October 2016 Issue 30
ENHANCING THE BUSINESS OF LOGISTICS
Digital transformation of logistics
THE NEW NORMAL Emirates SkyCargo Unveils pharma facility
The driverless vehicle RTA - itâ€™s a success
Splits into two separate entities
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Logistics is a fascinating industry, and one which is in use from the beginning of civilisation … anything that needs to reach anywhere goes through a supply chain … phones, water, food, pets, medicines, charity … you name it. And from the beginning of time as civilisations have evolved, so have the methods and processes used to manage this end to end logistics chain. Now as we are standing at the cusp of the new tomorrow, everyday technology is transforming how this industry is run. Digital is changing the way we’ve known the industry to be till date. How can companies and insiders stay on top? By embracing the change, which will be the new normal very soon. It’s very exciting. Our cover article is a look at how digital is transforming the logistics world. Page 28. Emirates SkyCargo unveiled recently its brand new purpose-built facility, dedicated exclusively to the timely and secure transport of temperature-sensitive pharmaceutical shipments at Dubai International Airport (DXB). The new, purpose-built Emirates SkyPharma facility, part of the new 11,000 sq metre extension of Emirates SkyCentral terminal at Dubai International Airport, offers 4,000 sq metres of space dedicated to pharmaceutical cargo. Emirates SkyCargo has also been awarded the certification of compliance under the EU Good Distribution Practice guidelines (GDP) for medicinal products for human use by Bureau Veritas, following an audit conducted by the certification agency’s team from Germany. The certification validates the carrier’s adherence to the strict guidelines on the transport and handling of pharmaceutical products, and covers all Emirates SkyCargo handling activities for pharmaceutical products at its hub in Dubai. Page 24. Oil prices have taken a toll on the shipping industry. Maersk, the largest shipping company, is dealing with this by splitting the company into two different divisions in order to secure its transition into the future. One part will deal with transport and logistics and the other with energy. Interesting to follow this to see how things adapt with market situations moving forward. Page 44. And we see you next month!
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October 2016 Issue 30
ENHANCING THE BUSINESS OF LOGISTICS
28 06 News 14 Country report – China China’s aggressive growth strategy China experienced astonishing growth in the last few decades that catapulted the country to become the world’s second largest economy
24 Handling pharma Emirates SkyCargo unveils new, purpose-built pharma facility
28 Cover Digital transformation of logistics How is technology changing the way the industry is working today and what will it be like tomorrow?
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35 Ride around in peace In an experiential test of the Driverless Vehicle, about 92 per cent of Dubai’s residents have given a thumbs up to the vehicle
38 Transformers: freight trucks of tomorrow So this is the future of freight - a look at four semi trucks that look like transformers
42 Air cargo demand up Demand for air cargo as well as freight capacity has increased
44 Reorganisation for future growth A P Møller reorganises itself into two separate divisions - transport and logistics, and energy
48 The rise of the protected military ecosystem Graham Grose Director, Aerospace and Defense Centre of Excellence, writes about the top four trends that will affect military support supply chains
50 Africa – moving into the future on renewable energy Africa has abundant renewable energy resources and photovoltaics (PV) increasingly offers an economic solution for new electricity generation
58 Increasing volumes and investment Growth at Abu Dhabi Ports has been very positive from the start of the year
We can help your business grow. When it comes to integrated logistics solutions across the supply chain, you can trust Al-Futtaim Logistics to get your business moving ahead. Automotive: Vehicles, Spare Parts, Machinery | Retail: Fashion, Footwear, Food, Electronics, High Tech, Furniture Engineering | Industrial | Project Cargo: Heavy Lift and Break Bulk | Humanitarian
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Qatar Airways Vice President North Asia, Mr. Paul Johannes receiving the Business Traveller Award from Hong Kong’s 2016 Olympian Ms. Yvette Kong
Qatar Airways clinches Best Middle Eastern/African Airline title Qatar Airways was once again named the Best Middle Eastern/African Airline at the 2016 Business Traveller Asia-Pacific Awards held in Hong Kong in September. This marks the seventh consecutive year the airline has received this accolade.
CIPS and Etihad Airways join forces to enhance industry practice
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Said Qatar Airways Group Chief Executive, His Excellency, Akbar Al Baker, “We would like to thank our loyal passengers for their continued support, and for giving us their vote of confidence. I would also like to express my gratitude
Etihad Airways has joined the Chartered Institute of Procurement & Supply (CIPS) in stating its support for a voluntary licence approach to be adopted across the procurement and supply profession. The licence will be designed to ensure procurement professionals possess the requisite skills and qualifications to properly
to all of our staff for their continued dedication to delivering exceptional, award-winning, travel experiences and products to our passengers.” The accolade adds to a year of continued success for Qatar Airways. The airline recently received awards for ‘Best For Business’ by Condé Nast Traveller readers; ranked number one globally by AirHelp – an independent airline consumer rights organisation – for providing travellers worldwide with the highest quality and service, on-time performance, and customer claim processing; and the World’s Best Business Class, Best Business Class Airline Lounge and Best Airline Staff Service in the Middle East at the prestigious Skytrax 2016 World Airline Awards.
manage the procurement function, and best use the resources of their organisation to support its performance. Adil Al Mulla, Etihad Airways Vice President - Procurement and Supply Management, said: “It is imperative we have the ability to meet the increasing challenges we face today as a profession, and that companies are able to simultaneously
protect the public good and enhance the significance of procurement.”Added David Noble, Group CEO CIPS,“As a profession, we need to step forward and be accountable for our actions. In a world of scarce resources and increasing supply chain risks, we can no longer accept inadequate procurement and supply practices.”
Air Arabia Group CEO named ‘Airline CEO of the Year’ Adel Al Ali, Group Chief Executive Officer of Air Arabia, has won the ‘Airline CEO of the Year’ award at the 10th CEO Middle East Awards 2016. Al Ali – who was instrumental in overseeing the launch of the first low cost carrier (LCC) in the Middle East and North Africa – was recognised for his efforts in further strengthening Air Arabia’s leadership position in the region, and his role in delivering outstanding results for the airline. The award was presented to Al Ali at a ceremony held at Four Seasons Resort Dubai at Jumeirah Beach. Said Al Ali,“I accept this award on behalf of the entire Air Arabia team, as the success of our airline mirrors the shared commitment and hard work of every member in scaling new heights to deliver a memorable flying experience for our guests, and constantly weathering the everchanging market forces.”
Abu Dhabi Ports receives ISO 10002:2014 certification in Customer Feedback Management System Abu Dhabi Ports is now ISO 10002:2014 certified, which ensures best global practice in handling complaints related to any services offered by Abu Dhabi Ports. Basem Obaid, Area General Manager, was the representative from the Lloyds Register of Quality Assurance (LRQA) who presented the ISO 10002:2014 certificate to Abu Dhabi Ports’ CEO Captain Mohamad Juma Al Shamisi at the Abu Dhabi Ports headquarters.
The accomplishment reflects Abu Dhabi Ports’ commitment to customer service, long-term relationships and partnerships among its client base and the community and businesses it serves. In particular, the certification validates Abu Dhabi Ports’ advanced customer feedback management system and longstanding portfolio of customer service initiatives. The scope of the certificate covers all units of Abu Dhabi Ports and its subsidiaries such as Khalifa Industrial Zone, Abu Dhabi Marine Services (Safeen), and Maqta Gateway as well as facilities at Musaffah, and Zayed Port. This certification comes as part of Abu Dhabi Ports’ quest to be ISO 9001:2015 certified.
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C5 launches ‘Cloud 10’ the region’s first disruptive technologies growth platform Technology investment firm, C5 has announced the launch of its Cloud 10 technology accelerator programme or ‘Scalerator’, powered by Amazon Web Services (AWS). Cloud 10 is one of the first platforms in the region created to help young, technology firms (B2B firms, including FinTech, MedTech, EnergyTech, etc) to ‘scale-up’ their businesses using the cloud. Through the Cloud 10 programme, C5 aims to create 300 EMEA technology champions over the next four years. Companies apply to the programme, and C5 selects the best, young, firms from across the MENA region (that are revenue generating) and provides them with a highly structured three-month programme of intensive mentorship, giving them the practical tools to rapidly ‘scale’ their businesses. The Cloud 10 programme also works as an international business exchange, and C5 will connect the companies with its network of distinguished international partners, collaborators and investors who have technology entrepreneurship, technology private equity and security expertise, like AWS.
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Cloud 10 Launch – from left to right: Andre Pienaar Chairman of C5; Teresa Carlson, Vice President, Worldwide Public Sector of Amazon Web Services (speaking); Max Peterson GM EMEA, LATAM, Worldwide Public Sector at Amazon Web Services
C5 (through its venture capital investment vehicle C5 Capital) will also potentially provide additional funding to develop the best companies that come out of the programme.
Ahmed Alaali and Ahmed Al Quyim from tech start-up called ‘The Hive’ preparing to demonstrate their robotics technology
Oracle beats Amazon web services in head-to-head cloud database comparison Oracle Executive Chairman and Chief Technology Officer, Larry Ellison demonstrated that Amazon databases are 20 years behind the latest release of the Oracle Database in the Cloud. In his keynote presentation at Oracle OpenWorld 2016 in San Francisco’s Moscone Center, Ellison shared benchmark test results that showed that Oracle Database-as-a-Service (DBaaS) performed up to 105X faster for Analytics workloads, 35X faster for online transaction processing (OLTP), and 1000+X faster for mixed workloads compared to Amazon DBaaS. Ellison also showed that the Oracle Cloud is optimised for running Oracle Database, while Amazon Web Services (AWS) is not. An Oracle Database running on the Oracle Cloud performed up to 24X faster than an Oracle Database running on AWS. Ellison also announced the availability of Oracle Database 12c Release 2 in the Oracle Cloud with the launch of the new Oracle Exadata Express Cloud Service. This service provides the full enterprise edition of the Oracle Database running on the database-optimised Exadata infrastructure. Starting at just US$ 175 (AED 642.73) per month, Ellison showed this Cloud service is lower cost than similar offerings from Amazon.
Jafza-Japan explore investment opportunities in the region Jebel Ali Free Zone (Jafza) recently organised the Japanese Business Forum to promote trade relations and explore future opportunities in various sectors. The forum, graced by Hisashi Michegama, Consul General of Japan in Dubai, was also attended by Ibrahim Mohammed Al Janahi, Deputy CEO and Chief Commercial Officer at Jafza, and Talal Al Hashimi, Chief Operating Officer, senior officials from The Japan External Trade Organization (JETRO) and Japan Business Council, Japanese companies operating in Jafza. At the opening, Al Hashimi stressed on the importance of the forum in strengthening relations between Jafza and the Japanese business community by exchanging views and opinions, including business
development and growth plans of the companies. Al Hashimi also praised Japanese companies in Jafza for their significant role in the Free Zone’s journey over the past 30 years, and thanked them for their confidence in the Free Zone’s logistical and administrative capabilities. Khaled Al Marzooqi, Senior Manager Sales, Asia and the Pacific at Jafza, concluded the forum with a presentation that highlighted Jafza’s recently launched Japan business centre for small- and mediumsized enterprises, with five Japanese companies currently operating. The forum was attended by leading Japanese companies including; Sony, Nissan, Panasonic, Nippon Steel, Sumitomo, Komatsu, Toshiba, and Brother International.
The Switch to acquire Wärtsilä Drives’ products The Switch has announced its acquisition of Wärtsilä’s marine drives business that encompasses specialised megawatt-class power drives targeting marine applications. The Yaskawa-backed investment gives The Switch a stronger foothold in its growing marine business area. Together, The Switch and the Norway-based marine drives business, aim to benefit from a number of inherent added-value synergies, including a stronger machine and drive package offering, a broader product range, and wider market access. As part of the deal, The Switch will gain part of Wärtsilä’s Electrical and Automation (E&A) business line’s test centre, and the manufacturing facilities in Stord, Norway, that are associated with its marine drives. The Switch will then become a supply chain partner of Wärtsilä for marine drives, while also being able to open up the product offering to other customers. The business transition from Wärtsilä to The Switch is due for completion once the operations have been transferred to The Switch.
