Global Supply Chain February 2016 Issue

February 2016 Issue 23

ENHANCING THE BUSINESS OF LOGISTICS

Supply chain granularity Rethinking the business

Autonomous vehicles How and when?

Gulf Air Future strategy

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Air cargo’s future depends on the health of the global economy 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

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“The freight performance in November 2015 was a mixed bag. Although the headline growth rate fell again, and the global economic outlook remains fragile, it appears that parts of Asia-Pacific are growing again, and globally, export orders are looking better.

In fact, the downward trend in FTK volumes appears to be bottoming out. But there is a great deal of uncertainty. The current volatility of stock markets shows how much the health of the global economy – upon which air cargo depends - remains on a knifeedge,”said Tony Tyler, IATA’s Director General and CEO. This quote completely summarises the state of the globla air cargo industry. What’s very positive here is that the Middle East region is the only region in the world that had an increase for the demand of air cargo services by 80 per cent. Page 26.

However, oil prices have been signalling these Middle Eastern economies to diversify for some time now. After the recession of a few years ago, many countries in the region already learnt their lessons and began major changes in government spending to enhance industries such as manufacturing and tourism among others. A report on the region’s iron and steel demands in the next few years highlights how diversification is well underway in the region. Page 44.

Although Oman continues to focus on it oil industry as well as enhancing other aspects of its economy.

Oman hopes to invest heavily in the discovery and development of new fields with a heightened importance on enhanced oil recovery techniques and efficient operational support structures. Page 40.

Incidentally, this is also our second anniversary issue.

While we are delighted to be celebrating this, the journey has only just begun!

See you in March.

Munawar Shariff Managing Editor Signature Media munawar@signaturemediame.com

FEBRUARY 2016 3

February 2016 Issue 23

ENHANCING THE BUSINESS OF LOGISTICS

44 GCC’s demand for iron and steel

26 16 Country report Bahrain

Gulf Air’s future strategy Bahrain’s national carrier Gulf Air has solid future growth plans

31 Going automatic Autonomous trucks hold significant potential benefits for GCC countries, meeting both their vision and their economic needs

Supply chain granularity 20 Country report - Bahrain 36 Granularity assesses a company Bahrain’s transport sector expands on all fronts All of Bahrain’s transport sectors are on a growth trajectory signalling good economic times

26 Cover Middle East - air cargo hotspot Demand for air cargo services are highest in the Middle East with 80 per cent of all demand coming from the region 4 FEBRUARY 2016

and its operation in pieces, allowing the focus to be on the little things, which can lead to big changes to benefit the firm

40 Making investments count

The continuing slide in oil prices has certainly caused difficulties for Oman, but that hasn’t stopped the Sultanate from continuing its oil exploration and production activities

With fluctuations on the oil front, GCC economies have started developing their non-oil sectors, like infrastructure, health, and education, fuelling the iron and steel industry as well

51 Steady growth GWC ends 2015 with a 32 per cent growth, finds GSC

54 Planned growth Daimler sold over half a million trucks in 2015, achieving its targets, and opening doors for new markets and ventures, most notably, Iran

58 A big move!

Adapting their resources to suit the weather and natural landscape, Al Majdouie delivered on their commitment to the client

60 And the award goes to ...

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GE Oil and Gas signs long-term agreement with QAFCO

Left to right: Ahmed Rahimi, Maintenance Operations Manager, QAFCO; Khalifa Al-Sowaidi, CEO, QAFCO; and Lorenzo Simonelli, President & CEO, GE Oil & Gas.

GE Oil and Gas announced that its Downstream Technology Solutions (DTS) business has been awarded a 15-year technical development partnership agreement by Qatar Fertiliser Company (QAFCO). In this strategic agreement, DTS will bring GE Oil and Gas competencies to mark the first regional installation of its advanced 32 K Extendor Combustion System that will enable QAFCO to strengthen the operational efficiency of its gas turbines.

GE Oil and Gas will supply the parts for the project with the first installation set for 2017, while modification, repair and field services will be provided through Qatar-

6 FEBRUARY 2016

based experts. The new agreement builds on earlier long-term service contract signed between GE Oil and Gas, DTS and QAFCO to optimise the performance of its plant in Mesaieed last year, further underlining GE’s localisation commitment.

GE has also launched, with Masdar, a co-leadership training programme for women to drive innovation and talent development in the renewable energy sector. The agreement to initiate the training programme was signed by Dr Nawal Al-Hosany, Director of Sustainability at Masdar, and Deb Frodl, GE’s Global Executive Director of Ecomagination. GE and Masdar will select the women for the

training programme through an online competition that will be announced in the first quarter of 2016. Women from across MENA region will have to demonstrate through their qualification and application their interest in advancing their knowledge in a relevant sustainability field. The experience will be focused on skills that will enable them to pursue career opportunities and/or pursue entrepreneurial options in the renewable energy sector.

OICT unveils new truck appointment system Oman International Container Terminal (OICT) has officially unveiled its eagerly anticipated truck appointment system (TAS) at its operations at Sohar Industrial Port Company. TAS will allow truck drivers to schedule collection and delivery of cargo at the container terminal in advance of their arrival through either a mobile app, a dedicated website, or an interactive voice response number. Meanwhile, the system will not only allow Omani logistics companies to view peak periods and schedule their trips to the port accordingly, creating cost savings through productivity gains, it will enable OICT to better plan and allocate resources in real-time.

The launch of the new system follows investments made by OICT in the expansion of infrastructure at Sohar, and is part of a long-term vision. TAS will be available for use immediately and will serve logistics companies linking up with some of the world’s biggest shipping companies, including United Arab Shipping Company, CMA CGM and APL, which operate out of OICT.

FEBRUARY 2016 7

Qatar Airways announces service to Armenia Qatar Airways has announced that commencing May, the airline will offer four-times weekly non-stop flights between Doha and Yerevan, the capital of Armenia. Situated along the Hrazdan River,Yerevan is the administrative, cultural and industrial centre of Armenia and offers visiting business and leisure passengers a rich and diverse history. The airline will fly the A320 aircraft direct to and from Yerevan on the four-weekly schedule, featuring a two-class cabin configuration comprising of 12 seats in Business Class and 132 Economy Class seats.

Qatar Airways Group Chief Executive, His Excellency Akbar Al Baker takes part in a panel discussion at Bahrain Airshow alongside; Kuwait Airways CCO, Philip Saunders; Air Arabia’s CEO, Adel Ali; Lufthansa German Airlines VP Sales & Services Middle East, Africa & Southeast Europe, Tamur Goudarzi-Pour and; Flynas’ CEO Paul Byrne.

Bahrain Air show Qatar Airways Group Chief Executive, His Excellency Akbar Al Baker outlined emerging challenges and opportunities affecting airlines operating in the Middle East during the ‘Air Transport in the 21st Century’ conference at the Bahrain International Airshow, held in January. The discussion revolved around strategies that will make a difference to global competitive positioning, increased regional competition from low-cost carriers, and the impact of changing oil prices. Part of the discussion honed in on product proposition, in particular the importance of onboard entertainment and the need for high-end offerings to ensure customers are able to enjoy each and every journey.

The panel discussion was the first of its kind for civil aviation at the Bahrain Airshow, where Qatar Airways enjoyed a formidable presence by showcasing three of its state-of-the-art aircraft – the A350, A380 and Qatar Executive’s Gulfstream G650ER. Qatar Airways Group Chief Executive, His Excellency Mr. Akbar Al Baker speaking at the ‘Air Transport in the 21st Century’ conference on the second day of the Bahrain International Airshow 2016.

Qatar Airways GCEO H E Akbar Al Baker (fourth from right) alongside (from left); Arabian Aerospace Editor, Alan Peaford; Air Arabia CEO, Adel Ali; Kuwait Airways CCO, Philip Saunders; Bahrain Minister of Transportation and Telecommunications, H E Engineer Kamal Bin Ahmed Mohammed; Lufthansa Airlines VP Sales & Services, Tamur Goudarzi-Pour; Flynas CEO Paul Byrne and; A/Under Secretary for CAA at the Ministry of Transportation & Telecommunications, Ahmed Al Nemah.

8 FEBRUARY 2016

DP World Chairman HE Sultan Ahmed Bin Sulayem speaking at the 2016 World Economic Forum in Davos, Switzerland yesterday.

DP World makes waves with new ventures DP World Chairman HE Sultan Ahmed Bin Sulayem spoke at the 2016 World Economic Forum in Davos, Switzerland, on why the global trade enabler prefers the public-private partnership model when entering new markets. In the event, which was attended by political and business leaders from across the world, a range of issues, including the environment, international security and the onset of the Fourth Industrial Revolution or the new technology age, were addressed.

HE Bin Sulayem spoke on a panel discussion on the prospects for regional development in Eurasia that included Prime Minister of Georgia Giorgi Kvirikashvili, Prime Minister of the Republic of Kazakhstan Karim Massimov and the president of Russia’s second-largest lender VTB Bank, Andrey Kostin. Said he,

“Joined up thinking and partners cooperating for long term growth is essential. The PPP model allows for the strengthening of both, regional trade and the global supply chain for the benefit of all. Our concessions have an average life of 40 years because we choose to invest for the long run.”

He added that technology infrastructure is crucial, while governments are vital in bridging trade blocks, using Dubai’s own remarkable growth story as an example where in just 40 years the city has transformed into the global trade tub it is today.

DP World Russia In keeping with the vision of HE Bin Sulayem, DP World and the Russian Direct Investment Fund (RDIF) announced the launch of a new

joint venture company targeting ports, transportation and logistics infrastructure in Russia. The agreement, signed between HE Bin Sulayem and Kirill Dmitriev, Russian Direct Investment Fund CEO, determines the key terms and principles of the joint venture in which DP World will own an 80 per cent shareholding with the remaining 20 per cent held by RDIF. Under the name ‘DP World Russia’, the company will target marine, dry ports and logistics infrastructure in different parts of Russia.

Kigali logistics project In other news, DP World revealed that it has been granted a 25 year concession to develop and operate a new logistics centre in Kigali, Rwanda. The DP World Kigali Logistics project is a Greenfield concession agreement and the first phase will be built on 90,000m² (969,000 sq ft) with a 12,000m² (129,000 sq ft) container yard, and a 19,600m² (211,000 sq ft) warehousing facility.

Estimated annual capacity is 50,000 TEUs and 640,000 tonnes of warehousing space. Total project cost is estimated at USD 35 million (AED 128553250), and further development will be phased in line with demand growth. Rwanda aims to enhance the country’s logistics industry to support the export of products for regional and international markets. The DP World Kigali Logistics Centre is expected to significantly contribute to the development of this strategy.

DP World Chairman, His Excellency Sultan Ahmed Bin Sulayem and Russian Direct Investment Fund CEO, Kirill Dmitriev signing the term sheet to form ‘DP World Russia’.

FEBRUARY 2016 9

Saudi warehousing solutions provider signs agreement with Sohar Freezone Sohar Port and Freezone signed a new deal this week with Warehousing Solutions LLC, a newly established company belonging to Saudi Arabian logistics provider Warehousing Projects and Logistics LLC (WPL). WPL will develop and manage the new warehouse park at Sohar Freezone — one of the company’s first major venture outside the Kingdom.

The signing marks the beginning of the construction of WPL’s planned 50,000 sq metre warehouse park in Sohar Freezone; a further 50,000 sq metre has been reserved

10 FEBRUARY 2016

for phase II. Warehousing Solutions will construct ready-built warehouses, as well as bespoke warehousing for other Sohar tenants on-site in the Freezone.

This move comes at the right time, as Sohar Port and Freezone also announced best-ever full-year throughput figures for 2015. Total cargo volumes in 2015 were up by 12 per cent compared to 2014, at well over 50 million tonnes - an impressive average of almost one million tons a week. Following the first full year of additional traffic from Port Sultan Qaboos,

container traffic was up by a massive 62 per cent from 2014.

Break bulk also grew at Sohar Port, with a dramatic rise of 46 per cent from 2014, to over 1.9 million tonnes. RoRo figures saw one of the biggest increases and were up by over 90 per cent, with over 230,000 vehicles handled in 2015.

In 2015, Sohar added a number of new direct lines to its already impressive roster, announcing the addition of global players Hanjin, Evergreen and Simatech, adding more direct links to the Far East which in turn will sink costs all the way along the supply chain.

