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The Global Supply Chain Yearbook 2015 The yearbook commemorates our first anniversary of bringing to you, our readers, superlative content from all aspects of the logistics and supply chain industry. Sections included are Country reports, Aviation, Materials Handling, Shipping and Management. Even though this book is 140 pages, there was so much material that did not make the issue. Only the best and most relevant matter is in here. For the Country reports section, we have worked with Oxford Business Group to bring to you select articles from their many in-depth country specific analyses. The rest of the yearbook is a compilation of the best of the articles from the past year that have been most popular with our readers. We hope you enjoy the magazine as much as we enjoyed putting it together. And here’s to many more successful years of reporting on matters at the pulse of our industry. Munawar Shariff Managing Editor munawar@signaturemediame.com
Publisher: Jason Verhoven jason@signaturemediame.com
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Contributor’s opinions do not necessarily reflect those of the publisher or editor and while every precaution has been taken to ensure that the information contained in this handbook is accurate and timely, no liability is accepted by them for errors or omissions, however caused. Articles and information contained in this publication are the copyright of Signature Media FZ LLE & SIGNATURE MEDIA LLC and cannot be reproduced in any form without written permission.
Printed by United Printing Press (UPP) – Abu Dhabi / Distributed by Tawseel Distribution & Logistics – Dubai GSC YEARBOOK 2015 3
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C O N T E N T S 8 COUNTRY REPORTS 9 One from many The GCC has become a catalyst for collaboration and mutually beneficial development
12 Bahrain Building a strong Infrastructure Plans to improve infrastructure and expand the main airport
18 Port to port Changing global trade patterns add importance to maritime shipping
20 Kuwait Straight to the top Recent investments and an ideal location bode well for the sector
26 Shining example A new terminal at the main airport offers several advantages
28 Qatar Pillars of strength Moving forward with long-term plans for development and diversification
40 Oman Track to the future A regional rail network is expected to help realise trade potential
42 Saudi Arabia More than petrochemicals Heavy industry and petrochemicals dominate, while other segments such as automotive and pharmaceuticals are becoming more prominent
50 All aboard Rail links will help connect the peninsula economically and socially
52 UAE Sale of the century Gulf airlines are becoming the dominant buyers of new aircraft
55 Vertical take-off Airport capacity is set to rise
GSC YEARBOOK 2015 5
C O N T E N T S 64 AVIATION 65 Cargo empires – built to last To say that the Middle East is setting impossibly high standards in air cargo operations would be an understatement
74 A growing hub Dubai Airports have ensured their capability of handling the size of the city’s future as it grows everyday into the ever important hub of connectivity
80 Rerouting the supply chain Dubai World Central is not just a new airport beside a port and a freezone with a single customs policy
88 MATERIALS HANDLING 89 Is it time to hire a Materials Handling Consultant? At the right time and for the right reasons, a Consultant’s contributions are invaluable
92 A future with materials handling SSI’s take on materials handling trends and the future
98 A seasoned player Al-Futtaim Logistics gears up to ensure it stays on top of the competition
101 How your picking method could lower operating cost The key to lowering cost is deploying a combination of manual and automated picking methods
104 SHIPPING 105 Future ready A look at the high speed development of regional ports
110 DP World – reinforcing trading relationships A look at activities from the port operator’s many international businesses
6 GSC YEARBOOK 2015
118 The impact of shipping How shipping impacts today’s global trade landscape
123 Facilitating trade security A look at Dubai Customs’ role in making trade easier in the country
128 Facilitating food logistics Sohar Port and Freezone have a new industry to cater to - food
132 MANAGEMENT 133 3PLs – change and traits of leaders Leadership in companies have to recognise and implement staying focussed on the end result
137 The new e-commerce strategy Businesses embracing the right technology will conquer market share
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GCC OVERVIEW
Saudi Arabia
Oman
8 GSC YEARBOOK 2015
Kuwait
Qatar
GCC OVERVIEW
Bahrain
UAE
GSC YEARBOOK 2015 9
One from many:
The GCC has become a catalyst for collaboration and mutually beneficial development In a speech delivered at a conference in Riyadh in early May 2012, Abdullatif bin Rashid Al Zayani, the secretary-general of the GCC, addressed the numerous changes that have taken place in the region in recent years.
The new political, security and military challenges, at the regional and international
levels, as well as insecurity in the Arab region and the changes in the regional and global forces of power demand that we look into developing the GCC,”Abdullatif bin Rashid Al Zayani, the secretary-general of the GCC said.“We need to reset the GCC priorities and strategic objectives to empower them to match the changes and events that we are witnessing today.”Al Zayani’s remarks serve to highlight the central role that the council has played in the development of the region over the past three decades. The GCC is currently among the wealthiest regions in the world, with a per capita GDP in excess of $30,000 at the end of 2011, compared to a global average of around $10,000. While the GCC has seen unprecedented economic expansion over the past 30 years, its member states – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – are facing several challenges. These include a number of security issues, ranging from the ongoing tension with Iran, continuing instability in Iraq and the impact of the Arab Spring. On the economic front, a continuing reliance on hydrocarbons-related income throughout the area is considered to be a long-term liability. The region also faces various environmental challenges, such as a water shortage. The Gulf states have implemented a number of regional programmes to address these issues.
History The formation of the GCC in 1981 was widely considered to be the logical outcome of years of cooperation and mutual support among the nations of the Arabian Peninsula. The countries that currently make up the council are linked by a shared
history, culture and religion. The Arabian Peninsula, as the historical home of Islam, has often exerted considerable influence throughout the Middle East. During the early and mid-19th century many of the sheikhdoms in the Gulf region signed maritime treaties with the British empire, which was considered to be a major defeat for the Ottomans at the time. By 10 GSC YEARBOOK 2015
GCC OVERVIEW
Saudi Arabia
the early 20th century the British had concluded agreements with most of the local tribes and other authorities in the Gulf, shoring up their influence over a wide area that today includes all or part of the six GCC member states. In September 1932, after 30 years of expansion and consolidation in central Arabia, the Al Saud family announced the formation of the Kingdom of Saudi Arabia. While Kuwait declared independence from the UK in 1961, the British remained the primary power in the Gulf until the late 1960s, when the UK revealed that it planned to quit the region entirely by the early 1970s. Over the next few years the other countries that would eventually make up the GCC came into their own. In 1971, Bahrain, Oman, Qatar and the UAE all became independent nations.
In Development In addition to economic expansion, the GCC has launched or announced plans for a number of other regional initiatives in recent years. The GCC power infrastructure project, which was launched in 2001, seeks to connect the six power grids to one another, thereby enabling electricity sharing throughout the Gulf. The power infrastructure project is expected to save the GCC region an estimated $5.01bn in electricity costs on an annual basis, as member countries will be able to move electricity supply around the region based on demand. The GCC rail project, which is in the early stages of development, will eventually link all six GCC states at a cost of $200bn. It is expected to be up
and running by 2018, and indeed, some countries have already begun laying track. In the UAE, for example, Etihad Rail has begun work on a 264-km line running from gas fields in the desert to Ruwais, a major coastal port. Other initiatives currently under way or under discussion in the GCC include a joint project to supply and distribute desalinated water; a regional food and drug authority; and a centre for public health in the Gulf. Originally published by Oxford Business Group (OBG) in The Report: Dubai 2014, published in January 2014, Country Profile Chapter. For economic news about Dubai and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 11
BAHRAIN
Strong linkages:
Plans to improve infrastructure and expand the main airport A good transport system is a key enabler in any economy, but in the case of Bahrain, an island country, this holds particularly true. Although the nation has relatively small reserves of oil and gas, it has historically been a trading centre, and in the 1970s and 1980s it emerged as the main entrepôt for the Gulf region
A
s an open economy with a limited internal market, the kingdom has had to develop an accommodating business environment as well as actively seek foreign investment.
Gaining an edge: Bahrain also seeks to be competitive with regards to connectivity, and the country has been continuously improving its road, air and sea links. The economy appears 12 GSC YEARBOOK 2015
to have bounced back from the downturn precipitated by the unrest of early 2011, and this is evident in the growing volume of sea and air traffic. Moreover, in response to the island’s political crisis, the GCC countries announced a $10bn fund to support Bahrain’s economy, providing various forms of financial support to the government on generous terms. Much of this money is in turn finding its way toward infrastructure spending,
BAHRAIN
GSC YEARBOOK 2015 13
with a view to create jobs for the local population and enhance competitiveness.
Regulatory environment:
Overall, demand on port capacity is higher than supply, which illustrates an optimistic business environment,” Marco Neelsen, MD, APM Terminals Bahrain, said. “Bahrain can take advantage of this scenario by playing a vital role in facilitating trade through the Northern Gulf.
14 GSC YEARBOOK 2015
Overall, the Ministry of Transport (MOT) has responsibility for the development of the island’s transport system, as well as facilitating the movement of people, goods and information. As such, its remit encompasses land, sea and air transport as well as postal services. In December 2012 the ministry launched a reorganisation programme, bringing a number of hitherto separate bodies under one umbrella and merging a number of sub-departments, as well as rebranding its identity and logos. This was in accordance with the ministry’s own Strategic Plan for 2013-15, which aims to enhance regulation, improve safety and increase capacity among staff. Over the longer term, transport development in Bahrain is informed by Vision 2030, a comprehensive development strategy drawn up by the island’s Economic Development Board (EDB) in 2008, which aims to double Bahraini household disposable income by 2030 and develop a much stronger private sector. In particular, Vision 2030 recognises that infrastructure and connectivity are key to realising these goals. The Civil Aviation Authority (CAA) acts as the regulator for the aviation sector in the kingdom, while Bahrain International Airport (BIA) is operated by Bahrain Airports Company (BAC), a state-owned firm that is structured as a public limited company in which the state holding firm, Bahrain Mumtalakat Holding, is the sole shareholder. The General Organisation of Sea Ports (GOP), which under the MOT rebranding is due to become the Ports and Maritime Affairs Directorate, formerly operated the old port at Mina Salman, and now acts as the ship registry and is responsible for ensuring compliance with safety regulations and various international maritime conventions. The country’s main port, Khalifa Bin Salman Port (KBSP), is currently operated by Danish firm APM Terminals Bahrain. The road network comes under the Roads Projects and Maintenance Directorate,
which is part of the Ministry of Works (MOW), but the island’s small size means that there are no large highways operated on a concession basis. The King Fahd Causeway, which links Bahrain to Saudi Arabia, is operated jointly by both governments.
Sea transport: In 2009 Bahrain opened a new port at Hidd, to replace the ageing Mina Salman Port that had been built in the 1960s. Management of the new facility was transferred to APMT in a 25-year contract. Although the port was impacted by the events of 2011, when falling business brought a drop in throughput, the return of investment in 2012 has resulted in a rising volume of trade. In 2012 KBSP handled 525,000 twentyfoot equivalent units (TEUs), compared to 375,000 TEUs in 2011, and 443,000 tonnes of general cargo compared to 216,000 tonnes of general cargo in 2011. Due to the fact that a high proportion of the island’s imports arrive by sea, these figures are indicative of the noticeable economic recovery in Bahrain in 2012, with growing industrial production feeding through into greater volumes passing through the port. “Overall, demand on port capacity is higher than supply, which illustrates an optimistic business environment,” Marco Neelsen, the managing director of APM Terminals Bahrain, told OBG.“Bahrain can take advantage of this scenario by playing a vital role in facilitating trade through the Northern Gulf.”
LNG: In addition to the container and general terminals, Bahrain is actively considering establishing a liquefied natural gas (LNG) terminal at KBSP, in a bid to ensure security of supply for the industrial sector. In 2012 local press reported that Bahrain was due to issue a tender to construct an LNG terminal with the capacity to import up to 400m cu feet a day, with cost estimates varying from $300m to $1bn. As of May 2013, the tender has not been awarded, although nine bids have been submitted.
BAHRAIN
Although there is no national champion in the shipping industry, Bahrain is a shareholder in United Arab Shipping Company (UASC), which is jointly owned by the governments of Kuwait, Iraq, Saudi Arabia, Bahrain, Qatar and the UAE. The company’s headquarters are located in Kuwait. UASC has introduced new lines in 2013, including West Africa, Australia and the western seaboard of the US, as well as introducing direct connections between Bahrain and Jeddah, Port Said and Turkey, avoiding the need for trans-shipment. Other international shipping lines serving KBSP include China’s Hanjin, Germany’s Siemens, Denmark’s Maersk, Switzerland’s MSC and France’s CMA, among others. The total tonnage registered under the Bahraini flag is fairly small, about 750,000 tonnes according to GOP estimates, and is divided among approximately 400 vessels. The GOP is in the process of preparing a new maritime code that will update the country’s shipping regulations and incorporate into law the provisions of a number of international maritime conventions to which Bahrain is a signatory, but which have not been applied yet. Work on this new code commenced in 2008 and is expected to be complete around 2015. An innovative online ship registry portal is expected to open by the end of 2013.
As a result, Gulf Air regularly posted losses that ultimately had to be borne by the public purse. Gulf Air is held as part of Bahrain Mumtalakat Holding. As a non-listed company, its financial results are not in the public domain, but a 2012 report by a market intelligence group (the Centre for Asia-Pacific Aviation) forecast that the carrier was estimated to experience losses in the region of $500m in 2011.
Restructuring: In an effort to stem these losses, Gulf Air announced a period of extensive restructuring toward the end of 2012, which is due to take three years to implement fully. The carrier plans to shift from a long haul and transit focus to concentrate on short-haul flights within the MENA region and to the Indian subcontinent, as these are both more lucrative and less costly to operate. In order to experience additional savings, Gulf Air has revised its aircraft orders with Boeing and Airbus to focus on smaller, narrow-body craft, saving an estimated $2.5bn, and has set an aim to trim its outgoings by 24% during 2013.
Changes: Bahrain Air was founded in 2008 and formerly operated on a low-cost, pointto-point model. In early 2013, it offered over 40 routes, mostly serving MENA and
Aviation: At the beginning of 2013 Bahrain was home to one operating national carrier: Gulf Air. The airline was founded in 1950, with the governments of Qatar, Abu Dhabi and Oman taking stakes in the company in 1974, although the most prominent hub remained in Bahrain. Gradually, however, these shareholders withdrew one by one to set up their own airlines and develop their own hub capacity – the last being Oman in 2007. This left Bahrain as the sole shareholder in Gulf Air and meant that the airline was forced to bear the costs of a network designed for a significantly larger catchment area while competition within the region sharpened considerably.
South Asia. However, on February 12, 2013, the company released a statement via its website announcing that it was suspending all operations and had applied for voluntary liquidation, at the recommendation of the board following an extraordinary general meeting. The carrier, which had just four aircraft, was negatively affected by regulations put in place at the height of the political crisis in 2011 – which banned flights to Iraq, Iran and Lebanon – as well as by the subsequent reluctance of many travellers to visit or transit through Bahrain. Although carriers were eligible for compensation by the government for losses that were incurred under this measure, the company claims that this had not been forthcoming. Moreover, the events of the Arab Spring in 2011 forced Bahrain Air to suspend its routes to a number of other destinations, including Damascus. The company stated that with the CAA reducing the number of slots available to Bahrain Air while still demanding payments of past debts owed to the government, the shareholders felt there was no other option but to liquidate the company. However, in April 2013 local logistics firm Almoayed Wilhelmsen filed a lawsuit against the company’s decision to enter voluntary liquidation, claiming that it was owed BD25,000 ($65,800) by the company and calling for a declaration of bankruptcy instead.
Airports:
The pan-GCC rail network, due to be completed by 2018, will stretch over 2000 km and enable the transport of goods from Kuwait to Salalah in Oman and from Jeddah in Saudi Arabia to the Fujairah Port in the UAE. Total investment in the GCC network is estimated at $30bn
BIA, which was first founded in the 1930s, is owned and operated by BAC, which is itself a subsidiary of the state holding company Bahrain Mumtalakat Holding. Since 2009, however, Hochtief Facility Management, a subsidiary of German engineering group Hochtief, has been engaged as the airport’s facility manager, with the contract due to run until at least 2016. According to the latest figures available, in 2012 some 8.48m passengers passed through the BIA, an increase on the 7.8m seen in 2011. Over the same period some 256,826 tonnes of cargo passed through the airport, however, a decrease compared to 322,000 tonnes in 2011. GSC YEARBOOK 2015 15
BAHRAIN
A clean face:
In addition to the aforementioned Mina Salman Bridge, a number of new flyovers and relief roads are under construction in and around the capital of Manama. However, Bahrain stretches just 50 km by 30 km, severely constraining capacity to build new roads
16 GSC YEARBOOK 2015
BIA was built in 1994, when its capacity was set at 3.5m passengers a year. Subsequent annual expansions have since raised its capacity to 8m-9m passngers. Although BIA remains one of the smoother airports for transit within the region, which is partly attributable to its smaller size, both its age and everrising traffic dictate that it will have to be expanded again at some point down the road. While the authorities have long recognised this, the most pressing concern for the government in terms of transport has long been the future of Gulf Air, meaning that the future of the airport has received less attention than might otherwise have been the case. While the expansion project remains at the scoping and design stage, the MOT recently approved the allocation of BD335m ($882m) for the expansion of the airport and the refurbishment of the existing terminal. While BIA currently has just one runway, BAC projections forecast that this should suffice for the next 20 years or so.
Once a design has been selected, the earliest that work is likely to begin is some time in 2014, with construction taking around two to three years to complete. One option that is apparently being considered is to build the extension first, then a temporary terminal building, which would allow the refurbishment of the old terminal to be completed much more quickly. Another possibility is to reconfigure the layout of the existing airport and alter certain procedures to minimise disruption while work is ongoing. Although it remains too early to say what exactly the new terminal will feature, the aim is to raise capacity to around 13.5m passengers a year, compared to 9m currently, and add 13 new gates, 40 more check-in counters and four more baggage reclaim belts. While Gulf Air is drawing down its fleet and network, the authorities wish to keep as many destinations reachable from Bahrain as possible, and therefore are keen to see other carriers fill in the gaps left. Although new routes are unlikely to come onstream in 2013 given logistical constraints and continuing wariness among investors, BAC is holding discussions with a number of carriers with a view toward 2014. In 2012 BIA boasted connections to over 40 destinations, served by 26 passenger carriers and 10 cargo carriers. Over the longer term BAC aims to diversify its revenue stream away from purely aviation-related business. The airport complex covers 5.6 sq km, and much of that is undeveloped. “Our development plans and repositioning of the BIA as a result of the recent realignment in the aviation sector in Bahrain are going to be more focused on enhancing the passenger experience, retaining the airport’s competitive
BAHRAIN
advantage and striving to increase the airport’s profitability by striking a balance between aero and non-aero revenues.” Mohamed Yousif Al Binfalah, CEO of BAC, told OBG.
Logistics: Indeed, logistics, as a key industry that is fairly labour-intensive, is a field that the Bahraini government has been keen to support in recent years. The island offers a number of advantages to logistics companies looking for a regional base. The first is its strategic location, which is convenient for the giant Saudi market and other GCC countries, as well as the generally high quality of infrastructure. Setting up a business in Bahrain is considered easier than in many other countries, which is partly because there are fewer procedures involved. Most logistics firms that OBG spoke with considered the Customs department relatively efficient and to have a helpful attitude toward solving problems. Competition in the industry is healthy and there are many smaller firms. In addition, the sector has a high proportion of Bahraini employees, which most companies estimate at around 70%.
Infrastructure upgrades: In addition to the aforementioned Mina Salman Bridge, a number of new flyovers and relief roads are under construction in and around the capital of Manama. However, Bahrain stretches just 50 km by 30 km, severely constraining capacity to build new roads. Over the longer term, the authorities are looking to develop the public transport system, which now is limited to taxis and a few bus services along key routes. Many buses are old and considered poor in terms of frequency and reliability. As a result, Bahraini roads are far more congested than they might otherwise be. As well, the rising population, which the EDB projects to increase from around 1m in 2013 to 1.5m in 2020, will necessitate greater investment in public transport. In 2010 the MOW outlined a 20-year plan to develop a BD3bn ($7.9bn) public transport network consisting of
Transport continues to play a key role in the kingdom’s bid to attract foreign investment, and in turn, the continued investment inflows are testament to the quality of the country’s infrastructure trams, buses and a light railway network, although the events of 2011 put this on hold. Under the scheme, the light railway will consist of six lines and be developed in three phases: the first involves building a 13-km stretch of light railway and an 11-km tram line. By 2030, the year when the system is slated for completion, the lines will link the airport with the population centres of Muharraq, Manama, Isa Town and Riffa, and thus to Qatar and Dammam in Saudi Arabia. The new airport is due to include a bus terminal, which will form the backbone of a revitalised public transport network in the island nation. Air-conditioned bus shelters, which have proved to be successful in Abu Dhabi, are another possibility to entice citizens out of their cars.
Laying rail: In additional to this commuter rail-type service, Bahrain is also planning to link to the GCC Railway. The pan-GCC rail network, due to be completed by 2018, will stretch over 2000 km and enable the transport of goods from Kuwait to Salalah in Oman and from Jeddah in Saudi Arabia to the Fujairah Port in the UAE. Total investment in the GCC network is estimated at $30bn. The Bahraini section of the network will consist of rail connections to both Dammam in Saudi Arabia, already a railhead, and a new rail link to Qatar, which is likely to share a route with the planned Qatar-Bahrain Causeway. This will stretch 45 km and cut the car journey time between the two
countries from four and a half hours to just over half an hour by car. Estimated costs for the new causeway stand at around $5.5bn. An accord was signed in 2008 between Bahrain and Qatar to build the causeway, but it remains unclear how much each country will contribute to the cost. The credit crunch and upgrades to plans have meant that work had yet to commence on the project as of May 2013. However, as part of its winning bid to host the 2022 FIFA World Cup, Qatar has committed itself to completing at least 40% of the project by 2018 and to finishing the road and rail sections of the bridge in time for the event. The new road and rail links are likely to have a great multiplier effect on Bahrain and help ensure its position as a transport hub for the Upper Gulf.