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Solar PV poised to boom in Africa, thanks to declining costs The business case for solar photovoltaics (PV) in Africa is stronger than ever, thanks to rapidly declining technology costs, according to a new report released by the International Renewable Energy Agency (IRENA).‘Solar PV in Africa: Costs and Markets’ estimates that installed costs for power generated by utility-scale solar PV projects in Africa have decreased as much as 61 per cent since 2012. Today, installed costs for these projects are as low as US$ 1.30 (AED 4.77) per watt in Africa,
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compared to the global average of US$ 1.80 (AED 6.61) per watt. Mini-grids utilising solar PV and off-grid solar home systems also provide higher quality energy services at the same or lower costs than the alternatives, finds the report. Global capacity additions for solar PV have increased six-fold since 2009, a trend that is now beginning to materialise in Africa. IRENA estimates that with the right enabling policies, Africa could be home to more than 70 gigawatts of solar PV capacity by 2030.
Dubai Customs 8th Sustainability Report is out With the goal of making its sustainable processes known to the public, Dubai Customs has just released its 8th Sustainability Report. The Report depicts DC’s sustainable practices in developing Customs work and leveraging Dubai’s foreign trade. In the opening address of the Dubai Customs Sustainability Report, the Chairman and CEO of Sultan bin Sulayem DP World Group and Chairman of Ports, Customs and Free Zone Corporation, Sultan Ahmed bin Sulayem, promised “to continue on our sustainable journey in order to strengthen the capabilities for Dubai Customs by following the directives and vision of the President and Prime Minister”. The eighth annual edition of Ahmed Mahboob Musabih Dubai Customs Sustainability Khalil Saqer bin Gharib Report shares the performance data and other information for the year 2015, for comparison reasons on DC’s social, economic, organisational, and environmental information. The report details out A special copy of Dubai Customs Sustainability identified key stakeholders and Report 2015 the methodology with which DC interacts with them.
Speed and innovation key for aviation to deliver economic benefits The International Air Transport Association (IATA) called for speed and innovation to enable aviation to continue to deliver its vast social and economic benefits.“Aviation is the business of freedom. We make global mobility ubiquitous. For 63 million people, aviation provides the freedom to earn their livelihood. For 3.8 billion travellers, aviation includes the freedom to explore the world, build understanding, develop business, make friendships, visit relatives or make their lives better. Speed and innovation will secure our future so that we can continue to deliver these benefits,” said Alexandre de Juniac, IATA’s Director General and CEO. De Juniac’s comments were made in a keynote speech at the opening of the IATA World Financial Symposium, in which he noted that the airline industry is forecast to deliver a collective net profit of US$ 39.4 billion (AED 145 billion) this year, which would be a record. Among potential risks de Juniac identified are: a sudden rise in oil prices; an increase in terrorism aimed at aviation and air travel; a sharp economic downturn and a retreat from the principles of free trade by one or more major economies.
Alstom unveils its zero-emission train Coradia iLint at InnoTrans Alstom presented its zero-emission train at InnoTrans, the railway industry’s largest trade fair, which took place in Berlin from September 20th to 23rd, 2016. Coradia iLint is a new CO2-emissionfree regional train and alternative to diesel power. It is powered by a hydrogen fuel cell, its only emission being steam and condensed water, while operating with a low level of
noise. Alstom is among the first railway manufacturers in the world to develop a passenger train based on such a technology. To make the deployment of the Coradia iLint as simple as possible for operators, Alstom offers a complete package, consisting of the train and maintenance, as well as also the whole hydrogen infrastructure out of one hand thanks to help from partners.
RF IDeas seals in-region distribution partnership with BridgeSol RF IDeas has announced a partnership with BridgeSol to provide in-region distribution across Middle East and North East African countries. In addition to BridgeSol’s intimate knowledge of the Multi-Function Printing (MFP) market through its PaperCut print management software, RF IDeas’ contactless and proximity readers complement BridgeSol’s expertise and product lines to provide an end-to-end solution for resellers. RF IDeas and BridgeSol will showcase their partnership and new products at the 36th GITEX Technology Week, from October 16-20, 2016, at the Dubai World Trade Centre.
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FedEx posts 1Q profit, plans to raise prices in January
Growing number of UAE travellers prefer self-service at the airport Airline travellers in the UAE are increasingly using self-service technology to better manage each step of their journey, and to make the most of their time in the airport to relax, shop and dine. A total of 48 per cent of UAE travellers use self-service technology where available rather than interact with a person, providing them with more control over their journey. The 2016 SITA Passenger IT Trends Survey, carried out by global IT provider SITA across the UAE’s main airports and representing 98 per cent of the UAE’s passenger traffic, showed that increasingly passengers use self-service technology to book (93 per cent), check-in (44 per cent) and access their boarding pass (61 per cent). This trend is expected to accelerate next year. The survey shows that self-service usage across the UAE is predicted to surge 36 per cent over the next year, with a majority of travellers opting to manage their own booking, check-in and boarding using either a kiosk, website or a mobile app. Demand for mobile self-service options in the UAE in particular is expected to grow sharply in the year ahead. A total of 34 per cent of travellers expect to use mobile booking compared with 15 per cent in 2016, while mobile check-in will surge from five per cent in 2016 to 19 per cent in 2017.
FedEx is raising prices again as it continues to boost earnings. The package-delivery company said that it earned US$ 715 million (AED 2,626 million) in the latest quarter, up three per cent from the year before. The results beat Wall Street expectations. The results were helped by higher base prices on FedEx express and ground services, and higher volume in the ground-shipping business. FedEx Corp said that based on an outlook for modest economic growth, it expects to earn between US$ 10.85 (AED 39.85) and US$ 11.35 (AED 41.69) per share for the year that ends next May, including TNT results. The Memphis-based company has also announced that it will raise shipping rates. The company also will raise the cost of sending bulky and extremely long packages. In February, it will start adjusting fuel surcharges weekly instead of monthly, to respond more quickly to changes in a key cost. Source: www.triblive.com
Over US$ 1.36 billion of Expo 2020 Dubai spend to be allocated to SMEs globally The first World Expo to be held in the Middle East, Africa and South Asia (MEASA) region, Dubai 2020, has announced that 20 per cent of the Expo’s total direct and indirect spend, representing more than USD 1.36 billion (almost AED 5 billion) in contracts, will be allocated to
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Small and Medium Enterprises (SMEs), both local and international. The landmark announcement is the latest in a series of SME-focused operational and legacy driven initiatives that have emerged as the result of Expo 2020 Dubai’s belief in the important role that
both local and international SMEs have to play in contributing towards the delivery of an exceptional World Expo.
Raytheon appoints new president in Saudi Arabia
Emirates revamps corporate loyalty programme Emirates has revamped its corporate loyalty programme, Emirates Business Rewards, to provide greater value and added features for customers. The new programme has been simplified, and made more competitive to allow for easier redemptions and upgrades, even on last minute bookings. One of the biggest features in the newly improved programme is the ability to use Business Rewards Points to book any commercially available seat at any time, giving members cashRaytheon Company has appointed Kurt E Amend as president, Raytheon International, Inc (RII) in Saudi Arabia. Amend succeeds Lou Laroche, who will retire at year’s end from the company after nearly 40 years of service. With Raytheon since 2011, Amend most recently served as the vice president of foreign policy and national security affairs in RII. He began his career with the company as an international business development director, later also overseeing the development of the international strategy with regard to government agencies and partnerships. Prior to joining Raytheon, Amend served as a career Foreign Service Officer for 23 years with the U.S. Department of State in the Middle East, South Asia, and the former Soviet Union.
like convenience. Emirates is the first and only airline in the region to offer such flexibility as part of its corporate loyalty programme – improving costeffectiveness for business travel. Enrolment has also been simplified regardless of organisation size. The introduction of the ‘Guest Traveller’ function means that organisations can include non-company persons, such as consultants, or clients who travel on behalf of the organisation, and still earn Business Rewards Points.
Emirates has revamped its corporate loyalty programme, Emirates Business Rewards, to provide greater value and added features for customers
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growth strategy The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the worldâ€™s second largest economy. In 1978 - when China started the programme of economic reforms - the country ranked ninth in nominal gross domestic product (GDP) with US$ 214 billion; 35 years later it jumped up to second place with a nominal GDP of US$ 9.2 trillion. This FocusEconomics report has detailed information
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COUNTRY REPORT - QATAR
ince the introduction of the economic reforms in 1978, China has become the world’s manufacturing hub, where the secondary sector (comprising industry and construction) represented the largest share of GDP. However, in recent years, China’s modernisation propelled the tertiary sector and, in 2013, it became the largest category of GDP with a share of 46.1 per cent, while the secondary sector still accounted for a sizeable 45.0 per cent of the country’s total output. Meanwhile, the primary sector’s weight in GDP has shrunk dramatically since the country opened to the world. China weathered the global economic crisis better than most other countries. In November 2008, the State Council unveiled a CNY 4.0 trillion (US$ 585 billion) stimulus package in an attempt to shield the country from the worst effects of the financial crisis. The massive stimulus programme fuelled economic growth mostly through massive investment projects, which triggered concerns that the country could have been building up asset bubbles, overinvestment and excess capacity in some industries. Given the solid fiscal position of the government, the stimulus measures did not derail In December 1978, China’s public finances. The Deng Xiaoping global downturn and the subsequent slowdown in announced the demand did, however, severely official launch of the affect the external sector and the current account surplus Four Modernisations has continuously diminished – agriculture, since the financial crisis. Apparently, China exited the defense, industry financial crisis in good shape, and science and with GDP growing above nine per cent, low inflation and a technology – sound fiscal position. However, the policies implemented which marked the during the crisis to foster beginning of the economic growth exacerbated the country’s macroeconomic reform and openingimbalances. Particularly, the up policies stimulus program bolstered investment, while households’ consumption remained repressed. In order to tackle these imbalances, the new administration of President Xi Jinping and Premier Li Keqiang started to unveil
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COUNTRY REPORT Famous Wangfujing snack street, Beijing,China
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new taxes; reformed and bailed out the banking system; and drove the military stratum out of the economy. In addition, Jiang guided China to join the World Trade Organization in December 2001, which buttressed the country’s trade. Economic history In 2002, Jiang Zemin stepped down as After Mao Zedong’s death in 1976, Deng General Secretary of the Communist Party, Xiaoping - who was the core of the second thereby initialing the transition to the fourth generation of Chinese leadership - became generation of leadership, led by President Hu China’s paramount leader and pushed ahead Jintao and Premier Wen Jiabao. The Hu-Wen bold reforms that reshaped the country’s administration tried to reduce the income gap economy. At the Third Plenum of the 11th between the coastal cities and the countryside, Central Committee of the Communist as China’s skyrocketing growth mostly Party of China, held in December 1978, benefited just one part of the population. They Deng announced the official launch of the increased subsidies, scrapped agricultural Four Modernisations - agriculture, defense, taxes, slowed privatization industry and science of state assets and promoted and technology - which China’s external social welfare. Despite the marked the beginning of government’s efforts to prevent the reform and opening-up position is the country from overheating, policies. Economic reforms extremely solid. by the mid-2000s the economy under Deng’s era increased experienced an unprecedented the role of market The current economic growth mainly due mechanisms and reduced account has to booming exports, resilient government control over the economy. The recorded a surplus private consumption, soaring manufacturing and massive measures included, among in every year investment. However, the 2008 others, breaking down the global financial crisis forced the collective farms, opening since 1994. The Chinese authorities to launch an up China to foreign capital account aggressive stimulus package and investment, encouraging a loose monetary policy. business entrepreneurship, followed suit and adopt The fifth generation came to establishing Special Economic Zones and only recorded two power in 2012, when President Xi Jinping and Premier Li introducing market deficits in the last Keqiang took the reins of incentives in the statethe country. The new Xi-Li owned companies. 20 years administration unveiled an Moreover, China started ambitious reform agenda in an attempt to to participate in the global economy and the change the country’s economic fundamentals country joined the International Monetary and ensure a sustainable growth model. In this Fund (IMF) and the World Bank in 1980. regard, authorities expressed their willingness In early 1990s, Jiang Zemin - the third to tolerate lower growth rates as a necessary generation of Chinese leadership - became the new paramount leader of the country and condition to push forward economic reforms. Xi coined the term“Chinese Dream”as his his administration implemented substantial contribution to the guiding ideology of the economic reforms. Under his mandate, most Communist Party of China. Although vague, of the state-owned companies, except large the“Chinese dream”emphasises people’s monopolies, were privatized or liquidated, happiness and the idea of a strong China. thus expanding the role of the private sector in the economy at the cost of leaving millions unemployed. During the same period, China’s balance of payments President Jiang and Premier Zhu Rongji China’s external position is extremely solid. reduced trade barriers; ended state planning; The current account has recorded a surplus introduced competition, deregulation and in every year since 1994. The capital account economic measures aimed at promoting a more balanced economic model at the expense of the once-sacred rapid economic growth.
