more than one per cent. World air cargo traffic growth detail International air freight will drive overall world air cargo growth through 2033. Over the next 20 years, world air cargo traffic will grow 4.7 per cent per year. Air freight, including express traffic, will average 4.8 per cent annual growth, measured in RTKs. Airmail traffic will grow much more slowly, averaging 1.0 per cent annual growth through 2033. Overall, world air cargo traffic will increase from 207.8 billion RTKs in 2013 to 521.8 billion in 2033.

Freighter fleet development The number of airplanes in the worldwide freighter fleet will increase by more than half during the next 20 years as demand for air cargo services more than doubles. The challenging market environment of the past three years have left traffic levels relatively flat, resulting in persistent overcapacity and weak yields. Cargo capacity on passenger flights has been expanding as airlines deploy new widebody jetliners, such as the 777-300ER and 787, that have large lower-hold cargo capacities, even with a full load of passenger luggage.

With air cargo traffic more than doubling by 2033, the world freighter fleet will grow by more than half, from the current 1,690 airplanes to 2,730 airplanes by the end of the forecast period.

The imperative for efficiency favours large production freighters and will drive their share of the fleet to grow from 21 per cent to 30 per cent during the forecast period.

Of the 2,170 projected freighter deliveries, 1,130 will replace retiring airplanes, with the remainder expanding the fleet to meet projected traffic growth. More than 60 per cent of deliveries will be freighter conversions, nearly 85 per cent of which will be standard-body passenger airplanes. A projected 840 new production freighters, valued at $240 billion, will be delivered, of which more than

BOEING WORLD AIR CARGO FORECAST 2014-2015

FEBRUARY 2015 35

the end of the forecast period. Sustained economic growth, along with decreasing yields, contributes significantly to the growth of the air cargo industry.

Middle East For the purposes of this forecast, we define the Middle East as Bahrain, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates and Yemen.

Air cargo traffic expands strongly on economic growth Air cargo moving into, within, and out of the Middle East is estimated to have accounted for 5.4 per cent of the world’s tonnage and for 4.6 per cent of the world’s revenue tonne kilometres during 2013. Despite ongoing instabilities in parts of the region, the overall Middle East economy continues to expand.

The region’s GDP growth moderated to 2.4 per cent in 2013, down from the 5.2 per cent average sustained during the previous

70 per cent will be in the large-freighter category. More than 40 per cent of all freighter deliveries during the 20-year forecast period will be to carriers in the Asia Pacific region. Asia Pacific-based carriers will continue to receive a high proportion of large production freighters to serve their long-haul, intercontinental routes. North America will receive 30 per cent of freighter deliveries over the next 20 years. Most of those deliveries will be to express carriers.

Air cargo growth varies by airline domicile and service type The market share of airlines based in Asia and the Middle East has grown relative to that of airlines based in other regions.

Scheduled air freight continues to claim the largest share of the air cargo market relative to charter and mail services.

Since 2000, however, carriers based in the

36 FEBRUARY 2015

Middle East have leveraged their geographic position at the crossroads between Africa, Asia, and Europe. Middle East carriers have quickly expanded their widebody passenger and freighter fleets, allowing them to increase their share of world air cargo traffic from 4 per cent in 2003 to 11 per cent in 2013.

That same year, airlines based in Asia, Europe, North America, and the Middle East accounted for 91 per cent of the air cargo traffic in the entire world. World air cargo comprises three main service sectors: scheduled freight, charter freight, and mail.

Scheduled freight is the largest component, accounting for 88 per cent of all world air cargo traffic.

The baseline forecast for total world air cargo predicts that traffic will more than double between 2013 and 2033. Worldwide traffic will grow from 207.8 billion RTKs in 2013 to more than 521.8 billion RTKs by

GIL 2015: MIDDLE EAST The Global Community of Growth, Innovation and Leadership 16 February 2015 | Atlantis The Palm, Dubai, U.A.E

CONVERGENCE

The Journey to Visionary Innovation!

The Journey to Visionary Innovation continues‌ Join us and fellow members of our global community of Growth, Innovation and Leadership executives at GIL 2015: Middle East as we examine all of the critical growth factors Converging and transforming our companies, our industries and our careers.

Renew your passion, fuel your creativity and reaffirm your commitment to excellence and join us on our Journey today!

Strategic Regional Media Partner

Join the Journey!

To register or for additional information Please email us at: gilglobal@frost.com or Visit: www.gil-events.gilcommunity.com

GIL 2015: MIDDLE EAST The Global Community of Growth, Innovation and Leadership 16 February 2015 | Atlantis The Palm, Dubai, U.A.E

CONVERGENCE

The Journey to Visionary Innovation!

The Journey to Visionary Innovation continues‌ Join us and fellow members of our global community of Growth, Innovation and Leadership executives at GIL 2015: Middle East as we examine all of the critical growth factors Converging and transforming our companies, our industries and our careers.

Renew your passion, fuel your creativity and reaffirm your commitment to excellence and join us on our Journey today!

Strategic Regional Media Partner

Join the Journey!