Air Arabia selects TRU Simulation + Training for simulator

Air Arabia announced, during the Bahrain International Airshow, the signing of a new deal with TRU Simulation + Training, a Textron Inc company, to produce an A320 FFS X™ Level D full motion flight simulator.

TRU Simulation + Training will manufacture the A320 FFS X in its Montreal,

Canada facility. Upon completion, the new A320 FFS X will undergo qualification by EASA CS-FSTD(A) for Level D use. The full flight simulator is slated for installation at Air Arabia’s facility at the Sharjah Airport International in Sharjah, United Arab Emirates by the second quarter of this year.

Masdar to Develop 200MW Solar PV Plant in Jordan Masdar has announced an agreement to develop a commercially-driven utilityscale 200 megawatt (MW) photovoltaic solar plant for Jordan’s Ministry of Energy and Mineral Resources (MEMR). The agreement comes less than one month after Masdar and its partners inaugurated the 117MW Tafila wind farm in the Hashemite Kingdom. The agreement was formalised during World Future Energy Summit, part of Abu Dhabi Sustainability Week (ADSW).

The announced solar plant is Masdar’s second major investment in Jordan. In December it successfully delivered the Tafila wind farm, a joint venture between Inframed, EPGE and Masdar, that will account for almost 6.5 per cent of Jordan’s 1,800MW renewable energy target for 2020. Both, the solar project and the Tafila wind farm, are in line with Jordan’s vision to diversify its energy sources and promote greater reliance on renewable energy.

FEBRUARY 2016 11

Etihad Airways records growth and new agreements Etihad Airways delivered solid operational performance in 2015 by achieving continued growth in passenger and cargo volumes.

The airline carried 17.4 million passengers last year, a significant increase of 17 per cent over 2014 levels, and operated 97,400 flights, which covered 467 million kms.

The growth in passenger demand continued to surpass the airline’s

12 FEBRUARY 2016

capacity increase, underscoring the strength of its long-term growth strategy.

In total, Etihad Airways carried more than 75 percent of the total passengers who travelled to and from Abu Dhabi International Airport in 2015. With the addition of the airline’s equity partners that operate flights into the UAE capital, the combined total rises to 84 per cent of passenger traffic at Abu Dhabi International Airport. Complementing its organic growth, the airline also expanded its codeshare and equity partnerships last year. These partnerships delivered more than five million passengers onto Etihad Airways’ flights, an increase of 43 per cent over the 3.5 million passengers in 2014.

To support the next phase of its global network expansion, Etihad Airways will receive 10 aircraft deliveries this year, including five Boeing 787-9s, three A380s and two Boeing 777-200 Freighters.

In other news, the Masdar Institute of Science and Technology and Etihad Cargo have announced the launch of a new design for a smart, temperature-controlled,

sustainable and energy-efficient air cargo container (cool dolly) system. The innovative new cool dolly is specifically designed to optimise the transportation of temperature-sensitive cargo, which includes pharmaceuticals, livestock and perishable products that need to be transferred between the aircraft to the storage compartments in the cargo warehouses, providing Etihad Cargo and the Abu Dhabi International Airport a unique competitive advantage over other airports.

The new hybrid cool dolly design incorporates the use of innovative thermoelectric module technologies, modified compressor units, and a custommade power bank that can be attached to solar panels for sustainable recharging, ensuring that the temperature can be regulated to meet the needs of temperature-sensitive cargo while minimising power consumption.

In a strategic marketing move, Etihad Airways has appointed Lowe Open as its first global direct marketing agency. The UK-based creative agency has been tasked with enhancing direct marketing activities for the Abu Dhabi-based airline. This includes Etihad Guest, the carrier’s frequent flyer programme, with a mandate to support its growing profile as a world-leading airline loyalty scheme.

Lowe Open was selected on a three-year contract with a remit that also includes developing direct marketing creative, as well as providing additional data and analytics services to Etihad Airways, Global Loyalty Company and Etihad Guest, all part of the Etihad Aviation Group. The account will be led from Lowe Open’s offices in Abu Dhabi, supported by operations in the UK and USA.

King Abdullah Economic City Launches Red Sea Foundation

Gulf Air adds to its fleet and technology offerings As part of its fleet renewal strategy, Gulf Air has announced a firm order of 29 A320neo Family. The new order includes 17 A321neo and 12 A320neo, of which 10 A320neo have been confirmed in 2012. The contract was signed at the Bahrain International Airshow between Maher Salman Al Musallam, A/Chief Executive Officer, Gulf Air and Fabrice Brégier, Airbus President and Chief Executive Officer, in the presence of H E Kamal bin Ahmed Mohammed, Minister of Transportation and Telecommunications, Kingdom of Bahrain and Matthias Fekl, Minister of State for Foreign Trade, the Promotion of Tourism and French Nationals Abroad.

Gulf Air currently operates 28 Airbus aircraft; and the new aircraft will fit seamlessly into the airline’s current fleet, thanks to Airbus’ overall fleet commonality, its low operating costs, optimum fuel efficiency and best-inclass passenger comfort of any single aisle aircraft.

The carrier also signed a new technology agreement with Sabre

Corporation to provide its AirCentre Flight Plan Manager solution to streamline the airline’s operations.

For the past eight years, Gulf Air has been using AirCentre Flight Plan Manager to achieve significant cost savings whilst enabling key flight planning decisions. Under the renewed agreement, the solution will be vital in strengthening the national carrier’s position within the regions it serves. Sabre’s technology will play a crucial role in helping the airline to deliver a wide range of enhancements in flight planning, fuel saving and operational efficiency.

Sabre Flight Plan Manager brings together real-time information on a number of key variables - including weather, air space restrictions, aircraft performance and schedule information - and then calculates the most optimal flight route. This automation supports flight planning decision-making across all operations, enabling airlines like Gulf Air to address key ongoing concerns, such as fuel efficiency and CO2 emissions.

The development of a trade facilitation framework for the Red Sea region is essential for the sustainable development of the largest emerging market in the world, according to Fahd Al Rasheed, Managing Director and Group CEO of King Abdullah Economic City.

He expressed his views at a special event at the World Economic Forum in Davos, where he announced the formation of a non-profit policy think tank, the Red Sea Foundation, to raise awareness of the region’s potential and advocate the necessary policy initiatives to drive development.

The Foundation, to be based in Geneva, will comprise a global advisory board of policy makers, business leaders and relevant subject matter experts. It will also include an operational staff that will research, formulate and promote policy recommendations.

“The objective of the Red Sea Foundation is to actualise the enormous potential of this region by enhancing the logistics infrastructure, promoting trade among Red Sea region countries and encouraging foreign investment,”said Al Rasheed, adding,“This is an initiative in which the public and private sectors and civic society all have important roles to play. The Red Sea Foundation exists to bring them together to build a new growth engine for the global economy.”

The Red Sea Region comprises twenty countries that either lie on the Red Sea or use it as their primary shipping channel: Burundi, The Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Iraq, Jordan, Kenya, Madagascar, Mozambique, Rwanda, Saudi Arabia, Somalia, Sudan, Syria, Tanzania, UAE, Uganda, and Yemen.

FEBRUARY 2016 13

Pharma and healthcare sector presence in Jafza on the rise The pharmaceutical and healthcare sector in Jebel Ali Free Zone (Jafza), the flagship free zone of Dubai and the UAE, has witnessed a healthy growth over the past years. HE Sultan Ahmed bin Sulayem, Chairman of DP World and Chairman of Ports, Customs and Free Zone, said, “Jafza has seen a seven per cent growth in the number of companies over the past year from 238 in 2014 to 255 in 2015. Some of the world’s best companies have set up their regional base in Jafza and

this speaks volumes of their trust in our ability to provide our customers with the most convenient and vital connectivity to the world.”

Regional governments are increasing their investment in the healthcare sector to support rising demand. Frost and Sullivan predicts the healthcare market in the GCC will grow to US$133 billion (AED 488.5 billion) by 2018.

Jafza also participated in this year’s Arab Health 2016, held from January 25-28 in Dubai.

Sultan Ahmed Bin Sulayem

Ibrahim Mohamed Aljanahi

Jafza Headquarter

14 FEBRUARY 2016

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Gulf Air’s future strategy Bahrain’s national carrier Gulf Air hasn’t been doing too well in the last few years. Competition in the form of other regional airlines adding to its woes.

So while losses are there, they are steadily decreasing, paving the way for the company to make solid future growth plans.

Maher Salman Al Musallam, Acting CEO, Gulf Air, provides insights

What impact does competition among flight hubs in the GCC region have on the aviation sector?

Maher Salman Al Musallam: According to a study conducted by the International Air Transport Association (IATA), the Middle East is expected to have the third-fastest passenger growth rate in the world by 2016, with 5.2 per cent growth compared to the annual global average rate of 4.6 per cent. The study also estimates that GCC airports will be handling 250m passengers by 2020, with Dubai at the forefront. In the context of a power struggle between regional carriers and continually growing airspace congestion, operational changes encouraging efficiency are essential.

16 JANUARY 2016

JANUARY 2016 17

COUNTRY REPORT - BAHRAIN

GCC airports

by a partnering carrier As the Bahraini national carrier will be handling and to expand their we have taken a number of network through steps and measures to address greater operational these concerns, emphasising efficiency. According Bahrain’s role as a primary hub passengers by to an IATA in the region. In anticipation of the increase in Gulf air Economics briefing, traffic, Bahrain Airport Company there has been substantial evidence that has announced the expansion of airline alliances benefit Bahrain International Airport (BIA), customers in terms of improved scheduled to kick-off later in 2014. services and lower fares on connecting The expansion will cater to 13.5m flights. By sharing a mutual agreement with passengers, which is double the current other international carriers, airlines are capacity. Scheduled for completion in 49 able to connect their passengers to more months, the project will also double the destinations without adding to existing air number of existing terminals, increase traffic. the number of airport stands and bridges, expand baggage areas, and feature new check-in and immigration counters. The The Middle East aviation market is second phase of the expansion will include a expected to receive the delivery of over business and entertainment centre.

2,000 aircraft by 2032, valued at US$550bn.

250m 2020

Do you believe the traditional model of aviation alliances is still relevant in today’s market?

Al Musallam: Airlines enter into codesharing agreements and alliances with a number of global carriers in order to expand their networks exponentially, with this also benefitting passengers by a wider variety of destinations. Historically, alliances started out as simple code-share agreements, allowing the airline to sell a seat on a flight operated

18 JANUARY 2016

How can regional expenditure translate into growing opportunities?

Al Musallam: Bahrain is strategically located at an approximately eight-hour flight distance from the majority of the world, allowing it to be one of the primary hubs linking East and West. Bahrain has also seen a steady increase in expatriates residing in the country, from 244,937 in 2001 to 666,172 in 2011, reflecting an increase in demand for air travel. To support the expected growth in air traffic for the region, Bahrain will kick-

off BIA’s expansion in 2014. Additionally, the national carrier is currently engaged in negotiations with its original equipment manufacturers to ensure Gulf Air’s future fleet and network requirements match its order book.

In light of the aggressive fleet expansion, what types of supply gaps in skilled labour are you seeing emerge in the GCC aviation industry?

Al Musallam: The estimated growth in regional air traffic coupled with aggressive fleet expansion by Gulf carriers will require a pool of skilled personnel and specialists to support the operational changes accompanying this growth. As the national carrier of Bahrain, one of Gulf Air’s long-term goals is to create opportunities for Bahrainis and continuously work with the airline’s sister companies to develop the skills of young Bahraini aviation professionals in the Kingdom, setting them on the path towards successful careers either in Bahrain or elsewhere.

-This information was originally published

by Oxford Business Group (OBG), the global publishing, research and consultancy firm, appearing in the publication The Report: Bahrain 2015. For economic news about other countries covered by OBG, please visit http:// www.oxfordbusinessgroup.com/economicnews-updates

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COUNTRY REPORT - BAHRAIN

Bahrain’s transport sector expands on all fronts

Infrastructure expansion is a sign of a growing economy. And all of Bahrain’s transport sectors are on a growth trajectory signalling good economic times and expectations of stronger revenues

V

isitors to the waterfront of Bahrain’s capital of Manama are likely to glimpse traditional wooden sailing vessels known as dhows. The ships are often seen sailing out to sea or docked in the Gulf’s calm waters. Though most are now used for fishing and small trade, rather than as commercial vessels, Bahrain’s ports still receive hundreds of commercial callers each year heading for South Asia. The dhows’ presence is testament to the fact that the nation has long been an important centre for international trade.