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Shanghai Free Trade Zone, Shanghai, China
followed suit and only recorded two deficits in the last 20 years. This situation of surpluses in the both the current and the capital put pressure on the national currency and prompted the Central Bank to sterilize most of the foreign currency that entered the country. As a result, China’s foreign exchange reserves skyrocketed to almost US$ 4.0 trillion in 2014. The current account surplus reached its peak in 2007, when it represented 10.1 per cent of GDP. Since then, however, the surplus has narrowed and in 2013 it fell to only 2.0 per cent of GDP. China’s capital account has bold controls, which implies that the country lacks the freedom to convert local financial assets into foreign financial assets at a market-
determined exchange rate and vice versa. The new Xi-Li administration and the People’s Bank of China vowed to accelerate interest rate liberalization and capital account convertibility. In this regard, Chinese authorities have started to implement some measures, such as removing a cap on foreigncurrency deposit rates in Shanghai. The capital account benefited from strong inflows of Foreign Direct Investment (FDI). FDI has performed strongly in the last decade, with record inflows of US$ 118 billion in 2013, thereby becoming the second largest recipient of foreign investment. Among the countries that invest more in China are Hong Kong, Singapore, Japan, Taiwan, and the United States. In addition,
China’s outward investment soared in recent years and, according to some analysts, the country could become a net exporter of capital in the coming years.
China’s trade structure China has experienced interrupted merchandise trade surpluses since 1993. Total trade multiplied by nearly 100 to US$ 4.2 trillion in only three decades and, in 2013, China surpassed the United States as the world’s biggest trading nation. The opening of the country and the government’s massive investment programs have prompted the country to become a major manufacturing hub. This situation fostered trade growth in the last decades,
particularly after China joined the World Trade Organization in 2001. As an economy highly integrated into the global trade system, the country benefited from a steady improvement in its terms of trade since 2000. However, the global economic downturn in 2008-2009 led the country to reduce manufacturing output, thus putting a drag on China’s trading sector. Moreover, the country has engaged in several bilateral and multilateral trade agreements that have opened new markets for its products. In 2003, China signed the Closer Economic Partnership Arrangement with Hong Kong and Macau. A Free Trade Agreement (FTA) between China and the ASEAN nations came into effect on January 2010, which created the world’s
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imports are mostly dominated by intermediate goods and a wide range of commodities, including oil, iron ore, copper and cereals. China’s soaring demand for raw materials has pushed global commodity prices up in recent years, thereby boosting the coffers of many developing nations and commodity-exporting economies. Supply of imports into China is mostly dominated by Asian countries, with a Exports from China combined share of nearly 50 per cent of total Electronics and machinery make up around imports. Purchases from Europe and North 55 per cent of total exports, garments account America account for 17 per cent and 10 per for 13 per cent and construction material and cent, respectively. As a major global buyer of equipment represent seven per cent. Sales commodities, imports from to Asia represent over 40 Africa, Australia, the Middle per cent of total shipments, Electronics and East and South America have while North America and increased strongly in the last Europe have an export share machinery make decade to represent a combined of 24 per cent and 23 per up around 55 share of around 23 per cent. cent, respectively. Although In parallel with skyrocketing exports to Africa and South per cent of total exports, growth in imports America expanded rapidly, exports, garments of real goods and services they only account for eight soared in the 2002-2008 per cent of total shipments. account for 13 period, recording an annual Due to favourable global average expansion of 24.4 per per cent and trade conditions and China’s cent. Imports experienced a accession to the World Trade construction contraction in 2009 due to the Organization in December global crisis, but recovered 2001, the country has material and quickly in 2010 and 2011. In experienced an astonishing equipment the 2012-2013 period, imports growth of 26.9 per cent recorded a modest increase of annually in real goods and represent seven 7.2 per cent. services exports during the per cent In nominal terms, 2002-2008 period. merchandise imports increased While exports contracted more than eight-fold in the 2001-2013 period, sharply in 2009 due to the downturn in increasing from US$ 244 billion in 2001 to global demand, shipments in 2010 and US$ 2.0 trillion in 2013. FocusEconomics 2011 rebounded strongly following the 2008 Consensus Forecast panelists’ projections financial crisis. In 2012 and 2013, export from September 2014 show Chinese imports growth averaged 7.8 per cent. moderating slightly from a 7.3 per cent In nominal terms, merchandise exports increase in 2013 to a 6.9 per cent expansion jumped from just US$ 267 billion in in 2014. In 2015, panelists expect imports to 2001 to US$ 2.2 trillion in 2013, which accelerate to a 9.3 per cent expansion. represents annual average growth of 20.2 per cent. According to FocusEconomics Consensus Forecast panelists’ projections China’s economic policy from September 2014, Chinese exports are Economic growth soared in the last few expected to slow to a 6.6 per cent increase in decades mainly due to the country’s 2014 following an expansion of 7.9 per cent increasing integration into the global in 2013. Panelists see exports picking up in economy and the government’s bold support 2015 to an 8.8 per cent expansion. for economic activity. However, the successful economic model that lifted hundreds of millions out of poverty and fueled the Imports to China country’s astonishing economic and social In order to supply factories and support development has also brought many China’s rapid development, the country’s third largest free trade area in terms of nominal GDP. China also established, among others, FTA with countries such as Chile, Costa Rica, Pakistan, Peru, New Zealand, Thailand and Singapore. Moreover, there are other FTA under negotiation with Australia, the Gulf Cooperation Council, Japan, Korea and Norway.
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challenges. Severe economic imbalances, mounting environmental issues, rising economic inequality and an aging population are the key questions that the new administration lead by President Xi Jinping will have to tackle in the near future in order to ensure the country’s sustainability. The final communique of the Third Plenary Session of the 18th China Communist Party (CPC)’s Central Committee held in Beijing on 9-12 November 2013 unveiled an ambitious road map for economic reform. Chinese authorities vowed to deepen economic reform and give the market a decisive role in allocating resources. That said, they reaffirmed the leading role of the state in the economy. Authorities also stressed the need to promote market-oriented reforms in state-owned companies and to accelerate interest rate liberalization, capital account convertibility and exchange rate reform. According to the Plenum communique, reforming the hukou system of household registration, enhancing farmers’ property rights, further development of social welfare, improving the judiciary system and promoting a more developed fiscal system would be on the agenda. In addition, Xi launched an aggressive anti-corruption campaign, which targeted senior officials of the Communist Party. Although gradual, Chinese authorities have already unveiled a series of reforms in a wide range of sectors, signaling Xi Jinping and Li Keqiang’s commitment to push forward their agenda.
China’s fiscal policy Before 1978, China had a highly centralised fiscal system, which mainly reflected the country’s planned economic system. The central government collected all revenues and allocated all the spending of the administration and public institutions. In parallel with the reforms implemented in the country for Deng Xiaoping, the government started to decentralize the fiscal system. In 1994, the government launched a bold fiscal reform in order to struggle against a rapid decline in the tax/GDP ratio, which dampened the government’s ability to conduct macroeconomic and redistribution policies. The flagship of the reform was a new taxation system and the adoption of a tax-sharing scheme, where the most lucrative sources of
Zhujiajiao Water Town in, Shanghai, China
tax revenues, such as the Value-Added Tax and the Enterprise Income Tax, were administrated by the central government. The result of this reform was a steady increase in revenues, which jumped from 10.8 per cent of GDP in 1994 to 22.7 per cent of GDP in 2013. While expenditures followed suit and increased at a double-digit rate in the same period, the fiscal deficit was kept in check. In the 1994-2013 period, the government’s fiscal deficit averaged 1.4 per cent of GDP.
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The new system, however, left local government with just few sources of revenue and they had to rely on land sales and indirect borrowing (mostly so-called “shadow banking”) to finance their activity. In addition, local governments put in place off-budget local government financing vehicles to raise funds and finance investment projects. According to data released by the National Audit Office in December 2013, the total amount of debt held by local governments
was CNY 17.9 trillion (US$ 3.0 trillion) or 33.0 per cent of GDP, which was well above the CNY 10.7 trillion reported in the 2010 audit. Although debt is still at manageable levels, the government should be wary of both the increase in reliance on shadow banking and the rapid pace of debt accumulation. Moreover, the government should increase the revenue sources for local governments. In this regard, in August 2014, the National People’s Congress passed
China’s monetary policy Under the guidance of the State Council, the People’s Bank of China (PBOC) formulates and implements monetary policy, prevents and resolves financial risks, and safeguards financial stability. The PBOC’s main objectives are: ensuring domestic price stability, managing the exchange rate and promoting economic growth. At the beginning of each year, the State Council establishes guiding targets for GDP, the Consumer Price Index (CPI), money supply (M2) and credit growth. The PBOC’s policy rate is the one-year lending rate. The Bank’s last change in its key policy rate was in July 2012 and the lending rate has remained at 6.00 per cent since then. In monetary policy reports from Q1 and Q2 2014, the Central Bank vowed to maintain a“prudent” monetary policy while conducting policy fine-tuning at an appropriate time. The Central Bank manages money supply through Open Market Operations (OMO), which are conducted with both domestic and foreign currencies and comprise repo and reverse repo, government securities and PBOC bills. The Bank also uses the reserve requirement ratio to influence lending and liquidity. The reserve requirement ratio for major lenders currently sits at 20.0 per cent, where it has rested since May 2012. Other instruments that the Central Bank uses to manage and adjust liquidity in the banking system are short-term loans, short-term liquidity and standing lending facility operations. The agenda of China’s top authorities include bold reforms on interest rate and monetary policy management in order to adopt a more market-driven approach.
China’s exchange rate policy amendments to the budget law, allowing provincial government to issue bonds directly and increase transparency. This move paves the way for local governments to raise debt in the bond market. China’s government debt is almost entirely denominated in local currency and owned by domestic institutions. In addition, the government has cash savings equivalent to 6 per cent of GDP in the People’s Bank of China. This situation shields the economy against government debt crises.
The IMF labels China’s exchange rate regime as a crawl-like arrangement. The speed and direction of the crawling peg is decided by Chinese authorities according to domestic and international economic developments. The PBOC classifies its regime as a managed floating exchange rate regime based on market supply and demand with reference to an undisclosed basket of currencies. The U.S. dollar is likely to represent a large stake of the basket. The yuan fluctuates in an intraday trading band around an official midpoint rate.
On 15 March, the PBOC widened the trading band from +/-1 to +/-2. From 1995 to 2005, China kept its currency fixed versus the U.S. dollar at around 8.28 CNY per US$. This was the case until 2005, when it switched to a managed float of the currency to facilitate a controlled appreciation of the CNY. However, in the wake of the global financial crisis, China pegged its currency to the US$ at 6.82 CNY per US$ from June 2008 to June 2010. In 2010, the PBOC allowed the yuan to trade more flexibly. While the Chinese yuan is freely convertible under the current account, it remains strictly regulated in the capital account. Chinese authorities expressed their willingness to allow the yuan to be fully convertible in the near future. Chinese authorities are gradually enhancing the use of the currency in other parts of the world in order to promote the yuan as a global reserve currency. Although the process is far from being completed, China has already established trade settlements with selected countries and launched a series of currency swap agreements with more than 20 central banks. In addition, China is rapidly expanding the yuan’s offshore market. The opening up of the country’s capital market will be a crucial step in the yuan’s journey to becoming a major reserve currency.
About FocusEconomics FocusEconomics is a leading provider of economic forecasts and analysis on the most important macroeconomic indicators for 127 key countries in the Middle East, Asia, Europe, Sub-Saharan Africa and the Americas. Forward-thinking companies require such reliable and timely information to help them make the right business decisions. FocusEconomics’ extensive global network of economists, coupled with its position as an industry leader, are indications of the company’s solid reputation as a reliable source for business intelligence among the world’s major financial institutions, multinational companies and government agencies.