To register or for additional information Please email us at: gilglobal@frost.com or Visit: www.gil-events.gilcommunity.com

UAE AIRPORT UPDATE

Vertical take-off Presenting more of a conundrum than a problem, Dubai is climbing up the league of the world’s busiest international airports. It entered 2014 smaller than only London Heathrow Airport, and with ample ideas of what to do on the inevitable day when it finally takes over the top spot

I

n 2001, Dubai International was ranked 99th in the world, and 13 years later, it was preparing to top the list. After taking note of its own meteoric rise – and its planning over the past few years for how to stay ahead of the game – Dubai is now operating two airports that have a joint capacity to handle more than a quarter of a billion people each year. Dubai International is undergoing expansion that will lift its capabilities to

FEBRUARY 2015 39

just under 100 million and Al Maktoum International Airport in Dubai World Central at Jebel Ali was designed to accommodate 160 million when complete.

Taking off The economic interaction and interdependence between aviation, trade, tourism and retail is such that sometimes it is difficult to see where one ends and the other begins. Certainly their significance to the economy and employment is undoubted, but trying to calculate the separate contribution of these four closely related sectors is difficult at best and misleading at worst.

Transport and communication led growth in Dubai’s non-oil sector in 2012 by together contributing 7.5 per cent. However, since the ethos is not to choose a course of action to achieve simply one goal, if a slightly different modus operandi can achieve two or more, it is probably not important to be able to assign GDP contribution figures to each of them.

Aviation is not the only sector that is expecting a period of rapid The economic development. interaction and The Dubai Metro mass transit interdependence system is heading between aviation, for an expansion programme that will trade, tourism and make it available to retail is such that tens of thousands of people that sometimes it is so far have been outside its orbit. difďŹ cult to see where However, none of one ends and the this is a result of Dubai’s success in other begins being awarded the right to stage the 2020 World Expo. All the extensions or modernisation of the transport set-up are being implemented with goals that were determined long before the day in November 2013, when the Expo decision was announced in Paris. Planning is set to proceed in 2014. If Dubai was on the move before, it is even more so now.

Al Maktoum International There is no immediately pressing reason to start the years of detailed planning needed to organise the move from Dubai

40 FEBRUARY 2015

UAE AIRPORT UPDATE

FEBRUARY 2015 41

UAE AIRPORT UPDATE

International of more than 140 carriers and their 65 million passengers – or whatever the total has reached by the time the move takes place. Expansion still under way at Dubai International will raise its capacity to just under 100 million passengers a year by 2018, effectively buying all the airlines, but especially Emirates Airlines, more time to consider the 35-km move to Al Maktoum. Many other options are still on the table. Retaining Dubai International with a capacity enhanced to just under a 100 million is one option. With Al Maktoum International’s five runways and eventual room to handle 160 million

42 FEBRUARY 2015

passengers a year, this would provide the emirate with the overall ability to handle 260 million people a year. There are broader reasons, however, for why that may not be a viable option.

Another alternative is to increase Al Maktoum International’s size to handle 200 million passengers annually. The scale of that number comes into perspective by comparing it with London’s Heathrow, which has a capacity of 70 million. For the moment, few possibilities have been excluded and no firm decisions have been made. In its desire

UAE AIRPORT UPDATE

Splitting its operations between the two airports is not an acceptable option because it would damage Dubai’s attraction as a hub, increase its maintenance costs and reduce its flexibility. More than half of all passengers fly into Dubai to get somewhere else. If Emirates separated its long-haul jumbos from the rest of the fleet, for example, the 35-km gap would seriously disrupt the rapid transfer element of its business model.

Certainly, there would be no shortage of takers for the Dubai International land if it were eventually to close. It is in a prime area and only 10 minutes from the downtown area of Deira.

Dubai International

to build new airport facilities to last for 50 years, Dubai is constrained only by estimates of the future size required by the growth of the aviation sector.

For the moment Al Maktoum International is open for business with one passenger terminal capable of handling up to 7 million passengers, a trickle of carriers to get the airport moving and a switch of all cargo carriers. Al Maktoum International has been handling an increasing volume of cargo since the summer of 2010 as more airlines elect to take advantage of the

Dubai International has overtaken Paris’ Charles de Gaulle Airport as the world’s second-busiest airport for international passengers, and London Heathrow’s leading place was expected to fall in 2015. In the first eight months of 2013, Al Maktoum traffic was reported to International has have increased by 16.4 per cent to 43.9 million been handling an passengers. Unofficial increasing volume figures for Dubai’s passenger total in 2013 of cargo since the put the number at summer of 2010 as more than 65 million.

The airport serves more airlines elect upwards of 140 airlines to take advantage of flying to more than 260 the greater flexibility destinations across six continents. Speaking in operations at the about the potential move to Al Maktoum airport International, Anita Mehra, vice-president greater flexibility in operations at the airport. of marketing and corporate communications for Dubai Airports Company, told Oxford Full cargo capacity at the airport will be 12 Business Group (OBG),“We don’t want to million tonnes. Al Maktoum International’s force a move on anyone and we want it to capacity to transport passengers will be economically viable for them. Ultimately, probably need to be heading fast to around Emirates will probably go to Al Maktoum, 100 million at least in order for Emirates to but no decisions have been taken.” In consider moving its base. Given the rapid the expansion of Dubai International, acquisition of new aircraft – it ordered 50 Concourse C will be taken over by Emirates A380s, the biggest passenger aircraft in and linked to Terminal 3. Passengers for all the world, from Airbus at the 2013 Dubai other airlines will check in at Terminal 1 Airshow – and the load factor of its flights, and then proceed to Concourse D, which almost no capacity figure could be proffered will open in early 2015. It is only when as too optimistic.

FEBRUARY 2015 43

all the work has been done that Dubai International’s capacity will reach almost 100 million.