A host of infrastructure projects will allow Bahrain to continue that tradition into a new era. From new road interchanges to plans for a major airport upgrade, developments in the sector are designed to position the country as an important regional centre for transport and logistics.

On the rise Between 2000 and 2012 the transport and communications sector was one of the three fastest-growing sectors in Bahrain, along

20 FEBRUARY 2016

COUNTRY REPORT - BAHRAIN

with the service sector and construction sector. The transportation industry is seen as vital to the kingdom’s goal to both double oil production and develop a more diversified economy. The transport sector is projected to grow from four per cent to seven per cent of GDP in the next few years, according to the Bahrain Economic Development Board (EDB). Part of this growth is driven by the rise in the kingdom’s population, which between 2001 and 2010 grew from 660,000 to 1.2m inhabitants. The majority of this growth was as a result of rising number of guest workers. Still, Bahrain’s transport industry is mostly run by locals as part of the country’s Bahrainisation process, which seeks to raise the number of Bahrainis in the local workforce.

Regulation The Ministry of Transportation and Telecommunications (MTT), which supervises all aspects of the transportation, telecommunications and the postal service, is increasingly moving toward a regulatory

role in all segments. While the Civil Aviation Affairs has long been under the remit of the MTT, the Ports and Maritime Affairs Directorate was brought under the control of the ministry in 2012 in Royal Decree No. 70. However, the Roads and Projects and Maintenance Directorate (which falls under the Ministry of Works, Municipalities and Urban Planning) has primary responsibility for maintaining and developing the road network.

Roads In late 2013 the Ministry of Works completed the Mina Salman Interchange. This important project has helped relieve one of the main sources of congestion in the kingdom, making use of both a three-lane underpass and a three-lane overpass, improving access from the Salman Industrial City and the Khalifa Bin Salman Port (KBSP) to the King Fahd

Skyline of Manama City with the World Trade Center Bahrain FEBRUARY 2016 21

Causeway. Facilitating a non-stop traffic flow toward the causeway via Dry Dock Avenue, the project has reduced the average drive time from KBSP to the King Fahd Causeway from 38 to 18 minutes. The new interchange also relieves congestion on the way to Bahrain International Airport (BIA).

According to figures from the Central Informatics Organisation, Bahrain had 563 km of highways and a total of 4,274 km of roads in 2013. This gives it one of the most dense road networks in the region in terms of the ratio of paved roads per sq km of land. In part this is because the government has a clear vision of the country’s transport needs and has put in place bureaucratic procedures that allow construction projects to move quickly. It takes just 12 days to secure a permit, according to a 2013 report

22 FEBRUARY 2016

from the International Finance Corporation, in which Bahrain ranked 4th out of 185 economies measured in terms of dealing with construction permits.

Laying the foundation To meet the needs of a growing economy and population, the MTT aims to develop the transport infrastructure. A 2011 feasibility study conducted by the ministry found that less than one per cent of all daily personal journeys involved public transport. The MTT’s plan is to transfer a minimum of 15 per cent of all personal journeys from automobiles to public transport by 2030, exclusive of taxis.

Since 2003 public bus routes have been overseen by the MTT’s Land Transport Affairs Directorate and operated by CARS Transport Corporation under a concession. The firm has

provided regular bus services along 13 main routes chosen by the government, mostly in Manama. However, a new operator will take over in February 2015 under a 10-year concession agreement between the MTT and the Bahrain Public Transport Company.

The existing fleet will increase from 35 to 141 high-tech buses with better facilities, catering to riders with special needs. Ridership is expected to increase from 16,000 to 51,000 passengers per day, covering 77 per cent of the total population served by operational services. The MTT will also upgrade all required supporting infrastructure, such as bus shelters and the main bus stations.

As part of Bahrain’s Economic Vision 2030, the government hopes to develop an integrated transport network covering a total distance of 184.2 km. Different modes of

COUNTRY REPORT - BAHRAIN

Bahrain International Airport

transport such as light rail transit, monorail, bus rapid transit and tram lines had been recommended by the initial studies. The first phase of the integrated transport project is complete, and a bus network with new routes and a new operator will commence operations in April 2015. The studies for the second phase of the project, which will include a rail-based transport system, are also set to be completed in 2015. The full system will be in operation by 2030 and when complete, will be linked to the existing public bus network, as well as the proposed GCC rail network and BIA.

Regional integration The feasibility study to connect Bahrain and Saudi Arabia by rail was scheduled for completion by the end of January 2015. The

closure allowed the government to focus on work is part of the larger Pan-GCC railway improving the competitiveness of the flag network that is set to be finished in 2018. It will connect all of the GCC states along some carrier, Gulf Air, both regionally and globally.

Gulf Air is owned by Mumtalakat, the state 2000 km of track. The rail line will allow for holding company, though at one time it the shipment of goods from Kuwait City to the Indian Ocean port of Salalah in Oman, as operated as a joint venture and included stakes from the governments of Oman, Qatar well as handling passenger traffic. and Abu Dhabi.

Bahrain is also involved in a number Stiff competition from within the GCC has of efforts to improve logistics within the led Gulf Air to report losses region, such as the new in recent years. While it is not GCC Integrated Logistics yet profitable, its losses are Company authorised Between 2000 steadily shrinking. The airline in November 2013 by and 2012 the was BD89.5m ($237.18m) in the GCC Transport the red in 2013, down from Committee. The firm, transport and BD200m ($530m) in 2012. which will be established communications The carrier hopes to trim on a public-private losses even further to BD70m partnership (PPP) sector was one ($185.5m) in 2014, and it model and focus on of the three announced net losses were road freight shipping, down 30 per cent year-on-year Customs clearance, freight fastest-growing in first-half 2014. forwarding and insurance, sectors in Bahrain, It has sought to make was due to begin further gains by expanding operations in third-quarter along with the shifts from eight to 10 hours, 2014. When the inter-GCC service sector reducing its workforce from railway is completed, the 3800 to 2800 and training GCC Integrated Logistics and construction staff to perform maintenance Company will also expand tasks that were previously to include rail freight sector subcontracted. Gulf Air says it operations. has achieved a Bahrainisation rate of 65 per All GCC members have agreed to support cent as opposed to the 20 per cent national the company and it builds on the legacy of employment rate among other GCC carriers. similar initiatives. For example, both Gulf At the same time, the company continues Air and the United Arab Shipping Company to make strategic investments as necessary.

(UASC) were initially launched under a During the Bahrain International Airshow similar model as inter-GCC ventures. held in January 2014, Gulf Air signed a With the global container shipping market $100m maintenance, repair and overhaul characterised by over-supply, UASC has agreement with Rolls-Royce TotalCare for its taken advantage of falling ship construction six A330 planes in an extension of a previous prices to expand its container fleet. The service support deal inked in 2009. The deal new vessels will use liquefied natural gas focuses on technical maintenance services for (LNG) as bunker fuel so as to be able to jet engines within the Bahraini carrier’s fleet. call at ports with increasingly restrictive emissions standards for commercial shipping, particularly in Europe. To offset the ship Airport upgrade purchases, UASC plans to reduce its services Key to Gulf Air’s strategy is a focus on to Pakistan and India, where it faces stiff profitable short-haul flights within the competition, in the near future.

GCC. A short flight from all of the region’s capitals, Bahrain is seeking to capitalise on its geography by upgrading its airport handling Aviation capacity. BIA is currently undergoing a major The year 2013 brought about changes in upgrade, and by 2030 the country hopes the local aviation market in the form of the to begin work on a brand new airport on closure of local airline Bahrain Air. At the reclaimed land to the north of the present time it operated just four aircraft, and the

FEBRUARY 2016 23

facility. Since the airport sits on 5.6 sq km of land, much of it undeveloped, there is significant flexibility as to how the project will proceed, either by upgrading the main terminal while expansion is ongoing or building a temporary facility while the main airport is upgraded.

Currently, BIA sees on average 580 flights a week and its air traffic control manages 3500 flights that cross into Bahrain’s airspace weekly. The upgraded airport will also expand Bahrain’s capacity to handle air freight. Tonnage handling at BIA is forecast to grow by 2 per cent in 2014, with an average annual growth of 1.7 per cent expected until 2018 (see analysis). According to figures from the EDB, taken by itself the airport is expected to contribute 4 per cent of Bahrain’s GDP in 2014.

Port facilities The primary centre for maritime trade in the kingdom is KBSP, though the older Mina Salman still receives some callers and there is also commercial dhow traffic between Bahrain and South Asia. The 110-ha KBSP was completed in 2009 when APM Terminals assumed control of the facility under a 25-year management contract. APM took over from the Ports and Maritime Affairs Directorate, which now monitors protocol and safety regulations. Since winning the concession, APM Terminals has invested $62m into the development of the facility.

Bahrain, which completed its first modern port in 1954, was also the first country in the GCC to have a port with a crane terminal. Today, KBSP boasts four 61-metre post-Panamax cranes, each of which has an 18-stack reach. KBSP provides 1800 metres of total quay space, including a 900-sqmetre container terminal. While the facility has a capacity of 1m twenty-foot-equivalent units (TEUs), the port will likely handle 500,000 TEUs in 2014. Market researcher Business Monitor International projects the port’s total tonnage handled is likely to rise by 6 per cent in 2014, slightly higher than the annual growth forecast of 5.5 per cent over the next four years to 2018. In September 2014 KBSP received its largestever ship when a vessel carrying 6000 TEUs from South Korean freight services provider Hanjin called at the port.

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Expanding port access

LNG tankers to safely visit Bahrain. The dredging programme is set for completion in Bahrain’s maritime geography gives the port August 2015. a natural approach channel with a depth of The dredging of the facility and the 12 metres, and the harbour’s location also development of improved Customs means there are no speed restrictions. To clearing with Saudi Arabia, navigate the final stretch located just a few hours into the port, two pilot away by boat, could greatly boats are available around With the global improve Bahrain’s standing the clock to guide vessels container as a regional centre for into harbour. If needed, maritime logistics. Jubail, three Azimuth stern drive shipping market the largest industrial city in tugs are also available. characterised the Middle East, is only an To further expand access eight-hour journey for most to the port for larger by over-supply, freighters when loading freighters, a 65-km channel UASC has taken times are included, meaning will be dredged to a depth it is possible to have two of 15 metres. The project, advantage of shipments a week.“There which is the second phase is no waiting for berth at of a wider set of works falling ship KBSP,”Gerry Sharkey, project commissioned by the construction prices director of the Bahrain MTT’s Ports and Maritime International Investment Park, Affairs Directorate acting to expand its told OBG.“Bahrain really in conjunction with container fleet has the capacity to meet the the Ministry of Works needs of both importers and Municipalities and Urban exporters looking to target customers here or Planning, includes both the dredging and in neighbouring countries like Saudi Arabia.” disposal of dredging materials. The dredging Indeed, for ships docking at Dubai’s Jebel will also aid plans to open an LNG terminal Ali Port, sending cargo destined for Saudi in the next few years by allowing the largest

COUNTRY REPORT - BAHRAIN

example, there is the possibility of a flexible ticket system, in which tickets that are not used by a company on a given day could be allocated to a different operator. Another idea to reduce congestion would be to begin charging vehicles based on the number of passengers they are carrying. Drivers who use the causeway pay a BD2 ($5.30) fee, but no charges are imposed on passengers. Changes to this system could reduce congestion, but also risk deterring weekend tourism and carpooling. Expatriates who live in Bahrain often carpool to work in Saudi Arabia.

Facilitating movement

Financial Harbour, Manama, Bahrain

Arabia to Bahrain via feeder boats can reduce total transportation costs for Saudi imports by as much as 15 per cent to 20 per cent.

Boats can also be sent from Bahrain to Umm Qasr in Iraq, which, given tide conditions, can have a draught as shallow as 11 metres.

Causeway access During a 10-day Saudi Arabian school vacation in March 2014, some 770,000 people crossed the King Fahd Causeway. Though designed primarily for smaller vehicles, the causeway receives 30 transport trucks travelling from Saudi Arabia into Bahrain daily, while over 100 trucks move from Bahrain into Saudi Arabia. Of the 35 entry points into Saudi Arabia, the King Fahd Causeway has one of the lowest average entry times. It is not uncommon for goods whose ultimate destination is Saudi Arabia to be first unloaded at ports in the UAE and then be shipped to Bahrain via smaller vessels to clear Customs for Saudi Arabia via the King Fahd Causeway.