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Inauguration of Emirates SkyPharma
Divisional Senior Vice-President Cargo receiving GDP certificate 24 OCTOBER 2016
Emirates SkyCargo unveils new facility for pharmaceutical products at Dubai International Airport
pharma Emirates SkyCargo unveils new, purpose-built pharma facility, certified under EU Good Distribution Practice guidelines for the timely and secure transport of critical medication. GSC finds out what it takes to create such a service offering.
mirates SkyPharma is finally a reality. Emirates SkyCargo unveiled its brand new purpose-built facility, dedicated exclusively to the timely and secure transport of temperature-sensitive pharmaceutical shipments at Dubai International Airport (DXB). The inauguration was done by His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive of Emirates Airline and Group. His Excellency Abdul Rahman Al Owais, Minister of Health, UAE, and His Excellency Humaid Mohammed Obaid Al Qatami, Chairman of the Board and Director-General of Dubai Health Authority (DHA) were also present. “Pharmaceuticals are one of the most important products we transport because of the impact on people’s lives and communities across the world,”said Nabil Sultan, Emirates Divisional Senior Vice President, Cargo,
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adding,â€œAs a leader in the global air cargo industry, we decided that it was not only important for us to build state-of- the-art cool chain facilities for the transport of pharma products, but to also go the extra mile and ensure the compliance of our operations against the highest international
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standards. Our customers can continue to rest easy, knowing that shipping their highvalue and temperature-sensitive goods with Emirates SkyCargo is a safe and efficient choice for their business and end customers.â€? The new, purpose-built Emirates SkyPharma facility, part of the new
11,000 sq metre extension of Emirates SkyCentral terminal at Dubai International Airport, offers 4,000 sq metres of space dedicated to pharmaceutical cargo. It also features temperature controlled zones (two-eight degrees Celsius and 15-25 degrees Celsius), 88 temperature controlled
individual positions in the automated ULD (aircraft pallet) handling system, and five temperature-controlled acceptance and delivery truck docks. Emirates SkyCargo has also been awarded the certification of compliance under the EU Good Distribution Practice guidelines (GDP) for medicinal products for human use by Bureau Veritas, following an audit conducted by the certification agency’s team from Germany. The certification validates the carrier’s adherence to the strict guidelines on the transport and handling of pharmaceutical products, and covers all Emirates SkyCargo handling activities for pharmaceutical products at its hub in Dubai. Emirates SkyCargo is the first cargo airline in the world that has obtained GDP certification for its hub operations covering two airports, and the 24/7 bonded trucking service that connects cargo between them. The carrier also operates the largest GDP certified area in the world offering a total area of 8,600 sq metres of combined handling space dedicated for pharmaceutical products at Dubai International Airport and Dubai World Central.
The Good Distribution Practice guidelines outlined by the European Commission have been designed to ensure that the quality and integrity of pharmaceutical products are maintained during transportation. As part of its audit process, Bureau Veritas, known around the world for their high standards, subject knowledge and experience, scrutinised all aspects of the handling and storage of pharmaceutical shipments through Emirates SkyCargo’s dual hubs in Dubai to ensure compliance with GDP guidelines on a number of subjects, including quality management, product integrity, security, and training of staff handling pharmaceutical products. “Throughout the audit process we found strong evidence of Emirates SkyCargo’s commitment across all levels to delivering high quality and secure transportation for pharmaceutical products. We are pleased to certify Emirates SkyCargo’s facilities at Dubai International airport, at Dubai World Central, and the bonded road service between its hubs as GDP compliant,”said Ahmad Chaouk, Vice President, Sales & Marketing, Middle East, India, Caspian Sea & Africa Operating Group, Bureau Veritas.
The new Emirates SkyPharma facility at Dubai International airport works in conjunction with Emirates SkyCentral DWC, the carrier’s freighter hub in Dubai World Central, which offers 4,600 sq metres of dedicated area for pharmaceutical cargo. Both facilities complement the range of innovative cool chain products and solutions offered by Emirates SkyCargo, including the Cool Dolly, the White Container and White Cover Advanced, all of which are designed to prevent temperature fluctuations or spikes from occurring during any part of the transportation process. Emirates SkyCargo’s pharma handling capabilities at its dual hubs further consolidate Dubai’s position as a leading destination for healthcare and pharma logistics. In 2015, Emirates SkyCargo shipped close to 11,000 tonnes of pharmaceutical products across its global network through its hub in Dubai. The top pharmaceutical products shipped include critical medication for diabetes and cancer, active pharmaceutical ingredients (APIs), blood derivatives, and vaccines.
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From an orphaned polar bear cub to half a million bottles of mineral water to organs for life-saving transplant operations, the logistics industry transports almost anything imaginable to almost anywhere on earth. How is technology changing the way the industry is working today and what will it be like tomorrow? Being on top of change is the way forward as per this World Economic Forum report on the digital transformation of the logistics industry
Digital transformation of
he logistics industry is also very diverse, encompassing everything from air freight to container shipping, and courier companies to port operators. The industry recovered strongly from the financial crisis of 2008, growing at an average of 15 per cent a year during the six years until 2014. Over the same period, the combined market capitalisation of the leading companies in the industry more than doubled, from around US$414 billion to approximately US$960 billion. This
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analysis has identified several major market trends that have contributed to the growing demand for logistics. These trends chart changes in who consumers are, how they live and what they expect from logistics services. The fundamental political and economic developments making an impact on the logistics industry are also considered. To understand how the logistics industry has evolved – and will continue to change in the future – in response to these market trends, this report pinpoints the most relevant technological innovations. These advances in technology provide the building blocks for the digital transformation of the logistics industry.
A growing customer base The world’s population is growing and expected to reach nine billion people in 2050. Accompanying that population growth has been an increase in the number of people in emerging markets who are now able to access global markets. The number of smartphone subscriptions is predicted to almost double to four billion by 2025, with nearly all of that growth coming from emerging markets. With a growing global middle class and expanded Internet access, increased demand for e-commerce will require logistics providers to deliver to remote locations in emerging economies for the first time – especially in Asia where many rural communities are not connected to the rail network. Air freight in emerging markets is predicted to increase by more than a million metric tonnes by 2018, with the fastest growth on routes between the Middle East and Asia. The logistics industry will also be affected by another demographic shift. According to projections by the United Nations, two-thirds of the world population will be living in cities by 2050, up from just more than half at present. By 2030, it has been predicted that there will be 41 megacities with populations of more than 10 million people. These megacities will provide a
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stiff challenge for logistics firms tasked with making deliveries swiftly in a polluted and gridlocked metropolis.
Rise of the digital consumer The advent of e-commerce has empowered consumers, who can now source products from anywhere in the world or compare prices with just the swipe of a smartphone screen. The fact that shoppers are buying an ever-greater quantity of goods online has had an impact on the parcel industry, with the proportion of trade accounted for by the business-to-consumer (B2C) sector expected to rise from 29 per cent in 2013 to 36 per cent in 2018. As consumers become more used to digital services, including e-commerce or apps such as Uber, they expect to receive the same quality and flexibility of service in other industries. This new consumer attitude, which has been termed ‘liquid expectations’, has implications for the logistics industry. No longer is it enough for firms to deliver a consignment on time; they now also need to offer a multi platform service to both personal and business customers. They may also need to invest in specific services, such as a ‘cool supply chain’ for temperaturesensitive goods, or more personalised ‘logistics of me’ offerings for consumers who value convenience.
Political and economic developments Like any industry with operations based all over the world, the logistics industry is affected by geopolitical and economic developments. The three most significant
are the price of oil, trade harmonisation and environmental awareness. The recent slump in the price of oil has improved profit margins for logistics businesses, although this effect is likely to be only temporary. The logistics industry remains vulnerable to increases in the price of oil, which are expected when the Organisation of PetroleumExporting Countries (OPEC) decides to regulate production more strictly in the future. Economic unions – such as the North American Free Trade Agreement (NAFTA), the European Union (EU) and the Association of Southeast Asian Nations (ASEAN) – have made progress toward trade harmonisation within their boundaries. This has reduced the costs and time spent processing the documentation required to trade between countries within these zones. These benefits have to be weighed against the increased cost and effort of complying with the growing body of regulations relevant to these free trade areas (such as the EU’s REACH regulation relating to the manufacture, transport and use of chemicals). Finally, the growing attention that governments (and their citizens) are paying to environmental concerns is having an effect on the logistics industry. Companies will have to look at ways to use greener methods of transportation, reduce their overall CO2 emissions and cut down on waste from packaging to ensure that they can offer sustainable logistics operations.
The third age of the Internet Over the past two decades, our lives have been transformed by the Internet. The Web revolution has happened in three waves: first the desktop Internet in the 1990s, then the mobile Web in the 2000s, and now the third age of the Internet. This new era has seen several technological advances fuse, creating powerful new digital tools that will be used to dramatically reshape industries, including logistics, over the next few years. First among these technology trends has been the Internet of Things, a network of smart devices, sensors and the cloud that allow
the physical world and computer systems to interact directly. The Internet of Things already consists of seven billion devices â€“ from fridges to thermostats to street lights â€“ and is expected to grow to almost 50 billion objects by 2020. Coupled with the proliferation of mobile sensors, the Internet of Things has the potential to improve the efficiency and reliability of the logistics industry. Mobile sensors with 3D load-optimisation software could be used to automatically arrange freight on trucks and ships in as efficient a configuration as possible. Another application could be in autonomously routed businessto-business (B2B) logistics streams that would allow smart fridges, for instance, to be restocked automatically. The Internet of Things has been underpinned by recent advances in cloud computing. Cheaper data storage and increased computational power mean that big data streams can be collected, stored and analysed much more efficiently. This is enabling logistics providers and customers to conduct a realtime analysis of supply chain data. Insights from this analysis allow logistics firms or their customers to predict events more accurately and react more quickly if they do happen.
Rise of the platforms One of the biggest digital trends of recent years has been the emergence of giant Internet platforms such as eBay, Amazon and Alibaba. These companies connect consumers around the world to firms of varying size. As a consequence, startups and small businesses can now operate in a global market from their first day of business. Customers, whether they are businesses or consumers, benefit from having a broad range of alternative suppliers to choose from.
3D printing and driverless vehicles Two other technologies have the potential to revolutionise logistics. Potential applications for 3D printing, such as the printing of replacement parts or products on the spot, could have an impact on the logistics industry by reducing the need for parts and goods to be shipped. Considerable uncertainty, though,
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about the implications and applications of 3D printing still remains, and there may also be opportunities for logistics players that specialise in printing and delivering these products quickly and cheaply. Autonomous vehicles are another technology that could be transformational for logistics providers, by reducing operating costs while improving the reliability of deliveries. Mercedes-Benz is already pioneering autonomous trucks and Amazon is testing delivery drones. In parallel with efforts to develop autonomous vehicles, similar innovations are being tested for support services, such as the introduction of automated port operations in Hamburg.
Performance of the logistics industry since the 2008 financial crisis The financial crisis of 2008 had a negative impact on the profitability
on the logistics industry, with the market capitalisation of the biggest players falling from around US$700 billion to approximately US$400 billion â€“ the same level it had been in 2004. But the sector has recovered since 2008, with the market capitalisation of the top logistics companies growing at an average of 15 per cent annually over the six years to 2014. However, that growth rate masks significant differences between how different segments have performed over that period. The market capitalisation of the big players in transport support services, which includes activities such as operating airports, ports and bridges or maintaining aircraft, increased sixfold during the 10 years to 2014. Rail freight companies saw their market capitalisation increase fivefold, while air freight, trucking and
logistics services companies (for instance, truck brokerage and freight forwarding services) managed to double their market capitalisation. Marine shippers and courier services achieved the least growth, but still saw an increase of approximately 30 per cent in their market capitalisation. The picture for revenues, profit margins and return on invested capital across the different segments of the industry is similarly mixed. Boosted by an increase in demand for all forms of transport, transport support services recorded the highest average annual growth in revenues (6.5 per cent) between 2008 and 2014. Rail freight also performed strongly, with annual revenue
growth of 5.2 per cent, thanks in part to the demand for rail from the shale gas and oil sands industries in North America. Trucking revenues expanded at 2.5 per cent a year, with this growth driven by an increase in freight volumes in emerging economies – the Indian e-commerce industry, for instance, has grown by 34 per cent a year for the past five years. At the other end of the scale, marine shipping – the part of the logistics industry that was worst affected by the financial crisis – has seen its revenues continue to decline by an average of 1.6 per cent each year. Rail freight and transport support services also had the highest profit margins in the logistics industry, increasing from 25.7 per cent in 2008 to 32 per cent in 2014 and from 13.7 per cent to 16.8 per cent, respectively. Rail freight has seen improved performance, thanks to investments in infrastructure (particularly in China) and technology, the sale of less heavily used lines and the outsourcing of railcar and intermodal container operations. Logistic services firms managed to increase profitability from 2.1 per cent to 3.5 per cent, partly due to expanded demand for the logistics coordination that complex omnichannel retailing and increased product differentiation requires. Trucking profit margins increased from 3.6 per cent to 6.1 per cent, in part due to the low price of oil, better fuel economy and better backhaul utilisation. Some industries, though, saw a decline in profitability: courier services from 6.9 per cent to 6.5 per cent and, more drastically, marine shipping from 9.3 per cent to 5.8 per cent, where profits were put under pressure by container capacity being shared.