Outlook: Transport continues to play a key role in the kingdom’s bid to attract foreign investment, and in turn, the continued investment inflows are testament to the quality of the country’s infrastructure. While Bahrain’s sole active airline continues to suffer in the face of sharp competition, the decision to proceed with the airport expansion demonstrates confidence in the kingdom over the longer term. Maritime transport and logistics have rebounded from 2011 and the country is likely to remain a significant transport hub for the Upper Gulf, although not on the same scale as some other centres in the region. Over the short term, bottlenecks on the King Fahd Causeway are set to continue to present challenges for firms in Bahrain. However, over the long term these issues should be resolved. Meanwhile, the causeway to Qatar promises to give the local transport sector a significant and much-welcomed boost. Originally published by Oxford Business Group (OBG) in The Report: Bahrain 2013, published in June 2013, Transport Chapter. For economic news about Bahrain and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 17
Port to port:
Changing global trade patterns
add importance to maritime shipping There are only three possible entry points to Bahrain: by airport, by the King Fahd Causeway (which links the island to Saudi Arabia) and by port. With the bulk of Bahrain’s imports and a large proportion of its exports entering and leaving by sea, the strength of maritime transport is thus something of a barometer for the overall economic health of Bahrain. Overall, 2012 proved to be a good year for sea transport.
Ports: There are two main ports in Bahrain, Mina Salman Port and Khalifa Bin Salman Port (KBSP), as well as a number of small fishing harbours. Originally built in the 1960s as a primarily import-oriented terminal, Mina Salman is the older of the two. For a long time the island’s only port, it is now used primarily as an entry 18 GSC YEARBOOK 2015
point for certain bulk goods, such as flour, and houses a number of warehouses and naval facilities. The General Organisation of Sea Ports (GOP), was established under the Ministry of Transport in 2006, but as part of the ministry’s reorganisation process it is due to be renamed the Ports and Maritime Affairs Directorate. The GOP regulates, develops and promotes the island’s maritime industries. Danish shipping and port management group, APM Terminals Bahrain took over administration of Mina Salman in 2006, and since 2008, has also operated Bahrain’s new port, KBSP, on the island of Hidd, off Bahrain’s north-east coast. KBSP was designed to serve as an export-import terminal, and its construction came in tandem with the development of large industrial and logistics zones next door. Although throughput fell in 2011, the port bounced back in 2012, recording a 40% rise in
BAHRAIN
business that was partly due to clearing the backlog of stock from the previous year and partly to the opening of several industrial plants in Bahrain. There has been a rise in both imported material to build the plants and in exported goods. Over the long term, KBSP aims to become the transshipment hub for the Upper Gulf. In 2012 KBSP handled 525,000 twentyfoot equivalent units (TEUs) and some 443,000 tonnes of general cargo. This represented a 40% rise on 2011 figures of 375,000 TEUs and 216,000 tonnes, respectively. The main goods exported were metals, petrochemicals and textiles, and the principal export destinations were either fellow GCC countries, such as Saudi Arabia or Asian nations. The main imports were cars, crude oil and chemicals, and the biggest import partners by sea were Asian countries. The majority of food imports came via the King Fahd Causeway.
Big names: There are several shipping lines serving Bahrain. United Arab Shipping Company is owned by the Bahraini government in consortium with the governments of Qatar, Iraq, Saudi Arabia, the UAE and Kuwait, and has its headquarters in the last of these. The company expanded its network in 2012 to include Australia, West Africa and Pacific North America and added new direct connections between Bahrain and destinations such as Sohar, Oman, as well as Jubail and Jeddah in Saudi Arabia. Other major players include Maersk of Denmark, Switzerland’s MSC, France’s CMACGM, multinational APL and China’s Hanjin.
Shifting trade: The Gulf region is becoming more attractive to shipping lines due to changing patterns of trade. Until fairly recently, Gulf economies were dominated by just one commodity, oil, meaning that ships would arrive full and often leave empty. However, with the advent of big industrial projects in areas such as aluminium, petrochemicals and steel,
shipping lines are increasingly able to transport goods both ways, whereas trade on a number of other routes, like transatlantic and China-North America trade, has become much more imbalanced over the past decade, with boats travelling full in one direction and empty in the other. Moreover, with the Gulf having weathered the global recession better than many other regions around the world and displaying solid economic growth, companies looking to develop are taking greater interest in the region. With these developments, the shipping industry is expanding, and with it, so are the opportunities for Bahrain to become a maritime transit hub.
Competition: The biggest mainline port in the Gulf is Jebel Ali in Dubai, which acts as a transshipment and unloading centre, while Salalah in Oman, lying closer to the main Suez-East Asia shipping lanes outside of the Strait of Hormuz, deals mostly in trans-shipment. In 2011 Jebel Ali handled 13m TEUs, while Salalah handled 3.2m TEUs. In addition to these, the new Khalifa Port at Abu Dhabi opened in 2012, with an initial capacity of 2.5m TEUs a year. However, KBSP is not looking to compete head on with these giants, and therefore the authorities remain optimistic about the increase in capacity in the region. Once Khalifa Port is complete, there will be three major ports in the Lower Gulf, but KBSP remains the largest port in the Upper Gulf. The Saudi government plans to redevelop its main port on the Eastern Province, Dammam, but this is not expected to be ready until 2015. Kuwait is developing a new port on the island of Boubyan, which the Kuwaiti government hopes will help it to attract business going into Iraq. Although work started on the project in 2011, it is unlikely to be up and running until 2015 at the earliest. Iraq’s main port at Umm Qasr continues to run at well under capacity, and moreover, its draft is rather shallow, at around 12.5m. These factors, and unease over the country’s stability, mean that a number
of shipping lines have been reluctant to ship directly into Iraq. Yet, given that relations between Iraq and Kuwait are often strained, the Iraqi government may be reluctant to allow too much business to pass through Boubyan, and thus Bahrain stands a good chance of picking up cargo heading there. KBSP is capable of handling ships up to postPanamax size (up to 110,000 tonnes), and moreover, Bahrain already has a number of industries clustered around the port, supplying both regional and international customers. As such, a network of feeder vessels linking Bahrain with Dammam, Saudi Arabia; Umm Qasr, Iraq; Jubail, Saudi Arabia; and Kuwait looks increasing viable, as lines reach critical mass in terms of volumes. The fast turnaround times at KBSP are an additional inducement. KBSP sees its role as complementary to, rather than competitive with, other ports in the region. Rising trade volumes ensure enough business for everyone.
Key neighbour: However, in shipping, as in many other fields in Bahrain, the main market is Saudi Arabia. As the main port on Saudi Arabia’s Gulf coast, Dammam, has suffered from significant congestion for a number of years. To alleviate this backlog, Bahrain has been acting as something of an entrepôt for its larger neighbour, and a number of cargos unload at Bahrain and transport across the causeway, rather than docking directly in larger Saudi Arabia. Marco Neelsen, the managing director of APM Terminals Bahrain, told OBG,“Jubail Port has the ability to increase throughput and thus become an additional gateway into the Eastern Province. Synergies with Bahrain on capacity and operational efficiencies mean cargo can be moved competitively, which is clearly a win-win for all stakeholders.” Originally published by Oxford Business Group (OBG) in The Report: Bahrain 2013, published in June 2013, Transport Chapter. For economic news about Kuwait and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 19
KUWAIT
Straight to the top:
Recent investments and an ideal location bode well for the sector The state of Kuwait sits at the confluence of three of the most populous and prosperous countries in the Middle East – Iraq, Iran and Saudi Arabia. As such, Kuwait is a logical transport centre for the northern Gulf and has committed itself to making investments towards attaining that goal.
Strategy In 2012 transport accounted for 50% of service exports from Kuwait, up slightly from 49% in 2011, according to World Bank figures. Over the past two decades, many Gulf countries have specifically used transport as a means to diversify their economies and develop other sources of revenue. Kuwait’s national development strategy, known as Kuwait Vision 2035, envisages the country becoming a regional commercial and 20 GSC YEARBOOK 2015
financial hub. In order to achieve this upgrading the country’s connectivity is an essential step. As such, Kuwait’s National Development Plan (NDP) is a comprehensive programme of investment, to the tune of KD30bn ($105.48bn). Much of this investment is dedicated to social spheres such as housing, education and health, both in terms of physical infrastructure and improving the quality of services provided. Infrastructure projects
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GSC YEARBOOK 2015 21
in the pipeline include a new port, road improvements, a railway and metro system, and expanding the existing Kuwait International Airport (KIA). Separate to the NDP, Kuwait is investing roughly KD15bn ($52.7bn) to raise its oil output from around 3m barrels per day (bpd) to 4m bpd by 2020. In turn, this will necessitate increased imports of equipment, which will stimulate the economy more generally, especially the petrochemicals industry, and create further opportunities in transport and logistics.
Ports Perhaps the initial beneficiaries of this investment in the hydrocarbons sector will be the two main ports of Shuaiba and Shuwaikh, which between them processed 98% of Kuwait’s exports in terms of revenue in 2011, according to figures from the Kuwait Central Statistical Bureau (KCSB). This came to 128m tonnes of cargo, worth KD27.84m ($97.8m). The ports processed 60.3% of imports, totalling 23m tonnes of goods, worth KD4.18bn ($14.7bn). According to the KCSB, in 2012 the number of oil tankers passing through Kuwait’s ports was 1469, compared to 1424 in 2010, while total cargo volumes were 35.9m tonnes in 2012, over 27.3m tonnes in 2010. Shuaiba, situated 45 km south of Kuwait City, is the site of several refineries and is the main port for exports of crude oil and petrochemicals. The Kuwait Ports Authority is planning dredging 22 GSC YEARBOOK 2015
The ports processed 60.3% of imports, totalling 23m tonnes of goods, worth KD4.18bn ($14.7bn). According to the KCSB, in 2012 the number of oil tankers passing through Kuwait’s ports was 1469, compared to 1424 in 2010, while total cargo volumes were 35.9m tonnes in 2012, over 27.3m tonnes in 2010
works to deepen the whole basin to 16 metres, which will enable Shuaiba to accommodate the largest cargo vessels weighing up to 75,000 tonnes. At the time of writing, however, implementation remained stalled due to changes in parliament and administration. The Ahmadi Port and Mina Abdullah to the north and south, respectively, of Shuaiba are set aside for the exclusive use of specific refineries. In early 2013, the Kuwait Oil Company awarded a $486.5m contract to Turkey’s STFA Construction Group to build a new port next to the Ahmadi refinery. The project involves upgrading the main harbour, constructing a number of smaller ones and expanding the road network around the port complex. The new port will support the Kuwait Oil Tanker Company’s expanded fleet, as the company is due to take delivery of nine new vessels from South Korea’s Daewoo Engineering and Construction in late 2014 or early 2015. Shuwaikh is located to the west of Kuwait City, much closer to the city centre, and acts as a port for general cargo and consumer goods. It features 21 berths, including two floating berths, and has a maximum draft of 9.6 metres at 14 of them. Pilotage movements have steadily increased, from 1318 in 1961 to 2993 in 2010. Given its location so close to the capital, Shuwaikh has become a major source of congestion on the country’s already crowded roads, creating up to 1000 lorry movements a day.
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Boubyan As such, Shuwaikh is not really suitable for expansion, and Shuaiba, being geared mostly to hydrocarbons, is unable to act as a substitute. In order to expand the country’s port capacity a new port, Mubarak Al Kabeer (MAK) port, is planned for Boubyan Island, off the north-east coast of the country. Boubyan also lies near the Shatt Al Arab waterway at the mouth of the Tigris and Euphrates rivers, and as such is located very close to both Iraq and Iran. This makes it a natural gateway port not just for Kuwait, but also for Iraq, a market of some 25m consumers with an economy that will require major investment in reconstruction. Just as a number of ports in the southern Gulf, notably Dubai’s Jebel Ali Port, act as hubs for Saudi Arabia and parts of Iran, Kuwait aims to act as a centre for the northern Gulf.
between Iraq and Kuwait over the area in which Boubyan is located. However, Iraq and Kuwait signed an agreement in 2013 on shared use of the Khor Abdullah waterway. Iraq, despite its oil wealth, remains in political paralysis and continues to suffer from poor security, meaning that reconstruction may take years to materialise, though it is likely to generate a big flow of both imports and exports when it does. MAK could act as a stop-gap port for Iraq until they have developed their own facilities, and in any case, enjoys an advantage over Al Faw in that it has a deeper draft – 30 metres compared to 13 metres at Al Faw. Some in Kuwait have suggested that a joint Iraqi-Kuwaiti company could be set up to manage MAK port, giving the Iraqis a stake in the project and helping to smooth over differences between the two parties.
New Centre
Logistics
MAK port is therefore envisaged as a game changer. The port, which is scheduled for completion in late 2016, will have a capacity of 24 berths with a depth of 20 metres and an initial capacity of 2.5m twenty-foot equivalent units. The contract for construction of the port was awarded to a joint bid from Korea’s Hyundai Engineering and Construction Company and Kuwait’s Kharafi Group, and initial work commenced in April 2011. Subsequent phases will include deepening the draft to 30 metres and constructing a 36-km-long, $2.6bn causeway spanning Kuwait Bay, which would make landfall at Subiya, reducing the current distance between the port and Kuwait City of 140 km. MAK will also benefit from a rail link to the mainland and the rest of the GCC. MAK faces challenges in the form of competition from established ports in the lower Gulf and from potential Iraqi unwillingness to avail themselves of its facilities. Iraq has plans to develop its own Grand Al Faw Port at the mouth of the Shatt al Arab, with an investment of $6bn and a final capacity of nearly 100m tonnes a year. Moreover, there have been previous territorial disputes
In the wake of the US-led invasion of Iraq in 2003, the logistics industry in Kuwait benefitted from a near decadelong boom due to the presence of US armed forces, who used the country as a supply base. The withdrawal of foreign troops from Iraq, which was completed by 2012, has had a marked effect on the industry, although a number of US and NATO military personnel have remained in Kuwait. Perhaps the biggest logistics group in Kuwait, Agility was founded in 1979, has more than 22,000 employees and a presence in over 100 countries. Agility, which is listed on the Kuwait Stock Exchange, reported net revenue of KD386m ($1.36bn) on the back of KD1.38bn ($4.83bn) in turnover in 2013, compared to figures of KD370m ($1.3bn) and KD1.42bn ($4.99bn), respectively, in 2012. The value of the firm’s assets was KD1.41bn ($4.9bn) in 2013, down slightly from KD1.43bn ($5.02bn) in 2012. Agility has sold off its fleet of lorries over the past few years to concentrate on other areas, such as warehousing, but another Kuwaiti firm, Posta Plus, continues to maintain a 500-truck fleet in the region. Other logistics groups in Kuwait include global players such as DHL, UPS and FedEx.
Finding A Niche Logistics firms often find themselves relying on government contracts, and given the relatively small size of the local market, many have had to adjust their operations to compete.“Due to the competitive nature of the logistics market, companies have had to increase the amount of services provided and tailor products to fit customers’ needs,” Hisham Albahar, the country manager at Posta Plus, told OBG. The poor relations between Iraq and Kuwait are having a negative effect on Kuwaiti logistics companies. Currently, in order to move goods between Kuwait and Iraq trucks must unload their cargo at a dedicated bonded warehouse at Safwan. Then, goods are reloaded onto Iraqi vehicles on the other side of the border. While it is in principle possible to obtain a visa for Kuwaiti lorries, this is both cumbersome and expensive to acquire, and it has to be renewed every six months. However, both the NDP and the refinery upgrade programme are likely to have a stimulatory effect on the logistics business in Kuwait, due to expected increases in demand for imports of machinery and construction materials.
Roads The state of the nation’s roads network is also a challenge for logistics companies, especially importers. Land transport carries some 9.7% of Kuwait’s imports, but less than 1% of exports, and is equivalent to around $5.5bn. While the roads themselves tend to be of excellent quality, congestion is increasingly a problem – partly due to the fact that Kuwait is quite a small country and almost the entire population lives in Kuwait City and its environs. Public transport consists of buses and taxis; however, much of the government transport budget goes to subsidising the price of petrol, which stands at KD0.068 ($0.24) per litre, rather than the public transport network. The government is planning to develop new roads as part of the NDP, with KD4bn ($14.06bn) earmarked for new road projects. Among the biggest projects are the Jahra and GSC YEARBOOK 2015 23
KUWAIT
Jamal Abdul Nasser roads, together worth $927.8m. The first involves widening a motorway from two lanes in each carriageway up to 12, while the latter involves the expansion of an existing road, and installing utilities and drainage facilities. The contract was awarded to a consortium of local construction firm Boodai, Italy’s TREVI and Rizzani di Eccher, and Spain’s Obrascón Huarte Lain, with completion due in late 2016.
Public Transport However, as part of its plans to reduce congestion, the government is planning to develop a comprehensive public transport network. Presently, the main public transport body is the Kuwait Public Transport Company, which operates some 400 buses throughout the country. Citybus is another public transport provider in Kuwait. Owned privately, it commenced operation in 2002 and runs 12 routes with 180 buses, as well as a fleet of 170 coaches that are available for private hire. While fares tend to be cheap, public transport suffers from something of an image problem. In common with many other countries, Kuwaitis who can afford it would rather use their own cars than use public transport. GCC countries have never had public transport as part of their culture, and therefore public marketing efforts will be required. As part of the NDP, the authorities are looking to develop a metro system, which they hope will prove more attractive to the public, since it will offer greater comfort and transport passengers from point a to point b much faster than a bus can. According to the plan, the Kuwait Metropolitan Rapid Transit (KMRT) network will initially stretch for some 160 km, with around 60 stations. The line will run underground in places, but around half of the network will run over ground. The project is to be developed as a publicprivate partnership contract worth some $7bn, involving the design, construction and maintenance of the system, and is set to be developed in five phases up to 2035. However, though initially due to be granted in 2013, the contract award has been postponed. 24 GSC YEARBOOK 2015
MAK port is therefore envisaged as a game changer. The port, which is scheduled for completion in late 2016, will have a capacity of 24 berths with a depth of 20 metres and an initial capacity of 2.5m twentyfoot equivalent units Railway In addition to the metro system, Kuwait also plans to build its own railway network, to dovetail with the GCC railway that is due for completion by 2018. This will mostly be geared to freight traffic, but passenger trains may also run. The internal rail network, the National Railway System, is set to stretch for 518 km in total, and link MAK and Kuwait City, as well as provide connections to Iraq, Iran and other locations in the Arabian Peninsula. Although the railway project currently remains at the design stage with tenders yet to be issued, the railway could cement Kuwait’s status as a transport hub, although work on Iraq’s internal rail network is unlikely to occur for some years. Omar Hariri, the Kuwait country manager for DHL, told OBG,“Kuwait has a key strategic location in the region that holds a lot of potential for the logistics sector by offering itself as a gateway to the Middle East.”
Aviation Over the past 20 years, Kuwait has lost some of the competitive edge in aviation it once enjoyed over other Gulf countries. KIA has also become more congested as passenger numbers grow rapidly, especially after it came to act as the hub for not only Kuwait Airways, but also for the country’s low-cost carrier (LCC) Jazeera Airways as well.
In early 2014, Kuwait’s Directorate General of Civil Aviation (DGCA) said passenger traffic at KIA has reached 9.37m in 2013, a 6% increase over 2012. Arrivals grew by 5% from 4.48m in 2012 to 4.7m in 2013, while departures increased by 6% from 4.39m in 2012 to 4.65m in 2013. The DGCA also reported that commercial flights at KIA increased by 3% from 75,588 in 2012 to 78,135 in 2013. Between 2007 and 2012, KIA saw through traffic increase by over a quarter. As such, the need to increase capacity at KIA has been evident for some time. KIA’s own figures project that passenger numbers are likely to rise to 13m passengers a year by 2016 and 25m a year by 2040. In 2012, a master plan was finalised to redevelop KIA, with more than 70 projects to be implemented over the next seven or eight years and a budget exceeding KD2.5bn ($8.79bn). Together, these will increase capacity at KIA to over 25m passengers a year. The major projects planned for the redevelopment of KIA include: extending the western runway from 3400 metres to 4775 metres; demolishing the existing eastern runway and constructing a new one in its place that will be 4000 metres long and 60 metres wide, with a 30metre-wide parallel taxiway; a brand new third runway to be 4580 metres long and 60 metres wide, also with a parallel taxiway 30 metres wide; a new terminal building; developing 1m sq metres of apron space and a 2m-sqmetre cargo and maintenance, repair and operations centre, along with dedicated facilities for the air force; a new air traffic control tower; new landside terminal facilities, such as hotels, a mosque and parking space; and access tunnels and a connection to the KMRT.
Branching Out The expansion programme at KIA has meant that more traffic has had to be diverted through the Sheikh Saad General Aviation Terminal (SSGAT), which had originally been purpose-built for Wataniya Airways (see analysis). Capacity at KIA is due to rise to 25m by completion of the expansion project,
KUWAIT
which is unlikely to affect traffic at SSGAT as much of the work at KIA is geared to providing Kuwait Airways with a hub so that it can re-emerge as a long-haul carrier, as well as implementing muchneed updates for facilities. SSGAT primarily serves the private, high-end segment. Indeed, as KIA becomes bigger, it may well be the case that more travellers and niche carriers are likely to find the quick turn around times that SSGAT is able to offer more attractive. A 2014 report by investment bank Alpen Capital further notes that MENA is set to witness growth above the world average in the aviation sector, with revenue per kilometre set to expand at a compound average growth rate of 6.7% between 2012 and 2032. The report specifically identifies the lack of secondary airports in the region as one major constraint for the industry, forcing LCCs to operate from primary airports where they face head-to-head competition with flag carriers. LCCs account for just 13.5% of the MENA aviation market, compared to 30.2% in North America and 38% in Europe, according to Alpen.
New Direction However, the impending privatisation of Kuwait Airways is likely to prove key to the success of the expansion of KIA. For some years, the carrier has been making annual losses. A 2013 report by the Centre for Aviation (CAPA) estimated that Kuwait Airways had sustained losses of $560m over the previous two years, while in early 2013 Salem Al Othaina, the thenminister of housing and communications, reported that the airline had lost over $1bn over the previous four years. Despite Kuwait Airways’ high profile in the 1980s, its fortunes have declined over the past two decades, and the adoption of an open skies regime in 2006 increased competitive pressures, which it has struggled to respond to. Kuwait Airways counted a fleet of 17 craft, but many of these are old, with an average age of 18 years. In 2013 the airliner was reportedly in negotiation to lease five Airbus A330 from Indian carrier
Jet Airways. It has also ordered 25 new aircraft from Airbus, at an estimated cost of around $3bn. Given these numbers, privatisation is generally regarded as the best way forward for the carrier. However, the ultimate form that privatisation will take has yet to be determined, with the government already having attempted to sell off Kuwait Airways twice over the past seven years. In October 2012, the carrier was reconstituted as a shareholding company. In January 2013, the Kuwaiti parliament approved the privatisation of the airline and in May of the same year signed a five-year agreement with the International Air Transport Association to develop a plan to restructure the airline, with a view to making it more attractive to a strategic investor within three years.