The King Fahd Causeway is jointly administered by both countries. While logistics companies told OBG that congestion on the causeway lessened in 2014, Bahrain is keen to increase efficiency. For

Another policy option would be to introduce a joint border control system between the two countries. A similar system already operates elsewhere in the GCC between Omani enclaves and the UAE. Currently, Saudi passport control officers often handle 2000 entry transactions in a single shift.

This high work volume has been linked to congestion. In January 2014 Saudi Arabia’s government pledged to open 18 new tollbooths in order to reduce congestion on the causeway.

The root of the problem may not be bureaucratic at all, but rather due to the fact that the 25-km causeway, which opened in 1986, has simply been outpaced by the economic growth in Bahrain and Saudi Arabia. Both sides are eager to expand the causeway, with one plan suggesting infrastructure be increased to as many as 45 entry booths.

Alongside options to expand the existing causeway, in September 2014 the rulers of the two nations together endorsed plans to build a second causeway. The new development, to be called King Hamad Causeway, is expected to facilitate further integration among GCC countries and support real estate, retail and industrial growth in Bahrain.

Operators Local logistics operators are hard to miss, with the bright pink vehicles operated by Al Wardi Group a distinctive sight in the kingdom.

There will soon be more of them transporting goods about the country, with Al Wardi announcing plans in 2014 to start producing trucks and trailers in Bahrain to keep up with increased business. The firm hopes to more

than double its current fleet of 80 trucks in the coming years. The expansion is just one sign that the local transport sector is growing.

The rise of Bahrain’s industrial sector should provide further opportunities for transport operators. For example, Mondelez International, a founding member of Bahrain International Investment Park, produces 110,000 tonnes of Kraft cheese and Tang powdered beverage per year. This single facility produces enough food product to fill 7500 shipping containers annually. The company is investing $90m in a new biscuit plant, which should further boost demand for distribution logistics.

Outlook With its main port less than five years old and the opening of the new Mina Salman Interchange, the kingdom has adequate infrastructure for its current needs. KBSP and BIA are well connected and roughly equidistant between the two is the Bahrain Logistics Zone, a licensed and bonded area designed to attract logistics companies (see analysis). As well as strong internal connections, Bahrain’s transport infrastructure facilitates access to the much larger market of its neighbour: the distance from KBSP to Saudi Arabia via the King Fahd Causeway is a mere 30-km drive, and the new interchange has reduced the average driving time from the port to the causeway to just 18 minutes.

Outside of the port and road network, Bahrain is still in the initial stages of a comprehensive plan to develop its public transportation and rail systems. Roads are also being expanded, while in the aviation sector an upgrade of the country’s main airport is now under way. The major work being carried out at BIA is designed to ensure its relevance until a new airport can be built by the end of the next decade. A far less expensive, but no less important, improvement is the upgrade to the King Fahd Causeway.

-This information was originally published

by Oxford Business Group (OBG), the global publishing, research and consultancy firm, appearing in the publication The Report: Bahrain 2015. For economic news about other countries covered by OBG, please visit http:// www.oxfordbusinessgroup.com/economicnews-updates

FEBRUARY 2016 25

Middle East

air cargo hotspot Demand for air cargo services are highest in the Middle East with 80 per cent of all demand coming from the region.

IATA’s report on the past year’s air cargo performance points out that the decline in demand is finally on its way out

T

he International Air Transport Association (IATA) released data for global air freight markets showing air cargo volumes (measured in Freight Tonne Kilometres) were down 1.2 per cent in November 2015, compared to November 2014. Total cargo volumes, however, expanded, compared to October 2015, and were higher than the low point in August.

This indicates that the decline in cargo demand may be bottoming out.

The negative year-on-year comparisons occurred across all regions with the exception of the Middle East. Of the major markets that together comprise more than 80 per cent of total trade, Europe was down two per cent, North America by 3.2 per cent, and Asia-Pacific by 1.5 per cent.

The comparative weakness in these regions was driven largely because the performance in November 2014 was very strong. Latin American and African markets also fell, by 6.4 per cent and six per cent respectively. The Middle East region posted 5.4 per cent growth.

“The freight performance in November was a mixed bag. Although the headline growth rate fell again, and the global economic outlook remains fragile, it appears that parts of Asia-Pacific are growing again, and globally, export orders are looking better. In fact, the downward trend in FTK volumes appears to be bottoming out. But there is a great deal of uncertainty. The current volatility of stock markets shows how much the health of the global

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COVER

FEBRUARY 2016 27

COVER

economy – upon which air cargo depends - remains on a knife-edge,”said Tony Tyler, IATA’s Director General and CEO.

(with Asia-Pacific and Middle East) to record positive year-to-date growth for 2015. Demand is holding up despite the underperformance of Nigeria and South Africa.

Air freight volumes in November were 1.2 Regional analysis per cent lower compared to a year ago, but Asia-Pacific carriers saw a slight fall in FTKs the year-on-year decline is mostly a result of a of 1.5 per cent in November compared to particularly strong November 2014. The trend November 2014, and capacity expanded 3.2 in FTKs during the past few months suggests per cent. Compared to October, volumes that earlier declines are now bottoming out, expanded by a strong 1.9 per cent. Over consistent with trade volumes stabilising. recent months, the declining trend in Air freight volumes are now higher than volumes has halted. Better demand in advanced economies is driving export growth the low point in August, which is consistent international trade stabilising after reclines in some countries, particularly in Japan. earlier in the year, mostly due to better European carriers reported weaker demand conditions in advanced economies. There was in November, down two per cent compared an increase of 0.9 per cent in FTKs volumes to a year ago, and capacity rose 2.2 per cent. in November compared to October.

Comparing November to October, the The year-on-year trend was flat, but there are comparisons were weak indications that stronger From the across all regions, except manufacturing and export for the Middle East, where orders could support air freight perspective of volumes were 5.4 per demand in the coming months. demand drivers, the cent higher. However, the North American airlines experienced a fall of 3.2 per underperformance downward pressure on growth trends has eased cent year-on-year, and capacity of major economies in some key regions. This grew 5.8 per cent. The market includes Asia Pacific, remains hard to read. A 0.4 per Nigeria and South where there was a 1.9 cent expansion compared to October indicates that air cargo Africa during parts per cent increase in FTKs carried in November could be recovering. But export of 2015 has been a compared to October. indicators are poor, making it The latest estimation hard to be optimistic for the challenge. of monthly volumes coming months. for Asia Pacific airlines suggests that the Middle Eastern carriers saw demand downward trend is bottoming out. Much of expand by 5.4 per cent, and capacity rise 9.2 that is a result of better demand conditions in per cent. Although the Middle East led the advanced economies, which are supporting way as the only market showing positive a slight pick-up in export growth in some growth, the rate fell to less than half the 11.9 Asian nations, like Japan. per cent average growth for the year-to-date.

By contrast, carriers in Europe didn’t see Falls in the oil price are impacting some any expansion in volumes in November. But economies in the region. improvements in Eurozone manufacturing Latin American airlines reported a decline and export orders are likely to support air in demand of 6.4 per cent year-on-year, and freight demand in the coming months for capacity expanded 1.9 per cent. Few positive carriers in this region. signals emerged from the markets in this Load factors increased in November by 0.6 region, with economic and political conditions per cent compared to October, supported by in Brazil particularly weak. The comparison the rise in volumes as well as a contraction with October also showed a 1.4 per cent in capacity. Load factors are still very low, contraction, and air cargo demand appears to however, and below 44 per cent on a be mirroring weaker consumer confidence. seasonally adjusted basis.

African carriers experienced a fall in demand The outlook for air freight and world of six per cent, and capacity rose by 6.6 per trade remains fragile, but there are now cent. Africa remains one of only three regions

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some more signs that earlier declines have bottomed out. Indicators in the Eurozone are looking better and globally, export orders have improved slightly. That said, it is too early to say if this cautiously positive development will be sustained, as the global economy remains fragile.

The year-on-year comparisons were weak across all regions, except for the Middle East, where volumes were 5.4 per cent higher. But the year-on-year declines are mostly a result of a particularly strong November 2014.

The downward pressure on growth trends has eased in some key regions. This includes Asia Pacific, where there was a 1.9 per cent increase in FTKs carried. In fact, the latest estimation of monthly volumes suggest that the downward trend is bottoming out.

Much of that is a result of better demand conditions in advanced economies, which are supporting a steady recovery in export growth in some Asian nations.

In Japan, for example, there has been a

steady increase in exports since mid-2015.

Trade export volumes for Japan were five per cent higher in November compared to May 2015. In addition, there have been improvements in export orders for China in Q4 compared to Q3. Typically, this would also indicate improvement in export activity in the coming two to three months.

By contrast, carriers in Europe didn’t see any improvement in volumes in November compared to October. But improvements in Eurozone manufacturing and export orders is likely to support air freight demand in the coming months for carriers in this region.

There was a negative bias on the year-onyear comparison due to Lufthansa strikes, but it is expected that the result would be weak even after these impacts.

Carriers in North America saw FTKs fall 3.2 per cent in November year-on-year, but there was an expansion in volumes in November compared to October.

Airlines in this region have experienced a

significant decline in FTK volumes since the boost from modal shift due to seaport congestion earlier in the year. Recent month-to-month results, including the 0.4 per cent expansion in November compared to October, suggest that weakness in volumes so far this year may be coming to a halt. That said, most recent readings of exports orders have been very close to indicating contraction, which doesn’t bode well for US trade export volumes.

In Latin America, the region’s carriers recorded another big fall, with FTKs down 6.4 per cent in November yearon-year. There was also a contraction of 1.4 per cent in November compared to October. With economic and political conditions in key economy Brazil worsening, regional trade activity has been very volatile over recent months.

That said, air freight demand on carriers in this region has shown little correlation with trade to/from the region. Rather, it

has mirrored the weakening consumer sentiment in the key economies.

African airlines, carrying a small part of worldwide FTKs, recorded a fall in FTKs of six per cent in November year-on-year.

From the perspective of demand drivers, the underperformance of major economies Nigeria and South Africa during parts of 2015 has been a challenge. However, with trade to/ from the region continuing to expand slowly, airlines in the region have seen expansion in FTKs for the year-to-date.

Continued steady growth in air freight volumes carried by Middle Eastern carriers throughout the year has resulted in FTKs being 5.4 per cent higher in November compared to a year ago. Major economies in the Middle East, including Saudi Arabia and the United Arab Emirates, have seen slowdowns in non-oil sectors, but the rates of growth remain robust and this should help sustain solid growth in air freight demand for local carriers.

FEBRUARY 2016 29

TECHNOLOGY

c i t a m o t u ni g a

Go

Autonomous trucks hold significant potential benefits for GCC countries, meeting both their vision and their economic needs.

GSC explores

T

oday, most freight moves through the countries of the Gulf Cooperation Council (GCC) by truck. Trucking companies benefit from artificially low commercial costs because of fuel subsidies, low driver wages, and minimal enforcement of regulations.

GCC countries absorb many negative effects of road freight, including pollution, accidents, and congestion. Virtually all drivers are expatriates, who transfer most of their income to their home countries, and so do not contribute to the GCC economy.

Autonomous trucks – driverless vehicles that operate independently – are an emerging technology with significant potential benefits for GCC countries, particularly given the region’s ambitious plans to shift to a knowledge-based economy, foster digitisation, and develop human capital. Manufacturers are making

notable progress in developing autonomous truck technology, with mass production possible in the next 10 to 15 years.

Although these trucks have higher up-front costs than manned vehicles, these expenses will likely be offset by reduced salary costs and increased operating efficiencies, with total lifetime cost savings of 15 to 20 per cent in the Middle East. Autonomous trucks can also create significant economic and social value for GCC countries. The technology will reduce the region’s reliance on expatriate labour, improve road safety, and create digital technology jobs and companies in the region.

Given the potential benefits of autonomous trucks, GCC governments have an opportunity to seize the initiative and begin creating the right conditions for their adoption. Even before manufacturers develop the technology, policymakers need a holistic strategy for the introduction

FEBRUARY 2016 31

TECHNOLOGY

of such vehicles, which includes legal, regulatory, and infrastructure elements. By taking action today, GCC countries can put the necessary structures and frameworks in place to support autonomous trucking – and become global leaders in the technology.