Future prospects for value creation The analysis in this white paper suggests that revenues across all segments of the logistics industry will grow during the four years from 2014 to 2018. Transport support services revenues
are expected to grow fastest, at 6.4 per cent a year, while marine shipping revenues are only forecast to grow at an average annual rate of 1.7 per cent, which is broadly in line with the expected three to five per cent growth in seaborne container transportation over the next few years. As a consequence, marine shippers are likely to try to optimise their fleets and reduce operational costs to stabilise profit margins. Courier services revenues are expected to grow gradually at three per cent a year and will be particularly sensitive to consumer expectations relating to reduced lead times for last-mile delivery and precisely timed delivery windows, coupled with a shift from offline to online B2C procurement. Revenues in air freight are forecast to grow by 3.6 per cent but the segment is likely to face strong competition from rail and sea freight. It is also particularly sensitive to geopolitical concerns, the volatility of oil prices and protectionism by trade zones. In response, air freight firms are expected to cut down on transit times, invest in new fleets, use belly loads on passenger flights more effectively, and move forward with the e-freight project of paperless air cargo shipments.
Potential for disruption Over the past couple of years, the logistics industry has seen an increase in consolidation and partnering. One of the largest mergers was announced in April 2015 when FedEx outlined its plan to take over its competitor TNT for US$4.8 billion. A month later, Panalpina announced the takeover of its Egyptian agent Afifi. Despite this consolidation, the potential still remains for new entrants to the market to challenge existing logistics companies. One new arrival is Coyote, which has an innovative business model of crowdsourcing logistics. Essentially asset-free, it threatens traditional companies by using digital platforms to play these firms against each other by revealing transport prices, routes and service level. In addition, the interest in logistics software startups has increased in recent years, with funding from venture capital firms and private equity specialists rising from US$40 million in 2010 to almost US$200 million in 2015. -Excerpt from The World Economic Forum’s Digital Transformation of Industries Logistics, white paper in collaboration with Accenture. Find the full report on reports. weforum.org
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Warehouse Management Software Efficiency. Transparency. Reliability.
peace In an experiential test of the Driverless Vehicle, about 92 per cent of Dubai’s residents have given a thumbs up to the vehicle. Which, GSC believes, is positive news for RTA
Ahmed Hashim Bahrozan, CEO of Licensing Agency and Head of the Driverless Vehicles Committee, RTA
ow would you feel about driverless vehicles on the roads of Dubai? If numbers were anything to go by, a whopping 92 per cent residents of the city have given a high satisfaction rating to the experimental ride of the Driverless Vehicle. The Roads and Transport Authority (RTA) administered a questionnaire, over the period of a month, to visitors at the Dubai World Trade Centre. They experienced a ride of the Driverless Vehicle, which then moved on to the Mohammed bin Rashid Boulevard. The idea of the survey was to screen the views of the largest possible segments of visitors, aged 25-35, in several related aspects, about their perception of this vehicle. The satisfaction rating of this vehicle, and the future plan for deploying it in public transport, has reached 92 per cent. “The RTA initiated the trial run of the autonomous vehicle at the Dubai World Trade Centre, and then at the Mohammed bin Rashid Boulevard in collaboration with Emaar,”explains Ahmed Hashim Bahrozan, CEO of Licensing Agency and Head of the Driverless Vehicles Committee, RTA.
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Ahmed Al Khaja, First Vice President of the Dubai World Trade Centre
The vehicle took visitors to events and entertainment venues in the Trade Centre, serving more than 1,500 riders. The questionnaire, which targeted riders in the age bracket of 25-35 years, showed that up to 92 per cent are quite satisfied with the future plan of deploying the vehicle in public transport. About 97 per cent of riders expected the technology to contribute to alleviating vehicle accidents and improving the road safety levels. About 95 per cent of respondents expressed comfort and confidence in the vehicle, and 95 per cent felt safe while on board. About 36 per cent of respondents were users of public transport, 32 per cent have private vehicles, and 32 per cent of them use both public and private transport. About 87 per cent of riders were Emiratis and UAE residents, and 13 per cent were tourists. “The RTA is considering expanding the use of autonomous vehicles to other parts of Dubai, such as the metro stations, malls, and tourist areas. It is also working on drafting rules and legislations pertinent to smart mobility in the Emirate to set out a well-defined, legal structure, in line with the strategic directive of Dubai to transform 25 per cent of public transport into smart mobility by 2030. The fourth, fifth, sixth, and seventh key aspects of the plan provide for using autonomous vehicles in the first and last mile stage, business centres, residential complexes, and parks. It is also compatible with the strategy of Dubai Government for transforming 25 per cent
of mobility journeys in Dubai into driverless journeys,”adds Bahroyzan. Ahmed Al Khaja, First Vice President of the Dubai World Trade Centre, says,“We are keen on attracting the best technologies in the world and displaying them to millions visiting our events every year. The Centre is a global platform for exhibiting innovations in various fields. Working closely with our partners in the RTA towards implementing this sort of modern initiative enhances the experience of our visitors, and contributes to raising the profile of Dubai in embracing the latest transit means. It also presents Dubai as a smart city, hosting cutting-edge technologies in various fields.” “The ongoing cooperation between the Trade Centre and the RTA spans several fields, highlighted by the attraction of international congresses and exhibitions to Dubai. We are excited with this cooperation, which has empowered the Emirate to win the hosting of several key events staged for the first time in Dubai and the region,”he adds proudly. The electric-powered smart vehicle is 100 per cent environment-friendly, and can run for up to eight continuous hours. It is designed to move within closed internal roads, in areas such as residential districts, entertainment venues, and the likes. It boasts of high safety and security standards, as it is fitted with four-directional GPS System, and uses laser sensors, enabling it to spot any object 40 metres away. It can slow down automatically once it spots an object two metres away. If the object gets closer than two metres, the vehicle comes to a complete halt.
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Freightliner SuperTruck | Source: Daimler
Freightliner interior | Source: Daimler
freight trucks of tomorrow
So this is the future of freight – four semi trucks that look like transformers. Micah Wright of www.cheatsheet.com explores these brand new trucks that will be plying our roads in the near future 38 OCTOBER 2016
Chrome brightwork glistening in the sun, the multi-tonne metal mastodons glide across the American landscape. Optimus Prime would lick his lips as semi as these new, semis begin to hit the road, with trucks like the futuristic tractor trailer Freightliner built for the the U.S. Department of Energy leading the pack. Aerodynamic and efficient while remaining powerful and practical, today’s semi trucks sport features like active grille shutters, and high tech computer-filled cabins that look like they were designed by Tony Stark. And the rigs of the future aren’t far behind either; these trucks offer all the amenities power truckers need, but with fuel efficiency gains beyond their wildest dreams. Government regulations on heavy trucks are slated for reform by 2018, and with advancements in GPS monitoring, and the cost of diesel fuel in flux, manufacturers are evolving these rigs faster than ever before. The semis of the future will feature things like adjustable ride height control, enabling the truck to better eliminate air resistance at high speeds and clear pesky speed bumps when backing into a loading bay. And Freightliner’s“SuperTruck”got an average of 12.2 miles per gallon on the highway when it was first tested, which is about double that of traditional tractor trailers. This got us thinking: While Freightliner’s been busy working on the SuperTruck, what have all the other truck manufacturers been working on? Hot on the heels of the Freightliner comes a highly focused crop of semis, set to bring trucking well into the future. While none have been able to best the 12.2 mile per gallon mark set by the SuperTruck, many of them feature different solutions to the same problems. These four trucks may look like Autobots, but they’re the future of long-haul trucking.
FUTURE OF LAND TRANSPORT
Walmart’s “WAVE” concept truck | Source: Walmart
1. Walmart’s “WAVE” concept truck A massive collaboration, this Peterbilt/ Roush/Great Dane/Capstone Turbine semi is a wild interpretation of what the future of truck transit may look like. With advanced aerodynamic design that boosts fuel efficiency gains by at least 10 per cent, Walmart’s “WAVE” concept truck is quite the sight to see, especially with its 53-foot carbon fiber trailer in tow. Propelled by a microturbine engine that runs on natural gas, and a cockpit that looks more SpaceX than big rig, the “Walmart Advanced Vehicle Experience” (WAVE) could be a game changer. Walmart let the designers run wild with this project, the end result is unlike anything seen on the roads. A few interesting touches include a 180-degree rotational center-mounted driver’s seat, fully adjustable touch-screen gauge pods that monitor every component on the vehicle, and that sharply convex splitter nose for enhanced aerodynamics. Other nifty features found on the truck included a sliding driver’s door, which reminds us of something straight out of Star Wars, and fold out steps, which pop out and then retract into their own pocket for safety and security purposes. The truck also uses next-generation LED lighting both inside and out to save power, special hub caps that reduce drag, and an engine
2. Cummins-Peterbilt “SuperTruck” that sits beneath the cabin instead of in front of it to help the truck’s overall turning radius and visibility. Despite having a shorter wheel-base and a smaller external footprint, truckers can “rest assured” knowing that this cargo carrier still sports a full-size cab, and comes complete with a sleeper “Flex Studio” that rocks a hidden fold-out bed. But perhaps the most appealing aspect of the WAVE truck to us is its powerplant. Harboring a hybrid is one thing. Sporting a hybrid power-pack that is mated to a fully functional turbine driven drivetrain, now that is something special. Apparently the engineers opted for this route since Capstone Turbines are known for running cleanly on almost any fuel imaginable, and since they don’t have a lot of moving parts they weigh next to nothing, leaving them surprisingly inexpensive to repair.
While the folks at Peterbilt were with Walmart’s freighter, they received a challenge from the U.S. government to see what it could do to make advancements in current truck functionality, in direct response to Freightliner’s SuperTruck. The“CumminsPeterbilt SuperTruck”was quickly rolled out onto America’s roadways in the hopes of proving that its Model 579, with its best-inclass aerodynamic efficiency rating, could best its Detroit-based rival. Under real-world driving conditions, the truck gets around 10.7 miles per gallon, which breaks down to a 75 per cent increase in fuel economy over previous models. This was accompanied by a 43 per cent reduction in greenhouse gas (GHG) emissions across the board as well. While these numbers still fall short of what Freightliner achieved, the Peterbilt was still able to boast a staggering 86 per cent improvement in freight efficiency with its modifications, and is far more production-ready than the competition.
SEPTEMBER 2016 39
FUTURE OF LAND TRANSPORT
Cummins-Peterbilt “SuperTruck” | Source: Peterbilt
Using what it calls“Predictive Cruise Technology,”Peterbilt utilizes a series of onboard computers that tap into GPS to adjust how a vehicle climbs and descends, and optimizes fuel efficiency. The truck also sports radar-based adaptive cruise control, which automatically accelerates and decelerates to maintain safe following distances, and has the ability to come to a complete stop on its own if the driver can’t react in time. The truck is also semi-autonomous, and can handle parking assistance and new driver proficiency training protocols on its own. This truck has become so symbolic of the future of trucking that it was displayed when President Obama announced guidelines for increasing fuel-efficiency and lowering GHG emissions in heavy-duty commercial vehicles.
While it may not have a space-age turbine engine like the WAVE, it still has plenty of real-world innovations. These include a cutting-edge clean diesel Cummins motor, an advanced heat waste recovery system, an aerodynamic tractor/trailer combination that reduces drag, and a lithium ion batteryauxiliary power unit that cuts down on unnecessary engine idling. Peterbilt says that this increase in fuel economy could “save about $27,000 annually per truck based on today’s diesel fuel prices for a long-haul truck traveling 120,000 miles (193,121 km) per year.”To put it into perspective, the company added:“… there are about [two] million registered tractortrailers on U.S. roads today,”This could mean savings of $3.24 billion a year.