Mehra told OBG that Emirates SkyCargo’s dedicated freighter service moved to Al Maktoum International entirely at the end of 2014, when it completed its new 700,000-tonne facility at the airport. Similarly, Air France-KLM moved its regional cargo hub in 2013, and Cathay Pacific did so in 2014. The SkyCargo move happened in April 2014, after the installation of the cargo handling system and the fitting out of the interior. By the time the move was completed in mid-September 2014, the terminal was equipped to handle 700,000 tonnes of cargo, which can be expanded by an additional 300,000 tonnes in the second phase.

Air space The number of aircraft in Dubai’s skies increased by more than 7 per cent in the first half of 2013, according to the Dubai Civil Aviation Authority (DCAA), which forecast 375,000 aircraft movements for both Dubai International and Al Maktoum International in 2013.

However, the real problem is less of safety, given the availability of sophisticated tracking devices than of costly congestion (see analysis). Tony Tyler, director-general and CEO of the International Air Transport Association, said aircraft in the Gulf region were being frequently delayed on the ground or kept flying in holding patterns for between 40 minutes and an hour. Even with new fuel-efficient fleets, that represents a significant waste, given oil prices.

Control over air space in the area is split among many entities, between Dubai and Abu Dhabi, for example. Qatar was also regulated by independent air traffic controllers. The wide distribution of responsibility is costly, not because it is dangerous, but due to its inefficiency. With so many countries involved, agreeing on a regional air traffic control system might be an arduous task, but it is still one that should come sooner rather than later.

Qantas Dubai International started extensive runway maintenance and upgrades in May 2014, and Qantas is continuing discussions with

44 FEBRUARY 2015

Dubai Airports to ensure the disruption to its schedule is minimised. Under its partnership with Emirates, Qantas shifted its overseas base for flights to Europe from Singapore to Dubai. The two airlines now have a share of more than 50 per cent of the passengers who fly between Australia and Europe. The airline flies only to Heathrow via Dubai, but with Emirates, passengers can connect in Dubai to other European destinations.

Emirates now operates more flights from Australia to Europe than Qantas. In 2002, before the deal, it carried 0.4 per cent of the 17 million passengers who flew to and from Australia; by 2012 its share had grown to 8.4 per cent, government data shows.

However, Qantas has benefitted, too. Its net income for the fiscal year ending June 2014 is expected to rise to its highest since Alan Joyce, who negotiated the deal, became CEO in 2008. Qantas is not the only airline affected by the maintenance programme, of course, and it is possible that some traffic may move to Al Maktoum International during that period. (DELETE?)

FlyDubai Meanwhile, the state-owned carrier FlyDubai has worked itself into a position of profitability in its third year of existence, and has also established a place for itself as the second-largest carrier in Dubai International by number of passengers.

Although it has carved out a set of niche routes, such as Juba, South Sudan, which is not served by Emirates, there are other places where the two airlines compete. The airline carried 5.1 million passengers in 2012 and has become an early adherent of the move by a few carriers in that segment to establish business-class facilities and vary the standard low-cost carrier offer. It also showed its confidence at the 2013 Dubai Airshow by placing an order for 75 Boeing 737 MAX 8 and 11 Next-Generation 737800 aircraft, while retaining purchase rights for a further 25 737 MAX aircraft.

Aircraft sales The 2013 Dubai Airshow hit the headlines because of the record-breaking orders

UAE AIRPORT UPDATE

safety in the form of US government bonds. … It used to be that you could get a loan for 90 per cent of the value or something like that,”said Aboulafia. Now it might be 60 per cent. There is no relief in the Middle East and other emerging markets, as ultra-high-networth individuals and companies tend to favour bigger jets, he added.

New stations

a buyers’ market. However, that does not announced at the event. Boeing’s 777X universally affect every part of the market. was launched there with what was said to The top end, in which private jets can cost be the fattest order book ever produced to at least UD$25 million (AED 91,828,740), is support a new aircraft. The vast majority untouched. Nine out of 10 times, companies of those had been sold to Emirates, Qatar or individuals buying Airways and Etihad Airways. jets at the top end of Altogether, the world’s aircraft Tony Tyler, directorthe market use their manufacturers rang up orders balance sheet or a“big worth more than $200 billion general and CEO of pile of cash”, according at list prices (see analysis). the International Air to Richard Aboulafia, Bargain Jet Transport Association, vice-president of analysis at aerospace Beechcraft, the US said aircraft in the consultants Teal Group. manufacturer of private jets, Light to mediumdiscovered from its research Gulf region were sized jets are a whole that just under 20 per cent of other story. Aboulafia the light and medium-sized being frequently attributed a drop in jets in Europe – 1440 planes delayed on the other markets to lagging – are on sale. The company, which makes the Beechcraft ground or kept flying credit lines.“What was the number one King Air 350i and the Baron in holding patterns defining characteristic G58, maintained that when of this recession? It’s the more than 10 per cent of for between 40 collapse of commercial private jets are for sale at minutes and an hour credit as lenders seek any one time, it is definitely

The 75 km of Dubai’s Metro is to get a 50 per cent expansion over the next few years to take its total length to 111 km. Apart from lengthening the Red Line by 3.5 km and the Green Line by 20 km, a new spur will be built connecting the Red Line along Sheikh Zayed Road to the Expo 2020 site near Al Maktoum Airport. The Red Line extension will run from Rashidiya to Mirdif, while that of the Green Line will connect Al Jaddaf to Academic City.