New Set Up Under the privatisation plan, the Kuwaiti government will retain a 20% stake and underwrite the airline’s losses. Some 40% of the shares will be sold to Kuwaiti nationals through an initial public offering, 5% will be sold to employees and 35% will be sold to local or foreign investors privately. The government has agreed to assume Kuwait Airways’ debt of nearly KD450m ($1.58bn). Given Kuwait Airways’ withdrawal from many longhaul routes to focus more on regional destinations, analysts have identified possible synergies to be gained from Jazeera Airways taking a strategic stake in the national carrier. While Jazeera is on record as saying it might be interested if the financials were right, as of June 2013 neither side had committed itself publicly.
In the wake of the US-led invasion of Iraq in 2003, the logistics industry in Kuwait benefitted from a near decade-long boom due to the presence of US armed forces, who used the country as a supply base
Jazeera, which was founded in 2004, was the first non-government-owned airline in the Middle East, and in 2012 was one of the most profitable airlines in the world by size, according to CAPA. In 2013 Jazeera recorded net profits of KD16.7m ($58.7m) on the back of operating revenue of KD65.6m ($230.6m), up on figures of KD13.9m ($48.8m) and KD62.6m ($220.1m), respectively, in 2012. In 2013 the LCC transported 1.14m passengers. The airline’s first strategic master plan for 2012-14 is due to expire by the end of 2014. Originally the plan envisaged Jazeera holding 40 aircraft by the end of 2014, but the affects of the economic crisis forced the company to change tack. Jazeera successfully weathered the storm, axing routes to the Indian subcontinent that no longer proved profitable, and has concentrated on its base in Kuwait. The carrier has 15 aircraft, all Airbus 320s, of which several are leased out to Virgin America, Saudi Arabia’s Nas Air and TAP Portugal. Jazeera serves 20 destinations and in May 2014 began running new flights to Istanbul’s Ataturk International Airport. The success of the airliner shows what the Kuwaiti aviation sector is capable of achieving, lending credence to the move to privatise Kuwait Airways.
Outlook Of all sectors of the Kuwaiti economy, transport is perhaps the most likely to benefit from the investments programme under way as part of the NDP. Although political wrangles have delayed many projects, the authorities have demonstrated a sound understanding of the role of transport as a multiplier, and some of the most important projects, such as the expansion of the airport and MAK port, are already under way. If greater political stability can be maintained. Originally published by Oxford Business Group (OBG) in The Report: Kuwait 2014, published in September 2014, Transport Chapter. For economic news about Kuwait and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 25
Shining example:
A new terminal at the main airport offers several advantages While in the middle of the 20th century the Kuwaiti aviation sector led the Gulf region in terms of progress and innovation, over the past 20 year or so the country has lost its lead as other GCC states have caught up
I
n the 1980s, Kuwait Airways was a favourite with an excellent reputation, but today it has largely been eclipsed by the rise of carriers based in the southern Gulf, which successfully compete for lucrative long-haul routes between Europe and the Asia Pacific. However, there is one advantage that Kuwait could utilise to move to the head of the pack, the Sheikh Saad General Aviation Terminal (SSGAT) at Kuwait International Airport (KIA).
However, a major part of Wataniya’s appeal was that it had its own dedicated terminal, offering passengers the prospect of a small terminal with no queues and a very smooth and rapid transit experience. SSGAT continues to function and meets two niche segments in the Kuwaiti aviation market, low-cost carriers (LCC) and the top-end, private aviation segment. It has increasingly attracted more airlines as work on the expansion of KIA is under way. Divided into three zones, SSGAT caters to economy, business and VIP passengers, as well as acting as a base for private aviation. It remains under the authority of the General Directorate of Civil Aviation, but is managed by the Royal Aviation Company. SSGAT covers an area of 130,000 sq metres and features a three-storey main terminal building with an area of 4000 sq metres, a 5000-sq-metre hangar and a 90,000-sq-metre apron. The main terminal houses a reception area, VIP and
Standing Out SSGAT started out as a purpose-built hub for Wataniya Airways, a Kuwaiti airline based on the principle of luxury aviation. Wataniya was founded in 2006 and was a public company traded on the Kuwaiti Stock Exchange. The onset of the global economic crisis took its toll, and the company ceased operations due to financial difficulties in March 2011. 26 GSC YEARBOOK 2015
The main terminal houses a reception area, VIP and VVIP lounges, conference rooms, private offices, food and beverage facilities, and a prayer room
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VVIP lounges, conference rooms, private offices, food and beverage facilities, and a prayer room. It also has its own immigration and Customs clearance stations, baggage screening and metal detectors, enabling it to offer a much speedier and smoother experience to passengers. It was built at a cost of KD16m ($56.2m) and handles private aircraft, helicopters, and air ambulances. The terminal is capable of handling up to 40 flights a day, and can accommodate 33 aircraft in shaded and non-shaded parking and hangars.
Serving New Carries Since mid-2013, SSGAT has been the Kuwait hub of flydubai, an LCC based in the emirate of the same name. It operates eight flights a day between Kuwait and Dubai. The airline opened the route in
2010, and since then passenger numbers have risen to over 1m a year, prompting the move to SSGAT. The carrier said that by using SSGAT’s facilities, it is able to process passengers through the terminal at an average of 25 minutes for economy ticket holders and 10 minutes for business class ticket holders. Kuwait’s own LCC, Jazeera Airways, is currently based at KIA, from where it operates flights to 20 destinations. Over the past decade LCCs have seen a 52% increase in scheduled capacity, compared to just 7% for full service carriers, according to a 2014 report from investment bank Alpen Capital. SSGAT is also a base for Kuwait’s burgeoning private aviation business. Of the companies providing private aviation services, Royal Wings Aviation Services operates as a broker of private aircraft, offering fixed-base operator services, as
well as executive, VIP, cargo and medical evacuation charter flights. United Aviation, a subsidiary of Gulf Aviation Services, operates a fleet of three Embraer 135s. It is conceivable that other airlines may chose to base themselves at SSGAT, given the time-saving advantages the facility is able to offer travellers. As services at KIA are set to expand and the government works to take over a larger share of the market, SSGAT looks set to move from strength to strength as the facility is able to offer more attractive travel options. Originally published by Oxford Business Group (OBG) in The Report: Kuwait 2014, published in September 2014, Transport Chapter. For economic news about Kuwait and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 27
QATAR
Pillars of strength:
Moving forward with long-term plans for development and diversification 28 GSC YEARBOOK 2015
QATAR
With sustained, long-term economic growth, the highest per capita income in the world and one of the largest reserves of natural gas just offshore, Qatar today has many advantages. Add in a stable and well-capitalised banking sector and a sovereign wealth fund that is of true global significance, and it is clear that Qatar is in a strong position from which to continue its robust economic performance.
T
he years ahead for Qatar are also set to see one of the world’s largest construction drives in the country, in line with the principles of Qatar National Vision 2030 (QNV 2030) and catalysed by preparations for the 2022 FIFA World Cup. By the time the teams arrive for the tournament, the country will have
undergone another transformation on top of the astonishing changes that have taken place already over the last couple of decades. A skyline of towers has sprouted across the capital, Doha, while the country’s population has jumped, from 744,029 in 2004 to over 2m today. There is a palpable sense here that the future is one of great possibility, and that it is arriving fast.
Economic History The jump in population is not the only exponential increase that Qatar has seen in a short time, either. When the country gained independence from the UK in 1971, its GDP was around $390m, but by the end of 2012 it had reached $183.4bn, according to World Bank figures. GDP per capita thus also rose from around GSC YEARBOOK 2015 29
$1303 to some $91,690 over the same period, with this figure hitting $102,200 at purchasing power parity (PPP) in the latter year, according to Qatar National Bank (QNB). This gave the country the highest per capita GDP at PPP in the world for 2012.
Field Of Dreams One of the main reasons for this staggeringly rapid growth was the discovery, also in 1971, of the vast North Field, the world’s largest non-associated natural gas reservoir. The field lies partially under the north-east corner of the Qatar Peninsula, then stretches out many kilometres further into the Gulf. In 2005, the government imposed a moratorium on further development of the field in order to create a strategy future production. According to the Oil and Gas that helped the country recover after its traditional foreign exchange earner – the pearl industry – was decimated by the discovery of pearl culturing by the Japanese in the 1930s. Even with a combination of fields run by the national oil company, Qatar Petroleum, and production-sharing agreements with international oil companies, the country’s oil production has been gradually falling in recent years, with production at approximately 730,000 barrels per day (bpd) in 2012. In addition, around 8.4m barrels of condensates were produced that year, while Qatar has also invested heavily in gas-to-liquids technology, which helped further sustain its petroleum output. A moratorium on any further development of the North Field which runs until 2015 has also led to these other hydrocarbons sectors increasing in relative value in terms of their contribution to GDP. In 2012 this all added up to reserves of 193bn barrels of oil equivalent, according to figures from QNB. This gave Qatar the highest hydrocarbons reserves – and revenues per capita – of any country in the world that year, with revenues averaging $183,000 and reserves estimated at 724,000 barrels of oil equivalent per Qatari national. 30 GSC YEARBOOK 2015
A skyline of towers has sprouted across the capital, Doha, while the country’s population has jumped, from 744,029 in 2004 to over 2m today. There is a palpable sense here that the future is one of great possibility, and that it is arriving fast Demographic Changes One consequence of the gas and oil boom was the arrival in Qatar of a wave of expatriate workers. The development of associated industries, such as petrochemicals, added to the numbers, while the trickle down into other sectors began to lift services and manufacturing. The first major wave of immigration, which lasted from 2004-09, saw annual average population growth of 14.9%, according to QNB, peaking at 19.1% in 2008. The subsequent global economic downturn slowed growth somewhat, but then a second wave of immigration began as Qatar unleashed its huge infrastructure programme. In consequence, Qatar’s population reached 2.01m in January 2014, according to QNB, following 5.9% growth, yearon-year. The majority of these people are non-Qataris, with nationals making up around 273,000 of the total in mid-2013. Most of the expatriates are low-skilled or semi-skilled workers, often employed in the construction and services sectors – and are mostly young males. Figures from the Ministry of Development Planning and Statistics (MDPS) show 75.6% of the total population, including Qatari and non-Qatari nationals, were males as of January 2014, while just 24.3% were females. More than 80% of the total population lived in Doha at that time. This creates a great many challenges for a developing economy such as Qatar’s.
Yet the authorities have long been aware of the need to manage this growth. A clear series of plans has been drawn up over the years and implemented, with the overall strategy known as QNV 2030.
Looking Ahead Published in 2008, QNV 2030 charts a course for Qatar that aims to establish it as “an advanced country capable of sustaining its own development and providing a high standard of living for all of its people for generations to come”. To achieve this ambition, the plan recognises five major challenges that need to be addressed. One is that of balancing the size and quality of the expatriate labour force. The other four are seen as: modernisation and the preservation of traditions; the needs of the current generation and those of future generations; managed growth and uncontrolled expansion; and economic growth, social development and environmental management.
Sustainability QNV 2030 also takes as a fundamental starting point the fact that growth based on non-renewable hydrocarbons resources will ultimately prove unsustainable. The welfare of future generations must therefore be a factor in determining how the gas and oil fields are developed – an approach that is clearly behind the current moratorium on the North Field, but also behind a key word in QNV 2030: diversification. At the same time, the impact on the environment in one of the world’s most delicate ecologies must be addressed, with overall development aiming to balance environmental restoration and preservation with the inevitable impact of population and economic expansion. QNV 2030 aims to manage these challenges by basing its strategy on four pillars: human development, social development, economic development and environmental development. These principles are common to all of the country’s plans, whether they be short, medium or long term. QNV 2030 can be broken down into a series of
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five-year sequential steps, or National Development Strategies (NDSs), with the first and current one of these being NDS 2011-16.
The Human Factor The first QNV 2030 pillar recognises the need for the Qatari people themselves to become the country’s greatest resource. This means establishing “advanced educational and health systems” while simultaneously boosting the numbers of Qataris in the workforce. On this latter point, MDPS data shows that the country’s labour force – expatriates included – totalled around 1.5m in the second quarter of 2013, with 74% of these in the private sector, and 37% of that total employed in the construction sector – the largest segment. While producing most of Qatar’s wealth, oil and gas accounted for just 7% of the labour force, illustrating the pressing need for new areas of employment and diversification. Qatari nationals have also traditionally tended to take government jobs. According to the MDPS, 84% of nationals with jobs were public sector employees in 2012, a total made up of 71% government departments and 13% government companies. Just 9% worked wholly in the private sector, with the remainder in the mixed sector. Higher relative wages and better working conditions, in terms of pensions and other social support, are the usual reasons why Qataris prefer the public sector. Public sector wage hikes in 2011 and 2012 reportedly increased its attractiveness as well. In addition, given that the number of Qatari women that work is quite limited, overall only around one-third of Qatari nationals are in the labour force, according to figures from QNB.
Qatarisation QNV 2030 recognises that improving human resources means building a knowledge-based economy, while balancing the numbers of expatriates with nationals in the workforce also means encouraging Qataris to enter the private
sector and existing businesses to hire more Qataris. Thus, there is a policy of Qatarisation, a strategy begun in 2000 which aims to achieve 50% Qatari national employment in the industry and energy sectors. Many sectors and companies have since exceeded this target, though others are still working towards it. RasGas, for example, announced it had reached 34% Qatarisation by November 2013. Providing skilled and trained professionals for energy and industry requires a major investment in education. This is under way, with projects such as Qatar Foundation’s Education City bringing in overseas universities, while the government increased education spending to QR26.3bn ($7.2bn) in its 2014/15 budget, a 7.3% rise over 2013/14. Spending on health – another key element in building human resources – was also increased by 12.5% in the budget, with this covering a major new hospital building and improvement programme. In the shorter term, nonetheless, there is recognition that expatriates will continue to provide the bulk of the labour force, particularly in the lower-level jobs. QNV 2030 thus advocates incentives and institutional arrangements to continue to attract workers from abroad, while “ensuring the rights and safety of expatriate labour”.
One consequence of the gas and oil boom was the arrival in Qatar of a wave of expatriate workers. The development of associated industries, such as petrochemicals, added to the numbers, while the trickle down into other sectors began to lift services and manufacturing
Workers’ Rights This latter point has recently been somewhat controversial, with concerns expressed over workers’ conditions in the construction sector, now that the international spotlight is on Qatar in the run-up to the 2022 FIFA World Cup. The deaths of several Nepalese workers – although they were not engaged in World Cup projects – made global headlines in consequence, and highlighted other issues with the Qatari labour market.
Sponsorship System For Expatriates Expatriate workers for the larger projects are usually hired via agencies that are based overseas, with a quota given for each country. Workers who obtain the necessary sponsorship from a Qatari employer – and pay the requisite fee – can obtain visas and an employment contract to come to Qatar. They thus enter the kafala – or sponsorship – system. This restricts their ability to move from one employer to another, as both their visa and residency are then tied to a particular job. While in many cases workers remain with the same employer, finish their work and return home without incident – and with their earnings a valuable source of remittances for their family and home economy – in some cases, the system lends itself to the exploitation of employees. It also leads to a highly rigid labour market, with bottlenecks regularly appearing. As workers cannot move between projects without great difficulty, fresh visas often have to be obtained and new workers hired for new projects, which can lead to employers being obliged to hire inexperienced employees, while experienced ones have to return home, particularly if their country has already reached its visa quota. At the same time, leaving Qatar can require an exit visa, leading to some being effectively marooned if they lose their employment. Other market distortions occur as well, with some calls being made – both inside and outside Qatar – for reform of the system, as well as for improved health and safety GSC YEARBOOK 2015 31
conditions for workers. In late November 2013 Hassan Al Thawadi, the secretarygeneral of the now-renamed Supreme Committee for Delivery and Legacy, told reporters that the committee was “working hard” to produce a “sustainable system for the long term”.
Sustainable Growth The aim of the second pillar of QNV 2030 is social development, a recognition of the need to adhere to high moral standards in progressing towards the vision’s goals. This takes the family as the basis for society, with women taking on an enhanced role as that society develops. Being a just and tolerant country, with a constructive role in international affairs, is also seen as key here. This gives Qatar a principled basis for engagement overseas, in multilateral and bilateral organisations and initiatives, including its leading role in the main regional economic bloc, the GCC.
International Role Qatar is also a member of the World Trade Organisation, with Doha the venue for the 2001 meeting setting the mandate for the most recent round of global talks. In addition, Qatar has an important role in promoting investment overseas – through the country’s sovereign wealth fund, the Qatar Investment Authority (QIA), and its subsidiaries, such as its direct investment arm, Qatar Holding – investing in equities, bonds and other projects worldwide (see analysis).
workforce. These are often crucial in emerging markets such as Pakistan, India, the Philippines, and the Middle East and North African states. The IMF estimates that there was $60bn in outflows via remittances between 2006 and 2012, with 54% of this going to Asia and 28% to other Arab states.
Growth & Diversification The third pillar, economic development, begins with the policy of using Qatar’s current hydrocarbons wealth to leverage sustainable economic development for the future. Diversification is the central plank of the consequent economic growth strategy, with the stated aim of balancing the budget with non-hydrocarbons-based revenues by 2020. That growth has been phenomenal in recent years, too. From 2000 to 2011, real GDP grew at an annual average rate of 13.1%, an average that since mid-2005 has outstripped even China. In 2012 GDP grew by 6.2%, down from 13% in 2011 but still one of the word’s fastest rates. Data from the MDPS showed that growth should pick up to 6.8% in 2014, up from 6.2% in the third quarter of 2013, given the number plans for large infrastructure projects.
Dependence On Hydrocarbons A large part of the reason for slowing growth is the dependency of the country on hydrocarbons – and thus
Financial Aid Qatar has offered financial aid to several Arab countries currently in transition. According to the IMF, between 2010 and early 2013 this totalled $3.2bn, composed of $2.5bn in investments and $675.8m in cumulative financial support to Egypt, Jordan, Libya, Syria and Tunisia. Following the military coup in Egypt in July 2013, however, it was unclear what level of support Qatar would continue to give to the Egyptian authorities. The country also plays an important role internationally in terms of remittances sent home by the expatriate 32 GSC YEARBOOK 2015
In consequence, Qatar’s population reached 2.01m in January 2014, according to QNB, following 5.9% growth, year-on-year. The majority of these people are nonQataris, with nationals making up around 273,000 of the total in mid-2013
on the vagaries of international oil and gas prices. Indeed, the hydrocarbons sector was the main driver of growth overall for many years – up until the second quarter of 2011, when the current phase of LNG expansion was completed. At that time, hydrocarbons’ contribution to real GDP had grown 30% year-onyear, according to MDPS data, while the non-hydrocarbons sector saw only around 9% growth. According to MDPS and QNB figures for 2012, the respective shares of Qatar’s $192bn GDP taken by gas and oil that year were 42.2% and 15.6% – making a total of some 57.8% for the oil and gas sector. Services accounted for 29.6% of the total, with financial services the largest contributor within this category, at 10.2%. The non-oil industry sector then contributed a total of 14.6%, with manufacturing taking 9.8% and construction 4.4%. Thus, the nonhydrocarbons sector took 42.2% of GDP, an amount equivalent to the gas sector’s contribution. In 2011 the contribution of nonhydrocarbons sectors was similar – around 42% out of a total GDP of $173bn, according to QNB. This was largely made up of financial services, which accounted for around 28% of non-hydrocarbons GDP for the year, and manufacturing, which was responsible for 24%.
Oil & Gas Prices A look at benchmark Brent crude oil shows that barrel prices have fluctuated significantly in recent years – from an average of $97.40 in 2008 down to $61.70 the following year, in the aftermath of the global downturn. Prices then picked back up, to $79.60 in 2010, and then jumped to $111 in 2011. They peaked at $111.70 in 2012, while by November 2013 they had fallen to about $108 a barrel and remained at around that level as of mid-February 2014. At the same time, gas prices have been decoupling from oil prices, which they had historically tracked closely. Industry insiders have expressed concern recently that the development of US shale gas resources, in particular,
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may drive a further wedge between LNG and oil prices, with the former often contractually indexed to the latter. Acting as a counter to what could be a long-term decline in LNG pricing, however, are contingent and noncontingent factors that have recently been in play. On the contingent side is that after the tsunami that struck Japan in 2011, demand for LNG jumped in one of Qatar’s primary export markets, as Tokyo shut down its nuclear power stations. On a more fundamental level, demand elsewhere has risen too. While LNG accounted for around 5% of global gas consumption in 2000, it now makes up around twice that. Demand is currently exceeding the supply capacity of existing liquefaction plants, particularly in Asia and Europe. In recent years, then, benchmark Japanese LNG prices have risen steadily, despite a sharp drop in the wake of the global economic downturn in 2008. In 2012 they reached $16.80 per million British thermal units (MBTU), up from $12.80 just before the downturn and $4.70 in 2000. Japanese spot market prices also rose steadily until the end of 2012, from $10 per MBTU in January 2008 to a high of $18.10 in 2012. Since then they have declined, although they were still standing at $15.10 at the start of 2013. At the same time, most of Qatar’s LNG is sold on fixed, long-term contracts, which also protects the country against short-term price fluctuations. The net effect of all of this, then, has been an overall increase in hydrocarbons revenues; however, in recent years, the oil and gas sector’s share of nominal GDP has been gradually decreasing. The main driver of growth is now the nonhydrocarbons sector, which began to see higher percentage annual increases than oil and gas from late 2011 onwards. In the third quarter of 2013 nonhydrocarbons growth was around 9.5% year-on-year, while hydrocarbons saw 1.8% growth. This trend is likely to continue going forward, given the current moratorium on new gas developments, and the slow decline in oil output as existing reserves decline.