In recent years, governments within the GCC have launched major initiatives to shift

32 FEBRUARY 2016

to a knowledge-based economy, digitise industries, and create technology-based jobs for nationals. One critical area that many policymakers have not considered – but should – is cargo freight, and particularly the trucking industry.

Autonomous trucks, which are capable of sensing their environment

Although the Freightliner Inspiration can drive automatically on highways, a driver must be present to take control when the truck leaves highway conditions and automation is no longer possible.

TECHNOLOGY

and navigating without human input (using GPS technology, radar, sensors, cameras, and software) are currently in development. The technology holds particular promise for the GCC, as trucking is the predominant mode of freight transportation in the GCC. More than one million trucks are in operation, a number that increases by five to nine per cent each year.

One reason for this is that truck transport is artificially cheap. Government fuel subsidies reduce gasoline (petroleum) costs – one of the largest expenses of trucking companies – by at least 20 per cent. In some countries, subsidies may

reduce gasoline costs by as much as 60 to 80 per cent. Furthermore, a lack of regulation in the GCC contributes to artificially low operating costs for trucking companies. For example, although the maximum cargo load is limited to 45 tonnes, some countries do not enforce the limit, and trucks often carry up to 75 tonnes.

Drivers often exceed their maximum number of driving hours per day, exceed speed limits to get to destinations faster, and make more trips than allowed – whether to receive overtime pay or simply because their employer requires them to do so.

Companies cut corners on maintenance, and some trucks operate in conditions

FEBRUARY 2016 33

TECHNOLOGY

that would be unacceptable in most mature markets. As a result, trucks cause thousands of accidents in the GCC each year. Overall, accidents involving heavy trucks account for at least 10 per cent of road traffic fatalities, and cost up to US$ eight billion (AED 29380400000) per year in accidents and injuries, according to Strategy& estimates.

GCC governments have invested heavily to build railways, which offer a more cost-effective, safer, and environmentally friendlier alternative to truck transport. However, given the generally short distances involved in freight delivery, only 15 to 20 per cent of current freight cargo is expected to shift from road to rail.

Autonomous vehicles are already on the road. Experimental self-driving vehicles such as Google’s driverless cars have travelled more than one million kms on US highways since 2011. Car manufacturers, including Ford, Volvo, Toyota, Audi, BMW, and Daimler have announced plans for the mass production of autonomous cars in the near future. The first commercial driverless vehicles are likely to be trucks.

The development of autonomous commercial and industrial vehicles is far ahead of similar passenger vehicles.

Already, driverless trucks operate in closed environments: the mining firm Rio Tinto uses driverless trucks at its iron ore mines in Western Australia,

which are remotely controlled from 1,400 kms away in Perth.

In May 2015, the first autonomous truck, Daimler’s Freightliner Inspiration, was licensed to operate on a public highway in the US state of Nevada, and in autumn 2015, Daimler launched its first autonomous truck on German highways. Of course, the transition to fully autonomous technology will take time, and the Freightliner Inspiration is only the first step.

Although the Freightliner Inspiration can drive automatically on highways, a driver must be present to take control when the truck leaves highway conditions and automation is no longer possible, for example, when crossing busy interchanges or driving through populated areas. Moreover, these trucks may need to undergo a decade-long period of testing and further development before they can operate on a large scale. Most industry analysts expect that fully autonomous, driverless technology will be available for trucks by 2020, and take another five to 10 years to start mass production.

- Excerpt from Strategy&’s report titled ‘Trucking to the future: How GCC governments can open the road for autonomous trucks’. Authors: Dr Ulrich Kogler, Fadi Majdalani

Putting it into perspective GSC talks to Dr Ulrich Koegler, Partner, Strategy&, about the technology and the economic impact of autonomous trucks on the GCC Why is the MENA region poised to benefit most with the adoption of this technology?

Truck/road transport is a low, or even negative economic value adding activity in the GCC - Trucks are imported from overseas, fuel is mostly subsidised, the work force comprises almost entirely of low income expats remitting most of their income back home, weight limits are not well-enforced, leading to significantly higher wear-and-tear of the roads, and the cost of accidents are a substantial economic burden.

Across most of the negative factors, autonomous trucks are expected to generate significant benefits, such as higher asset utilisation requiring a smaller total fleet, higher fuel efficiency requiring less subsidised fuel, reduction in low-income work force, enabling of automatic weight limit enforcement, as well significantly lower rate of accidents, reducing the economic burden of fatalities, injuries and material damages In a Utopian scenario, what timelines would be ideal for the region to launch autonomous trucks? What needs to be done now, in order for mass production of these trucks to commence in 10-15 years?

The development of autonomous vehicles is in full swing with all major OEM’s as well as technology players pushing ahead across all mature markets. As such, autonomous vehicles will proliferate on fastest track possible anyway, as the economic interest in the technology is of global scale.

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TECHNOLOGY

manufacturing plants, or joint ventures with leading developers/OEMs.

The GCC countries will need to ask themselves: Given the significant benefits that the GCC will reap from the technology, do we want to be a front runner to deploy the technology or do we ‘just sit and wait until it arrives / is proven’?

The most important enablers to deploy the technology are the legal and regulatory frameworks. Manufacturers and users of autonomous trucks need to have certainty on rules, liabilities, risks, insurances etc. The questions that need to be answered from a legal and regulatory stand point are relatively clear by now. However, to develop and enact the respective framework needs time.

During the transition period – that is the time frame until the autonomous technology is fully autonomous in about 10-15 years – there will be assisted and/or semiautonomous vehicles still requiring a driver for exception handling or navigating off-highways. While even these vehicles will already generate significant socio-economic benefits, such as reduced fuel consumption, reduced accident rates, etc, they may not yet generate a direct benefit to the owner (as the vehicle will be more expensive as a conventional vehicle, but still would require drivers). GCC countries could encourage the usage of these semi-autonomous trucks, eg, by direct investment support or by enforcing the usage of the latest technology for all new trucks Further, GCC countries could actively support the development of the technology – while actually building an industrial basis for autonomous trucks in the GCC. This could entail a wide variety of initiatives – to name a few: direct or indirect R&D, and investment grants for research centres and

What kind of a startup investment are we looking at for companies, and when can profits be expected?

Based on early estimates, it is expected that autonomous trucks – once they are in mass production – will be about 25 – 30 per cent more expensive than conventional trucks. Taking the low wages of drivers in the GCC into account, it can be expected that these increased costs will have a pay-back time of roughly four to five years.

Dr Ulrich Koegler

With the regional governments already investing heavily in a connected rail system, would a heavy investment in this be particularly attractive?

Despite the necessity and benefits of deploying a connected rail system in the GCC, rail freight will have a limited share of all transport. In Europe, the rail freight share of total transport is less than 20 per cent, and even in the US, the rail freight share amounts only to around 40-42 per cent - given the coastal nature of the agglomerations in the GCC, it is expected that the rail freight share will be more likely similar to Europe. As such, the majority of freight transport will remain truck/ road transport. Hence, GCC countries will need to continue to invest in road infrastructure, and it is expected that the benefits of autonomous trucks will outweigh the incremental investments required.

How would, in your opinion, the developing hybrid vehicle industry and the biofuels industry, impact the autonomous trucks business?

Both technologies are completely

independent and will not impact each other. The availability of more ecological friendly propulsion technology will benefit conventional and autonomous trucks alike.

Digital technology jobs that the autonomous trucks industry is likely to create will range from what level of expertise from the top to bottom spectrum?

Autonomous trucks will require a plethora of new skills and capabilities, ranging from higher skilled mechanics and technicians for the maintenance, to remote fleet operators, engineers, software developers and managers. Further, they will indirectly induce new jobs in supporting industries – one could think of telecommunications for broadband availability along the roads, IT for data management, and application development/ management, as well as in cartography for providing highest quality/up-to-date GIS information.

Finally, should the GCC actually be able to become a front runner in the deployment of the technology, it may be able to build the industrial basis for autonomous truck development, engineering and manufacturing.

With such an industry, again, a broad variety of employment opportunities for highly skilled managers, developers, engineers and technicians will arise.

Will eliminating low value expatriate jobs really add to these countries’ GDPs? To what extent would there be an increase in GDP?

Autonomous trucks have a dual impact on the economy: they reduce direct costs (like fuel subsidies, cost of transport, maintenance of roads, etc), as well as indirect costs (like cost of fatalities and injuries resulting from accidents). Additionally, they allow to ‘on-shore’ more economic value, added by providing higher skilled employment opportunities for GCC nationals.

FEBRUARY 2016 35

Supply chain

granularity Granularity allows you to assess a company and its operation in pieces, allowing you to focus on the little things, which can lead to big changes to benefit the firm. Tom Craig, President, LTD Management and supply chain expert explains the concept in detail

36 FEBRUARY 2016

A

company is not homogeneous.

It has different granularity.

Granularity reflects the size of the units being assessed, whether large or small. For example, the United States is a country, so think of each state, and then counties within a state; each level reflects a degree of granularity.

For businesses, product categories may be considered coarse-grained and individual products can be fine-grained. Fine-grained, smaller units are the surprises of the analysis.

Granularity is a term often used with information technology related applications.

The firm’s granular content is defined by and within its different divisions or business units, if it has them; or by different department or product categories. It means looking deeper into a company to gain insights, especially with regards to smaller,

GUEST COLUMN

less recognised areas or products of the company. It means looking for the gold nugget among the rocks and gravel.

With granular analysis, the company can identify key performance areas to compete in. Profit contribution, return on investment, or revenue growth of divisions or product categories is a good way to assess the granularity of a company. The revenue, profit or return metric should be compared to overall GDP (gross domestic product) or some similar measure. Results that exceed the comparative measure are what need to be identified and exploited.

A granular review may find opportunities that traditional analysis could miss.

Conventional analysis often stays within the context of the present organisation, or within terms such as strategic or tactical. To some extent, such rigidity in approach can

predetermine the results of the analysis and overlook hidden drivers within the business.

With the granular analysis, the firm looks at customers, customer types, market segments, geographic regions, individual SKUs and other sub-levels. As a result, the company can find performance areas that they compete in, and in which they outperform. As such, it may identify areas within business units or product categories that are less emphasised by the overall company organisation or portfolio, and that may be otherwise overlooked. The company should then work to understand the opportunities, and focus on the identified and hitherto unrecognised areas or products.

Application in Supply Chain Managemen Granularity has value for supply chain practitioners and for 3PLs and other

logistics service providers. For supply chain management, it presents two options.

One is how to support and to effectively handle these fine-grained opportunities.

Two is the use granular analysis within the supply chain process, where there are likely granular opportunities.

The application in the supply chain support for fine-grained company opportunities can be challenging. Because this would involve costs to support smaller customers or markets.

Operations effectiveness often includes volume as a driver of velocity. This can be seen, for example, in the transit time of a truckload of products versus a less-than-truckload shipment or a parcel-size shipment.

This method also stays within traditional accounting practices where cost spread over more units means lower costs per unit.

Similar implications are with warehousing

FEBRUARY 2016 37

GUEST COLUMN

large volumes or picking large orders. Such issues need to be recognised before the specific supply chain support for the company’s granular growth or related opportunities are developed and implemented.

In the second application, for example, the analysis can begin with the firm’s assessing the first level, the inbound supply chain. Then it looks at the next level, imported products and orders. Then to imports from a certain geographical region.

The supply chain practitioner then looks at the container movements. Then at the ocean carrier and/or freight forwarder who handled the container. Nothing is outstanding there. There are nominal differences among the logistics providers. He then looks at it as inventory priority-A, B and C. That review may be masked by the performance of the logistics service providers.

So another cut is done by the supplier instead. This part of the analysis shows a supplier that ships its orders 100 per cent on time. That is good for the company. Overall suppliers have been shipping about 50 per cent of the orders on time, with some having a supplier performance as low as 30 per cent on time. Here is that gold-nugget among the gravel.

Now one must learn more about that supplier, and why his performance is better than the others. This result can be important to the supply chain, and to the company. Not shipping orders on time to the firm affects customer service by not having the required products available for sale, by having too much overall inventory on hand, and, at the same time, having certain product(s) out of stock, impacting warehouse picking and costs with the extra travel time to move inventory around.

A review of the outbound supply chain may show a carrier that is outstanding overall or in certain routes. A certain warehouse or

38 FEBRUARY 2016

labour shift may perform at near mistake-free levels of operation. Process transitions within distinct organisation segments may be quick and flawless. Such operations analysis reveal opportunities for discernible benefits, and the potential for adapting and expanding them.