Although the World Expo 2020 is not the primary reason for either of the schemes, both should nevertheless be complete by 2020 and doubly useful as Dubai anticipates 20 million regular tourists, and the first of 25 million Expo visitors, that year. And neither of those two figures include the estimated expected increase in residents as Dubai’s population is forecast to grow to around 3 million by 2020.

The present network has 75 km and 47 stations. It was opened in September 2009.

By the scheduled completion time of the entire network in 2030, it will have 421 km of track with just under 200 stations. The Red Line extension will serve communities such as Shurooq and Ghuroob in Mirdif, although the longer Green Line extension will be more significant in terms of gaining additional passengers. It will run through the Ras Al Khor Industrial Area and the heavily populated areas of International City, Silicon Oasis and Academic City.

Trams The first trams ordered from Alstom in France arrived in Dubai in December 2013 for testing ahead of their introduction into the Dubai Marina area. Although the network is scheduled to have 15 km of track upon completion, phase one is confined to the 10.6 km from Dubai Marina to the Tram Depot near Dubai Police Academy, and began operations in November 2014 with 11

FEBRUARY 2015 45

stations. When fully operational, the network will be served by 25 trams and connect with certain metro stations via footbridges in Marina Mall and Jumeirah Lakes Tower.

Rail A new law on railway development and safety regulations is expected to be passed in 2014 covering various aspects of the USD $25 billion (AED 91,828,740,720) programme to develop a rail network in the UAE. The law will address safety regulation and operational standards and may include provisions that make it easier for foreign companies to invest in the project. The amount of money anticipated for the UAE’s rail programme over the next decade could constitute around 10 per cent of overall spending in the region.

The first phase, a line in Abu Dhabi to send sulphur from the Shah sour gas field to Habshan, is almost complete, according to local press reports quoting Abdulla Al Nuaimi, the minister of public works and chairman of the National Transport Authority (NTA).

The second phase involves laying 628 km of track connecting cities and industrial hubs, including Dubai Industrial City, Jebel Ali, Musaffah, Fujairah and Khalifa Port, which

46 FEBRUARY 2015

would eventually connect to a rail network linking all GCC states and scheduled for 2018.

One aspect still under study by officials from Etihad Rail, the NTA, Abu Dhabi’s Department of Transport, and Dubai’s Roads and Transportation Authority (RTA) is the connection between Dubai and Abu Dhabi.

The options are light rail, heavy rail or a combination of the two.

Roads A new AED 2.1 billion (US$ 571.6 million) Abu Dhabi-Dubai highway is being built, according to an announcement by Abu Dhabi General Services. The new 62-km road is an extension to Mohammed bin Zayed Road, from the Saih Shuaib area, Al Maha Forest and Khalifa Industrial Zone Abu Dhabi, to join up with the Sweihan Road (E20). It is expected to take around two-and-a-half years to build and should be complete by 2017. The project is intended to ease congestion on the highway linking Abu Dhabi and Dubai, and the decision to build it was taken after studies showed that by 2030 there would be an increase in traffic at peak times from 700 vehicles an hour to more than 12,000 as a result of population

growth. Initially the road will have four lanes in each direction, with a possibility to increase to six lanes later.

Taxis The RTA has also set up a new system to help deal with the 12,000 taxi booking requests made every day at the Booking and Dispatch Centre of the RTA Public Transport Agency. Under an agreement between the RTA and Dubai taxi franchise Cars Taxi, 155 WiFi-enabled vehicles will be removed from regular taxi work on the streets and designated as hala taxis to service requests received by the agency’s dispatch centre.

Some hala taxis will be dedicated to women, though reservations will be required to be made two hours in advance. The total number of taxis was estimated to have grown to 8,662 in 2013.

Creek Canal Dubai has revealed plans for an AED 2 billion (US$ 544 million) downtown canal project that will span more than 80,000 sq metres and encompass new shopping and entertainment centres, more than 450 new restaurants, several bridges and four new

UAE AIRPORT UPDATE

hotels. The 3-km-long canal will run from the Business Bay district to Jumeirah Beach.

The development, planned to be completed in 2017, will allow for construction of deluxe residences and private marinas for boats, along with pedestrian pathways and cycle tracks. It has been projected as capable of attracting up to 22 million visitors every year.

Port cranes Jebel Ali Port, the ninth-biggest container terminal in the world, is situated next door to Al Maktoum International, 35 km south of Dubai International, and destined to become the biggest airport in the world.

Jebel Ali Port is the largest man-made harbour in the world and has not yet been expanded to its maximum capacity. Its latest extension was officially opened in June 2013, adding capacity at its Terminal 2 (T2) of 1 million twenty-foot equivalent units (TEUs) to take the port’s total capacity to 15 million. The works lengthened the T2 quay wall by 400 metres to 3,000 metres, allowing simultaneous handling of six mega-ships.

Construction has been completed on Container Terminal 3 (T3), which has rocketed the overall capacity to 19 million TEUs. At that point the port will be the only one in the region capable of handling 10 of the newgeneration giant container ships at the same time. These large container ships are wide enough to carry 25 containers side by side. To a degree container discussions revolve around a series of numbers that either match or they do not. The Panama Canal, currently undergoing a US$ 5 billion (AED 18,365,748,144) expansion, became too small for the thenbiggest container ships 25 years ago. Those ships carried 4300 TEUs, less than the capacity of the giants of the world fleet today.