Kenworth T680 | Source: Kenworth
3. Kenworth T680 The T680 is one of Kenworth’s newest models, and returns a 10 per cent increase in fuel economy compared to 2013 models. This means an annual savings of more than $4,600 per truck, which is helped by a factory-installed aerodynamic package that reduces drag and a“Predictive Cruise Control”system that that piggy-backs on a GPS. With this setup in place, the computer can anticipate steep terrain and increase the speed of the truck as it approaches a hill, or release the throttle at a crest to allow for energy-efficient downhill coasting. Big news for truckers is its next-gen AC system, which stores power generated by the truck’s engine while driving, then uses it later to keep the driver cool as they lounge in the cabin. The system’s under-bunk footprint is small, but it still delivers the goods on the hottest summer days, with an LCD display in the sleeper that controls cooling, heating, and monitors battery life. The batteries can fully recharge in just 4.5 hours, and by having
h cabin |
40 OCTOBER 2016
FUTURE OF LAND TRANSPORT
Volvo’s DME and natural gas driven trucks | Source: Volvo
an all-electric AC system, the expensive logistical challenges of maintaining a second engine can be eliminated. The trucks also come with “Driver Performance Assistant” system, a built-in virtual adviser that gives drivers real-time coaching based on utilizing coasting and braking as a means for improved fuel economy. To make things a bit more fun, it uses a point system, giving drivers incentive to beat their earlier scores. : Volvo cab | Source It also gives tips and warnings to Volvo semi discourage excess fuel consumption, as simple stuff like idling a semi’s dimethyl ether (DME)-powered vehicles engine for just an hour can consume up to half will continue.” a gallon of fuel. DME is an interesting fuel, as it can But the most interesting upgrade to be produced from damn near anything. Kenworth’s truck line has more to do with According to Volvo, it’s “non-toxic, nonthe driver. Drivers with good driving and carcinogenic, degrades rapidly in the fuel efficiency habits will see a“bump”in atmosphere, and is not a global warming electronic performance mods and increased agent.”While Volvo hasn’t committed to speed adjustments for better cruising, like using DME on a larger scale, there’s a strong leveling-up in a video game. chance it will if market and stakeholder interest in the fuel increases. Until that time comes, truckers can still opt for Volvos that 4. Volvo’s DME and natural gas run on pure natural gas, and with recent driven trucks aerodynamic and power upgrades, most Volvo may be synonymous with Swedish 2016 Volvo trucks are 3.5 per cent more fuel safety, soccer moms, and station wagons, efficient than 2015 models. but its trucks have been a major player in These gains are helped by Volvo’s the trucking industry for decades, and offer new “XE-Adaptive Gearing and Torque some of the nicest and (surprise, surprise) Management,” which improves fuel safest cabins in the industry. Lately, it’s efficiency by more than 2.5 per cent in been focusing on alternative fuel, and the certain trucks. In a truck that crosses the company says that “field testing of Volvo’s
U.S. several times a year, this adds up to a lot of savings. For 2016 models, Volvo offers its XE-Adaptive Gearing Package for trucks that typically leave loaded and return empty, like liquid tankers or flatbed carriers. These customizable gearing packages can be easily tweaked for a change in load weight or shape, and dialed in for desired cruising speeds, terrain, or the driver’s preference for fuel efficiency or performance. On the exterior, Volvo uses cutting-edge bumper designs that push air below the chassis instead of over or around it, for increased aerodynamics. Volvo’s VNL 630 and 670 models also feature flared sidings that provide better airflow around tires and trailer skirts. They may not look as futuristic as the Freightliner SuperTruck, but these Swedish semis are at the forefront of innovation when it comes to cutting-edge trucks. -www.cheatsheet.com
OCTOBER 2016 41
AIR CARGO UPDATE
Air cargo demand Demand for air cargo increased, given the circumstances, in July. Freight capacity also increased more than demand. However, demand numbers have increased at the fastest pace in 18 months. IATA’s update is encouraging
here’s a positive upswing in the demand for air cargo, as the International Air Transport Association (IATA) has released data for global air freight markets in July 2016. Measured in freight tonne kilometres (FTKs), demand increased five per cent in July 2016, compared to July 2015. This was the fastest pace in almost 18 months. Freight capacity measured in available freight tonne kilometres (AFTKs) increased by 5.2 per cent year-on-year, outstripping demand and keeping yields under pressure. Despite the subdued global trade backdrop, carriers in the world’s four biggest air cargo markets – Asia-Pacific, Europe, North America and the Middle East – reported an increase in freight demand. The strongest growth occurred in Europe and the Middle East, with July demand up by 7.2 per cent and 6.7 per cent respectively, compared to the same period last year. According to Alexandre de Juniac, IATA’s Director General and CEO,“July was a positive month for air freight – which is an all too rare occurrence. Despite that, we must recognise that we face some strong headwinds on fundamental aspects of the business. Global trade growth is sluggish and business confidence is weak. And the political rhetoric on both sides of the Atlantic is not encouraging for further trade liberalisation.”
42 OCTOBER 2016
Regional performance Asia-Pacific airlines reported a 4.9 per cent increase in demand for air cargo in July compared to last year. In particular, growth has been driven by strong increases in the large ‘within Asia’ market in recent months, but the latest business surveys from the region paint a mixed picture. Capacity in the region expanded 2.7 per cent. North American carriers saw freight volumes expand 4.1 per cent in July 2016, compared to the same period last year, and capacity increase by 3.4 per cent. International freight volumes (which grew 1.3 per cent in July) continue to suffer from the strength of the US dollar, which has kept the US export market under pressure. European airlines posted the largest increase in freight demand of all regions in July, 7.2 per cent year-on-year. Capacity increased 3.8 per cent. The positive European performance corresponds with an increase in export
AIR CARGO UPDATE
orders in Germany over the last few months. Europe’s freight volumes have now surpassed the level reached during the air freight rebound following the Global Financial Crisis. The only other region to achieve this is the Middle East. Middle Eastern carriers saw air freight demand increase by 6.7 per cent in July 2016 year-on-year. Capacity increased by 11 per cent. The region’s growth rate, while still strong, has eased to half the 14 per cent recorded annually between 2012 and 2015. This is mainly attributable to slower freight growth between the Middle East and Asia.
Latin American airlines saw demand contract by 5.6 per cent in July 2016 compared to the same period last year and capacity increase by 10.1 per cent. The region continues to be blighted by weak economic and political conditions, particularly in the region’s largest economy, Brazil. African carriers recorded a 6.8 per cent decrease in year-on-year freight demand in July 2016 – the largest decline in seven years. African airlines’ capacity surged by 31.3 per cent on the back of long-haul expansion (from a small base).
OCTOBER 2016 43
Reorganisation for future growth Reorganising A P Møller - Mærsk A/S into two separate divisions - Transport and Logistics, and Energy – is a mammoth task, but one that will see the company take a more detailed and directed approach to future growth
ollowing the June 23rd announcement, Maersk’s Board of Directors has tasked the management of A P Møller Mærsk A/S to perform a review of the company, focusing on the strategic and structural options for the group. The objective of this review is to generate growth, increase agilities and synergies, and unlock and maximise long term shareholder value. The main growth focus for the shipping giant is to deliver best-in-class transportation
44 OCTOBER 2016
and logistics services as an integrated transport and logistics company. Building on the group’s unique position within container transport and port operations, and significant position in supply chain management and freight forwarding, transport and logistics will leverage its position through new product offerings, digitalised services, and individualised customer solutions. The Board of Directors expect that the oil and oil-related businesses in A P Møller - Mærsk A/S will require different
solutions for future development, including separation of entities individually, or in combination from A P Møller - Mærsk A/S in the form of joint-ventures, mergers, or listing. Depending on market development and structural opportunities, the objective is to find solutions for the oil and oil-related businesses within 24 months. To enable the new strategic direction, the company’s Board of Directors is reorganising A P Møller - Mærsk A/S’ portfolio of businesses into two independent divisions; an integrated transport and logistics division; and an energy division. This will ensure focus on driving synergies, and developing new products and services in transport and logistics, as well as on separately developing structured solutions for the oil and oil-related businesses. The company’s focus remains on ensuring a strong capital structure, hence it has defined key financial ratio targets in line with an investment grade rating. Chairman Michael Pram Rasmussen said, “The industries in which we are operating are very different, and both face very different underlying fundamentals and competitive environments. Separating our transport and logistics businesses and our oil and
oil-related businesses into two independent divisions will enable both to focus on their respective markets. This will increase the strategic flexibility by enhancing synergies between businesses in transport and logistics, while ensuring the agility to pursue individual strategic solutions for the oil and oil-related businesses.”
Transport and logistics – focus on growth and synergies Transport and logistics will consist of Maersk Line, APM Terminals, Damco, Svitzer, and Maersk Container Industry, based on a one company structure with multiple brands. The mission of these businesses is to enable and facilitate global supply chains, and provide opportunities for their customers to trade globally. Since 2008, the group has focused on building a lean transparent global conglomerate with each business unit operating on arm’s-length principles. Managing and operating the business activities in transport and logistics in a more integrated manner will enable profitable growth through stronger collaboration and disciplined capital allocation.
The strategy of transport and logistics rests on three pillars to deliver long term profitable growth. To improve product offering and customer experience based on the combined capabilities of Maersk Line, APM Terminals, and Damco, in combination with industry leading digital solutions By operating as one entity, transport and logistics will be able to harvest synergies and optimise operations to secure the industry’s most effective and reliable network Strong capital discipline and better utilisation of assets. When making investments, acquisitions will be the preferred option The strategies for the individual businesses will be adjusted accordingly. To grow market share for Maersk Line organically and through acquisitions APM Terminals will focus on cost and utilisation, and increase its focus on operational excellence to enhance returns and deliver improved service to existing and new 3rd party customers Damco and Maersk Line will collaborate to deliver new innovative customer solutions, supported by significant investments into digital technology
Svitzer will pursue a growth strategy based on its market leading position, and synergies with APM Terminals and Maersk Line will increasingly be explored Maersk Container Industry will collaborate with Maersk Line on technology development and efficient production planning Commercial, as well as cost synergies, will help to better use existing assets, as well as by developing new digital solutions. All of these will deliver revenue growth, cost efficiency and margin improvements. The estimated synergies are expected to generate up to two percentage points ROIC improvement over a period of three years. No material synergies are expected in 2016.
Energy – optimising value Energy will consist of Maersk Oil, Maersk Drilling, Maersk Supply Service, and Maersk Tankers. Long-term growth in energy demand, and sharp reductions in investments in the global E and P industry in recent years, has led to an expected reduction in oil supply in the coming years. Maersk Oil will adjust its current strategy to focus its portfolio in
OCTOBER 2016 45
fewer geographies to gain scale in basins, particularly in the North Sea, where it can leverage its strong capabilities within subsurface modelling, well technology, and efficient operations. Maersk Oil will aim to strengthen its portfolio through acquisitions or mergers. Further, Maersk Oil will mature existing key development projects, while keeping exploration activities and expenses at a low level. While the strategic focus will be reflected in a disciplined capital allocation, investments in strategic projects already sanctioned or under development will continue as planned. Maersk Drilling, Maersk Supply Services, and Maersk Tankers will continue to optimise their market position and operation with the existing fleet and order
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book. Additional investments in the group’s offshore service businesses and Maersk Tankers will be limited.
Reorganisation and communication Financial reporting for the new structure will be effectuated from the financial year 2017. The registered management of A P Møller Mærsk A/S will be composed and changed as follows: Søren Skou will continue as Group CEO of A P Møller - Mærsk A/S and CEO of the Transport and Logistics division Claus V Hemmingsen will be appointed Group Vice CEO of A P Møller - Mærsk A/S effective on October 1st, 2016 and CEO for the Energy division Jakob Stausholm will be appointed Group CFO of A P Møller - Mærsk A/S as
of December 1st, 2016. On the same date, Group CFO Trond Westlie will step down as member of the registered management and leave the Group Jakob Thomasen will step down as member of the registered management and CEO of Maersk Oil effective on October 1st, 2016 and will leave the Group on November 1st, 2016. Kim Fejfer will step down as member of the registered management effective on October 1sr, 2016 and as CEO of APM Terminals effective on November 1st, 2016, when he will also leave the Group Group CEO of A P Møller – Mærsk A/S, Søren Skou says,“Both energy, and transport and logistics have strategies positioning them for growth and strategic agility. Transport and logistics will be able to provide new and digitised world-class solutions for customers, while, at the same time, capture functional cost synergies and better utilisation of existing assets. Energy is well positioned to leverage Maersk Oil´s expertise and gain scale in select geographies, particularly in the North Sea. Its structural agility will enable management to pursue new and different structural solutions and investment.” Chairman of A P Møller Holding A/S, Ane Mærsk Mc-Kinney Uggla, adds,“A P Møller Holding was established mainly to safeguard the long term viability of the A P Møller - Mærsk activities. Since then, A P Møller Holding has developed its considerations about the future of A P Møller - Mærsk. These have been given to the Board of Directors. Historically, the Maersk activities’ strategy and structure have always undergone changes. And these changes will continue in order to stay agile. While we are rooted in shipping and energy, we must never become static in a dynamic world. We therefore welcome the new strategy and structure announced by the A P Møller - Mærsk A/S. A P Møller Holding will continue to be an active and influential owner of A P Møller - Mærsk activities, applying our core values and name where relevant; and as stated in the trust deed of the A P Møller Foundation.” This means that A P Møller Holding will remain as an influential shareholder in business units undergoing separate structural changes: they will continue to be part of the A P Møller family.