Also significant for QNV 2030 as well as for the NDS 2011-16 has been the increasing contribution of manufacturing. In 2012 the value of this sector grew by some 11.8%, year-on-year, thanks to projects in petrochemicals, fertilisers, metals and cement. Construction also grew, by 10.6%, primarily driven by government expenditure on infrastructure.
Surpluses Meanwhile, the surge in revenue has created some substantial fiscal surpluses for the government in recent times, particularly as during the last five years an average of more than 80% of budget revenues have come from hydrocarbons. The financial year 2012/13 saw a record fiscal surplus of $22.6bn, equal to 11.8% of GDP, according to preliminary figures from Qatar Central Bank (QCB). This was nearly double the $13.2bn fiscal surplus of the previous financial year. This was largely due to an increase in hydrocarbons production combined with higher global prices. It is not uncommon for Qatar to post budget surpluses, as the assumed price of oil is traditionally set considerably lower than the market value.
Rising Revenues However, oil and gas revenue fluctuations are only a part of the story behind the surplus. In the financial year 2012/13, total government revenue went up by
At the same time, the impact on the environment in one of the world’s most delicate ecologies must be addressed, with overall development aiming to balance environmental restoration and preservation with the inevitable impact of population and economic expansion
25.7% to a record figure of some $76.6bn, while direct oil and gas revenues, and revenues from the state’s investments in the sector, rose by around 18.9%. The rest of the increase was accounted for by corporate and other taxes, Customs revenues and other income sources, demonstrating improved collection by the Qatari authorities, as well as the effect of more revenue-raising activities coming on-stream as the economy grew.
Low Tariffs At the same time, tax and Customs revenues have never been high. Qatar is generally a low-tariff country, with the majority of import tariff lines at 5% or below. Since 2010 there has been a withholding tax and a corporate income tax of 10% of taxable profits on Qatarsourced income, unless the corporation is wholly owned by Qatari and/or GCC nationals, in which case there is no corporate income tax payable. Exemptions also exist for those involved in a number of projects, such as Qatar Science and Technology Park. There are also no personal income taxes. Behind the increase in the surplus was also the fact that while revenue jumped, expenditure was left lagging behind. Total government expenditure in the financial year 2012/13 increased by 13.1%, to $54bn. This was a marked change from the previous financial year, when expenditure had risen by some 21.3%. For the first time since 1990, the year saw expenditure below budget, with development spending increasing a marginal 0.5% year-on-year, to approximately $13.9bn. Current expenditure increased by 18.2%. Much of the latter was also taken up by pay increases, with public sector wages costing 14.8% more in the financial year 2012/13 than they had done the year before. Other categories generally declined. The development budget shortfall was largely attributed to delays in the roll-out of government capital projects, highlighting one of the challenges in managing the country’s rapid economic expansion. According to a report by National Bank of Kuwait, project awards exceeded $8bn GSC YEARBOOK 2015 33
in value in the first quarter of 2012, but then declined steadily to less than $4bn by the fourth quarter of the same year. The majority of these projects were in the transport and construction sectors. There are various factors behind this decline. Partly, government fiscal policy itself created an atmosphere of greater prudence in expenditure, a decision taken in light of the generally sluggish performance of the global economy in the financial year 2011/12. There has also been recognition that budgeting itself needs improvement, with the government planning to move to a three-year budgetary framework, a move that was welcomed by the IMF. This should ensure more stable medium-term fiscal planning, eliminating short-term volatility, and should also help government agencies more effectively track and distribute funding for major projects. Beyond these proposed changes, bottlenecks in supply have also sometimes introduced delays, with two key transport sector projects – the new Hamad International Airport and the new sea port – key to easing these. The first is nearly finished and is now due to be operational in 2014, and the latter’s first stage is set to open in 2016. Some suppliers told OBG that, in the meantime, they were accessing the neighbouring Saudi market to bring in materials by road, although Saudi Arabia’s own large infrastructure projects were soaking up capacity there as well.
Key Indicators With hydrocarbons and nonhydrocarbons revenues increasing, Qatar’s current account has long been healthy. In the first three quarters of 2013, it registered a record surplus, at 33.5% of GDP. This was up slightly on the 32% recorded in 2012, and well ahead of the recent low of 6.5% in 2009 after the first impact of the global slump. The capital and financial account, however, has generally been in deficit in recent years, reflecting strong capital outflows. In the first three quarters of 2013, this was recorded as 27.9% of GDP, 34 GSC YEARBOOK 2015
The first QNV 2030 pillar recognises the need for the Qatari people themselves to become the country’s greatest resource. This means establishing “advanced educational and health systems” while simultaneously boosting the numbers of Qataris in the workforce a drop from the 23.1% posted in 2012 but still an improvement from 2011, when the capital account deficit was 36.5%. Putting the current and capital accounts together, the resulting balance of payments maintained a surplus of 4.2% of GDP in the first three quarters of 2013, with the QCB reporting a surplus in the first quarter, a dip into the red in the second and returning to the black in the third. This is compared to an 8.4% balance of payments surplus posted in 2012 and an 8.4% deficit recorded in 2011. Although Qatar’s international reserves dropped by nearly 50% over 2011, down to QR59.3bn ($16.2bn) by the end of the year, they have nearly tripled since then. By the end of 2012, net international reserves had reached QR118.9bn ($32.6bn), growing a further 27.5% over the course of 2013 to reach QR151.7bn ($41.6bn) by December 2013. Import cover stood at 16.5 months, a figure over five times the minimum IMFrecommended level for countries that operate with an exchange rate peg.
Peg Since an emiri decree in 2001, the riyal has been pegged to the US dollar at a rate of $1:QR3.64, with this allowed to fluctuate within a band between QR3.6415 and QR3.6385. While there has been periodic discussion of changing this arrangement in Qatar and among the GCC countries –
which are similarly pegged to the dollar, aside from Kuwait – it seems unlikely to occur any time soon. The peg gives the riyal stability, and continues to be well supported by the country’s strong revenues and large overseas investments. Short-term interest rate policy is thus closely tied to the US Federal Reserve rates. The QCB has three policy rates – deposit, lending and repurchase – with the lending rate the main mechanism for sending signals to the market. The lending and repurchase rates were reduced from 5% to 4.5% in August 2011, while the deposit rate went down from 1% to 0.75%. They have remained there since. One other advantage of the large fiscal surplus is that it helps ameliorate gross government debt. This stood at 38.7% of GDP in 2010, according to QNB, falling to 37% in 2011 and then rising a little to 37.8% in 2012. The main reason for this expansion was a deliberate government policy. For some time now Qatar has been attempting to develop its capital markets, and the state has embarked on a programme to support the bond market. To do this, it has made a series of debt issuances with the aim of establishing a domestic yield curve. In November 2013, for example, the QCB issued QR4bn ($1.1bn) in Treasury bills.
Secure Banking The country is also blessed with what is widely considered to be a very secure banking system. This sector is now the third largest in the GCC and showed the strongest asset growth of all six member states in 2013, at 11.4%. The six commercial banks, four Islamic institutions and one development bank that constitute the local sector control all but around 5% of total assets, with that portion divided among seven foreign banks. By far the largest local bank is QNB, which controlled 48.7% of total assets in December 2013.
Loans The largest share of overall loans is taken by the public sector, which accounted for 42.5% of bank credit facilities in June
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Higher relative wages and better working conditions, in terms of pensions and other social support, are the usual reasons why Qataris prefer the public sector. Public sector wage hikes in 2011 and 2012 reportedly increased its attractiveness as well 2013, down from 45.8% in 2012. Overall loan growth between 2008 and June 2013 was 19.1%, with total credit facilities extended standing at $146bn by June 2013, up on $140bn at the end of 2012 and $111bn at the end of 2011. In addition, there are some 150 financial services companies operating in Qatar
Financial Centre. This offshore facility grants those operating within it special privileges, including the possibility of 100% foreign ownership and full profit repatriation. The domestic banks have fairly low non-performing loan (NPL) ratios, with the sector recording an NPL ratio of 1.7% in 2012, up slightly on the 1% of 2011, according to the QCB. The ratio of provisioning to NPLs was 97.5% in 2012, however, up from 87.2% in 2011. Capital adequacy is also high – the sector average for regulatory tier 1 capital to total assets was 12.8% in 2012, up from 12.6% in 2011. The ratio to risk-weighted assets was 18.2% in 2012, down from 19.9% in 2011. In terms of international ratings, the main Qatari banks all score highly. QNB has an “Aa3” rating from Moody’s, and an “A+” from Fitch and Standard & Poor’s. Commercial Bank has “A1”,“A” and “A-” ratings with the same agencies, respectively, while Qatar Islamic Bank is rated “A” and “A-” with Fitch and Standard & Poor’s, respectively, as is Doha Bank.
Forging Ahead The banking sector and the government are thus both well provisioned to finance major projects – with a long list of these either already ongoing or in the pipeline (see analysis). As hydrocarbons diminish in terms of their share of the economy, project development – particularly of infrastructure – is growing its share, becoming the chief driver of economic expansion. These projects are also increasingly in non-hydrocarbons-related areas, with many focused on the 2022 FIFA World Cup, although with much longer-term legacies. A report by EC Harris in late 2013 forecast $156.8bn in construction spend up to 2030. Meanwhile, according to QNB, estimated project spending displayed a compound annual growth rate of 46.3% between 2000 and 2012, with a recent peak in 2008 of $30.8bn. Much of the spend up to then had been oil- and gas-related, however.
GSC YEARBOOK 2015 35
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Now, infrastructure of a different kind is taking the lion’s share, with QNB figures showing construction accounts for 46.8% of all current project spending and transport 34.9%. Some $29.1bn in project spending is scheduled for 2013, with this rising to $41.8bn in 2018, equivalent to a 7.5% compound annual growth rate over the five years.
Expatriate workers for the larger projects are usually hired via agencies that are based overseas, with a quota given for each country
Spending Programme For the financial year 2014/15 as well, the government has announced an enormous spending programme. According to local press in March 2014, the QR225.7bn ($61.82bn) budget as approved by the Emir is 2.5% larger than it was for 2013/14. A QR7.3bn ($1.99bn) surplus is projected, with spending of QR218.4bn ($59.82bn). But the actual level of spending is likely to be higher still. The estimates are based on an assumed oil price of $65 per barrel, but with barrel prices at about $100 in March 2014, government revenue is likely to be higher. The budget allocates a 54% share to education, health, infrastructure and transportation, with QR75.6bn ($20.71bn) going to infrastructure projects alone. The allocation represents a 22% increase in spending for infrastructure over the 2013/14 budget to enable the expansion and completion of projects for the 2022 World Cup.
Inflationary Pressures Naturally, with such a large injection of government spending, inflation is a concern. Excess structural liquidity has been an issue in Qatar for some time, due to the high revenues from hydrocarbons exports and the booming economy. QCB data shows that inflation has been creeping up recently, too. The consumer price index stood at 1.87% in 2012 on average, but in the last two quarters it rose to end the year at 2.65%. By December 2013 QNB reported the figure at 2.7%, year-on-year. The M3 money supply went from QR442.5bn ($121bn) in 2012 to QR576.8bn ($158bn) in the fourth quarter of 2013, according to the QCB. 36 GSC YEARBOOK 2015
Housing Prices One of the main sources of inflationary pressure has traditionally been housing, with this in shorter supply in the early part of the last decade, as Doha’s population expanded more rapidly than new-built residential property could come onto the market – all at a time of both high liquidity and credit growth. Recently though, the market was somewhat looser, with land prices even falling slightly in the third quarter of 2013. This drop was likely only a temporary situation, however, with the population set to expand ahead of the 2022 FIFA World Cup due to the influx of workers needed for construction projects (see Real Estate chapter). Already, the QCB’s real estate price index, which hit an all-time high of 192.2 in 2008, stood at 157.2 by the end of 2012, then a high of 189.8 in December 2013, showing a generally upward trend. The completion of new housing projects should ease this to some degree, but bottlenecks are expected to continue to appear, and are likely to make pricing volatile. These may also occur in the supply of materials to the country’s many infrastructure projects, causing price hikes there, too. While there is some debate among economists on the issue, inflation therefore seems likely to continue to be a factor in the country going forward. Bottlenecks in supply – rather than excess liquidity – are generally thought likely to be behind any future price hikes, with measures such as the development of bond issuances and the management of the reserve requirement and loansto-deposit and liquidity ratios for local
banks all helping in this regard. In June 2013, the MDPS forecast inflation for both 2013 and 2014 would come in at around 3.6%.
Outlook With such robust fundamentals, it is no surprise that Qatar consistently ranks high in the international ratings agency standings. Moody’s had the country at “Aa2”, not on watch, for long-term risk in November 2013, with its outlook rated stable. Standard & Poor’s had it at “AA”, with a stable outlook, for the same period. Looking at credit default swaps, the country’s spreads are among the lowest in the region, at around 66 basis points above US Treasuries for a five-year bond as of February 2014. In terms of competitiveness, Qatar also scores well. The World Economic Forum’s “Global Competitiveness Report 2013-14” placed it 13th out of 148 countries, and top within the GCC region. The World Bank’s “Doing Business”survey, meanwhile, ranked Qatar 40th in the world and third in the GCC, reflecting the survey’s emphasis on regulatory factors (see analysis). This gave added weight to issues such as gaining access to credit and starting a business – concerns that the government is anxious to address as it attempts to provide greater support for business start-ups (see analysis). It is to the area of private sector growth, beyond the oil and gas business, that emphasis is now being given, with a recognition that this segment is vital to the success of QNV 2030 – and to the country’s long-term prosperity. Looking at the QNV 2030’s four pillars, balancing the country on these will be both the challenge and the potential opportunity for investors, domestic and international, as the country heads towards a much greater global presence in the years ahead. Originally published by Oxford Business Group (OBG) in The Report: Qatar 2014, published in April 2014, Economy Chapter. For economic news about Qatar and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates
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A regional rail network is expected to help realise trade potential One of the largest planned construction investment in the country is Oman’s national railway, estimated at $15bn. The government, funding the project with support from other GCC states, hopes that it will be a catalyst for economic diversification and underpin the long-term growth of sectors like manufacturing and logistics.
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he railway will link the major ports and growing industrial centres of the country, notably Sohar, Duqm and Salalah. The development of railways across the GCC member states is expected to help drive 35% growth of the region’s construction sector between 2013 and 2015, according to international press reports.
Opportunities The Oman railway’s development will provide great opportunities for private and global contractors. Initial plans will 40 GSC YEARBOOK 2015
see the 2244-km network link six cities in Oman and Buraimi on the UAE border (130 km from Dubai), and may later be extended to Yemen as well. The first stage of the network should be fully operational by 2018. Construction on the 1061-km first stage of the network is to start in late 2014. Leading up to this, contracts for several of the project packages will be awarded by the Oman Railway Company (ORC), a state-owned entity under the Ministry of Transport and Communications (MoTC), which will oversee the entire initiative, including procurement.
Italian state railway engineering company Italferr has already been selected to conduct preliminary design on the project, and the Tender Board has shortlisted bids for a project management consultant. In September 2013, Ahmed bin Mohammed Al Futaisi, minister of transport and communications, told the local press that the ministry was“asking the private sector to think about investment strategy and take advantage of the available opportunities”on the rail project.
Figures According to Luka Beccastrini, Middle East regional head of Italferr, construction of the network will involve 1.7bn cu metres of cut-and-fill and 20.25m cu metres of earthworks. There will be 35 km of tunnels, 45 km of viaducts, 39 km of rail bridges, 48 km of wadi bridges and 245 flyovers and underpasses. There will also
OMAN
be 46 stations of various sizes, extensive support facilities like marshalling and intermodal yards, maintenance workshops, and supporting roads and security fences. Once operational, the railway will use diesel trains to move passengers at up to 200 km/hour and freight at 80-120 km/ hour, according to the MoTC. The first phase of the railway includes a 242-km stretch from Al Misfah in Muscat to Sohar Port, with a 20-km link to Muscat Central Station and an 8-km spur to a railway yard at Sohar. There is also a 486km line from Muscat to Duqm Port and 84 km between Sinaw and Ibra in Oman’s east. International connections are also included, with a 136-km track from Sohar to Al Ain in the UAE, with a 27-km spur to the border town of Buraimi, and a 58-km line from Sohar to Khatmat Al Malaha, another border crossing.
Wider Access The Omani railway will connect to a broader GCC network, meant to link the countries of the Gulf and beyond. In the longer term, the aim is to connect the GCC Railway to networks in the Middle East and Turkey – and then as far as Europe and Central Asia. The project could be a real gamechanger for Oman, and help generate long-term demand for the construction industry, both in maintaining the network and in developing the industrial, logistics and transportation infrastructure that the railway is expected to catalyse. The sultanate’s ports have the benefit of lying outside the Straits of Hormuz to the east and the Bab El Mandib to the west. However, Oman has not been able to make full use of its unimpeded access to the Arabian Sea and Indian Ocean partly
because of a lack of a railway to move goods to and from the Arabian Peninsula. The GCC railway could alter the dynamics of regional trade significantly, and allow Oman to capitalise on its strategic location. As global real estate firm Cluttons said in a 2013 report on Oman, the railway could prove a“vital addition to the potential of the ports at Salalah, Duqm and Sohar to develop further as regional freight hubs”. This would have knock-on effects for logistics real estate in the country, particularly around those crucial ports. Originally published by Oxford Business Group (OBG) in The Report: Oman 2014, published in January 2014, Construction Chapter. For economic news about Oman and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 41
KINGDOM OF SAUDI ARABIA
More than petrochemicals Heavy industry and petrochemicals dominate, while other segments such as automotive and pharmaceuticals are becoming more prominent
T
he largest industrial power of the GCC states by far, Saudi Arabia is also one of the leading industrial powerhouses of the world in a number of key sectors. National industry is dominated by petrochemicals and the country ranks as the third-largest global producer of basic petrochemical ethylene, due in large part to the availability of extremely cheap natural gas feedstock. State-backed Saudi companies, in partnership with foreign investors, are also moving to significantly boost other heavy industrial activity, through the construction of new large-scale projects and industrial cities in the metals and fertilisers segments in particular. As a result, the Kingdom is now also one of the largest producers of key fertilisers. The authorities are also hoping that downstream lighter manufacturing activities will expand on the back of the increasing availability of domestically
42 GSC YEARBOOK 2015
produced raw materials, boosting local employment. There are increasing signs that such plans are coming to fruition, with several foreign firms currently considering major investments. Sector Growth Industrial activity has been growing rapidly in Saudi Arabia in recent years. After taking inflation into account, industrial output (referred to by the Central Department of Statistics and Information, CDSI, as manufacturing, but including heavy industry) excluding oil refining grew by 4.9% in 2012 and 4.7% in 2013. This followed two years of double-digit real annual industrial growth
State-backed Saudi companies, in partnership with foreign investors, are also moving to significantly boost other heavy industrial activity, through the construction of new large-scale projects and industrial cities in the metals and fertilisers segments in particular
GSC YEARBOOK 2015 43
in 2010 and 2011. Industry accounted for 10.1% of GDP in 2013, or 7.7%, when refining is excluded from the figure, more or less unchanged from the two previous years. Despite such growth, the Kingdom still has a negative industrial trade balance. Manufacturer exports were worth SR131.59bn ($35.08bn) in 2012, according to data from the CDSI, representing 9.03% of total Saudi exports by value, in comparison to manufacturer imports of SR387.69bn ($103.35bn), or 67% of total imports. However, industrial exports and industrial output more generally are set to grow substantially. Under the Kingdom’s National Industrial Strategy, ratified in 2009, the authorities aim to raise the contribution of industry (including heavy 44 GSC YEARBOOK 2015
industry) to GDP to 20% by 2020, as part of wider efforts to diversify the economy away from its reliance on hydrocarbons production, as well as to increase industrial exports to 35% of total exports. Fahad Al Kaffary, the general manager of Falcon Company for Plastics Industry, told OBG, “Saudi Arabia has the potential to be a manufacturing hub thanks to government support, low input costs and the Kingdom’s strategic geographic location.” One of the main goals of the strategy is to improve job prospects for Saudi nationals, and the authorities are also targeting an increase in the contribution of industry to overall employment from 15% to 30%. In order to achieve these goals the authorities established the industrial clusters initiative, which is overseen by
KINGDOM OF SAUDI ARABIA
Industrial Workforce
the Ministry of Petroleum and Mineral Resources and the Ministry of Commerce and Industry; the programme aims to attract foreign investment in five key areas. These are the automotive sector, home appliances, minerals and metals processing, plastics and packaging, and solar energy products. The authorities also aim to raise the level of the Kingdom’s industrial technical know-how in a range of fields by attracting increased manufacturing foreign direct investment (FDI).“Partnering with foreign companies allows for knowledge transfer, helping to create a professional environment that encourages further development and improvement of local industry,” Mohammed Al Meshal, the CEO of the Saudi Food and Drug Authority, told OBG.
Industry employed nearly 637,000 people in 2013, according to figures from the CDSI. As with many sectors in the Kingdom, the majority of employees in the sector are expatriates; Saudi nationals accounted for 23.9% of the industrial workforce in 2013. The government is seeking to increase this figure, and in 2011 the Kingdom introduced the Nitaqat programme, which sets mandatory minimum proportional quotas for Saudi workers in private sector firms based on factors such as company size and sector of activity. Companies that fail to meet their requirements are subject to administrative sanctions such as being barred from renewing employees’ work permits, obtaining visas for new workers and opening new branches. Under the programme, all companies with foreign workers have been divided into three different categories – red, yellow or green. Firms with an adequate number of Saudis employed come under the green category, and they get preferential treatment such as expedited services while handling foreign workers’ visas.“The colour system regulating visas has improved the environment for labour-intensive industries,” Loai Nassem, the CEO and founder of fashion company Lomar Thobe, told OBG. Heavy industries such as refining and petrochemicals are less affected by Saudiisation initiatives as they tend to already employ high proportions of nationals. As a result, while the government is investing strongly in heavy industry, it is also working to expand downstream lighter manufacturing in sectors such as those targeted under the industrial cluster programme. Industrialists are also calling for increased on-the-job training in order to help boost Saudiisation.“Improving the skill level of the Saudi workforce goes beyond education. You’re not ready to work from day one, you have to learn and grow as an employee. There needs to be investment in the training of employees to help them accomplish this,” said Nasser Al Qahtani, group CEO of holding company Abdullatif Alissa Group. Supporting local small and medium-
sized enterprises (SMEs) also serve as another way of boosting local employment.“To solve employment issues, and to build a stable and diversified economy, you need to support SMEs. They are an important growth engine for any modern economy,” Abdullah Al Onezi, the CEO of the Saudi Paper Manufacturing Company, told OBG.