For logistics service providers There are also two values of granular analysis for 3PLs and other logistics service providers.

One is the benefit of finding opportunities in its own organisation as to market or logistics segments or other sub-levels. A global 3PL may disaggregate his scope and find unrealised opportunities in a geographic region or in a select market. A freight forwarder may find them in certain trade lanes.

Two is for the provider to understand what it can mean to a customer in developing and delivering services that more closely match their real requirements.

Logistics service providers, or with the assistance of a consulting firm, can offer to do a granular assessment for customers.

The end result would be to create a value proposition with a customer that goes beyond standard definitions as to freight costs or other criteria, a proposition that is stronger than such criteria, and makes the provider an integral part of that customer’s logistics needs and operations.

Conclusion Granular analysis can yield benefits to all companies, regardless of their industry or service.

It is good for wholesalers, manufacturers and retailers, and for their company’s supply chain.

It is likewise good for 3PLs and other logistics service providers. Granularity does not follow the usual ways of looking at a company or its operation based on its organisational structure and sales because these approaches can overlook smaller opportunities that can be developed to create a larger impact.

Tom is a leading supply chain and logistics consultant with LTD Management. He has real-world logistics and supply chain experience.

He provides consulting for 3PLs and other logistics service providers to develop and execute strategy, create value proposition/ unique selling proposition, positioning, blue ocean strategy, and service / market segmentation that improve customer retentions, increase margins, and grow the business.

Craig has practical supply chain experience with major corporations, including General Electric, Abbott Laboratories and 3M. Craig has written over 70 articles on supply chain management and logistics.

In addition he has spoken at conferences worldwide, including England, Singapore, China, Hong Kong, UAE, Chile, Panama, and Nigeria. He has also conducted a master class programme in supply chain management in China for Chinese companies and is on the advisory board of the Logistics & Supply Chain Management Society in Singapore.

Tom Craig has an MBA from The Pennsylvania State University, which has the leading supply chain programme in the U.S. Contact: tomc@ltdmgmt.com

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FEBRUARY 2016 39

Making investments

count The continuing slide in oil prices has certainly caused difficulties for Oman, but that hasn’t stopped the Sultanate from continuing its exploration and production activities, finds GSC

40 FEBRUARY 2016

OIL AND GAS OMAN

T

he continuing slide in oil prices (down 40 per cent from their peak last year) has undoubtedly caused difficulties for Oman as the drop in oil revenues impacts on the national budget, translating into lower public spending and associated difficulties for the oil and gas industry. However, this trend hasn’t stopped the Sultanate from continuing its plans to markedly increase exploration and production activities related to oil and gas.

On the contrary, Oman hopes to invest heavily in the discovery and development of new fields with a heightened importance on enhanced oil recovery techniques and efficient operational support structures. State majority owned An increasing Petroleum Development Oman number of (PDO) is at the forefront of issuing tenders to support ongoing tenders relate to Engineering Procurement and Construction (EPC) projects within the provision of the oil and gas and petrochemical technical services, industry. PDO has continued to support plans to invest USD 5.2 monitoring billion (AED 19097260000) every technologies year, between 2012 and 2016, in order to increase production capacity and and knowledgeoperational efficiency. based solutions Many of the current EPC project that are designed tenders take the form of providing the required materials for the to mitigate development of existing greenfield and brownfield assets, as well as the operational discovery of new fields. However, losses through an increasing number of tenders relate to the provision of technical efficient and services, monitoring technologies and knowledge-based solutions that effective project are designed to mitigate operational management losses through efficient and effective project management. There is a wealth of EPC project opportunities in Oman, which is reflected by the increasing number of foreign players in the market who are winning major contracts.

Top Tenders for PDO’s Upcoming EPC Projects Provision of Well Intervention Services

Planned Tender Year: 2015 Tender Quarter: Q4 Planned Award Year: 2016

Award Quarter: Q2 Main Project Requirement: Well completion services Project Value: USD 50 million to USD 200 million (AED 183.6 million to AED 734.5 million) Project Details: Every year, PDO carries out over 13,000 well maintenance and oil reservoir management activities, while delivering the completion of approximately 450 new wells to fuel Oman’s heightened oil production capacity.

The Well Engineering Department accounts for almost a third of PDO’s annual spend, as it is responsible for the design, construction and maintenance of new and existing wells.

The department’s recent analysis of the overall state of Oman’s producing wells has determined that many require well intervention services to extend their lifespan and/or access untapped reserves. In addition to providing intervention services, this tender is for the completion of many of the new wells planned for implementation in 2016 at advanced exploration sites.

Provision of Cementing Services

Planned Tender Year: 2015 Tender Quarter: Q4 Planned Award Year: 2016 Award Quarter: Q2 Main Project Requirement: Provision of cementing services Project Value: USD 50 million to USD 200 million (AED 183.6 million to AED 734.5 million) Project Details: Accurate and efficient cementing is essential to the ongoing safety and sustainability of oil wells, as high-quality cement supports and protects well casings and helps achieve zonal isolation. This prevents casing failure and keeps wellbore fluids from contaminating freshwater aquifers. Ultimately, effective cementing is critical to the creation of safe, secure and profitable wells that have minimal levels of ecological impact.

The basic factors engineers and operators must consider for successful cementing jobs have not changed in more than 50 years, but the requirements for providing reliable and effective cementing services remain significant. As PDO prepares to drill hundreds of new wells in 2016, tenders of this nature are

FEBRUARY 2016 41

designed to secure the cementing services of providers that are capable of delivering on all critical project particulars of timing, reliability and quality.

Personal Commuting of Services

Planned Tender Year: 2015 Tender Quarter: Q3 Planned Award Year: 2015 Award Quarter: Q4 Main Project Requirement: To establish umbrella contract to commute PDO staff and contractors between interior and coast using speculated vehicles Project Value: USD 50 million to USD 200 million (AED 183.6 million to AED 734.5 million) Project Details: As Oman’s new oil discoveries create a wider and more extensive oil production network, the logistical requirements of the industry are also becoming more complex and involved.

This is a tender to consolidate and leverage three existing contracts to provide ongoing commuting logistics support to PDO’s staff

42 FEBRUARY 2016

and contractors, in order to make their work on Oman’s coast easier and more efficient.

PDO is creating an extensive range of commuting hubs, with ‘pick up’ and ‘drop off’ points for employees who reside more than one hour’s drive from their primary interior work location. However, the use of various contracted bus companies has led to an uneven provision of transportation services for some coastal works, which PDO wishes to rectify with this tender.

Khulud Tight Gas Development

Planned Tender Year: 2015 Tender Quarter: Q2 Planned Award Year: 2015 Award Quarter: Q4 Main Project Requirement: EPC (OffPlot and On-Plot) of tight gas resources in Khulud area Project Value: Over USD 200 million (AED 734.5 million) Project Details: Oman has relied on the discovery and production of heavy crude

oil for decades, but as its economic needs diversify, it looks increasingly towards the production of natural gas to reduce the need to secure expensive gas imports for its gasfired power plants.

Back in 2010, PDO implemented a wideranging exploration campaign to secure new oil and gas deposits in Central Oman. The result was a series of valuable discoveries, including Khulud, which is one of the deepest, tight gas fields in the world at over 5,000 metres deep.

The tender is for the beginning of the next challenging phase of Khulud’s development.

In addition to the exceptional depth of the reservoir, Khulud is surrounded by extremely tight rock formations that require advanced monitoring, analysis and drilling technologies in order to develop the area’s fields further.

Rabab Integrated Permanent Camp

Planned Tender Year: 2015 Tender Quarter: Q2 Planned Award Year: 2015 Award Quarter: Q4

OIL AND GAS OMAN

Main Project Requirement: Construction of Operational Camp at Rabab Harweel area Project Value: USD 50 million to USD 200 million (AED 183.6 million to AED 734.5 million) Project details: In 2013, PDO made the decision to invest further in the Rabab Harweel Integrated Project (RHIP) in the South of Oman. This was done in furtherance of the Sultanate’s objective to increase its natural gas production by 10 per cent from 103 million cubic metres per day (cm/d) in 2013, to 114 million cm/d in 2014. Now, as the existing fields of RHIP are developed further, the construction of a permanent integrated operational camp is required by PDO in order to provide adequate logistical support to staff and contractors involved in the ongoing project.

Water Treatment Chemicals Planned

Tender Year: 2015 Tender Quarter: Q4 Planned Award Year: 2016 Award Quarter: Q4 Main Project Requirement: Provision

of required chemicals for aqueous water treatment Project Value: USD 50 million to USD 200 million (AED 183.6 million to AED 734.5 million) Project Details: The expanding network of greenfield and brownfield developments in Oman has increased the requirement for water treatment chemicals that will minimise the environmental impact of ongoing oil and gas exploration/ production activities. By treating and repurposing water generated by the sector’s activities, PDO is looking to improve their long-term operational sustainability.

“The objectives of oil and gas produced water treatment include meeting discharge regulations (local, state and federal), reusing treated produced water in oil and gas operations, developing agricultural water uses, rangeland restoration, cattle and animal drinking water, water for human consumption, and meeting water quality requirements for miscellaneous beneficial uses.”- J Arthur, B Langhus and C Patel, Technical Summary of Oil and Gas Produced Water Treatment Technologies.

Enhancing the Omani oil and gas sector’s ongoing activities through EPC projects The selection listed above outlines just a fraction of the current and upcoming EPC tenders being released by PDO, representing billions of dollars of investment in Oman’s expanding oil and gas sector. In order to provide reliable and effective support to the ongoing exploration and production activities – while at the same time preparing for the discovery and creation of new wells – PDO has an ever-expanding list of logistical and technological needs. From well placement, testing, intervention and completion, to the provision of cementing services, water treatment and transportation, there is a rapidly widening window of opportunity for the industry’s solution providers to secure significant investment from PDO and Oman itself.

- This report is brought to you by the 5th Annual Oman EPC Projects Conference taking place in Muscat from February 22-25, 2016. Visit www. omanepcprojects.com for more details.

FEBRUARY 2016 43

DIVERSIFYING ECONOMIES

GCC’s demand for iron and steel

With fluctuations on the oil front, GCC economies have started developing their non-oil sectors, like infrastructure, health, and education, fuelling the iron and steel industry as well

T

he GCC economies have had a good run over the last few decades due to the constant inflow of funds from oil exports. However, recently, these economies have started developing their non-oil sectors through higher spending on infrastructure, health, and education, among others. Trade liberalisation and FDI are also new areas of focus.

The constant fall in US oil imports from GCC, the economic slowdown in Europe, a lull in the refining sector, and reduced demand in China have all resulted in a significant drop in global oil prices, a trend which could continue for some time. While countries such as Saudi Arabia and the UAE have enough foreign exchange reserves and sovereign wealth fund investments to withstand a prolonged decline in oil prices, other GCC economies may find it harder to weather

a prolonged down cycle. This will affect government investment plans in non-oil sectors, which are mostly funded by petro-dollars.

While non-oil sectors have helped GCC economies in keeping GDP growth rate above the three percentage mark, oil price declines have drastically pulled down oil GDP growth. After flat yearon-year growth in real GDP in 2014, the GCC region’s GDP growth is expected to decline marginally to 3.2 per cent in 2016.

The drop in oil prices is cut GCC’s energy export receipts from US$ 743 billion (AED 27,287 billion) in 2012 to around US$ 410 billion (AED 1,505 billion) in 2015, leading to deficit in fiscal balance for most GCC economies.

The consolidated fiscal balance of the GCC region declined from a surplus of 4.8 per cent of GDP in 2014, to a deficit of 7.5 per cent of GDP in 2015. Despite these headwinds, GCC will remain the key

FEBRUARY 2016 45

DIVERSIFYING ECONOMIES

driver of growth in the MENA region with the GCC growth outpacing the rest of the MENA economies. Although investments in various projects will continue, the spending would be more selective, with strategic projects gaining priority.