The Actros. Made for ME. Built in Germany. Home in the Middle East. The Mercedes-Benz Actros enjoys a reputation for supreme power, reliability and safety since many years – in the Middle East and all over the world. No wonder that the Actros is the first choice for everyone who wants to stay ahead of the competition. With an unreached level of quality, the Actros is the truck to trust, even after hundreds of thousands of kilometers in operation under the harshest and most challenging conditions. Features like the automated Mercedes PowerShift gearbox and FleetBoard® telematics guarantee best fuel efficiency and uptime. Combined with the unmatched resale value of the Actros, low Total Cost of Ownership over the vehicle lifecycle is assured. Find out more about “The Actros. Made for ME.” on our website or visit your nearest Mercedes-Benz Truck distributor.
“[The Actros] contributes to the achievement of our objectives through its outstanding performance, low cost of maintenance compared to other models, and lack of malfunctions (…).” Mr. Farooq Al-Fakih Dep. General Manager, ALDREES Comp. Fleet of 1,326 trucks, Saudi Arabia
The rise of the protected military ecosystem
Graham Grose Director, Aerospace and Defense Center of Excellence, write about the topr four trends that will affect military support supply chains
our key factors that will change the way defense organizations operate and bring huge changes to military support chains. In 2016, I believe we will start to see the growth of new and demanding military ecosystems develop in the defense market. These ecosystems will be driven by the growth of multiple relationships between contractors and manufacturers which will inevitably mean more complex contractual agreements and varying levels of capabilities. The result will be more protected military ecosystems and a more concentrated defense manufacturing market â€“ because the more protected ecosystems there are, the more competitive it will be for tier two manufacturers to play their role as suppliers. Below, I outline the four key factors that will change the way defense organisations operate and bring huge changes to military support chains:
1. Internet of things and 3D Printing Connected devices are now playing a big role in maintenance hangars. An example of this is the F-35 jet, which has sensors that send real-time data to a ground-based logistics support solution. Hours can be saved in the maintenance bay by making sure engineers are
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prepared for the task at hand and are ready with the right part as soon as the aircraft lands. The advantages of being able to produce parts in-theater, on what is now increasingly mobile 3D printing technology, are huge. The US Navy has started to adopt 3D printing technology on board the USS Essex to produce custom drones to greatly improve intelligence and decrease the risk of danger. The use of 3D printing to produce parts when they are needed, so that organisations can keep control of their support chains by controlling distribution and quality of parts, has potential advantages for military ecosystems. However, a word of warning here â€“ the introduction of 3D printing has the potential to disrupt military ecosystems.
Can defense manufacturers safely adopt 3D printing technology with the increasing threat of counterfeit parts? Organisations will need an enterprise approach for the management of underlying software support solutions if the transition to an effective and safe environment is to be achieved.
2. Protected ecosystems create big opportunities for T2 manufacturers I think tier two manufacturers can find huge opportunity in the emergence of protected ecosystems. When you consider manufacturing and procurement cover just 20 per cent of the total costs associated with modern fast jets, the remaining 80 per cent of costs being is spent through-life on in-service support. If we look at a typical defense manufacturer, it might have a profit margin of just seven per cent, and can only realise revenue benefits from through-life costs. Tier Two manufacturers have an excellent opportunity here to provide effective maintenance and operational support to help produce significant cost savings at a time of changing defense budgets – but only if they can minimise the risk they currently present to T1s. A significant part of this will be the need to adopt agile software solutions that are able to adapt to the business transformation.
3. 360-degree view of all defense operations With increased industry involvement and new technology in the support chain, defense organisations will need better control and visibility over increasingly fragmented logistics operations and services. A full 360-degree view of defense operations is needed if organisations are to become fully protected and better informed military ecosystems. Defense departments will also have to continue to become more business-like in the way they operate – balancing value for money with
operational effectiveness and safety. Our own Enterprise Operational Intelligence, part of IFS applications, has been developed to help defense organizations do just this by allowing them to map, monitor and manage the entire support chain or defense enterprise.
4. 6the generation logistical support My prediction is that the future will see a 6th generation of logistical solutions which will be characterised by three main factors: The soldier, their equipment and the fully integrated support chain will allow for an increased agile response to changing tactical situations Real-time optimisations – E2E but as the ‘Logistics Support Enterprise’ or ecosystem Less Military/Industry IS solution islands – moving towards solutions where data is contractually shared across project/platform and encompassing a joint strategy rather than point KPI performance The driving theme and IFS belief are that we should consider the soldier out in the field in all these predictions. These new developments need to ensure that the soldier in the field has access to the right information, in the right format at the right time – enabling them to execute their task effectively. -www.blog.ifsworld.com
OCTOBER 2016 49
Africa â€“ moving into the future on
renewable energy 50 OCTOBER 2016
Africa has abundant renewable energy resources. Traditionally reliant on hydropower, the continent is increasingly turning to solar photovoltaics (PV) to bolster energy security and support rapid economic growth in a sustainable manner. Solar PV module prices have fallen by 80 per cent since the end of 2009, and PV increasingly offers an economic solution for new electricity generation and for meeting energy service demands, both on- and off-grid
enewable energy technologies can help countries meet their policy goals for secure, reliable and affordable energy; electricity access for all; reduced price volatility; and the promotion of social and economic development. Recent and expected cost
reductions in renewable power generation technologies clearly show that renewables are now an increasingly cost-effective solution to achieve these goals. This is particularly important given the agreement in Paris in 2015 at COP21, as it gives confidence that the costs of the transition
to a sustainable energy future can be managed and are declining. The virtuous cycle of policy support for renewable power generation technologies leading to accelerated deployment, technology improvements and cost reductions already has had a profound
OCTOBER 2016 51
effect on the power generation sector. It also is setting the basis for what one day could be the complete transformation of the energy sector by renewable energy technologies. For Africa, these developments in renewable power generation technologies could be a boon. Although African countries have made
remarkable economic and social advances in recent years – economic growth has been rapid, while education provision, health care and other vital development indicators have improved – many challenges remain. Economic growth is not evenly distributed, basic services and institutions often are still weak, more than 600 million Africans do not have access to electricity, and the provision of electricity services is erratic. At the heart of many of the challenges facing African nations in the coming decades is the energy sector. Energy supply has not grown
Average real GDP growth and sustainable development indicators for Africa, 2000-2012/2014
Source: World Bank, 2015a
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sufficiently to meet burgeoning demand. As many as 30 African countries have regular, sometimes chronic electricity shortages, leading to outages and the need for expensive back-up power generation facilities for those end-users that can afford the high costs of distributed diesel-fired generators. At the same time, 600 million people lack any access to electricity, and 700 million people rely on traditional biomass for their energy needs. With continued rapid population growth projected for Africa, expanding energy supplies and electricity access rapidly enough to meet the continent’s needs will be a real challenge.Yet without adequate, clean and sustainable energy supplies, Africa will not be able to reach its full potential and to lift out of poverty the hundreds of millions of its citizens that still struggle. Fortunately, Africa is rich in renewable resources. It has excellent hydropower resources yet has exploited only eight per cent of its technical hydropower potential. The northern, eastern and southern regions of Africa have excellent wind resources, while geothermal resources exist in East Africa where the Great Rift Valley crosses the region. Africa also has significant bioenergy resources, and traditional biomass use dominates the continent’s energy supply, highlighting both its rich renewable resources and the poverty that contributes to the ongoing widespread use of open cook stoves, with their associated social, economic and health costs. Renewable energy technologies can be part of the solution to many of these energy, economic and social challenges in Africa and
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around the world. Renewable energy can meet policy goals for secure, reliable and affordable energy, electricity access for all, reduced price volatility and the promotion of social and economic development. What is not widely appreciated is that with recent cost reductions, renewable power generation technologies can achieve these outcomes at a lower cost than alternatives. This represents a huge economic opportunity for Africa to embrace its domestic resources and to power its future with solar photovoltaics (PV) and other renewables. The emerging potential of solar PV is perhaps the most exciting development on the continent from an energy perspective. Africa has excellent, widely distributed solar resources, yet the continent’s solar PV and concentrating solar power (CSP) markets are in their infancy. Africa is home to only 2.1 gigawatts (GW) of the world’s total installed capacity of solar PV, which reached a record 222 GW at the /end of 2015. Given the approximately 80 per cent decline in solar PV module prices since the end of 2009 and the excellent quality of the solar resource throughout Africa, there is huge untapped economic potential for this highly modular and rapidly scaled technology.Yet barriers to this pathway remain. Such a transformation will not happen without significant policy changes, improved institutional capability, new financing flows and a general improvement in the business sector. Cost-competitiveness, however, is increasingly not a significant barrier today. The recent cost reductions for renewable power generation technologies, especially solar PV, as well as technology improvements when combined with the excellent renewable resources in Africa, has unlocked the exciting prospect that Africa’s economic future could leapfrog the fossil fuel era, and it could be the first continent to see its development driven almost exclusively by renewable electricity.
Purpose and objectives To enable a transition to a truly sustainable energy sector and to meet Africa’s economic, social and environmental goals, the deployment of renewable energy technologies, especially power generation technologies, needs to be accelerated. However, there remains a lack of up-to-date data on the actual project costs of solar PV in Africa. Given the rapid decline in PV module prices and in installed costs in the last six years, this is a serious impediment
54 OCTOBER 2016
to efficient policy making. The risk is that without up-to-date data on real project costs, many assessments of the potential for solar PV in Africa are based on old, out-of-date data or, at the other extreme, on too optimistic assumptions that have been extrapolated from experience outside of the continent, or that are based on “expert judgement”. As this report shows, this can result in misleading cost estimates for solar PV, since solar PV in Africa has quite a different cost structure than in other regions. This report addresses this lack of information on the actual costs of solar PV projects and programmes in Africa, providing policy makers, decision makers and donors with real project data that can be used to assess the potential contribution of solar PV to meet economic, social and environmental development goals in Africa – thereby accelerating the deployment of solar home systems (SHS), minigrids and utility-scale solar PV projects.
The aims of this report are to: Provide up-to-date, verified data on the range of costs and performance of solar PV in Africa for SHS, mini-grids (hybrid or 100 per cent PV) and utility-scale projects. Provide an analysis of the current cost structure of solar PV systems in Africa and identify best practice cost levels and structures in different market segments. Ensure that decision makers in government, regulatory authorities, donors, financing organisations and the energy industry have the latest data to inform their decisions, policy making and regulatory setting. Provide powerful messages about the continued declining costs of solar PV technologies and their increasing competitiveness as an option for grid supply and as a means of accelerating electrification in Africa. The term “cost structures”in this report refers to the breakdown of total installed costs into their constituent components (e.g., module, inverter, other hardware, installation, system design, battery, etc.). Identify recommendations for the systematic collection of solar PV cost data in Africa in order to support decision makers and future work to unlock cost reduction potentials for solar PV in Africa. In the past, deployment of renewables was hampered by a number of barriers, including their high upfront costs. Today’s renewable power generation technologies are increasingly
OCTOBER 2016 55
cost competitive and are now the most economic option for any electricity system reliant on oil products (e.g., some countries and off-grid electrification). In locations with good resources, they are the best option for centralised grid supply and extension.Yet, the debate around the potential role of renewable energy in meeting economic, social and environmental goals often continues to suffer from an outdated perception that renewable energy is not competitive. For solar PV in Africa, this report is designed to provide clarity on existing and upcoming project costs of solar PV on the continent, thereby ensuring that the analysis of solar PV is based on its true economic and technical merits, rather than on outdated or misleading information.