Giants of Industry Jebel Ali says it can accommodate ships of any size whether in existence or just on the order book. To do that, it needs not only long enough docks and a deep enough draught but also a lot of help from some ultra-powerful machines. In December 2013, four of the world’s largest quay cranes were delivered to Jebel Ali to be installed in T3. They were the first of a total of 19 ship-to-shore (STS) cranes, measuring 138 metres high, and joined the first four of 50

rail-mounted gantry cranes that arrived the month before. The quayside of T3 is 1860 metres long and the draught 17 metres.

Graphic descriptions of the STS metal monsters range from pointing out that at full boom extension six of them standing on top of each other would be roughly the same height as the 820-metre tall Burj Khalifa and that each one weighs 1.85 million kg – the equivalent of three fully loaded Airbus A380 superjumbo aircraft at take-off. Nabil Qayed, director of DP World’s Technical Department for the UAE region, said,“They can lift four 20-foot containers at one time, handling up to 100,000 kg a lift. And with their 69.5-metre lifting height and extended reach, they can easily handle the 25 container-wide newgeneration ultra-large container ships.”

Big and bold Shipping lines are looking for ports equipped with high-speed cranes of this kind to help achieve the fastest turnaround possible. The STS cranes for Jebel Ali were delivered from Shanghai’s Zhenhua Port Machinery Company yards in China. There will be 98 quay cranes in total at the port once all those on order are in place.

The new giant ships of the container world, Triple Es, went into service for Maersk in 2013. At 400 metres long and 59 metres wide, they are capable of carrying 18,000 TEUs. Put another way, that is enough to fill 30 mile-long trains stacked two containers high. Jebel Ali is one of only a handful of ports in the world capable of handling vessels of this size. A vessel approaching that size was docked at Jebel Ali in June for the official opening of T2. Captain Dirk Radig, master of MSC La Spezia, a 366-metre long vessel with a capacity of 14,000 TEUs, and Nigel Fernando, the general manager of the firm that owns the ship, Mediterranean Shipping Company, were welcomed to the new facility

by Sultan Ahmed bin Sulayem, the chairman of DP World.

Apart from its size and high-speed equipment, Jebel Ali has one other significant asset. As the port approaches the celebration of its 35th anniversary, it can boast extensive experience and a good reputation. The Jebel Ali Free Zone, established in 1985, now houses more than 6400 companies active in manufacturing,

trade, logistics, and a range of industrial and service-oriented sectors.

Mohammed Sharaf, group CEO of DP World, told OBG,“Dubai has a unique position as a true hub because it is neither totally a destination port nor a transshipment port. A little over 50 per cent of its cargo unloaded is bound for the UAE. Transshipment is also extremely important, but not so much as with other major hub ports, where upwards of 80 per cent of shipments are re-exported.”

Outlook Although winning the bid for Expo 2020 will require considerable development on the site allotted to the event in Dubai World Central, there will be comparatively little transport-related work that was not already planned for the next decade. The advent of Expo 2020 may change some of the scheduled timing as an insurance policy against any projects over-running, however.

Development of any transport infrastructure that impacts access to Al Maktoum International could also have a beneficial spin-off in encouraging some airlines to move from Dubai International sooner rather than later, and thus smooth the transition from one place to the other by having it take place over, say, 15 years. The timely expansion of the Dubai metro will come during a period of economic boom and expanding population. It is unlikely that both airports would continue on a permanent basis, and it is impossible to forecast whether Al Maktoum International will be extended to a 200 million capacity, but it is a virtual certainty that there will be provision in the planning. Although this may not have a direct effect on reducing the number of cars on the road, it will almost certainly slow the rate of increase. It will also encourage higher property valuations in some areas, especially in the southern parts of Dubai, which are being served by trains for the first time.

Extracts from the original report published by Oxford Business Group (OBG) in The Report: Dubai 2014, published in January 2014, Transport Chapter. For economic news about Dubai and other countries covered by OBG, please visit http://www. oxfordbusinessgroup.com/economic-news-updates

FEBRUARY 2015 47

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THE FOOD CHAIN

Keeping it

Kunal Gupta, Senior Supply Chain Manager, Apparel FZCO, explains the details behind the massive supply chain operations for Tim Hortons and Coldstone Creamery, and how growth and demand fuel speed and efďŹ ciency in the business

A

s part of Apparel Group, Apparel FZCO is the master franchisee for over 50 retail brands in the region.

They have two brands in the Food and Beverage vertical - Tim Hortons (CafĂŠ and Bake Shop) and Coldstone Creamery (Premium Ice Cream Shop). Currently, they operate 58 Tim Hortons and 46 Coldstone Creamery outlets across the GCC. Out of these 104 stores, 78 are in the UAE. Their vision is to open 200 Tim Hortons and 100 Coldstone locations by 2018 across the GCC. Most of their products and equipment are distributed from their central distribution centres. Their three distribution centres are located according to product category, ie, food, non-food and equipment/small wares.

FEBRUARY 2015 49

In terms of food, Apparel FZCO has pallet locations across three temperature ranges, ie, frozen (-18 deg), chilled (+4 deg) and ambient (+18 deg). For non-food, they have pallet locations segregated within two warehouse facilities – Jebel Ali Freezone and DIP. For the final category, ie, equipment / small wares, they maintain a buffer stock for all new store requirements of FF&E (Furniture, Fixtures and Equipment).

Kunal Gupta, senior supply chain manager, Apparel FZCO, explains, “Warehousing requirements are managed between a combination of owned and 3PL warehouses. All our store deliveries are done by our own temperature controlled vehicles - as a group, we have our own fleet of reefer and non-reefer trucks.”