Country overviews Saudi Arabia, the largest GCC economy, has been fairly successful in lowering its oil dependency to 43 per cent of GDP in 2014 from 60 per cent in 2007. Manufacturing activity has also grown strongly compared with other growth markets, led by higher non-oil private sector activity. In 2014, GDP growth in construction (seven per cent), manufacturing (eight per cent), hotels (seven per cent), Government (six per cent) and

46 FEBRUARY 2016

transport (six per cent) mitigated the impact of the meagre one per cent growth in oil sector GDP. The UAE, the second-largest GCC economy, has already diversified away its economy from oil to a large extent. The country also boasts of a highly diversified sector portfolio. Many of these sectors have recorded GDP growth numbers: financial services (12.5 per cent), government services (10.9 per cent), transport (eight per cent), wholesale and retail trade (5.6 per cent), construction (seven per cent), and hotels (5.6 per cent) were some of top performing sectors in 2014.

Qatar, the third-largest GCC economy, clocked double-digit growth until 2011, propelled by high gas production and

exports. However, after 2011, the economy slowed down due to a moratorium on further development in the North Field, leading to reduced gas production. Under its 2030 development plan, Qatar has earmarked more than US$ 200 billion (AED 734.5 billion) for various infrastructure development projects.

The construction sector recorded the highest growth in 2014 (18.1 per cent), followed by trade, restaurants and hotels (14.3 per cent), finance (12.3 per cent), domestic services (9.2 per cent), and agriculture and fishing (8.2 per cent).

Among all GCC economies, Kuwait and Oman have been the most affected by the declining oil prices, with 2014 GDP growth percentage dwindling to 1.3 per cent and 2.9 per cent, respectively. The government

DIVERSIFYING ECONOMIES

is leading investment efforts in Oman as Public and Government sector grew 14.4 per cent in 2014. Bahrain’s economy has also been impacted by the slump in oil sector.

Construction (7.1 per cent), agriculture (4.2 per cent) and utilities (4.2 per cent) were among the top performing sectors in 2014.

MENA Crude Steel Production Historically, Iran and Egypt have been the main steel production hubs in the MENA region. But the rapid development in GCC countries, especially high infrastructure spending, is resulting in huge steel demand from these economies. This has resulted in many new steel plants being set, as well as expansion plans and joint ventures coming into existence in the steel sector in the GCC

countries, especially Saudi Arabia, Qatar and investments will flow into sectors such as the UAE. infrastructure, construction, real estate, and Saudi Arabia and the UAE are the key crude hotels. This would drive demand for steel. steel producers in the GCC region, together As a result of huge construction and accounting for about 75 per cent of the total infrastructure spending, the per capita value of crude steel production in the GCC during the GCC’s construction industry will increase 2014. The UAE is the second-largest producer, from US$ 2,045 (AED 7,510.36) in 2014 to US$ behind Saudi Arabia, and is expanding 3,256 (AED 11,957.82) in 2020, dwarfing even capacity rapidly. From just 0.5 million tonnes China’s per capita value of US$ 473 (AED in 2010, the country increased its production 1,737.12) in 2014 and US$ 680 (AED 2,497.33) to about 2.4 million tonnes by 2014. in 2020.

Saudi Arabia was one of the early movers in As of 2013, Saudi Arabia (total usage 13.700 the GCC, with Saudi Iron and Steel Company, million tonnes), the UAE (7.859 million the first fully integrated steel tonnes) and Qatar (2.182 million producer in the country, tonnes) were the major steel starting production in 1983.

Manufacturing consumers in the GCC region.

Currently producing close GCC countries are expected activity has to six million tonnes, the to remain major consumers of company plans to reach an steel products going forward, as also grown output capacity of 10 million they continue to invest heavily strongly tonnes by 2025. in various sectors to boost their The largest steel plant in compared with diversification efforts. the UAE is Emirates Steel As per MEED database, the other growth Industries (ESI). Established total value of infrastructure and in 1998 to meet the growing markets, led by capital projects planned in the demand for quality steel GCC in 2015 was US$ 172 billion higher non-oil (AED 631.6 billion), the highest products for the UAE’s fast developing construction on record to date. Despite the private sector sector, ESI is the only backdrop of falling oil prices, significant domestic supplier infrastructure development is activity of deformed reinforcing gaining pace due to the rising steel bars. Following two focus on diversification, driven by expansions involving an investment of AED the rising youth population in the GCC; 50 per 11 billion (US$ three billion) in 2012, ESI now cent of the GCC population is under 25 years has a total capacity of 3.5 million tonnes per of age. Currently, projects worth about US$ 2.8 annum. trillion (AED 10.3 trillion) are in the execution In recognition of all the infrastructure and pre-execution phase, of which 40 per cent and real estate development in the GCC relate to residential, leisure and hospitality region, investments are pouring in to bolster buildings and mixed-use developments. regional steelmaking capacity. In 2015, GCC will have the capacity to produce 18 million Projects in key economies metric tonnes per year of rebar, three million maintaining momentum for Iron metric tonnes per year of wire rod, and three and Steel industry million metric tonnes per year of structural Saudi Arabia: Saudi Arabia has seen the sections. The governments in the GCC largest number of projects in the GCC since countries are also providing various incentives 2009. The government’s strategy to increase to foreign investors in the manufacturing public expenditure, particularly in housing, sector, including low or nil corporate tax, full education and healthcare projects, has led to repatriation of capital and profits to stimulate a constant flow of contract awards. Based on steel production. the pipeline of announced projects, the largest share of projects by value will be held by the Mecca Province (37 per cent), followed by the Steel consumption Eastern Province (18 per cent). Riyadh has the As the GCC countries take active measures largest share of commercial and water projects, towards diversifying their economies, more

FEBRUARY 2016 47

DIVERSIFYING ECONOMIES

while Mecca has the largest share of industrial, residential and transportation projects.

UAE: While the global financial crisis and the real estate crisis in Dubai brought the projects market to a near standstill in 2009–10, signs of a recovery were seen in 2013-14, reinforced by Dubai’s successful bid to host the Expo 2020, announced in November 2013. In the run up to the Expo 2020, large-scale investments in infrastructure, hospitality and commercial projects are likely to spur steel demand.

Qatar: The country is investing in railroads as it plans to host the 2022 FIFA World Cup. In Qatar, the two largest projects in the preexecution phase and expected to be awarded in 2015 are from QRail (US$ 15 billion / AED 55 billion) and from QIRP, whose Passenger and Freight Rail: Phase 2 is budgeted at US$ three billion (AED 11 billion).

GCC Iron and Steel demand drivers Automobiles

High disposable income of individuals in GCC make this region a major consumer of cars and trucks, most of which are all currently imported. For example, Saudi residents are expected to buy up to one million cars a year by 2020. Against the backdrop of this strong demand, GCC economies have planned major automobile plant developments.

In Saudi Arabia, the Saudi Malaysian Industrial Development Holding Company has invested US$ two billion (AED 7.35 billion) for a new plant at Damman, for the manufacture of a locally processed car named Meeya, while Daewoo International is planning to set up a factory in Sudair, which will produce 150,000 cars.

In the UAE, Abu Dhabi’s government has initiated the development of The Auto City in the Mussafah area - this city would house a cluster of advanced workshops and service centres. Steel, accounting for nearly 70 per cent of the raw material requirement in passenger cars, would witness significantly higher demand in the GCC for the development of the automobile sector in the GCC. Railway

Until recently, most of the trade logistics requirements of the GCC region were met through ports, whereas passenger traffic was

48 FEBRUARY 2016

managed through the road network. Rail network, while existent, does not yet have a wide coverage.

However, as economies develop, the need for a proper railway infrastructure is increasing. Also, maritime piracy and threats of closure of the Hormuz Strait further point towards the need for an effective rail infrastructure, which can connect all the member countries of GCC internally, as well as to other Middle Eastern countries.

The GCC governments are consequently embarking on ambitious rail network expansion plans. For example, Dubai Metro Project, which was conceived and executed in a short span, triggered a series of similar projects in the Gulf. The most ambitious railway project among these, spanning all six GCC nations, is the GCC Railway Network, slated to be operational by 2020. With almost every component in rail infrastructure being made of steel, the development of rail infrastructure in GCC will result in a huge demand for the output of GCC steel plants.

Industries that will drive steel demand Petrochemicals GCC has planned various projects to become the global petrochemical hub by 2020, including Yanbu Integrated Refinery and Petrochemical Complex (US$ 20 billion / AED 73.5 billion), Sadara Petrochemical Complex (US$ 10 billion / AED 36.7 billion) joint venture of Saudi Aramco and Dow Chemical Company), Petro Rabigh Phase II (US$ seven billion / AED 25.7 billion) joint venture of Saudi Aramco and Sumitomo Chemicals), and Ras Laffan Olefin Complex (US$ six billion / AED 22 billion), among others.

Demand emanating from the development of new pipeline networks is leading to higher demand for iron and steel. As of 2013, GCC accounted for 34 per cent of the global demand for pipes, with new GCC pipeline networks estimated to require over 5.3 million tonnes (US$ 7.2 billion / AED 26.4 billion) of steel pipes over the next five years (2017).

Real Estate The real estate market in the Middle East is slated for solid growth, mostly due to rapidly

rising population, nuclear family set up, and higher levels of disposable income. The resulting demand for new homes is driving demand for steel. The most prominent among the GCC real estate markets is Dubai, which had a solid run during 2005–09. However, the global financial crisis brought this market to a standstill. Fortunately, the market has now emerged from the lows, and Dubai is outperforming real estate markets around the world.

Similarly, in Saudi Arabia, Riyadh’s real estate market has been showing healthy signs of growth in residential and retail real estate segments. A booming real estate market

DIVERSIFYING ECONOMIES

augurs well for the iron and steel industry as rising real estate construction will drive the demand for iron and steel.

Construction – Economic and Industrial Cities GCC is expected to witness exponential growth in its economic and industrial cities by 2020. Several large-scale projects are either planned or underway, including Saudi Arabia’s King Abdullah Economic City (US$ 93 billion / AED 341.5 billion investment), Sudair Industrial City (US$ 40 billion / AED 146.9 billion), Jizan Economic City (US$ 27 billion / AED 99.1 billion), Ras Al Khair Industrial Complex (US$ 30 billion / AED 110 billion), and Industrial cities of Abu Dhabi (ICAD I, II

& III). The iron and steel industry will witness huge demands from these projects.

Low Energy Cost In steel making, energy costs constitute up to 40 per cent of the final finished goods, making the availability of low cost energy a vital factor to the success of a region’s steel sector. GCC member countries control 42 per cent of the world’s proven oil reserves, and 25 per cent of proven natural gas reserves.

Natural gas prices in GCC region ranges US$ 0.8 – 1.5 (AED 2.94 - 5.51) per million British thermal units (mmbtu), much lower than the global average of US$ four to six (AED 14.69 - 22.04) per mmbtu. This has helped this region to make gas-based, direct-

reduced iron (DRI) as the major raw material source for steel production.

GCC also offers quality electric power at the cheapest tariff in the world (US cents 3.2/ kWh in Saudi Arabia, US cents 3.8/kWh GCC average, US cents 8.5/kWh global average).

This makes GCC an ideal location for setting up electric arc furnace (EAF) steel plants.

An additional benefit of the EAF process of steel-making is that it is less capital intensive as compared to the conventional steelmaking technology based on blast furnace – basic oxygen furnace (BF-BOF).

-An excerpt from a report titled MEED Insight Report on 2016 Middle East Iron and Steel Industry. Commissioned by Sohar Port

FEBRUARY 2016 49

UNWIND

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February 2016 Issue 23

ENHANCING THE BUSINESS OF LOGISTICS

Supply chain granularity Rethinking the business

Autonomous vehicles How and when?

Gulf Air Future strategy

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1/30/16 17:08

FINANCIAL REPORT

Steady growth G

ulf Warehousing Company (GWC) (QSC) concluded 2015 on a high note, recording a strong and stable rate of growth of 32 per cent in its net profits, achieving QAR 185 million, as compared to QAR 140 million at the end of 2014.

The company’s revenue streams had an equally consistent rise, with total revenues peaking at QAR 787.9 million at the end of 2015, a remarkable 20 per cent increase from 2014. Earnings per share rose to QAR 3.89 by the end of 2015, shaping an increase of 32 per cent compared with the 2014 results.

GWC Board of Directors has approved a recommendation to increase the company’s foreign ownership limit to 49 per cent from the current level of 25 per cent, which shall also be presented for approval during the Extraordinary Assembly General Meeting to be held this month.