Methodology and data challenges Today, solar PV cost data in Africa are not systematically collected or made available to policy makers, resulting in difficulties in setting realistic policy support levels that are efficient and effective. The availability of better actual cost data, rather than assumptions, is one of the key aims of this report. The report presents the data that IRENA was able to collect for solar PV costs in Africa. The data for utility-scale projects from the IRENA Renewable Cost Database were the starting point for the creation of a wider dataset that encompasses the SHS and mini-grid market segments as well.
There are a number of important points to remember when interpreting the data presented in this report: All cost data in the report refer to the year in which the project is commissioned. All data are in real 2015 USD (that is, corrected for inflation). When average data are presented, they are weighted averages based on capacity. Cost data in this report exclude any financial support by governments (national or subnational) to support the deployment of renewables or to correct the non-priced externalities of fossil fuels. The levelised cost of electricity (LCOE) of solar technologies is strongly influenced by resource quality; higher LCOEs do not necessarily mean inefficient capital cost structures.
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Different cost metrics yield different insights, but in isolation they do not necessarily provide sufficient information to assess whether or not costs in different markets are at“efficient”cost levels. The analysis here is designed to inform policy makers and decision makers about the trends in the relative costs and competitiveness of solar PV. It therefore excludes the impact of government incentives or financial support for renewables. The analysis also excludes any system balancing costs or benefits associated with variable renewables, and any systemwide cost savings from the merit order effect. Furthermore, the analysis does not take into account any carbon dioxide (CO2) pricing or the benefits of renewables in reducing other externalities, such as reduced local air pollution or contamination of the natural environment. Similarly, the benefits of renewables being insulated from volatile fossil fuel prices have not been quantified. These issues are important and will influence actors’ decisions when assessing solar PV in different market contexts, but they are covered by other programmes of work at IRENA. The process of collecting data for real-world solar PV project costs in Africa is challenging due to the small scale and fragmented nature of the market for solar PV on the continent, as well as confidentiality issues. IRENA’s dataset is the largest and most comprehensive dataset available to the best of our knowledge. However, in some cases the data quality and coverage are variable. This makes data analysis time-consuming and can limit the range of analysis that can be undertaken. IRENA has collected data for all of Africa from a wide range of stakeholders, as well as utilising existing data within the IRENA Renewable Cost Database for utility-scale projects that are operating, under construction or planned. Given the very thin market for solar PV in Africa, a reliance on older data (pre- 2012) and proposed projects not yet commissioned is an issue that cannot be avoided. This needs to be borne in mind when drawing conclusions where data for the period 2009 to 2012 predominate, because although the cost structure may still be applicable, the overall level of costs for that period will be higher than today’s reality given the rapid cost declines for solar PV in recent years. Data were collected from as wide a range of sources
as possible, including from GIZ country offices, IRENA focal points, Ministries of Energy, autonomous government authorities, electricity utilities, project developers and small-scale solar PV installers, energy-related economic communities, alliances and business associations, international development organisations, development banks and private companies. The total dataset covers around 400 projects (e.g., at a utility-scale or mini-grids), programmes (e.g., for rural electrification) or company-level data (e.g., for SHS or aggregated data for several mini-grid projects). These real-world cost data cover 21 African countries. This report focuses on the current cost structure and overall installed costs of solar PV in Africa, although in some cases the competitiveness of solar PV also is indicated. In addition to collecting data on total installed costs and technical parameters of the solar PV system (e.g., size, level of battery storage, etc.), detailed data on cost breakdown were requested. The data quality varied by respondent, and some responses could not be used because obvious errors or discrepancies meant that the data were not robust for the analysis proposed, even after seeking clarification from respondents. In many respects, solar home systems more closely resemble consumer electronics products than electricity generation technologies.
To allow for this, a simplified cost data breakdown was requested for these technologies, given that they typically are being sold by companies that are not manufactures. Costs for SHS therefore were divided into the following components: solar panel battery charge controller lamp and mobile charger soft costs, including transportation costs, markup and“all other”costs. The size of the solar PV system, its configuration, and the amount and type of storage all have a material impact on total installed cost levels and their breakdown. In trying to identify the drivers behind cost differences among projects, it therefore is very important to analyse solar PV systems in categories that are relatively homogeneous.
Solar PV system classification For this project, IRENA has built on work conducted in 2014 (IRENA, 2015b) in providing a standard technical classification for on- and off-grid solar PV systems, and added the necessary market segment data as well as size in order to capture scale effects on installed costs. As with any categorisation system, this is a compromise in terms of providing sufficient granularity to identify relevant cost differentials, while at the same time providing a sufficiently small number of categories to provide meaningful and easily understood analytical results. It is worth noting that this report often groups projects in a manner that provides for a robust analysis of their relative costs, sometimes at the expense of strictly adhering to the categorisation shown in Table 3. The first major distinction to be drawn is between grid-connected systems and those operating offgrid. There are three market segments: utilityscale systems, commercial/institutional applications (e.g., at businesses, educational facilities, hospitals, etc.) and residential systems, all of which can be on- or off-grid. The next useful distinction is between the means or scale of electricity distribution, whether it be stand-alone/building-level
only (e.g., SHS) mini-grids (e.g., at a hospital, industrial facility or village) and the large-scale grid (always on-grid). From a cost perspective, this report also categorises systems by whether they include battery storage or not, as systems with batteries have significantly higher costs, as well as different cost structures, than systems without electricity storage. The majority of solar PV capacity currently installed in Africa is in the form of utility-scale grid-connected projects, particularly in South Africa and the countries of North Africa. However, in terms of number of systems installed, SHS dominate, despite data not being available for identifying the exact numbers. The analysis in this report excludes pico PV systems, such as solar lanterns, due to the difficulties of creating a comprehensive cost breakdown of such systems and also because they represent essentially a lighting solution, not an electricity supply solution, and fall outside the scope of this analysis. This is not to diminish this market segment’s contribution to improving economic, social and educational development in Africa. This is vividly represented by the significant efforts to expand this sector in Africa. The solar PV market in most African countries is in its infancy, and the difficulty in finding partners to voluntarily share cost data is challenging. As a result, for SHS it is often
Proposed categorisation of solar PV applications
Source: Adapted from IRENA, 2015b Note: “Typical size” categories were created for the convenience of cost analysis
difficult to identify whether the data available are representative cost data that allow a deep analysis of underlying cost structures. This was also true for utility-scale systems, where although comprehemsive total installed cost data were available, confidentiality concerns meant that no developer was prepared to share a detailed cost breakdown. As a result, the data quality is sometimes variable and limited the potential for detailed analysis that would allow an understanding of the efficiency of current cost structures and how they might evolve over time. Importantly, the difficulties in trying to gather data arose not only when contacting private companies. For example, see the Lighting Africa programme from the International Finance Corporation (IFC) and the World Bank that covers the analysis of the pico PV system market regularly with data on the distribution and quality of such systems, as well as other issues. The data provided were often incomplete with regard to the cost categories identified. The breakdown of project costs therefore is not always consistent from project to project. but also with financing agencies, development partners and government agencies. Very often the collection of cost data simply was either not carried out or no one individual entity had a full overview of the total cost of the project. This was somewhat surprising and concerning, considering that these projects benefited from the use of overseas development aid and finance, or other public funds. Such challenges might be expected for smaller projects, but even large development or aid programmes typically did not collect cost data systematically for the products deployed within the overall financial envelope for the project. Under such circumstances it is difficult to see how a proper evaluation of a project or programme’s technology costs can be undertaken, and it raises questions about missed opportunities to drive down costs over time. Although the goals of these programmes often go beyond just electricity access or extension, the data collection challenge still represents a significant weakness of many of the current programmes in Africa. -An excerpt from the report titled Solar PV in Africa: Costs and Markets by IRENA. This report was prepared by Michael Taylor (IRENA) and Eun young So (IRENA). To read the full report head to www.irena.org
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Increasing volumes and investment Growth at Abu Dhabi Ports has been very positive from the start of the year. Investments have increased and so have facilities on offer. With new logistics facilities to be available by the end of the year, the port is proving to be an enhancement to UAEâ€™s status as a regional hub
bu Dhabi Ports has recorded a successful first half of 2016. This adds to the already prosperous economic growth witnessed in the emirate of Abu Dhabi, reaffirming its prestigious commercial status across the region. The company has experienced continuous growth as the UAEâ€™s maritime trade hub,
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with major growth across general and bulk cargo, container volumes and Roll-on/Rolloff (RoRo) traffic. Since January 2016, Abu Dhabi Ports has witnessed an impressive 77 per cent jump in net profit, and 20 per cent revenue growth, while the EBITDA margin exceeded 40 per cent, reflecting a 15 per cent increase compared to H1 2015 figures.
At the Khalifa Port Container Terminal (KPCT), which is operated by Abu Dhabi Terminals, container volumes increased by 11 per cent in the first half of the year. Bolstered by rapid growth in polymer exports and transhipment activity across the Gulf, 699,776 TEUs were handled in the first six months of 2016, up from 629,941
TEUs in the same period of 2015. Building on the infrastructure of Abu Dhabi to keep abreast with its economic growth, Abu Dhabi Ports successfully completed the implementation of the Terminal Operating System (TOS) in Zayed and Musaffah Ports. TOS is a database providing bookings, detailed tracking for
containers, and Gate Transaction tracking. Increasing the attractiveness of the ports to both sea- and land-based users, TOS acts as an integrated business platform with physical and technological infrastructure and processes. The RoRo offering saw new levels of productivity, with a record average of 206
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cars handled per hour in April 2016 alone, an important boost for the automotive industry in the UAE and the region, demonstrating the growth of Abu Dhabi as a logistics hub for this industry. During the first half of 2016, Abu Dhabi Ports enjoyed an increase in RoRo volumes of four per cent, compared with the same period in 2015, with 58,000 vehicles passing through the ports so far in 2016. The amount of new land leased in Khalifa Industrial Zone is over 1.5 million square metres, 50 per cent up on this time last year. Industries in Khalifa Industrial Zone continued to expand with 82 Standard Musataha Agreements (SMAs), at an investment amount of over AED 40 billion (USD 11 billion) to date. The area has now leased 14.5 million sq metres of land, 1.9 million sq metres of which is leased in the
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trade and logistics zone. There has also been a 17 per cent year-on-year increase in the number of investors from 2011, with a value exceeding AED 22 billion (USD 6 billion). Ten facilities in logistics, warehousing, food, printing and packaging, aluminium, workshops, repairs and mixed use are already operational, while 13 more will be operational by December 31, 2016. Since the beginning of this year, the container business has seen the addition of new liner calls, providing added regional connections, primarily the Indian subcontinent, to support the transshipment business for the KPCT. Moreover, Admiral Group started their feeder services in the Gulf, along with TDS, furthering the momentum. Despite a bleak outlook for world trade, the Jan-Jun 2016 volumes grew by 11 per cent over the same period in 2015. Bay Lines has also started
serving KPCT area, positioning Abu Dhabi as a key enabling link to Indian subcontinental trade, and a major contributor to world trade. Captain Mohamed Juma Al Shamisi, Chief Executive Officer of Abu Dhabi Ports, said, “These results demonstrate the crucial role that Abu Dhabi Ports plays to enhance UAE’s regional and increasingly global maritime trade hub status, especially for those seeking to access the Middle East, Africa and South Asian region. We continue to invest and upgrade our offerings and facilities to support fast, inter-connected and efficient supply chains, while also reaffirming Abu Dhabi’s position as a centre of excellence in maritime trade. The positive role played by Abu Dhabi Ports’ suppliers, partners and employees is at the heart of this growth, in line with the wise vision of the UAE leadership, the Abu Dhabi Plan and Economic Vision 2030.” Over the past six months, Abu Dhabi Ports has also successfully completed the first cruise season from the new state-of-the-art Cruise Terminal, and signed multiple retail agreements with various goods and services providers to achieve a 100 per cent retail occupancy. The 184,815 passengers represent an increase of 49 per cent on this time last year, resulting in a 16 per cent year-on-year growth from the 2015 season. Such diversified projects further enhance the economic pillars of Abu Dhabi, as part of a holistic, well-integrated paradigm, with world-class infrastructure on a par with the best in the world.
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Published on Oct 10, 2016
Supply Chain, Supply chain management , logistics and supply chain segmentation, warehousing, RFID, healthcare logistics, 3PL, 4PL, six sigm...