Industrial Cities The Kingdom’s industrial strategy is heavily based on the development of so-called industrial cities, which are dedicated zones that provide ready-made infrastructure to tenants, including in some cases residential and commercial areas for workers. Prior to 2012 investors were free to build industrial facilities on appropriately zoned land anywhere in the Kingdom. However, since then they have been required to establish new facilities within the industrial cities only. The Royal Commission for Jubail and Yanbu (RCJY) operates the largest two industrial cities in the Kingdom in terms of output by value. Jubail, the larger of the two, and Yanbu are together thought to account for around 12% of GDP and between them have attracted about $144bn of investment to date. The two cities are dominated by heavy industry, in particular petrochemicals and refining. Jubail Industrial City, which alone is thought to account for around 7% of GDP, is currently being expanded under a project known as Jubail II, which began in 2006 and which will increase the size of the city by some 53 sq km (including a 17-sq-km fourth and final phase, work on which has yet to begin). The venture, which is due to be completed by 2024, is one of the largest construction and engineering projects in the world. RCJY has committed $3.8bn to developing the city’s infrastructure and total planned investment in industrial facilities to be located within it stands at around $80bn. Major projects in the new zone include the Saudi Aramco Total Refinery and Petrochemical Company’s (SATORP) refinery, which is part of the second phase of Jubail II and which has already begun GSC YEARBOOK 2015 45
production (see Energy chapter), and the Sadara petrochemicals joint venture between Dow Chemical and Saudi Aramco (see petrochemicals section), which is being built as part of the third phase of the project. The RCJY is currently developing a new industrial city at Ras Al Khair on the Gulf coast in Eastern Province. The city will be focused on minerals and metals processing – in particular aluminium and phosphates – with a $4bn aluminium smelting complex currently under construction to be its centrepiece. Plans for a new heavy-industry-focused industrial city that will not fall under the purview of the commission, Waad Al Shammal Mineral Industrial City, were announced in 2012. The centrepiece of the zone, which is near the northern town of Turaif close to the border with Jordan, will be a $7bn phosphate complex being built by the Saudi Arabian Mining Company (known as Ma’aden), Saudi Basic Industries Corporation (SABIC) and US-based Mosaic (see below).
In The Zone Another major operator of industrial cities in the Kingdom is the Saudi Industrial
Property Authority (MODON). The authority was established in 2001 to take over the supervision of a number of existing industrial zones and since then has rapidly expanded the number and size of cities under its control, which generally focus more on lighter industry and manufacturing than the RCJY’s cities. MODON currently operates 32 industrial cities, including four or five of which are still in the initial phases of development. It also supervises six privately owned industrial cities. Together the cities under MODON’s purview cover a total of 163m sq metres of land and host around 5400 tenants. The size of the cities varies substantially, from 500,000 sq metres to 25m sq metres for completed cities; two planned cities (Sudair and Al Ahsa II) will be vastly bigger, at 260m sq km and 300m sq km, respectively. Initially most of MODON’s sites were established in and around large and medium-sized cities; however, it is now concentrating on less 46 GSC YEARBOOK 2015
Construction on KAEC began in 2006 and the three phases of its development are due to be completed by 2020. The development of infrastructure for the first phase of the industrial valley has been completed developed parts of the Kingdom in order to stimulate economic growth. The authority previously focused on providing infrastructure and land, but has recently begun building ready-made factories for tenants, aimed at small and medium-sized enterprises. The factories are built to a single standard model and have 1500 sq metres of space including a 600-sq-metre production area. The authority aims to have completed 200 such factories by the end of 2014 and 1000 by the end of 2015. The largest of the authority’s cities in terms of current production value is Riyadh Second Industrial City. The 300-sq-km Salwa Industrial City, also known as Al Ahsa II, when completed will be the biggest of the cities under MODON’s management. The zone, the first phase of which is due to be completed in late 2014, is located on the Gulf coast near the border with Qatar, and is intended to attract investment from both countries.
Economic Centres The Kingdom also has four privately funded “economic cities” that contain industrial
cities of their own, the development of which is being overseen by the Saudi Arabian General Investment Authority. The largest of these is King Abdullah Economic City (KAEC) on the Red Sea coast near Rabigh, which is being developed by real estate firm Emaar, The Economic City. KAEC includes a 63-sq-km industrial zone, known as the Industrial
Valley, with a focus on fast-moving consumer goods, pharmaceuticals, plastics, construction materials and automotive manufacturing. Construction on KAEC began in 2006 and the three phases of its development are due to be completed by 2020. The development of infrastructure for the first phase of the industrial valley has been completed. “The infrastructure of the industrial cities is generally good,” said Yousef Abdullah Al Motlaq, CEO of local manufacturing firm Alessa. However, he said there was an excessive focus on industrial infrastructure in such zones at the expense of other strategic needs.“The industrial cities only address physical requirements such as securing premises, which are not the main problems for industry,” he told OBG.“The country’s industrial strategy needs to focus more on issues such as training, the integration of local industries with each other, and ensuring that industrial investments bring real value to the country, protecting local manufacturing from dumping, which is going to kill many of the local industries if no serious actions are taken.”
Financing A key source of funding for national
industry is the Saudi Industrial Development Fund (SIDF), a finance institution under the control of the Ministry of Finance that provides medium- and long-term loans to companies undertaking industrial projects in the Kingdom. The fund finances itself through fees charged for evaluating loan applications and for consulting services that it provides to borrowers. At the end of 2013 the fund’s total commitments stood at SR112bn ($29.9bn), with SR6.68bn ($1.8bn) of loans having been committed to 120 new projects and the expansion of 24 existing projects during the course of 2013, according to SIDF, down from SR9.94bn ($2.7bn) in 2012. This drop in commitments was mainly attributed to the increasing number of applications received from smaller projects, especially in less developed areas, which stood at 60% of total projects approved in 2013.
KINGDOM OF SAUDI ARABIA
The segment to have received the most funding from SIDF in 2013 was building materials and cement, on SR2.3bn ($613.18m), followed by the chemical industry on SR2.1bn ($560m). Makkah Province accounted for nearly half of the total value of loans approved in 2013, at SR2.93bn ($781.1m); however, over the past five years, the country’s oil-rich Eastern Province has attracted the most financing from the fund, at SR14.73bn ($3.9bn), equivalent to 40.1% of total SIDF funding of SR36.5bn ($9.7bn). The maximum loan available to individual projects in major cities is SR900m ($240m); this rises to SR1.2bn ($319.9m) for projects in less developed areas, with the fund providing financing to both Saudi and foreign-backed projects. Industrialists say that financing from other sources is available. Further, in March 2014 the government approved the establishment by Saudi Aramco, SABIC and the Public Investment Fund (which is controlled by the Ministry of Finance) of a new industrial investment fund, the Saudi Arabian Company for Industrial Investment. The fund will have capital of SR2bn ($533m) and, according to the Saudi Press Agency,“will focus on conversion industries that rely on petrochemicals, plastics, fertilisers, steel, aluminium and basic industries.”
Petrochemicals Unsurprisingly in view of the Kingdom’s enormous hydrocarbons reserves,
petrochemicals production represents the largest individual branch of Saudi industry. While the authorities are keen to develop other areas, petrochemicals remain a key focus.“We should not be ashamed of being very specialised in petroleum and petrochemical industries. We are blessed with comparative advantages in these areas and should utilise them,”Ahmed Al Ghannam, the director-general of the Saudi Export Programme, told OBG. As of end-2012 Saudi Arabia was the world’s third-largest producer of basic petrochemicals and plastics precursor material ethylene, on capacity of 13.16m tonnes per annum (tpa), behind China on 13.78m tpa and
Unsurprisingly in view of the Kingdom’s enormous hydrocarbons reserves, petrochemicals production represents the largest individual branch of Saudi industry. While the authorities are keen to develop other areas, petrochemicals remain a key focus the US on 28.1m tpa, according to Oil and Gas Journal. Jubail Industrial City is the world’s largest petrochemicals cluster, and the Kingdom also hosts two of the world’s largest ethylene complexes, namely the Arabian Petrochemicals Company in Jubail in third place, with capacity of 2.25m tpa, and Yanbu Petrochemical Company in ninth place, with 1.71m tpa.
National Company The largest player in the country’s petrochemicals industry is SABIC. The company describes itself as the largest non-oil firm in the Middle East; it is also the world’s largest petrochemicals firm, both by market capitalisation and in terms of ethylene production capacity at its wholly owned complexes. This latter figure stood at 13.39m tpa at the end of 2012, ahead of Dow Chemical in second position on 13.04m tpa, according to Oil and Gas Journal figures; the firm has a further 10.27m tpa of ethylene capacity at its partially owned sites. SABIC also describes itself as the world’s third-largest producer of basic plastics polyethylene (PE) and polypropylene (PP) and the world’s largest producer of several other petrochemicals including monoethylene glycol (MEG) – with production totalling 6.46m tonnes in 2012 – and methyl tertiary-butyl ether. The firm’s total production across all products stood at 61.1m tonnes in 2012, up from 58.6m tonnes in 2011 and 47.8m tonnes in 2008.
This included just under 40m tonnes of chemicals, as well as 9.1m tonnes of polymers. The firm also has stakes in various metals and fertiliser outfits. The Saudi government holds a 70% stake in the company, which is also listed on the Saudi Stock Exchange; SABIC registered a total sales turnover of SR189bn ($50.4bn) in 2012 and profits of SR25bn ($6.7bn). SABIC’s newest major petrochemicals complex, the Saudi Kayan complex located in Jubail (in which SABIC holds a 35% equity stake), came on-stream in 2011. The complex is one of the largest petrochemical facilities in the world, with 1.48m tpa of ethylene production capacity, 630,000 tpa of propylene capacity, 350,000 tpa of PP capacity, 400,000 tpa of high-density PE (HDPE) capacity, 300,000 tpa of low-density PE (LDPE) capacity, 566,000 tpa of MEG capacity, 550,000 tpa of ethylene oxide capacity and 260,000 tpa of polycarbonate capacity, among other products. In addition to its Saudi facilities, SABIC also has operations abroad including a European subsidiary, SABIC Europe, with around 5m tpa of basic chemical production capacity and 2m tpa of polymers capacity. SABIC Europe was created as a result of the firm’s acquisition of DSM Petrochemicals in 2002, followed by that of Huntsman’s European chemicals business in 2006. In 2007 the firm also acquired GE Plastics for $11.6bn.
Oil Giant National oil, gas and refining company Saudi Aramco is also active in the petrochemicals industry and has ambitious expansion plans in the sector. In 2011 Saudi Aramco launched its socalled Accelerated Transformation Plan, which aims to transform the company into the top integrated energy and chemicals firm in the world by the end of the decade and one of the world’s top-three aromatics producers by 2018. In January 2014 Saudi Aramco’s CEO, Khalid Al Falih, said that the firm also intends to become one of the world’s top-three petrochemicals companies. The firm produces petrochemicals at its Petro Rabigh joint venture with GSC YEARBOOK 2015 47
Sumitomo Chemicals, which in addition to making refined products also operates a 1. 3mtpa ethane cracker and has around 3m tpa of total petrochemicals production capacity, including 700,000 tpa of MEG capacity, 600,000 tpa of linear LDPE (LLDPE), 300,000 tpa of HDPE and 300,000 tpa of PP. The facility is also currently being expanded under a $7bn project known as Rabigh II, which includes construction of a new ethane cracker and aromatics complex and which will see it start to produce additional petrochemicals including paraxylene/ benzene, methyl methacrylate monomer and ethylene propylene rubber in 2016. Together with Dow Chemicals, Saudi Aramco is also working on the construction of a massive new petrochemicals complex in Jubail Industrial City II, known as Sadara, which is being built at an investment cost of around $19.3bn. The project, which Saudi Aramco describes as the largest petrochemicals complex to have ever been built in a single phase, will have a total production capacity of around 3m tpa, including around 1.5m tpa of ethylene output capacity and 400,000 tpa of propylene capacity, utilising a multi-feed cracker – the first in the Middle East – that will be able to use naphtha as feedstock as well as ethane. The complex will also produce numerous other petrochemicals, including LDPE, LLDPE, propylene glycol, amines and polyurethanes. The project is due to be completed in 2015 and to enter into full production in 2016. Dow and Saudi Aramco plan to launch an initial public offering for a stake of 30% in the project, though it is currently unclear when this will take place. Other firms are also active in the sector. October 2012 saw the operational launch in Jubail of Saudi Polymers’ petrochemicals complex, a joint venture between privately owned Saudi firm National Petrochemical Company, which holds a 65% stake in the project, and Chevron Phillips (which holds the remaining 35%). The complex uses natural gas and propane as feedstock and has 1.22m tpa of ethylene production 48 GSC YEARBOOK 2015
capacity, as well as 1.1m tpa of PE, 440,000 tpa of propylene, 400,000 tpa of PP and 200,000 tpa of polystyrene.
Feedstock Issues Petrochemicals production in the Kingdom is largely based on the use of locally produced natural gas as feedstock, which is provided to producers for the effectively subsidised price of $0.75 per million British thermal units. This is the lowest price for gas feedstock in the world, giving the industry a substantial competitive advantage. However, several developments suggest this advantage may be somewhat reduced in coming years. For example, there has been recent speculation that the authorities might raise the price of gas to incentivise more efficient use of the commodity as well to encourage foreign energy firms to step up gas exploration, and in November 2013 the assistant minister for petroleum affairs, Prince Abdulaziz bin Salman, said that prices for petrochemicals firms were under review. The National Commercial Bank also issued a report suggesting that increasing global production of shale gas, in particular in the US, could push down international gas prices, which in turn could effectively reduce the comparative advantage held by Saudi petrochemicals producers. However, such fears are likely overplayed to an extent. It is unclear if any change to domestic gas prices will actually occur, and given their extremely
Further, in March 2014 the government approved the establishment by Saudi Aramco, SABIC and the Public Investment Fund (which is controlled by the Ministry of Finance) of a new industrial investment fund, the Saudi Arabian Company for Industrial Investment
low current base, the Kingdom may be able to increase prices substantially without seriously undermining the industry’s competitiveness. As regards international gas prices, in December 2013 Saudi merchant bank Jadwa Investment issued a report arguing that US production of unconventional hydrocarbons will have a smaller impact on international markets than is widely believed, and that the shale gas boom will likely be comparatively short-lived. In the meantime local industry players are looking to take advantage of the trend; SABIC in October 2013 said it was in discussions with a number of potential partners as regards the use of shale gas as feedstock for expanding its petrochemicals output in the US. Nevertheless, in light of concerns that rising gas consumption for electricity generation could reduce the availability of ethane for petrochemicals production in the Kingdom, Sadara’s choice of a mixed-feed cracker that can use naphtha as a feedstock may be a sign of things to come. Saudi Aramco and Total are undertaking a feasibility study to examine increasing production of naphtha at their new SATORP refinery in Jubail and, according to media reports in September 2013, a decision to go ahead could see as many as six new naphtha-fed crackers constructed in the country, each with a production capacity of at least 2m tpa. Furthermore, in March 2014 Saudi Petroleum and Mineral Resources Minister Ali Al Naimi said that SABIC plans to build a new petrochemicals facility in Yanbu that would use crude oil directly as a feedstock, without first refining it. Saudi Aramco has reportedly been carrying out research on how to achieve this for many years, and US oil firm ExxonMobil opened up the first petrochemicals facility to do so in Singapore in 2013.
Building Materials The US Geological Survey puts 2012 cement production in the Kingdom at an estimated 43m tonnes, ranking Saudi Arabia as the 12th-largest cement producer in the world. Production has been growing
KINGDOM OF SAUDI ARABIA
The Royal Commission for Jubail and Yanbu (RCJY) operates the largest two industrial cities in the Kingdom in terms of output by value rapidly over the last decade or so, from around 22m tonnes in 2002, and several major new factories have come on-stream in recent years.“Population growth, and government and private sector spending on mega-infrastructure projects are helping to drive the expansion of the building materials segment,”said Ali Al Ayed, director-general of SIDF. Population growth is currently running at around 2% a year. The government in 2011 announced plans to build 500,000 new housing units in order to address a shortage in the country, which should add to demand, though the initiative has been slow to get off the ground. Major construction and investment projects such as the various industrial and economic cities being built in the Kingdom are also helping to push up consumption levels. In order to avoid domestic shortages, and amid concerns about price rises, the government in recent years has repeatedly intervened in the sector by, for example, instructing cement producers to operate at full capacity and periodically putting in place export bans.“Reform efforts to decrease handling charges and adjust export tariffs could open significant potential for export of building and construction materials,”Khalid Al Amoudi, the vice-chairman of Saudi Red Bricks, told OBG. The largest cement producer in the Kingdom by output is Saudi Cement Company, with production of around 8.75m tpa in 2012. The firm operates two plants in Hofuf and Ain Dar, both of which are located in Eastern Province. Other prominent producers include Southern Province Cement Company and Yamama Cement Company. The sector has also attracted international investment in the form of French building materials major Lafarge’s stake in Al
Safwa Cement Company, which was established in 2007 and which operates a 2m-tpa facility north of Jeddah.
Metals Crude steel production stood at 5.2m tonnes in 2012 and 5.35m tonnes in 2013, according to the World Steel Association. Output has
been increasing steadily over the long term, from 2.98m tonnes in 2000. The Kingdom is the largest producer of the commodity in the GCC. While the global steel industry is still suffering from over-supply, construction activity in Saudi Arabia is driving demand for the commodity, and the Kingdom relies to a significant degree on imports. Sharjeel Azhar, the CEO of Al Ittefaq Steel, told OBG,“Demand for steel and other construction materials is strong thanks to all the mega projects such as the new metros, which will sustain high demand for several years.” SABIC is the major player in the national crude steel industry, via its wholly owned subsidiary Hadeed Saudi Iron and Steel Company, which describes itself as the leading steel producer in the region. The firm, which is based in Jubail Industrial City, has more than 3.3m tpa of long products production capacity and 2.2m tpa of flat products capacity. Recent developments in the sector include the inauguration in January 2014 of a new 600,000-tpa joint venture factory in Jubail by ArcelorMittal, the world’s largest steel-maker, and its local partner Al Tanmiah Company for Industrial and Commercial Investment. The plant, which was built at an investment cost of more than $1bn, will produce seamless tubular products and pipelines. In the aluminium sector, Ma’aden and Alcoa World Alumina and Chemicals (a joint venture between American firm Alcoa and Australia’s Alumina) are currently building an integrated aluminium complex in Ras Al Khair industrial city, at a capital investment cost of $10.4bn. Ma’aden has a 74.9% stake in the project, which it says will be the largest vertically integrated aluminium complex in the world, with Alcoa holding the remaining equity. The complex includes a 740,000-tpa aluminium smelter that began producing metal in 2012 and that has single-handedly brought
the Kingdom into the ranks of the top 20 aluminium-producing countries. The refinery will be fed by a 1.8m-tpa alumina refinery due to enter into operation by the end of 2014; in the meantime the smelter is being fed by imported alumina. The refinery in turn will use bauxite extracted from a 4m-tpa new mine at Al Baitha in Qassim Province that is due to begin production in the second quarter of 2014; a newly constructed railway line will transport the bauxite from Al Baitha to Ras Al Khair. An aluminium rolling mill is also under construction and will begin operations towards the end of 2014. The mill will produce sheet aluminium for use in the food-canning, automotive and construction industries. The new complex is part of Alcoa’s strategy to reorient its aluminium production capacity towards the Middle East to take advantage of lower electricity costs.
Outlook Heavy industry and petrochemicals are set to retain their dominance in Saudi industry for the foreseeable future, with several new large projects due to come
on-stream in the coming years. However, these projects will also expand the domestic availability of raw materials for downstream manufacturing, and there are increasing signs of interest from major foreign investors in a range of lighter, less traditional industrial segments. Whether or not expanding activity will see industry’s share of GDP rise in line with diversification targets will depend to a large extent on oil prices, and the authorities will also face challenges in turning industrial growth into jobs for nationals. However, industrial output appears set to increase substantially in absolute terms, and to become increasingly diversified, in coming years. Originally published by Oxford Business Group (OBG) in The Report: Saudi Arabia 2014, published in August 2014, Industry Chapter. For economic news about The Kingdom of Saudi Arabia and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 49
All aboard:
Rail links will help connect the peninsula economically and socially With just four years to go until the target date for the opening of a rail network carrying passengers and freight around the six countries of the GCC, its member states are looking forward to the economic and strategic benefits that this new connectivity will bring, but they also face some more immediate practical challenges in the short term.
By The Numbers The GCC countries are united by language, religion, culture and geography and have all been able to use revenue
from hydrocarbons to attract foreign labour. However, Saudi Arabia is by a considerable margin the largest economy in the six-country confederation. According to the World Bank’s ranking of countries by GDP for 2012, Saudi Arabia’s economy was only fractionally smaller than the combined GDPs of the other five countries. The Kingdom’s population of around 30m is larger than the combined population of the other five member states, and the total landmass of the other 50 GSC YEARBOOK 2015
to Riyadh in the south, and from Jeddah on the Red Sea to Dammam on the Gulf. Pilgrims visiting the west coast will be able to travel at speed between Makkah and Medina via Jeddah and the King Abdullah Economic City. The engineers have a lot of work ahead of them. The Saudi Railway Company’s network will consist of 2750 km of track, 148 bridges, 2900 culverts and more than 5m concrete sleepers. It is also part of a much bigger transport infrastructure master plan. Metro systems have been commissioned to provide public transport in Riyadh and Makkah, and freight terminals are being built to connect airports, phosphate and bauxite mines, and agricultural and industrial cargoes to processing and export facilities on the Red Sea at the port being built at Ras Al Khair. The North-South Line alone, running from the Jordanian border to Riyadh, is 1415 km long and will carry up to 2m passengers a year. Beyond Saudi Arabia’s borders, the $15.5bn project will enable goods and passengers to travel from Kuwait in the north to Muscat in the south, and from the border with Yemen to the border with Jordan. The wider integrated GCC network, first agreed on by transport ministers of the six countries in 2008, will not only offer an alternative to air or sea journeys and avoid road blocks at border crossings, it will also open up the possibility of more porous borders for each country’s citizens.
five member states adds up to less than 20% of Saudi Arabia’s area.