“Thanks to the business strategies we have developed, as well as the strong foundations formed by our robust infrastructure and our human capital, the company stands strong today,” stated GWC Chairman Sheikh Abdulla bin Fahad bin Jassem bin Jabor Al Thani, adding,“Our commitment to the tenets of the Qatar National Vision 2030 provides us with the direction needed to achieve our purpose; remaining the provider of choice for logistics services in Qatar, and thereby ensuring the best possible returns for our shareholders.”

The company’s asset base grew steadily throughout 2015.

The company reported an annual growth rate of 42 per cent in total assets, rising to QAR 2.980 billion in 2015, where the RLIC West Side Service Area (WSSA) facility is nearly complete, and is

GWC ends 2015 with a 32 per cent growth, finds GSC

Sheikh Abdulla bin Fahad bin Jassem bin Jabor Al Thani, Chairman, GWC

on schedule to be operational in Q1 2016, offering 15,000 sq metre warehouse with specialised HAZMAT logistics specifications, in addition to open yard, bulk, and ISO Tank storage in the remainder of the facility. The Phase V development at the LVQ is also well under way, offering two new distribution centres, accommodation buildings, and a mosque to be launched in Q2 2016.

The company has also dedicated itself to rapidly develop the GWC Bu Sulba Warehousing Park, supported by Manateq, and is well on schedule to deliver the facility in Q1 2017, with levelling and compacting operations completed, and construction of the infrastructure and superstructures underway.

The company’s various service offerings meanwhile ensured reliable revenues throughout the year, with GWC’s contract logistics, freight forwarding, RMS and IMRS particularly capturing the majority of the market share in the State of Qatar, scoring key contracts in a variety of industries in both the public and private sectors. The company’s other offerings also performed strongly, with GWC Sports delivering the

FEBRUARY 2016 51

FINANCIAL REPORT

logistical requirements for nearly all the major sporting events in Doha during 2015, as well as the newly added GWC Equestrian solutions.

The addition of courier services run

by UPS in the State of Qatar has been achieving its targets.

Further contributing to Qatari society, GWC participated in a number of charity and volunteering events both locally and internationally, relying on strategic partnerships with specific social responsibility organisations. With the Youth Company, the company sponsored the ‘My Qatar’ photo exhibition, held in 2015 under the patronage of the Ministry of Environment, as well as the Iftar charity programme, the Hasanat Olympics, which it had supported for the second consecutive year.

GWC also supported the Hamad Medical Corporation (HMC) during their annual blood drive, an initiative the HMC rewarded by honouring GWC at the corporations’ World Blood Donor Day. Among the major events that GWC participated in 2015, however, was the Fifth Securing Sports Conference – New York 2015 through its support of the ‘Save the Dream’ programme, a joint initiative by the Qatar Olympic Committee, the International Centre for Securing Sport, and the Allessandro Del Piero Foundation, working to assure a sports culture free of corruption, violence, and discrimination.

“As a Qatari shareholding company, and a corporate citizen, we work hard to ensure that the company moves in line with the direction taken by the rest of the nation,” stated Sheikh Abdulla bin Fahad bin Jassem bin Jabor Al Thani Chairman of GWC.“We will work diligently to find all opportunities for development and growth within the current economic climate, thereby recompensing our stakeholder’s investment and trust in us,” he concluded.

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FINANCIAL REPORT

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TRANSPORT

Planned

growth Daimler Trucks sells over half a million trucks in 2015, achieving its targets, and opening doors for new markets and ventures, most notably, Iran.

GSC finds out more.

D

espite partly difficult markets, Daimler Trucks has increased its global sales to over 500,000 units in 2015. In 2014, Daimler Trucks sold 495,700 vehicles worldwide under the Mercedes-Benz, FUSO, Freightliner, Western Star, Thomas Built Buses and BharatBenz brands. The final sales figures for 2015 will be presented in February, 2016.

Daimler Trucks has achieved its goals in spite of a very heterogeneous and challenging market environment. Although truck markets in North America and Europe grew significantly, the important markets of Brazil and Indonesia slumped. Also, in Turkey, the market decreased during the last few months

Dr. Wolfgang Bernhard, Member of the Board of Management of Daimler

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TRANSPORT

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TRANSPORT

due to political insecurities. In particular, in November and December, market conditions have further deteriorated significantly.

Nevertheless, Daimler Trucks managed to reach its sales target, thanks to strong products and an excellent performance in sales.

Dr Wolfgang Bernhard, member of the Daimler Board of Management, responsible for Daimler Trucks and Buses, commented,“In 2015, we have increased our unit sales for the third year in a row. This is a great achievement by our global team. I thank all employees for their outstanding efforts. Thanks to our leading products, we will deliver one of the best years in the history of Daimler Trucks. Conditions in the truck market will remain challenging in 2016.

Nevertheless, our sights remain set on our next sales target of 700,000 trucks in 2020.”

Bernhard continued,“To sit back is not an option for us. We remain focused on the implementation of our strategy. For this

56 FEBRUARY 2016

purpose, we will again demonstrate our technology leadership in the IAA year 2016.

For example, we will proceed with important developments in terms of vehicle connectivity, but also when it comes to efficiency, active safety and autonomous driving. We are also expanding our global presence, and will get even closer to our customers with six new regional centres. And I see large potential in expanding the global platform strategy beyond just the powertrain.”

Greater global reach with six new regional centres Going forward, Daimler will position itself even more closely to its customers in Africa, Asia and Latin America so that it can benefit from the opportunities for growth in these highly promising markets. In October 2015, the first of the six planned regional centres was opened in Dubai. These centres will focus

entirely on sales and after-sales for Daimler commercial vehicles.

In the first quarter of 2016, further regional centres will open in Kenya for central Africa, in Pretoria (South Africa) for southern Africa, and in Singapore for South East Asia. These new regional centres will enable Daimler to respond even faster and in a more targeted manner to the needs of customers in these markets.

Daimler Trucks arranges for return to the Iranian market “Daimler commercial vehicles have always had an excellent reputation in Iran. And right now, there is a huge demand for commercial vehicles, especially trucks. We will quickly resume our business activities in the market. Our letters of intent with our local partners IKD and Mammut Industries are important pre-requisites to resume business quickly,” informed Bernhard.

TRANSPORT

These new regional centres will enable Daimler to respond even faster and in a more targeted manner to the needs of customers in these markets.

coming years – some 56,000 of them in the next three to five years alone.

By signing the letter of intent, Daimler Trucks has started the process for a comprehensive re-entry into the Iranian market, considering the persistent sanctions regime and further export control regulations.

The first Mercedes-Benz Actros and Axor trucks could be supplied to the country in the form of CKD (completely knocked down) kits before the end of the year. In addition to this, Daimler Trucks is pursuing the aim of establishing an even firmer foothold in the local market by revitalising the engine cooperation with IDEM and establishing a sales joint venture.

Furthermore, Daimler Trucks is aiming to establish a sales joint venture to professionalise all sales and after-sales activities in Iran. Daimler Trucks likewise intends to open a representative office in Tehran during the first quarter of 2016.

With these commitments, Daimler Trucks is therefore committed to assist with the country’s economic and social development.

Sales of FUSO trucks together with Mayan Mammut Group

Daimler AG have already had successful business relations with IKD for the past 50 years. IKD is a subsidiary of Iran Khodro Industrial Group, the largest vehicle manufacturer in the MENA region, having more than 50 per cent market share in Iran, and has been cooperating with Daimler for over half a century.

The areas of cooperation include a joint venture for local production of MercedesBenz trucks and powertrain components, plus the establishment of a sales company for Mercedes-Benz trucks and components.

Furthermore, there are plans for Daimler to return as a shareholder in the former engine joint venture Iranian Diesel Engine Manufacturing Co (IDEM). In addition to this, both partners are looking at establishing a joint venture for local sales of Mercedes-Benz commercial vehicles.

Daimler and IKD will benefit from each

other’s competitive advantages to satisfy the large demand for trucks. In the short term, therefore, both parties have a strategic alliance on a win-win basis through joint ventures in their scope. Said Bernhard, “Daimler commercial vehicles have always had an excellent reputation in Iran. And right now, there is a huge demand for commercial vehicles, especially trucks.”

With its growth potential following many years of sanctions and the pent-up demand in the transport sector, Iran offers promising opportunities for Daimler Trucks. Despite the sanctions, Iran was one of the largest national economies in the Middle East, with a nominal gross domestic product (GDP) of USD 415 billion (AED 1,524 billion) in 2014. Industry accounts for almost half of the Iranian national economy. The Ministry of Industry, Mine and Trade estimates that about 200,000 commercial vehicles will be replaced in the

In addition to the plans for MercedesBenz trucks, Daimler Trucks also sees great opportunities for Mitsubishi FUSO – especially in the light-duty-truck segment. Here, FUSO offers the world’s most proven and successful light-duty truck in the shape of the Canter.

To open up this market, Daimler and Mayan have signed a distribution agreement for the FUSO brand. Mayan is part of the Dubai-based Mammut Group, one of the Middle East’s largest truck bodybuilders and distributors.

Mayan will be responsible for opening up the Iranian market in close cooperation with FUSO.

Mercedes-Benz trucks: Successful history in Iran Daimler has been present in the Iranian market with Mercedes-Benz trucks and passenger cars since 1953, interrupted only by the sanctions phase between 2010 and 2016. Mercedes-Benz commercial vehicles are still present there, and remain very much visible on Iran’s roads. Previously Daimler sold up to 10,000 vehicles per year, most of them commercial vehicles.

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OVERSIZED CARGO MOVEMENT

A big

move!

Adapting their resources to suit the weather and natural landscape, Al Majdouie delivered on their commitment to the client, GSC finds

58 FEBRUARY 2016

I

n a classic example of man vs nature, the team at Almajdouie Logistics Company (MLC) took on the challenge to move 34 heavy and oversized units by road from Jazan Port south west coast of Saudi Arabia to Jazan Economic City in Jizan Province, covering a distance of 140 kilometres.

The challenge was tough as it involved transporting heavy loads, weighing up to 500 tonnes, taking into consideration the geographical conditions of Jazan city, which is covered with canals, and the limited over-bridge capacity (maximum 100 tonnes).

MLC Engineers conducted a thorough survey and studied various options, deciding

OVERSIZED CARGO MOVEMENT

MLC Engineers conducted a thorough survey and studied various options, deciding to build asphalted bypasses over eight live canals and cross bridges during the pleasant weather conditions.

to build asphalted bypasses over eight live canals and cross bridges during the pleasant weather conditions.

However, nature answers its own call.

The tropical typhoon of Yemen splashed unexpected rains at Jazan exactly on the scheduled day of crossing bypasses, threatening the move by overflowing water.

But the determination and the confidence of MLC team wasn’t dampened; units waited at the bypasses for the gradual slowdown of water flow, and moved on the asphalted bypasses to deliver 20 units so far. The operation will continue till completion of all units to meet the delivery schedule as per client requirements.

On the overwhelming performance of MLC, Baheej, the newly appointed CEO, expressed his gratitude to the team’s professionalism. He also flagged off the new fleet of K25 brand 72 axle lines of Scheuerle Germany to meet the growing demand of customers in KSA and the GCC, emphasising the company’s mission to ‘own, operate and integrate its resources reaching a wider client base with diversified services’.

MLC is determined to carry on its 50-year legacy of being resourceful and reliable; which have been the foundation to its success, and to fulfil its vision ‘to be the region’s most trusted partner’.

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MATERIALS HANDLING NEWS

And the award goes to ...

Weasel nominated for the IFOY Award 2016

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S

SI Schäfer has won a nomination at the IFOY Awards 2016 for the in-house-developed fleet solution – Weasel driverless transport systems – implemented at the NextLevel Logistik GmbH company, near Schweinfurt in Germany.

Be it containers, cartons, trays or other products of widely varying sizes up to 35 kg, at NextLevel Logistik, Weasel is responsible for all transport tasks between incoming goods, the workplaces, goods dispatch, all the way through to waste disposal. The fashion logistics service provider, active in the fast-growing eCommerce segment, now has, at its disposal, an in-plant transport system that, unlike conventional driverless

transport systems, does not need any costly sensor technology or complex control systems.

The complete hardware and software for the system was installed and went into operation within the space of just three days. One special characteristic of the solution is the automatic RFID group reading system at the goods receipt stage.

A major advantage from the point of view of NextLevel Logistik is the flexibility and easy scalability of the solution - Weasel is not rail-based, and can therefore be flexibly integrated in existing infrastructures. The solution can grow together with the business volume, and seasonal performance peaks can easily be handled by using additional Weasels.