Gupta goes on to simplify the supply chain process for both the brands in the following way:

50 FEBRUARY 2015

a) Forecast and Ordering - Supply Chain is centrally controlled and monitored from Dubai. It begins with demand forecasting of all the requirements for running the restaurant operations. It is especially interesting to forecast for the needs of the business, considering the consumption of existing stores, as well as the expansion plans for both the brands.

“As a Senior Supply Chain Manager, it is an important goal to avoid the Bullwhip effect in our demand-driven supply chain, which reacts to actual customer demands,” he says. All the import order estimation is done three months in advance, as the lead time from ordering to receiving in the warehouse is about 45-60 days. b) Procurement - Imports for Tim Hortons and Coldstone are done from Canada and USA respectively, as the brands

are based out of these countries.“We use consolidators in the US to process our orders and send us consolidated shipments to GCC. We also import partially from EU, China and Levant countries,” explains Gupta. Apparel FZCO has a very stringent vendor selection procedure to ensure highest quality of product. All the vendors are selected based on audit on quality, sustainability and quality certifications.

“We have a strong focus on moving to procurement from local markets for our needs, which includes all the fresh and perishable food products,” he adds. c) Inbound and Cross-trade shipments - Apparel FZCO has a complex productmix for import, which includes over 350 SKU’s for both the brands. Several containers arrive in the UAE on a weekly basis in both reefer and non-reefer

THE FOOD CHAIN

It is especially interesting to forecast for the needs of the business, considering the consumption of existing stores, as well as the expansion plans for both the brands configuration. Since UAE is the central hub, they also ship directly to other GCC locations, based on their consumption patterns. d) Clearance and Warehousing - Apparel FZCO has an in-house clearance team to manage all import clearance procedures.

They work closely with the customs and health authorities for speedy clearance and delivery services.“We use state-ofthe-art warehousing facilities for storing all the food products, which adhere to the highest regulatory compliances, like HACCP, ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007, ISO 22000:2005, SGS, etc. Our strong WMS system makes for accurate offloading, put-away and picking for a wide range of SKU’s. We can track all our warehousing records real-time and online using ERP systems,” assures Gupta.

e) Store Ordering and Distribution - All the stores place daily orders to the central ordering system. These orders are interfaced through WMS onto the warehouse portal and picked accurately for each store. Their own fleet provides daily distribution of these products to the stores as per their orders. f) GCC Distribution –“We use the hub and spoke model to cater to the requirements of the stores in other GCC countries. The UAE acts as a central hub and re-distributes to a central warehouse in each of the GCC countries. Depending on the order, we use the most suitable mode of transportation, sea, air or land,”says Gupta. g) Inventory Management - Inventory Management is the central nervous system of restaurant operations. Timely decisions are taken to maintain correct inventory levels. Smaller orders are

done at frequent intervals to ensure the freshness of the products on a daily basis.

The supply chain comes into play, however, when there is a demand for the product in the market. And with a brand like Tim Hortons, the demand is rather strong.“Just to clarify, Tim Hortons is not just a coffee shop - it is a multinational fast casual restaurant, with a very unique positioning when it comes to food offerings.

While the Coffee Shops have 80:20 ratio of Beverages:Food, and fast food chains have reverse, ie, 80:20 on Food:Beverages, Tim Hortons has a unique mix - 50:50 for Beverages:Food. We have multiple layers of offerings, where we compete with coffee shop chains for beverages, with fast food joints on food, and with bake shops on baked goods. That’s the reason we call ourselves Tim Hortons, CAFÉ and BAKE SHOP, Always Fresh,” smiles Gupta.

FEBRUARY 2015 51

All the stores place daily orders to the central ordering system. These orders are interfaced through WMS onto the warehouse portal and picked accurately for each store

52 FEBRUARY 2015

The huge number of expats in the UAE are the key reason for the brand’s popularity, as is the fact that the local population has received it very well. Currently, Tim Hortons commands 76 per cent of the Canadian market for baked goods, and 62 per cent of the Canadian coffee market.

Apparel FZCO currently operates 58 Tim Hortons across the GCC, with plans of opening 200 stores by across the GCC by 2018. So far, the focus has been predominantly on opening restaurants in the UAE. However, going forward, there will be more stores opened in the rest of the GCC, especially KSA, which is a huge potential market.“So far, we have opened more of conventional style restaurants, while we now plan to expand in various new formats, like kiosks (smaller foot prints) and drive-thru locations,” says Gupta.

Coldstone Creamery, on the other hand, is a super premium ice cream brand. From unique ice cream creations to smoothies, cakes and shakes, they offer the ultimate indulgence.

Coldstone currently has 46 locations across the GCC, and plan to get to 100 locations by 2018. The next planned expansion will be through alternate retail channels and smaller formats like kiosks. Apparel FZCO plans to have new products in the category of novelties (ice cream cups, sticks, more take-away options), which would be quite different from their current offerings.

New store openings means a larger supply chain, and more attention needs to be paid to the intricate details, especially when dealing with highly sensitive, temperature-controlled products that need to be transported with high precision. “For this reason, we use our own vehicle fleet

THE FOOD CHAIN

for transportation of all food and non-food products. All our temperature controlled (reefer) trucks are GPS monitored with real-time temperature recording and control. The cool chain for us starts right from the time products leave our vendors warehouses whether locally (in country) or from origin (US/Canada). We keep a strict monitoring of temperature at all times during transit and storage of the goods,” says Gupta. Apparel has also been awarded with the ‘Sustainable Transport’ award

by RTA in Dubai for their efficient and sustainable transportation system.