Mega-Projects
On Track
new airports, sea ports, industrial hubs, urban transit systems and skyscrapers being built to drive and accommodate more diversified economies and growing populations. The rail network is designed to speed up these advances and to allow the countries to share collective benefits. “Saudi Arabia is a huge market in the GCC and investors will want to tap into it,” said Fahad Al Turki, the head of research at Jadwa Investment.“There is a demand for Saudi products, whether it be milk or petrochemicals, in the GCC, so
Each member state is responsible for constructing its own part of the new 6000-
km, $100bn GCC rail infrastructure. The objectives of the individual countries are twofold: they are clearly trying to maximise the benefits domestically, as well as contribute to the wider network. Rail engineers in Saudi Arabia have already started construction of parts of the network of lines that will enable travellers to journey from Al Qurayyat near the Jordanian border in the north
Across the GCC region hydrocarbons wealth is being poured into mega-projects, with
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greater integration will help to open up the market for these.” There will also be benefits for other countries within the bloc. According to Dubai Customs, Saudi Arabia was the top destination for its re-exports in 2012. The rail network will also give GCC citizens an alternative route to events such as the World Expo 2020 in Dubai, which is expecting 25m visitors and will need 45,000 rooms to accommodate arrivals. Two years later the FIFA World Cup in Qatar will provide residents of the GCC with another attraction that will be within easy reach if the rail network is completed on schedule by 2018. Efficient freight services linking the Red Sea with the Gulf along the Saudi Landbridge being built from Jeddah to Dammam will help shield the Saudi Arabian economy from any supply crises should any of the three seaway choke points of the Suez Canal, Bab El Mandeb or the Straits of Hormuz be threatened. The GCC rail network will also enable Saudi goods to be imported and exported from the Port of Salalah in neighbouring Oman, the only facility between Singapore and Europe that can accommodate S-class container vessels. Shipping is the cheapest way to move freight, but rail will be faster as soon as the new network is up and running.
With just four years to go, only Saudi Arabia and the UAE have started building so far. Oman’s section of the network is set to be 2244 km long and it will go through some of the harshest terrain on the peninsula. It is still in the design stage as of 2014, with construction not due to start until 2015. An overarching authority to oversee the GCC project is due to be formed in 2014 and part of its role will be to ensure that member nations agree and adhere to a timeframe for completion.
Passports & VISAs Abdulla Al Nuaimi, the UAE’s minister of public works, told local press in January 2014 that a proposal has been made to allow passport-free travel across the network for all passengers, including both expatriates and locals. If the proposal is approved, it would mean that from 2018, when the tracks are due to be completed, passengers would be able to travel carrying their national identity cards rather than passports.“The idea of introducing the railway is to ease travel across the region,”Al Nuaimi told the local press. In the UAE, Al Nuaimi said that a new law was being passed in time for the launch of the service that would cover various legal aspects relating to travel, including fares, Customs, border crossings and passport control.
Customs & Currency A Customs Union was first established by the GCC in 2003, creating a free trade area with common external tariffs, but there is an ongoing debate as to how to divide up the revenue from those tariffs across the bloc. The deadline for a solution is 2015, but before that happens trade policies across the bloc must be unified. Speaking to the local press after a May 2014 GCC meeting, Kuwait’s finance minister, Anas Al Saleh, said an agreement had been reached on the mechanism for distributing Customs revenues, although further studies needed to be carried out and would be reviewed at the meeting in September 2014. The bloc is also working to fully implement the GCC Common Market, which was launched in 2008 to allow free movement of factors of production. Citizens might also find that a new sense of interconnection will enable them to look further afield for work. A 2011 study found that only 21,000 GCC nationals were employed in another member state. Originally published by Oxford Business Group (OBG) in The Report: Saudi Arabia 2014, published in August 2014, Economy Chapter. For economic news about The Kingdom of Saudi Arabia and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/econo GSC YEARBOOK 2015 51
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Sale of the century:
Gulf airlines are becoming the dominant buyers of new aircraft Added to the goals of hosting the world’s busiest airport and potentially the world’s biggest airline at some point, Dubai chalked up another record with its 13th air show in November 2013. Emphasising the growing dominance of Middle East airlines in global aviation, the big three aircraft manufacturers – Boeing, Airbus and Bombardier – came to the GCC to announce sales to the region.
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he show covered an area of 645,000 sq metres, and an estimated 60,000 visitors attended the event, as well as some 1055 exhibitors from around 60 countries. The show indicated the enormous potential for aviation in the region and promised to put Dubai at the centre of new developments. During the show’s opening, Sharief Fahmy, the chief executive of Dubai Airshow organiser F&E Aerospace, told local press,“If there was anyone left in the aerospace industry who had not recognised the undeniable importance of this region, this morning removed all doubt. We are in the centre 52 GSC YEARBOOK 2015
of the region with the world’s fastestgrowing aviation infrastructure, fastestgrowing airlines and a region where security commitments are in focus.”
Success Aircraft orders announced at the show topped $200bn at list prices as Emirates Airline, Etihad Airways, Qatar Airways and flydubai all announced major shopping lists for new aircraft. At the 2007 Dubai Airshow the sales figure of $155bn was 25% lower than 2013, and earlier in 2013 the Paris Air Show at Le Bourget, traditionally a major global event, revealed sales of $115bn at list prices.
Another first for the Dubai Airshow was the venue – Al Maktoum International at Dubai World Central – on target to be the world’s biggest airport with five runways and a 160m-person capacity when fully built and operational. The show was also used to launch the new Boeing 777X aircraft, which the company did with great fanfare, announcing 259 orders and commitments from Emirates, Qatar Airways, Etihad and a previously announced order from Lufthansa. The number was yet another record for the launch of a new model, according to Jim McNerney, the CEO of Boeing. The latest 20-year outlook for commercial aviation
Another first for the Dubai Airshow was the venue – Al Maktoum International at Dubai World Central – on target to be the world’s biggest airport with five runways and a 160m-person capacity when fully built and operational
from the US plane manufacturer is for a $4.8trn market for jet transport aircraft. Of that, the Middle East region is expected to require 2610 jetliners valued at $550bn.
Final Verdict Aviation analysts summed up the Dubai Airshow by saying that the results had catapulted the importance of the event to the top of the heap.“Overall, the show now puts Dubai as the world’s number one air show,” Saj Ahmad, chief analyst at StrategicAero Research, was quoted as saying by the UAE daily The National. “The show has stamped its authority as a must-do venue for aviation deals.” GSC YEARBOOK 2015 53
Combined orders from the world’s two biggest aircraft manufacturers, Boeing and Airbus, reached about $179bn, with most of the buyers coming from the Middle East. The two aircraft manufacturers’ figure of $179bn is more than the GDP of New Zealand, and the more than $200bn from the whole show was around the same size as the GDP of Peru or Algeria. It was the revelation by Bombardier of a $387m order for 16 CS300 from Iraqi Airways that took the show total over the $200bn mark. Canada’s Bombardier, the third-largest plane manufacturer in the world, announced firm orders and commitments for 38 aircraft valued at $2.01bn. The Thai low-cost carrier Nok Air was the other main Bombardier customer apart from Iraqi Airways. The expansion of Gulf carriers such as Emirates, Etihad and Qatar Airways is gradually shifting the focus of global air travel in the world to the Middle East, although Turkish Airlines based further north in Istanbul is also a rising force to be reckoned with. The big three in the Gulf are within eight to 10 hours’ flying time of almost 80% of the world’s population. Airbus, based mainly in Toulouse, France, won 160 orders and commitments, with Emirates’ order of 50 A380s constituting an especially significant boost to sales of the superjumbo. Fabrice Brégier, the French firm’s CEO, said,“This is probably one of our best Dubai Airshows. We had an initial target of 800 orders [for the year] and we are above 1200 so it means we have over-achieved our initial target. We will deliver close to 620 aircraft.”
Next Generation Emirates’ biggest single order was for the newly announced Boeing 777X. The Dubai carrier bought 150 of Boeing’s re-winged 777s for $76bn at list price, plus an option for 50 more. Qatar Airways bought 50 for $19bn, Etihad ordered 25 and the 34 from Lufthansa makes up the 259, which Boeing says makes it the biggest launch in commercial jetliner history. Two of the big buyers, Qatar Airways and Emirates, cast aside traditional 54 GSC YEARBOOK 2015
Emirates’ biggest single order was for the newly announced Boeing 777X. The Dubai carrier bought 150 of Boeing’s re-winged 777s for US$76bn at list price. Qatar Airways bought 50 for US$19bn, Etihad ordered 25 and the 34 from Lufthansa makes up the 259, which Boeing says makes it the biggest launch in commercial jetliner history
rivalries and negotiated with Boeing together for 200 firm orders and 50 more as options. And Emirates, which operates 175 of the current 777s will cooperate with Boeing on suggestions for the design of the next-generation models. The airline is reported to have been in talks with Boeing over the new 777 for several years before the order was announced. Tim Clark, the president of Emirates, said the airline will begin retiring its 777 fleet by 2017. The new 777X burns 20% less fuel and offers a 15% operating improvement on the existing 777-300ER, according to Boeing – add to this an interior design and décor inspired by the 787 and a passenger cabin that is said to be 11% more spacious than the Airbus 350. The purchasing power of the Middle East region’s major airlines allows them to offer aircraft that are newer – and therefore more attractive – and much more cost-effective to operate. “Although it looks like a large number on paper, the reality is that the capacity is being phased out. … The new aircraft are coming in to replace it,” said Clark.“We keep our aircraft for 12 years.”
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The supremacy of the Gulf carriers in fleet renewal is emphasised by noting that they constitute around 85% of the 777X orders, while Emirates accounts for almost half the bookings for the Airbus A380 – 50 out of 101 orders. The airline already operates 39 of the world’s largest commercial jets. Asked by reporters at the show if the airline market was big enough to absorb the mass expansion by Emirates, Qatar Airways and Etihad, Clark replied, “Every time the three companies ordered more aircraft, everybody asked if there is enough to go round. We seem to be managing to fill the airplanes. We are optimistic there will be enough room.”
FlyDubai While the three full-service carriers were virtually monopolising attention, a newer carrier was in the process of making major strides forward. Flydubai, the state-owned carrier based at Terminal 2 of Dubai International, is not yet five years old and has not even taken delivery of its entire initial order of 50 Next-Generation Boeing 737-800 aircraft made at the UK’s
Farnborough Air Show in 2008. Yet, the airline made a commitment at the Dubai Airshow in November 2013 to order additional aircraft from Boeing. This order includes 75 737 MAX 8 and 11 NextGeneration 737-800 aircraft, and the airline also retains purchase rights for a further 25 737 MAX 8. Since its inaugural flight in 2009, flydubai has built up a network of more than 65 destinations, served by a fleet of 35 Boeing 737-800 aircraft. The remaining 15 aircraft from its 2008 order will be delivered by 2015. In the past five years the airline company has targeted secondary cities within the range of its aircraft, which is around five hours’ flying time or slightly more. The firm also aims to enhance connections in tourism and trade across its expanding network. Since its launch, the carrier has opened up 46 new routes that were previously underserved or did not have direct air links to Dubai. The first Next-Generation Boeing 737-800s from the latest order will be delivered between 2016 and 2017. Deliveries of the first Boeing 737 MAX will then begin in the second half of 2017 and continue until the end of 2023. The 737-800 is the bestselling commercial jet in history. Total sales hit almost 10,500 in June 2013 at the Paris Air Show when Ryanair placed an order for 175 planes.
Air Safety The question of air safety inevitably arises whenever such high aircraft numbers circulate, even though statistics show it is safer to fly than to drive. Be that as it may, GCC investment in airspace management technology seems to be keeping pace with the sales of new aircraft. In February 2013, the AutoTrac III automation system produced by Raytheon, the US defence and electronics manufacturer, entered operational service at Dubai International and Al Maktoum International, becoming the main tool for air traffic controllers to safely manage the increasing number of approaching and departing flights. While not downplaying the importance of safety, the much more common effect of crowded skies is wastage of time and fuel. New arrival and departure procedures are aimed at allowing planes to fly more
direct and therefore more fuel-efficient routes using AutoTrac III. Mohammed Ahli, the director-general of the Dubai Civil Aviation Authority, told OBG,“It is important for GCC and subcontinent countries to understand that a unified approach is to the greater benefit of all as external airspace congestion continues to heighten throughout the region.” In addition to ground-based electronics, air traffic management technology on board aircraft is also cutting fuel costs by helping aircraft to find more direct routes. Irrespective of the amount of technology, according to Hussein Dabbas, the regional vice-president for the Middle East and North Africa at the International Air Transport Association, there is a “need for a more coordinated air traffic management system or there is a risk of stifling growth in the aviation sector and the profitability of airlines”.
New Deals The Dubai Airshow’s announcement of aircraft sales and talk of all the high-tech ancillary equipment are becoming less and less a one-way street. The UAE’s aerospace industry, centred on Al Ain in the emirate of Abu Dhabi, also derived huge benefits from the agreements revealed at the show. The deals will generate $4.4bn of manufacturing work for Strata, Mubadala’s advanced composite aerostructures manufacturing plant, in the period up to 2030. The 2013 show’s results will also lead to a move into engine parts manufacturing, generating $1bn of work, with the aim to become a tier 1 supplier for nextgeneration commercial engines. The UAE’s aim, as in other parts of the world, is to be recognised as a direct supplier for the global original equipment manufacturers. That status puts the partner on a par with the original firm. Originally published by Oxford Business Group (OBG) in The Report: Dubai 2014, published in January 2014, Transport Chapter. For economic news about Dubai and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 55
Vertical take-off:
Airport capacity is set to rise and plans for more extensive metro and tram services are in the pipeline Presenting more of a conundrum than a problem, Dubai is climbing up the league of the world’s busiest international airports. It entered 2014 smaller than only London Heathrow Airport and with ample ideas of what to do on the inevitable day when it finally takes over the top spot
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n 2001 Dubai International was ranked 99th in the world, and 13 years later it is preparing to top the list. After taking note of its own meteoric rise – and its planning over the past few years for how to stay ahead of the game – Dubai now has the possibility of operating two airports that have a joint capacity to handle more than a quarter of a billion people each year. Dubai International is undergoing expansion that will lift its capabilities to just under 100m and Al Maktoum International Airport in Dubai World Central at Jebel Ali was designed to accommodate 160m when complete.
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Taking Off The economic interaction and interdependence between aviation, trade, tourism and retail is such that sometimes it is difficult to see where one ends and the other begins. Certainly their significance to the economy and employment is undoubted, but trying to calculate the separate contribution of these four closely related sectors is difficult at best and misleading at worst. Transport and communication led growth in Dubai’s non-oil sector in 2012 by together contributing 7.5%. However, since the ethos is not to choose a course of action to achieve simply one goal if a slightly different modus operandi can achieve two or more, it is probably
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not important to be able to assign GDP contribution figures to each of them. Aviation is not the only sector that is expecting a period of rapid development. The Dubai Metro mass transit system is heading for an expansion programme that will make it available to tens of thousands of people that so far have been outside its orbit. However, none of this is a result of Dubai’s success in being awarded the right to stage the 2020 World Expo. All the extensions or modernisation of the transport set-up are being implemented with goals that were determined long before the day in November 2013 when the Expo decision was announced in Paris. Planning is set to proceed in 2014. If Dubai was on the move before, it is even more so now.
Al Maktoum International There is no immediately pressing reason to start the years of detailed planning needed to organise the move from Dubai International of more than 140 carriers and their 65m passengers – or whatever the total has reached by the time the move takes place. Expansion still under way at Dubai International will raise its capacity to just under 100m passengers a year by 2018, effectively buying all the airlines, but especially Emirates Airlines, more time to consider the 35-km move to Al Maktoum. Many other options are still on the table. Retaining Dubai International with a capacity enhanced to just under 100m is one option. With Al Maktoum International’s five runways
and eventual room to handle 160m passengers a year this would provide the emirate with the overall ability to handle 260m people a year. There are broader reasons, however, for why that may not be a viable option. Another alternative is to increase Al Maktoum International’s size to handle 200m passengers annually. The scale of that number comes into perspective by comparing it with London’s Heathrow, which has a capacity of 70m. For the moment few possibilities have been excluded and no firm decisions have been made. In its desire to build new airport facilities to last for 50 years, Dubai is constrained only by estimates of the future size required by the growth of the aviation sector. GSC YEARBOOK 2015 57
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For the moment Al Maktoum International is open for business with one passenger terminal capable of handling up to 7m passengers, a trickle of carriers to get the airport moving and a switch of all cargo carriers. Al Maktoum International has been handling an increasing volume of cargo since the summer of 2010 as more airlines elect to take advantage of the greater flexibility in operations at the airport. Full cargo capacity at the airport will be 12m tonnes. Al Maktoum International’s capacity to transport passengers will probably need to be heading fast to around 100m at least in order for Emirates to consider moving its base. Given the rapid acquisition of new aircraft – it ordered 50 A380s, the biggest passenger aircraft in the world, from Airbus at the 2013 Dubai Airshow (see analysis) – and the load factor of its flights, almost no capacity figure could be proffered as too optimistic. Splitting its operations between the two airports is not an acceptable option because it would damage Dubai’s attraction as a hub, increase its maintenance costs and reduce its flexibility. More than half of all passengers fly into Dubai to get somewhere else. If Emirates separated its long-haul jumbos from the rest of the fleet, for example, the 35-km gap would seriously disrupt the rapid transfer element of its business model. Certainly there would be no shortage of takers for the Dubai International land if it were eventually to close. It is in a prime area and only 10 minutes from the downtown area of Deira.
Dubai International Dubai International has overtaken Paris’ Charles de Gaulle Airport as the world’s second-busiest airport for international passengers, and London Heathrow’s leading place was expected to fall in 2015. In the first eight months of 2013 traffic was reported to have increased by 16.4% to 43.9m passengers. Unofficial figures for Dubai’s passenger total in 2013 put the number at more than 65m. The airport serves upwards of 140 airlines flying to more than 260 destinations across six 58 GSC YEARBOOK 2015
The economic interaction and interdependence between aviation, trade, tourism and retail is such that sometimes it is difficult to see where one ends and the other begins continents. Speaking about the potential move to Al Maktoum International, Anita Mehra, vice-president of marketing and corporate communications for Dubai Airports Company, told OBG,“We don’t want to force a move on anyone and we want it to be economically viable for them. Ultimately, Emirates will probably go to Al Maktoum, but no decisions have been taken.” In the expansion of Dubai International, Concourse C will be taken over by Emirates and linked to Terminal 3. Passengers for all other airlines will check in at Terminal 1 and then proceed to Concourse D, which will open in early 2015. It is only when all the work has been done that Dubai International’s capacity will reach almost 100m. Mehra told OBG that Emirates SkyCargo’s dedicated freighter service will move to Al Maktoum International entirely later in 2014 when it has completed its new 700,000-tonne facility at the airport. Similarly, Air France-KLM moved its regional cargo hub in 2013 and Cathay Pacific will do so in 2014. The SkyCargo move is scheduled to begin in April 2014 after the installation of the cargo handling system and the fitting out of the interior. By the time the move is complete in mid-September 2014, the terminal will be equipped to handle 700,000 tonnes of cargo, which can be expanded by an additional 300,000 tonnes in the second phase.
Air Space The number of aircraft in Dubai’s skies increased by more than 7% in the first half of 2013, according to the Dubai Civil Aviation Authority (DCAA), which
forecast 375,000 aircraft movements for both Dubai International and Al Maktoum International in 2013. However, the real problem is less one of safety given the availability of sophisticated tracking devices than of costly congestion (see analysis). Tony Tyler, director-general and CEO of the International Air Transport Association, said aircraft in the Gulf region were being frequently delayed on the ground or kept flying in holding patterns for between 40 minutes and an hour. Even with new fuel-efficient fleets that represents a significant waste given oil prices. Control over air space in the area is split among many entities, between Dubai and Abu Dhabi, for example. Qatar was also regulated by independent air traffic controllers. The wide distribution of responsibility is costly not because it is dangerous, but due to its inefficiency. With so many countries involved, agreeing on a regional air traffic control system might be an arduous task, but it is still one that should come sooner rather than later.
Qantas Dubai International is due for extensive runway maintenance and upgrades starting in May 2014, and Qantas is continuing discussions with Dubai Airports to ensure the disruption to its schedule is minimised. Under its partnership with Emirates, Qantas shifted its overseas base for flights to Europe from Singapore to Dubai. The two airlines now have a share of more than 50% of the passengers who fly between Australia and Europe. The airline flies only to Heathrow via Dubai, but with Emirates passengers can connect in Dubai to other European destinations. Emirates now operates more flights from Australia to Europe than Qantas. In 2002, before the deal, it carried 0.4% of the 17m passengers who flew to and from Australia; by 2012 its share had grown to 8.4%, government data shows. However, Qantas has benefitted, too. Its net income for the fiscal year ending June 2014 is expected to rise to its highest since Alan Joyce, who negotiated the
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deal, became CEO in 2008. Qantas is not the only airline affected by the maintenance programme, of course, and it is possible that some traffic may move to Al Maktoum International during that period.
FlyDubai Meanwhile, the state-owned carrier flydubai has worked itself into a position of profitability in its third year of existence and has also established a place for itself as the second-largest carrier in Dubai International by number of passengers. Although it has carved out a set of niche routes, such as Juba, South Sudan, which is not served by Emirates, there are other places where the two airlines compete. The airline carried 5.1m passengers in 2012 and has become an early adherent of the move by a few carriers in that segment to establish business-class facilities and vary the standard lowcost carrier offer. It also showed its confidence at the 2013 Dubai Airshow by placing an order for 75 Boeing 737 MAX 8 and 11 Next-Generation 737-800 aircraft, while retaining purchase rights for a further 25 737 MAX aircraft.
Aircraft Sales The 2013 Dubai Airshow hit the headlines because of the record-breaking orders announced at the event. Boeing’s 777X was launched there with what was said to be the fattest order book ever produced to support a new aircraft. The vast majority of those had been sold to Emirates, Qatar Airways and Etihad Airways. Altogether the world’s aircraft manufacturers rang up orders worth more than $200bn at list prices (see analysis).
Bargain Jet Beechcraft, the US manufacturer of private jets, discovered from its research that just under 20% of the light and medium-sized jets in Europe – 1440 planes – are on sale. The company, which makes the Beechcraft King Air 350i and the Baron G58, maintained that when more than 10% of private jets are for sale at any one time, it is definitely a buyers’ market. However, that does not
Aviation is not the only sector that is expecting a period of rapid development. The Dubai Metro mass transit system is heading for an expansion programme that will make it available to tens of thousands of people that so far have been outside its orbit universally affect every part of the market. The top end, in which private jets can cost at least $25m, is untouched. Nine out of 10 times, companies or individuals buying jets at the top end of the market use their balance sheet or a “big pile of cash”, according to Richard Aboulafia, vice-president of analysis at aerospace consultants Teal Group. Light to medium-sized jets are a whole other story. Aboulafia attributed a drop in other markets to lagging credit lines.“What was the number one defining characteristic of this recession? It’s the collapse of commercial credit as lenders seek safety in the form of US government bonds. … It used to be that you could get a loan for 90% of the value or something like that,” said Aboulafia. Now it might be 60%. There is no relief in the Middle East and other emerging markets, as ultra-highnet-worth individuals and companies tend to favour bigger jets, he added.
New Stations The 75 km of Dubai’s Metro is to get a 50% expansion over the next few years to take its total length to 111 km. Apart from lengthening the Red Line by 3.5 km and the Green Line by 20 km, a new spur will be built connecting the Red Line along Sheikh Zayed Road to the Expo 2020 site near Al Maktoum Airport. The Red Line extension will run from Rashidiya to Mirdif, while that of the Green Line will connect Al Jaddaf to Academic City.
Although the World Expo 2020 is not the primary reason for either of the schemes, both should nevertheless be complete by 2020 and doubly useful as Dubai anticipates 20m regular tourists and the first of 25m Expo visitors that year. And neither of those two figures include the estimated expected increase in residents as Dubai’s population is forecast to grow to around 3m by 2020. The present network has 75 km and 47 stations. It was opened in September 2009. By the scheduled completion time of the entire network in 2030, it will have 421 km of track with just under 200 stations. The Red Line extension will serve communities such as Shurooq and Ghuroob in Mirdif, although the longer Green Line extension will be more significant in terms of gaining additional passengers. It will run through the Ras Al Khor Industrial Area and the heavily populated areas of International City, Silicon Oasis and Academic City (see analysis).
Trams The first trams ordered from Alstom in France arrived in Dubai in December 2013 for testing ahead of their introduction into the Dubai Marina area. Although the network is scheduled to have 15 km of track upon completion, phase one will be confined to the 10.6 km from Dubai Marina to the Tram Depot near Dubai Police Academy and is set to begin operations in November 2014 with 11 stations. When fully operational the network will be served by 25 trams and connect with certain metro stations via footbridges in Marina Mall and Jumeirah Lakes Tower (see analysis).
Rail A new law on railway development and safety regulations is expected to be passed in 2014 covering various aspects of the $25bn programme to develop a rail network in the UAE. The law will address safety regulation and operational standards and may include provisions that make it easier for foreign companies to invest in the project. The amount of money anticipated for the UAE’s GSC YEARBOOK 2015 59
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rail programme over the next decade could constitute around 10% of overall spending in the region. The first phase, a line in Abu Dhabi to send sulphur from the Shah sour gas field to Habshan, is almost complete, according to local press reports quoting Abdulla Al Nuaimi, the minister of public works and chairman of the National Transport Authority (NTA). The second phase involves laying 628 km of track connecting cities and industrial hubs, including Dubai Industrial City, Jebel Ali, Musaffah, Fujairah and Khalifa Port, which would eventually connect to a rail network linking all GCC states and scheduled for 2018. One aspect still under study by officials from Etihad Rail, the NTA, Abu Dhabi’s Department of Transport, and Dubai’s Roads and Transportation Authority (RTA) is the connection between Dubai and Abu Dhabi. The options are light rail, heavy rail or a combination of the two.
Roads A new Dh2.1bn ($571.6m) Abu DhabiDubai highway is being built, according to an announcement by Abu Dhabi General Services. The new 62-km road is an extension to Mohammed bin Zayed Road, from the Saih Shuaib area, Al Maha Forest and Khalifa Industrial Zone Abu Dhabi, to join up with the Sweihan Road (E20). It is expected to take around twoand-a-half years to build and should be complete by 2017. The project is intended to ease congestion on the highway linking Abu Dhabi and Dubai, and the decision to build it was taken after studies showed that by 2030 there would be an increase in traffic at peak times from 700 vehicles an hour to more than 12,000 as a result of population growth. Initially the road will have four lanes in each direction, with a possibility to increase to six lanes later.
Taxis The RTA has also set up a new system to help deal with the 12,000 taxi booking requests made every day at the Booking and Dispatch Centre of the RTA Public Transport Agency. Under an agreement between the RTA and Dubai taxi franchise 60 GSC YEARBOOK 2015
Tony Tyler, director-general and CEO of the International Air Transport Association, said aircraft in the Gulf region were being frequently delayed on the ground or kept flying in holding patterns for between 40 minutes and an hour
Cars Taxi, 155 WiFi-enabled vehicles will be removed from regular taxi work on the streets and designated as hala taxis to service requests received by the agency’s dispatch centre. Some hala taxis will be dedicated to women, though reservations will be required to be made two hours in advance. The total number of taxis was estimated to have grown to 8662 in 2013.
Creek Canal Dubai has revealed plans for a Dh2bn ($544.m) downtown canal project that will span more than 80,000 sq metres and encompass new shopping and entertainment centres, more than 450
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new restaurants, several bridges and four new hotels. The 3-km-long canal will run from the Business Bay district to Jumeirah Beach. The development, planned to be completed in 2017, will allow for construction of deluxe residences and private marinas for boats, along with pedestrian pathways and cycle tracks. It has been projected as capable of attracting up to 22m visitors every year.
New Orders Dubai-headquartered Tomini Shipping is returning to the dry cargo market and has ordered nine ultramax bulkers, according to local press reports. The Pakistani
shipowner was reported to have sourced the 64,000-deadweight-tonne, eco-design vessels from China Shipbuilding Industry and delivery should start in the middle of 2015. Imtiaz Shaikh, the chairman of Tomini Shipping, told Arabian Supply Chain that the company planned to acquire at least 20 new vessels over the next few years. He added that while growth rates in the Gulf region were encouraging, he felt there were still many problems in the rest of the world.
Port Cranes Jebel Ali Port, the ninth-biggest container terminal in the world, is situated next
door to Al Maktoum International, 35 km south of Dubai International and destined to become the biggest airport in the world. Jebel Ali Port is the largest man-made harbour in the world and has not yet been expanded to its maximum capacity. Its latest extension was officially opened in June 2013, adding capacity at its Terminal 2 (T2) of 1m twenty-foot equivalent units (TEUs) to take the port’s total capacity to 15m. The works lengthened the T2 quay wall by 400 metres to 3000 metres, allowing simultaneous handling of six mega-ships. Construction is now under way on Container Terminal 3 (T3), which when GSC YEARBOOK 2015 61
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complete in 2014 will rocket the overall capacity to 19m TEUs. At that point the port will be the only one in the region capable of handling 10 of the new-generation giant container ships at the same time. These large container ships are wide enough to carry 25 containers side by side. To a degree container discussions revolve around a series of numbers that either match or they do not. The Panama Canal, currently undergoing a $5bn expansion, became too small for the then-biggest container ships 25 years ago. Those ships carried 4300 TEUs, less than the capacity of the giants of the world fleet today.
Giants of Industry Jebel Ali says it can accommodate ships of any size whether in existence or just on the order book. To do that, it needs not only long enough docks and a deep enough draught but also a lot of help from some ultra-powerful machines. In December 2013 four of the world’s largest quay cranes were delivered to Jebel Ali to be installed in T3. They were the first of a total of 19 ship-to-shore (STS) cranes, measuring 138 metres high, and joined the first four of 50 rail-mounted gantry cranes that arrived the month before. The quayside of T3 is 1860 metres long and the draught 17 metres. Graphic descriptions of the STS metal monsters range from pointing out that at full boom extension six of them standing on top of each other would be roughly the same height as the 820-metre tall Burj Khalifa and that each one weighs 1.85m kg – the equivalent of three fully loaded Airbus A380 superjumbo aircraft at take-off. Nabil Qayed, director of DP World’s Technical Department for the UAE region, said,“They can lift four twenty-foot containers at one time, handling up to 100,000 kg a lift. And with their 69.5-metre lifting height and extended reach, they can easily handle the 25 container-wide new-generation ultra-large container ships.”
Big & Bold Shipping lines are looking for ports equipped with high-speed cranes of this kind to help achieve the fastest 62 GSC YEARBOOK 2015
Under its partnership with Emirates, Qantas shifted its overseas base for flights to Europe from Singapore to Dubai. The two airlines now have a share of more than 50% of the passengers who fly between Australia and Europe turnaround possible. The STS cranes for Jebel Ali were delivered from Shanghai’s Zhenhua Port Machinery Company yards in China. There will be 98 quay cranes in total at the port once all those on order are in place. The new giant ships of the container world, Triple Es, went into service for Maersk in 2013. At 400 metres long and 59 metres wide, they are capable of carrying 18,000 TEUs. Put another way, that is enough to fill 30 mile-long trains stacked two containers high. Jebel Ali is one of only a handful of ports in the world capable of handling vessels of this size. A vessel approaching that size was docked at Jebel Ali in June for the official opening of T2. Captain Dirk Radig, master of MSC La Spezia, a 366-metre long vessel with a capacity of 14,000 TEUs, and Nigel Fernando, the general manager of the firm that owns the ship, Mediterranean Shipping Company, were welcomed to the new facility by Sultan Ahmed bin Sulayem, the chairman of DP World. Apart from its size and high-speed equipment, Jebel Ali has one other significant asset. As the port approaches the celebration of its 35th anniversary, it can boast extensive experience and a good reputation. The Jebel Ali Free Zone, established in 1985, now houses more than 6400 companies active in manufacturing, trade, logistics, and a range of industrial and service-oriented sectors. Mohammed Sharaf, group CEO of DP World, told OBG,“Dubai has a unique position as a true hub because it is
neither totally a destination port nor a trans-shipment port. A little over 50% of its cargo unloaded is bound for the UAE. Trans-shipment is also extremely important, but not so much as with other major hub ports, where upwards of 80% of shipments are re-exported.”
Outlook Although winning the bid for Expo 2020 will require considerable development on the site allotted to the event in Dubai World Central, there will be comparatively little transport-related work that was not already planned for the next decade. The advent of Expo 2020 may change some of the scheduled timing as an insurance policy against any projects over-running, however. Development of any transport infrastructure that impacts access to Al Maktoum International could also have a beneficial spin-off in encouraging some airlines to move from Dubai International sooner rather than later and thus smooth the transition from one place to the other by having it take place over, say, 15 years. The timely expansion of the Dubai metro will come during a period of economic boom and expanding population. It is unlikely that both airports would continue on a permanent basis, and it is impossible to forecast whether Al Maktoum International will be extended to a 200m capacity, but it is a virtual certainty that there will be provision in the planning. Although this may not have a direct effect on reducing the number of cars on the road, it will almost certainly slow the rate of increase. It will also encourage higher property valuations in some areas, especially in the southern parts of Dubai, which are being served by trains for the first time. Originally published by Oxford Business Group (OBG) in The Report: Dubai 2014, published in January 2014, Transport Chapter. For economic news about Dubai and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates
Integrated National Logistics (INL) is a leader in total logistics solutions for companies seeking cradle to grave support for their products and services across the MENA region and beyond.
Based at Dubai World Central in the United Arab Emirates, INL is a joint venture between Integrated Logistics Berhad of Malaysia and National Trading and Developing Establishment (NTDE) of the UAE. These two trading and logistics powerhouses have joined forces in a dynamic new environment and central Distribution Centre in Dubai that will transform global trade in the region. With a total investment of US$ 85 million, INL is constructing a new Central Distribution and Logistics Centre – the largest single-site warehousing complex in the United Arab Emirates. INL offers several points of difference when it comes to the storage and handling of customers goods, we have 20,000 sqm2 of high bay multi temperature chill, frozen and dry fully automated storage at a height of 29 meters as well as 20,000 sqm2 of dry +20 storage area holding 35,000 pallet positions at a height of 22 meters. We aim to offer multinational companies quality service and performance though fully integrated logistics management. Our complete range of logistics services means we can offer clients a single point of contact to handle all their logistics needs from door to door, around the globe. We have a team of logistics professionals to advise and implement clients' logistics needs with priority given to speed, safety and efficiency at every step of the process.
Plots W5, W6, W7 Dubai Logistics City, DWC - P.O. Box 3139, Dubai, U.A.E. Telephone: +971
4 8160600, +971 4 8160601
Fax: +971 4 8879195
info@inl.ae
www.inl.ae
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Cargo empires – built to last
To say that the Middle East is setting impossibly high standards in air cargo operations would be an understatement. Carriers are financially secure, well-connected with razor sharp reflexes and grand visions. Munawar Shariff spoke to the top players – Emirates, Etihad, Saudia, Qatar and Cathay Emirates Pradeep Kumar, Emirates Senior Vice President Cargo Revenue Optimisation and Systems How was business last year?
From 2011, the air cargo market was stagnant because of the global economic downturn. How it works is, if the world economy is growing by two per cent, cargo growth will be double – four per cent. 66 GSC YEARBOOK 2015
Europe was in its debt crisis resulting in huge reductions in imports coming in and Asia – being the world’s factory – most of the business comes through there, when that stopped all airlines were impacted. An economic cycle has downturns followed by upturns but this one was the longest lasting from 2008/9 to 2010 (when things started to slightly improve) only to fall deeper. From mid 2013, there are signs of moderate improvements. I won’t call it
a rebound in the market, however small improvements can be seen in markets that were not performing at all. So at Emirates, we’re excited about our performance from mid of last year. Being the ”only airline”operating an all wide body fleet from a cargo perspective, it is a huge benefit as it provides seamless movements without having to reprocess loads enabling faster connectivity. This give us an edge over the competition. Additionally, we are inducting two new
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Pradeep Kumar
over 10,000 shipments in a day meaning 7,500-7,800 tonnes of cargo in 24 hours at our DXB facility. The intensity is extremely high and despite that our service failure ratio does not even come up to .01 per cent. That is our strength. The main agenda is the movingof the entire freighter fleet operations to DWC from May 1, 2014. Here currently the terminal is handling 1.9 million tonnes of cargo and in order to expand we need more floor space. Give us a brief over of the GCC and Middle East region.
freighters to our fleet (taking the total up to 14 freighters) and look forward to a better year.
of our planes just over two years ago. In terms of fuel efficiency, the new generation 777s are very fuel efficient.
Tell us more about your fleet - number, capacity, fuel efficiency.
What is the agenda for 2014?
Our wide body fleet consists of 10 777 Boeing freighters, we’ve leased two 747400 planes and none are conversions. The two new freighters which will come later this year are also 777s. The age of the fleet is not that much, we bought six to seven
We are investing in our fleet for both cargo and passenger, we are investing in assets, we are looking at handling capability. Operational efficiency is only visible when an operator can take control of the place where the rubber meets the tarmac. Today we are handling
Internationally, growth is flat. However, the Middle East is very strong. The reason being, governments are creating opportunities for trade and development to be a means of expanding their economies instead of continuing to rely on oil. This is propelling consumer confidence, the geocentric advantage helps us to grow beyond the region as Dubai is gateway to all of Africa among other emerging surrounding economies. Plus the new well-connected sea port and airport is the perfect backdrop to enhance our distribution network and reach. What are current challenges?
Oil prices are not at sustainable levels leading to inflation in some countries. The other big issue is currency. It plays a big role in cargo traffic flow, for eg. currency depreciation impacts production which hits at every level. Which is the most promising market?
Africa. GSC YEARBOOK 2015 67
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Etihad David Kerr, Etihad Cargo Vice President Give us an overview of your air cargo business.
We’ve seen 32 per cent growth in volumes. 2013 was a record year for us. We were able to greatly expand our network, improve capability, improve freighter capacity, add new products, establish successful customer relationships and deliver impressive results. David Kerr
What is on the agenda for 2014?
More of the same really. In addition to all we achieved last year, we want to continue double digit growth, expand our team, look for new product offerings during the year. On the route development side, we have a number of 68 GSC YEARBOOK 2015
new routes launching to the USA, we are going to Los Angeles from July and commence thrice weekly flights to Dallas and a second service to JFK from the 1st of March. Tell us about your freighter fleet number, age, fuel efficiency.
We have nine freighters six of which are operated ourselves, three are on various wet lease agreements. We have three Boeing B777F, one Boeing 747-8F, one Boeing 747- 400ERF, one Boeing 747-400F, and three Airbus A330-200F. Three more freighters are currently on firm order including two Airbus A330200F and one Boeing 777. The average age of Etihad Cargo’s fleet is 3.3 years, and 1.3 years for Etihad Cargo’s six owned freighters. The airline’s three Boeing 747 freighters are leased from
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Atlas Air (two) and KLM (one) respectively. In terms of fuel efficiency, we have an aggressive waste reduction programme. Once we acquire our new freighters and replace the current wet leased planes, we expect to reduce our emissions by 20 to 25 per cent across our fleet. We’re investing in bio-diversity projects and are actively engaged in bio-fuel testing. Give us an overview of the air cargo business.
There are a large number of growth opportunities in Abu Dhabi both in and out bound in the air cargo business. Since air cargo is an integral part of Etihad and the airline is an integral part of the development of the Abu Dhabi emirate, there’s a clear plan being executed to grow and to facilitate tourism and trade. By virtue of our geographic location, we sit in the middle of major trade lanes on all sides, so we choose to compete carefully in some of the larger trade lanes and also focus on some of the narrow but more growth oriented trade lanes around the region and beyond. In terms of investments, we intend to grow a cargo base here in Abu Dhabi and develop a new cargo facility here in the near future. Industry data suggests air cargo to be flat internationally and looking at Etihad’s performance last year, we are very happy. We are the fastest growing airline globally and we intend to maintain that. What are your current challenges?
Our first priority as an airline is to run safe and secure service. We adhere to all the rules and regulations and safety requirements. Our customers provide us with daily opportunities to ensure to them that we meet
and exceed requirements. Our customers are our focus so we prioritise to bring more relevant solutions for them on a global platform. They are the indicators which tell us where to grow and where to compete. What about market share? What about your competition?
Market share is not explicitly our target, we’re looking to grow based on our growth curve and capacity deployment of our own internal target. Market share is a result of that growth and is a function of what happens in the global market. Today global market statistics say we are in the top 10 or 15 airlines, so we don’t have explicit targets as to where we want to be. So market share would be a result of what we do. We are competing on a global scale, we monitor and compete in markets where Brian Yuen we need to compete which is a based on what our customers needs are and where their growth areas are and we bring solutions and choices for them as we grow and compete on a global level. Our service reflects the needs of our customers. Which is the most promising market?
Two of our largest markets are China and India. There were massive expansions in these two countries last year. Then USA and the Netherlands. We are looking beyond existing growth to establish partnerships as we develop our fleet and network connections for the future. It is important to be evolving we need to stay very close to our cust to understand where the opportunities are.
Cathay Pacific Brian Yuen, Cathay Pacific Country Manager UAE & Qatar Give us an overview of business last year.
It was a challenging year for the air cargo industry as a whole. The demand was soft for the first half of 2013 but we saw an increase in volumes starting from October and November, mainly driven by high-tech goods from China and other major manufacturing activities in Asia. Demand was particularly strong on the Transpacific routes and we managed to match our capacity with the demand on these key routes. In particular we launched our new freighter service to Guadalajara, Mexico last year and it has been well received by the customers so far. Looking forward we remain cautiously optimistic on the outlook for 2014. While demand was stronger in the second half of 2013, the high fuel price, patchy global economy and the generally weak demand still contribute to the uncertainty of the business. Cathay Pacific will continue to focus on product and service offerings in serving our shippers and forwarders. Last year, our new Cathay Pacific Cargo Terminal became fully operational, setting new standards in operational efficiency and environmental design. How important is the Middle East region?
The region is an important transit point, being at the heart of the fast-growing gulf carriers, there is tremendous competition in this market. We continue to differentiate ourselves by focusing on special products and other priority products – which can best leverage on our expertise. We have also recently announced our move of freighter service from Dubai International (DXB) to Dubai World Central (DWC), which we believe will better serve our customers and bring our service level to a new high. Tell us about Cathay’s freighter fleet.
Our freighter fleet consists mainly of B747. Half of our existing freighters are B747-8Fs, which are one of the most fuel-efficient aircrafts. Cathay Pacific has 41 cargo only destinations including the latest addition Guadalajara (where we have no passenger services). GSC YEARBOOK 2015 69
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Qatar Airways Ulrich Ogiermann, Qatar Airways Chief Officer Cargo What is the status of the air cargo industry in the GCC region today?
As one of the fastest growing economies in the world, Qatar is in a solid position to become a major international commercial gateway. A modern, state-of-the-art cargo infrastructure is the key to achieving this objective. Qatar’s strategic location within the Gulf region combined with efficient hub connections have enabled Qatar Airways and Doha to become the ideal choice for airfreight between manufacturing centres in Asia and consumers in US, Europe and Africa and vice versa. According to IATA, Middle Eastern carriers reported the strongest air cargo growth performance in November 2013, with a 16.5 per cent year-on-year growth compared to the same period in the previous year. Carriers in the Middle East, including Qatar Airways Cargo, have benefited from improvements in advanced economies, including increased demand in Europe, as well as solid economic and trade growth within the Gulf. Industries that contribute to the growth in this region, including its cargo sector range from oil and oil-related products, to agriculture, cattle, dairy, pharma, textiles, leather products, medical instruments, defense equipment. This growth is likely to continue as the region’s trade volumes continue to rise year on year. How does it compare to the international air cargo business? Ulrich Ogiermann
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Air freight in the Middle East is on an upward growth trajectory, despite setbacks in the global economy. December 1, 2013 marked a key milestone in our business development as the first Qatar Airways Cargo shipment was received at the new cargo facility at Hamad International Airport. The new cargo terminal,
which is one of the largest in the world, has the capacity to move 5,700 shipments simultaneously and to handle 1.4 million tonnes of cargo per annum by 2015, representing a 75 per cent increase from the current airport. We can forecast with confidence that the new cargo facility and its expanded capacity will further spur growth and put Qatar in a strong position to become one of the world’s top five global commercial cargo hubs. HIA will play a significant role in expanding our global cargo business and will propel Doha as the preferred cargo hub in the region. What are your current challenges?