The materials handling equipments (MHE) for these products is similar across the board, like all other products that require warehousing for retail operations.

The MHE includes, but is not limited to, advance sorters, conveyer belts, reach-

trucks, forklifts, etc. However, food handling requires the operators to be certified food handlers by Food Health Control department.

Technology also plays an important role, with new advancements within the cool supply chain helping make the process better.

“We use advance IT systems to integrate our retail outlet orders into central system.

These orders are uploaded online to WMS, which generates automated pick lists for our warehouse operators to start picking.

Products are picked using barcodes and scanners, which is important to handle the complexity of our business. This gives us TAT of less than 12 hours from outlet ordering to receiving their orders,”explains Gupta.

Apparel FZCO has invested quality time and effort into putting systems in place for setting the UAE up as a central hub. This is

being done with the aim of achieving the tough target of 58 restaurants in about 36 months. Some of the key advancements they are looking into in the coming months include: Full automation of their Distribution Centres Integrated ERP system implementation across all restaurants and offices New model of stores and more satellite stores in the existing models Product customisation that is more appealing to the regional taste and profile “We are investing in similar capabilities in all the other GCC countries to prepare for a significant growth in the region. It will be a replica of the already successful supply chain model on a different scale to achieve the desired efficiency levels,” concludes Gupta.

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GCC PORTS ROUNDUP

l l a c f o s t r Po n. evolutio orts d e e p s hyperGCC p anaging me growth of ed long ago m e r a C ports stablish he extre How GC ey’s report on t to other ports e rowing hubs n -g AT Kear the challenges from these fast s t n h r g a li n le high t they ca and wha

T

he computer game Ports of Call is a lot of fun - unless you are a port owner or operator.

Then, it is likely to disappoint, as it does not account for the challenges in the highgrowth gulf countries.

For those yearning to be ship captain for a day, the game Ports of Call, where players navigate harbours, load cargo, and map routes, is the next-best thing.

Among real-life port owners and operators in the high-growth gulf countries, however, the game is unlikely to cultivate many devotees as it fails to reflect the challenges they confront.

Ports in the Gulf Cooperation Council (GCC) countries have experienced explosive growth over the past three decades. Led by the United Arab Emirates’ port of Jebel Ali, which handled 45 per cent

FEBRUARY 2015 55

GCC PORTS ROUNDUP

of GCC throughput in 2010, the region’s volume of maritime traffic now far outpaces that of its major global competitors. In fact, the UAE surpassed all Netherlands’ ports during a growth boom in which container traffic reached more than 15 million 20-foot equivalent units (TEUs) Netherlands’ port (see figure 1). of Rotterdam, for GCC ports are not alone. Other sectors in the example, was founded region are experiencing in the 14th century similar growth rates from construction and and became the process industries to world’s busiest port retail and telecom. The rise in air-freight and in the 1960s. It now air-passenger transport lags behind Jebel Ali. has also been dramatic.

What is interesting is that GCC ports are not only rapidly growing, but also reaching their moment of truth in a far shorter time frame. Indeed, growth is mimicking the global players. Netherlands’ port of Rotterdam, for example, was founded in the 14th century and became the world’s busiest port in the 1960s. It now lags Jebel Ali. We refer to this as hyper-speed evolution, and it is a phenomenon unique to this region, often attributed to rising oil prices, re 1

Figu

Container traffic has been on the rise in United Arab Emirates ports

Note: TEU is 20-foot equivalent unit.

Sources: World Data Bank, International Transport Forum, Organisation for Economic Co-operation and Development; A.T. Kearney analysis

56 FEBRUARY 2015

GCC PORTS ROUNDUP

FEBRUARY 2015 57

re 2

Figu

the launch and rapid growth phases, thanks to several unique global and regional factors.

The age-old trade route between East and West is one factor. More than 16 per cent of the world’s container traffic flows between Europe and Asia, allowing GCC ports to capitalise on the thriving global shipping business coupled with the existing global ports network is another factor in the GCC’s marine transport boom. Regionally, budding industries fueled annual 10 per cent export growth rates, while local economies continued to support demand for imports the region’s success, building state-of-the art port infrastructures and introducing tax and tariff incentives to spur development of special free zones near the ports.

Stages of hyper-speed evolution

Source: A.T. Kearney analysis

government investment, and a growing population and workforce (see figure 2).

Hyper-speeding Hyper-speed evolutions typically consist of three phases: launch, which occurs when catalysts – such as favourable natural resources, competitively priced labour, and the ability to learn from mature companies -

58 FEBRUARY 2015

Moment of truth trigger swift expansion; rapid growth, which happens as companies capitalise on existing global networks, build competencies, and exploit gaps left by established players to quickly catch the global leaders; and the moment of truth, which arises as companies approach maturity and the strategic response determines if their rapid growth is sustainable. GCC ports have been through

The industry is now facing its momentof-truth phase and is being tested by the challenges of a new business environment.

The most pressing issues are rapidly developing local markets that could face oversupply and increased competition as new ports come online. Over the next 20 years, planned infrastructure in the GCC will increase capacity by more than 200 per cent (see figure 3). Port expansions in

GCC PORTS ROUNDUP

neighboring regions such as Jordan and Iraq will also affect supply.

Other competitive threats for ports exist in the form of new transport links, such as the region-wide rail network, while the eurozone debt crisis, piracy, and tensions surrounding Iran are having a negative effect and increasing shipping costs. The following four actions will help ports capitalise on and sustain growth, and overcome such challenges.

Choosing a strategic direction During the rapid growth phase, GCC ports relied heavily on geographic location to maintain profitability. Given today’s emerging oversupply and regional challenges, this is no longer sustainable.

And while the new regional rail system will help link ports (and exporters), it can also mean less volume as rail allows exporters and importers more port choices.

To meet these and other challenges and avoid spiraling into value-destroying price wars, port differentiation will be vital to gaining competitive advantage in the region.

For example, Saudi Arabia’s King Fahd Industrial Port Jubail, built to meet the needs of nearby large export industries, specializes in liquid chemicals. At the same time, ports

are tailoring their services to meet specific needs and improving their services to create competitive advantage. The recently opened Khalifa Bin Salman Port in Bahrain, for example, built a bonded logistics zone to position itself as an attractive transshipment hub for the northern gulf.

Other specialisations hold potential:

In addition, many GCC ports face costly import-export imbalances that cause empty containers to either accumulate (import surplus) or disperse (export surplus) and then must be brought in from other locations – either way, an expensive proposition. In such situations, giving importers and exporters incentives will help the balance.

Improving capabilities

• Offering added services, such as toxicThe benefits of strategic differentiation are waste management, often won or lost in hazardous-material operational efficiency.

We refer to this handling, quarantine, Although GCC ports warehousing, ship have expanded their as hyper-speed decommissioning, dry-dock capacity to address the evolution, and it services, and military vessel growth, operational and support logistical shortcomings is a phenomenon • Promoting low-cost, prevent them from unique to this region, realizing their true minimum service • Providing access to potential. World often attributed to demand and supply of Bank’s 2012 Logistics rising oil prices, cargo in a connected Performance Index, industrial zone through which rates ports on government bonded areas, pipe, and rail, their ability to arrange investment, and a or offering incentives competitively priced • Arranging for multimodal shipments, included growing population transshipments (sea to air only one of six GCC and workforce and sea to rail) countries in its top 40

FEBRUARY 2015 59

GCC PORTS ROUNDUP

re 3

Figu

GCC port capacity will increase 200 percent over the next two decades

exemptions within the free zone, which gives industries exclusive port access to export products and import supplies. This approach, successful around the world, is one GCC port owners and operators could pursue, engaging in discussions with regulators and other port authorities to establish rules that benefit all stakeholders.

Working with business

Note: TEU is 20-foot equivalent unit.

Sources: Drewry, Oman Ministry of Transport and Communications; A.T. Kearney analysis

for international shipments. Consider this: It takes an average of 17 days to import goods into Saudi Arabia, but it takes just four days to import into Singapore IT integration, customs procedures, processes, and availability of skilled personnel are all areas that GCC countries need to address.

IT integration is a pressing need, specifically establishing a port community system (PCS) that links all players in the shipping process and allows them to share information (see figure 4). A tailored PCS combined with appropriate programs to train port personnel can reduce lead times and capture the most value from expensive port facilities. Choosing the right port operator is a good way to align the port’s strategic goals with its operational capacities. GCC-based port operators such as DP World, Gulftainer, Gulf Stevedoring, and the newly created Abu Dhabi Ports Company handle nearly 80 per cent of the region’s container throughput. However, international operators have become increasingly relevant players in the region as they seek to capture a share of the new port capacity coming online. Of the global firms, Netherlands’ APM Terminals (Salalah and Bahrain) has the strongest presence in the

60 FEBRUARY 2015

GCC ports have been through the launch and rapid growth phases, thanks to several unique global and regional factors. The age-old trade route between East and West is one factor

A final vital factor for success is for ports to integrate more closely with GCC business communities. To this end, a new 2,000 kilometer rail network is under way to connect countries from Oman to Kuwait, at a cost of roughly $100 billion, and road networks are further developing to the tune of $18 billion.5 It is important to note that the “intelligent”connections – communications, logistics, scheduling, and IT systems - are every bit as significant as the physical connections of roads, railways, and pipelines.

Logistics platforms that act as intermodal facilitators between roads and ports will strengthen both the intelligent and physical connections. In the longer term, the GCC has an opportunity to become a center of trade with the emerging markets of China, India, the greater Middle East, and Africa, a region collectively termed CHIMEA. Improved integration with ports and markets along the Indian Ocean can lead to further prosperity for the GCC ports as they serve as a collective conduit for local industries to access the world’s fastestgrowing markets.

Charting a course GCC, while Hong Kong’s Hutchison Port Holdings (HPH) and Singapore’s American President Lines (APL) operate ports in Saudi Arabia, Bahrain, and Oman. Because port owners and terminal operators have shared interests, alleviating their operational and logistical shortcomings may depend on getting both sides to collaborate in strategy development and operational execution.

Engaging the regulators Government regulations can also drive competitive advantage. For example, the Jebel Ali Port and neighbouring Jebel Ali Free Zone have a symbiotic relationship in that the government offers tax and duty

Riding the wave of the hyper-speed evolution, GCC companies have enjoyed rapid growth and substantial profits.

However, as competition intensifies and industries approach maturity, each country will face its own moment of truth. From this point on, new strategies and defense mechanisms will be needed to avoid the pitfalls of fast growth. Success lies in more closely aligning companies and cultures to their growth strategies while investing in forward-looking initiatives fit for the next challenging era. As regional dynamics change, ports can act as economic enablers, both to their countries and to the wider gulf region.

-AT Kearney

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