Qatar Airways Cargo recently launched two new premium services that will optimise the transportation of time and temperature sensitive goods, including high-value pharmaceutical products and perishables. The new services, Q Pharma and Q Fresh, will add to our substantial range of cargo services and further enhance our capacity and flexibility to effectively move sensitive commodities in line with the highest world-class standards in line with IATA requirements. Additionally. our new fleet of climate controlled vehicles eliminates temperature exclusions and provides seamless and rapid transfer at our Doha hub. What about market share? Who is your competition? Which is the most promising market?
A constant dialogue with our customers enables us to understand their expectations and demands and helps offer them reliable services that optimise cost and operational efficiencies across the supply chain spectrum. If we look at the current trends and increased cargo traffic between Africa and Asia, we can categorise Africa as one of the most promising markets in the upcoming period. Our strong hub position will enable us to leverage the strengthening trade ties between these two markets. In addition to Africa we can expect to see increased cargo traffic to/from South America and CIS region. Overall imports into the Middle East from Europe will continue playing an important part in airfreight.
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What kind of freighter fleet does Qatar Cargo own? What is its most fuel efficient cargo carrier?
Saudia Cargo
We currently have three A330 freighters and five 777 freighters. At the Dubai Air Show, we ordered five new Airbus A330-200 freighters. These new aircraft will complement the airline’s rapidly growing network, which includes more than 40 routes that have dedicated freighter services. Included in the order are eight additional A330-200F options. These aircraft on order will complement the existing fleet operating from early 2013. Two 777s are going to join our fleet by this summer.
What is the status of the air cargo industry in the GCC region today?
How is Qatar Cargo gearing up for future growth in the region?
We fully understand that diversification, supported with innovative technologies, service and products is the key for the sustainable growth of our business. With large-scale events such as Qatar 2022 World Cup on the horizon, the State of Qatar is seeing substantial growth across a wide range of infrastructure and industry-related projects that are increasing the demand for cargo-related services. In addition, Qatar’s rapidly growing economy and corresponding population growth is witnessing increased demand for perishables/food imports. For Qatar Airways Cargo, one of our key goals is to ensure we are able to continuously meet this growing demand and to further enhance the supply chain of perishables regionally. With new freighters joining the fleet, Qatar Airways Cargo will be able to serve new and emerging freight markets and meet the increasing demand for cargo where it occurs. An important part of air cargo service quality occurs on the ground. Managing the export acceptance, the import delivery, and timely transport of shipments each year is an operational challenge. Therefore, we are constantly on the watch for ways to improve our service and operational capabilities. For example, Qatar Airways Cargo offers the fastest airline transfer at Doha through its Quick Ramp Transfer (QRT) solution. We are the only carrier in the Middle East to offer refrigerated or‘reefer’truck services for ramp transfers at its home hub. Sensitive commodities are collected from and delivered directly to the aircraft by specialised temperature controlled vehicles, in an effort to ensure that the cool chain process is seamless, thereby eliminating risk to temperature exposure. We have also signed the e-AWB agreement with IATA.
Peter Scholten, VP Commercial at Saudia Cargo
The air cargo business in the GCC region is booming. It is currently one of the fastest growing markets on the air cargo scene. How does it compare to the international air cargo business?
According to IATA figures, a 16.4 per cent growth in air freight revenues (outbound) was forecast for the Middle East in the third quarter of 2013. This compares with a global air cargo market forecast of -3.2 per cent growth in revenue for 2013 and zero per cent growth in revenue for 2014, with tonnage forecast to increase by one per cent and 2.1 per cent, respectively. The global air cargo market, therefore, is showing signs of improvement – particularly in the form of increased demand – although increases in capacity have resulted in greater pressure on yields and revenues. What are current challenges?
Import of dangerous goods into Saudi Arabia is not possible without prior approval from the authorities. In order to facilitate this procedure, we recently launched OK2GO, a new online tool aimed at assisting customers to obtain the necessary approvals for the import of automotives, dangerous goods, high value goods, human remains and live animals into the Kingdom. What about market share? Who is your competition? Which is the most promising market?
KSA is the largest economy within the GCC. As the country’s national carrier we naturally have a large market share to and from the Kingdom within the GCC region. In terms of our competitors, these are the other major airlines in the region. Our promising markets vary from region to region depending on business opportunities. What kind of freighter fleet does Saudia Cargo own? What is its most fuel efficient cargo carrier?
Peter Scholten
Saudia Cargo operates a fleet of 15 aircraft composed of four MD11s, two B747-8Fs, seven B747-400s and two B747-200s. The B747-8Fs, introduced in 2013, are the most fuel efficient aircraft in the fleet.
How is Saudia Cargo gearing up for future growth in the region?
Although the GCC region is very important to us, it represents just a proportion of our activity. We are essentially a global player bridging different continents and the Middle East is a crucial part of that. In addition to operating our 15-strong fleet, we also sell the belly capacity on 145 passenger aircraft for Saudi Arabia’s flag carrier Saudia, spanning a rapidly expanding global network of 225 destinations. This is a growing market and we anticipate a further increase in our belly activity, both within the GCC and beyond. GSC YEARBOOK 2015 71
Retail logistics The region’s fashion industry is opening up in a big way and Al-Futtaim Logistics is providing solutions for it to thrive Fashion logistics in the region is seeing an upsurge ever since the area became recognised as one of the industry’s emerging markets. How do you see this industry being catered to logistically today as compared to in the past? As a result of the dramatic penetration of leading fashion brands into the Middle East over the past four years, the region has become one of the strategic global hubs for international fashion brands. A number of countries in the Middle East, today, have earned their position as global fashion players, which makes logistics one of the key elements to ensure that clients’ needs are met with lowest lead time and optimum inventory management for the retailers. The need for international fashion brands to launch collections around the world simultaneously, including the Middle East, has prompted companies to utilise strong supply chain solutions. Also, population diversity has created the need to manufacture a wide range of clothing lines and logistics play a key role in their delivery to markets around the world. The evolution of logistics over the years has seen the profession grow from freight, warehousing and distribution into a more holistic discipline which stretches to deliver goods and services to the doorstep of the consumer driven by ecommerce business models.
provider, Al-Futtaim Logistics is ready for Expo 2020 with custom built facilities equipped with the latest technologies and extremely well trained associates. Our 250,000 sq metres warehouse is located within close proximity to the sea and airport. It is well equipped with material handling equipment and our strategic network partner enable us to serve our customers in over 80 countries.
How big is the market deemed to get in the next few years? The arrival of more names and brands will affect LSPs in what way, how are you prepared? Dubai Design District is a mega project which every 3PL service provider should follow very closely. As a leading logistics
Fast moving trends in fashion mean increased obsolescence in the way materials are handled in the warehouse. How does technology in the warehouse keep up with the speed with which fashion and trends change in the market place?
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What sets major logistics companies apart from the rest? How are companies creating the differentiating factor? Al-Futtaim group has global fashion brands under its umbrella which adds to our competence as a supply chain solutions provider for fashion brands entering the region. Our retail experience spans over 30 years and we have provided logistics services to many brands with whom we grew and conducted business over a long period of time. Major logistics firms have wellestablished channels and networks to provide cost effective solutions in this demanding market. Al-Futtaim Logistics is able to meet and exceed the needs of customers from the fashion industry, especially brands that would like to establish a presence in the UAE by providing them with risk free, highly competitive logistics services with economies of scale. Companies have to stay ahead of the technology curve to keep up with the pace of a constantly evolving fashion industry. Modern technology methods such as real time inventory tracking merged with the forecasting of demand for a specific product has helped in meeting customer requirements. With the
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latest technologies in place, retailers are able to project the exact inventory within stores and warehouses to cut on the cost by reducing lead time. Our logistics services feature the latest technologies helping us to provide all the value added services in the warehouse i.e. labelling, kitting, barcoding, etc.
With 100 per cent transparency to the customer. All those elements can be done simultaneously for multiple stores within various markets. Without custom made systems built out of the experience in handling fashion brands an LSP will find it challenging to survive in the market. GSC YEARBOOK 2015 73
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All set for
2020 and beyond Dubai Airports have ensured their capability of handling the size of the city’s future as it grows everyday into the ever important hub of connectivity. Ali Angizeh, Vice President Cargo and Logistics, Dubai Airports outlines the growth chart to Munawar Shariff GSC YEARBOOK 2015 75
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Ali Angizeh, Vice President Cargo and Logistics, Dubai Airports
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What were the learning processes that Dubai Airports undertook in order to be what it is today in terms of a hub for all cargo activity? What is the future outlook to meet projected growth estimates?
of dedicated cargo operators, Dubai International will remain an important cargo hub with growth in belly cargo driven by Emirates airline’s ongoing network expansion.
In July 2011, Dubai Airports announced its US$7.8 billion Strategic Plan 2020, which among other mega projects, includes plans for a major modernisation and expansion programme for Dubai International’s cargo facilities that will see cargo capacity increased from 2.5 million tonnes annually to 3.1 million tonnes by 2018. The project includes the construction of a new transshipment facility with capacity for 400,000 tonnes of freight a year for freight transferred between Dubai International and DWC, a 30,000-square-metre addition to Dubai International’s 1.2- million-tonne Cargo Mega Terminal – increasing the CMT’s capacity by 25 per cent, as well as a full reconstruction of the airport’s original freight facilities Hall A and Freight Gate 1. Together these facilities will be dedicated for the sole use of Emirates airline. The new infrastructure responds to growing volumes of freight being transported through Dubai. Total annual cargo volumes across both airports are projected to surge from the estimated 2.5 million tonnes recorded last year to 4.4 million tonnes by 2020. While the greater flexibility at Dubai World Central is attracting an increasing number
How is Al Maktoum International at Dubai World Central adding value to air cargo companies, operators, airlines, charters?
Al Maktoum International at Dubai World Central is the only international hub in the world that is connected to a major seaport, the Jebel Ali Port, as well as the Jebel Ali Free Zone, via a bonded logistics corridor. This connectivity makes movement of sea-air freight simpler, faster and more efficient than ever before – a major benefit for cargo operators. As the hub expands to its full capacity of 12 million tonnes per annum over the next few years, with the Aerotropolis of six clustered zones around it kicking into full operation, the scale and scope of freight and logistics operations at DWC will have achieved an unparalleled position among global hubs. What have been operational challenges in this initial stage? Every challenge we come across we like to see it as an opportunity to improve our processes and services. For example, one of the challenges we faced was establishing a link for the freight coming in from daily flights that needed to be moved from DWC to the ports. We had to find
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a location where all the trucks could be accepted from DWC. This location was called the East Cross Dock. The Dubai Economic Department as well as the RTA collaborated with us to come up with a direct route for the trucks. Through this route the trucks completed the journey within 45 minutes which would take them between four and five hours earlier. This was done after a lot of feedback from our customers of the long delays. We also eliminated the need for these trucks to go through customs more than once. How many air cargo companies are operational out of Al Maktoum International? How many do you foresee signing up in the near future? What are the benefits being offered to companies to be based out of Al Maktoum?
As of the moment, there are over 30 cargo operators that use Al Maktoum International, as forecasted we are expecting all the cargo schedule operators to relocate from DXB to DWC by end of March this year. DWC published charges are 10 per cent cheaper when compared to DXB, in addition to that we have offered parking incentive to airlines looking for longer ground time at the airport. Airlines that started operations at
DWC from day 1 (starting from the inauguration of the airport which is 27th of June 2010) were offered additional value besides the rebate on aeronautical charges. What are benchmarks you are setting up for airports worldwide when it comes to the top air cargo priorities – modernising processes, securing the supply chain, ensuring regulations are followed and environmental sustainability?
We are being benchmarked by many airports around the globe. We will be doing a lot of benchmarking with peer hubs such as those in Hong Kong, Singapore, Korea and North America to ensure we stay abreast of technological trends and breakthroughs in the industry. As for the securing of the entire supply chain we are now engaged in a IATA backed programme – Secure Freight, which enables us to have unilateral or multilateral agreements with countries to ensure cargo movements are seamless.The other programme we are working on is the e-Freight and EAWB to make sure that we move to the next level of air cargo. This is an initiative that is utilised by Emirates, but we are working to have other airlines engaged.
Dubai International handled 223,195 tonnes of cargo in November, an increase of 11.6 per cent compared to 200,060 tonnes recorded during November 2012. The year to date freight volume reached 2,217,429 tonnes compared to 2,077,676 tonnes handled during the corresponding period last year, an increase of 6.7 per cent. Total freight volumes for 2012 reached 2,279,624 tonnes, an increase of 3.9 per cent from 2,194,264 tonnes recorded in 2011. According to Airport Council International’s (ACI) latest figures the Dubai International ranks third worldwide in terms of international freight traffic. Dubai Airports launched cargo operations at Al Maktoum International on June 27, 2010 as part of the first phase of the project. The airport has a total of 36 freight operators (scheduled and chartered) signed up and operating. Emirates SkyCargo has confirmed that all dedicated freight flights will be operated from its new base at DWC when it opens in May 2014 while Air France-KLM will relocate its regional hub to the airport from August this year. Freight volumes totalled 146,181 tonnes in the first nine months of 2013, down 11.3 per cent from 164,757 tonnes recorded in the same period in 2012. For the third quarter volumes came in at 43,252 tonnes, down 26 per cent from 58,423 tonnes handled during the same period in 2012. The fall comes as freight volumes stabilise after the rapid growth in the first few years of cargo operations at the airport. DWC opened for freight operations in June 2010. DWC handled 219,092 tonnes of air freight during 2012 – its second full calendar year of operations, an increase of 144 per cent over 89,729 tonnes recorded in 2011. During the first three quarters of the year aircraft movements rose 46.3 per cent to 16,923, up from 11,571 movements during the same period in 2012. For the third quarter of 2013 air movements rose 63 per cent to 6,686, up from 4,097 in the third quarter of 2012 due to a surge in general aviation and training flights. Upon completion, DWC will become the world’s largest airport with an ultimate capacity of 160 million passengers and 12 million tonnes of cargo per annum. The airport forms the heart of a greater project also called Dubai World Central, a 140 sq kilimetre multiphase development of six clustered zones that includes the Dubai Logistics City (DLC), Commercial City, Residential City, Aviation City and the Golf City. The development is the region’s first integrated, multi- modal transportation platform connecting air, sea, and land. Phase 1 of DWC includes a single A380 compatible runway; a passenger terminal with capacity of five million passengers per annum (expandable to seven mppa); a cargo terminal building with a capacity of 250,000 tonnes per annum (expandable to 600,000) and a 92-metre air traffic control tower. DWC will have a final cargo capacity of 12 million tonnes per annum (compared to Dubai’s 2012 traffic volume of 2.27 million tonnes. Located in the vicinity of the Jebel Ali Port and Free Zone, DWC will make air-sea connectivity achievable in four hours. DWC is designed to support aviation, tourism, and logistics well into the future. Costs for the entire DWC development (including all clusters) has been estimated in excess of US$ 32 billion (approx. AED 120 billion). GSC YEARBOOK 2015 77
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HELLMANN CALIPER When was Hellmann Caliper’s DWC facility set up? When did construction begin? How big is it?
Our building was constructed in 2009. We converted it from a general waregouse to a pharmaceutical warehouse. The size of our plot is 10,000 sq feet of which we can build 52 per cent. We’ve just acquired the neighnbouring plot of the same size and the new expansion will be ready by March this year. We started with nine and a half thousand pallet positions and I can safely say that we will be full before the facility is open. Why was DWC the chosen location?
It was the long term vision of the Dubai government which got Hellman Caliper
Eric Ten-Kate, General Manager, Healthcare, Hellmann Caliper
to invest in their potential. We did not want to give up the opportunity of being in the closest vicinity of this hub. It has immense potential which is visible today and we were wise to make that decision. Cost-wise DWC was cheaper then and remains to be so today. Other than that we have the flexibility of doing business as per our convenience. The officials have given us the freedom to learn as we go on a day to day basis. We have a very collaborative relationship with the DWC officials, they are extremely approachable, hands on and learning with us. They truly want to make this a success for us – their customers. With this kind of service and flexibility, why would we be anywhere else?
INL LOGISTICS When was Inl’s DWC facility set up? When did construction begin? How big is it?
We have a 90,000 sq metre plot and our facility is built up over 45,000 sq metres. Construction began in 2007 and 2013 was our first year of commercial operation. Our facility is unique in its design and requirements which meant that DWC gave us all the flexibility to build as per our needs. We have a state-of- the-art DUNBAR crane system which is unique in its height and size.Very few places in Dubai could offer us the ability to construct it. Why was DWC the chosen location? What were the deciding factors? Why not any other free zone in the UAe?
We offer food service solutions with 42,000 fully automated pallet positions that offer a range of frozen temperatures. Since we’re a 3PL we clear and handle our customers’ material from the port and then store for them and either we deliver to market or they do a bulk hold of say 10,000 pallet positions where 5,000 are used for distribution in the local market 78 GSC YEARBOOK 2015
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list the facilities provided by DWC.
DWC officials have regular meetings with us where in they want to show us their progress and to know from us what the status of business is today and what are the plans for the future. There is a regular system of compliance where in we are audited for operational procedures, HSE (Health, Safety and Environment) officials regularly liase with us on all the processes, it is a very systematic and organised set up. Other freezones, such as JAFZA are established entities with their own set of rules and regulations, because of the big pharmaceutical clients that have signed up with us DWC has given us the lee-way to do our custom paperwork out of JAFZA and not have to do that again here at DWC, making it a faster process to get our products out to our customers. This is just one example.
and the rest in the GCC. So location is integral to our business we have the airport, the sea port, Dubai and Abu Dhabi within our reach. list the facilities provided by DWC.
It was a strategic business decision to be here one of the bigger airports of the region. Operationally, getting stock in and out of DWC is very efficient, customs procedures are simple, documentation and website is very clear, the access gates are plenty. DWC’s operational blueprint has been communicated to all its customers coming in very directly. It was cost-effective then and remains to be so. The officials are very engaged with the customer. What we would like to see in the future is a link with rail both passenger and cargo. There is still some sewage connection which needs to be completed as well as storm water system isn’t complete, but that must be on the radar and will be finished soon. As it gets more busy there will be other challenges which will appear. We’ve shared very good relations with the DWC officials as we have gone through the learning curve with them being the biggest stakeholders till date until Emirates Sky Cargo comes in.
PANALPINA When was panalpina’s DWC facility set up? When did construction begin? How big is it?
When the initial plans for DWC were announced we decided to build our area distribution hub. We fully support the vision behind the mega project to combine one of the world’s’largest ports with one of the world’s largest future airports in a free zone environment. Panalpina was one of the pioneers at DWC with our facility 500 metres from the main cargo terminal. The contraction began in 2008 and we officially moved in as of March 2010 and our freighters (own controlled network) were among the first freighters to land at DWC with the new B747400. This has enabled us to deliver state of the art hub solutions linking major trade lanes via DXB such as sea-air, consolidation and distribution services to the UAE, ME, Africa and CIS. Why was DWC the chosen location?
We established our presence in the Middle East in 1990. We operate in seven regional locations – UAE, Saudi Arabia, Bahrain, Iraq, Turkey, Qatar, Kuwait. The exponential growth of the Middle Eastern carriers offered a platform and access to a consumer market of four billion people within a seven hour flight time at a maximum. The setup of our head office here reflects the strategic importance of the Middle East for Panalpina. We also have an fullfledged airfreight office at DAFZA and at Sharjah airport as well. How is doing business with DWC officials? What cost advantages does DWC offer as compared to Jafza or any other free zone?
The DWC management has been instrumental in helping us with the initial set up and continue to do so today. The open door
Slavey Djahov, Regional Head of Airfreight, Middle East, Africa and CIS (MEAC)
policy provides us with a direct access to the management and full understanding of our business needs. The decision to have the facility in DWC is more strategic due to the proximity of the airport and the space to develop not due to the costs involved at other locations. list the facilities provided by DWC.
A master plan divides DWC into eight districts: Al Maktoum International Airport, logistics, aviation, humanitarian, residential, commercial, leisure, exhibition and commercial. Al Maktoum International Airport is the centerpiece of this master plan. The industry-focused districts as well as JAFZA are located in close proximity to the airport which benefit from efficiency and cost savings. The increased number of commercial and charter airlines now operating has a positive overspill on the cargo we now route through DWC with more and more options from all corners of the world. GSC YEARBOOK 2015 79
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Rerouting the
supply chain
The Dubai World Central is not just a new airport beside a port and a freezone with a single customs window. The big picture of this facilitated logistics platform is in its being the biggest catalyst in changing the traditional international supply chain route. Munawar Shariff spoke to Mohsen Ahmed, VP Logistics District, DWC about the masterplan
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raditional supply chains have big conglomerates with distribution centres in the main hub of a region to serve the rest of the region. The Middle East falls under Europe, Middle East and Africa (EMEA) so usually companies serve the region out of Europe. With Dubai’s new port, air, sea, road connectivity means cargo could be on its way within a few hours of reaching Dubai translating to enormous benefits for international supply chains. Dubai is where the region needs to be served from.“Many companies are moving their distribution
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centres into DWC. Hino has done that last year. Many others are doing it too,”says Mohsen Ahmad, VP Logistics District, DWC. However this achievement was a part of the masterplan.“The plan of having an airport next to Jebel Ali freezone was there from Sheikh Rashid’s time. The area was set aside for it from then,”says Ahmad.“It’s just recently it was fine tuned and designed to have a connected airport and seaport. But now, it’s more than that because we now want to connect this infrastructure with the rail in the future.” “Today it looks simple but when we started off in 2010, we had few flights a day, the
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corridor helped with getting us started off. Jebel Ali is one of the most recognised ports globally because of the fact that you get your cargo on the ship get it offloaded get it delivered to a cargo terminal where it is then loaded onto an aircraft without going through the hassles of guarantees and customs formalities.”
From paper to reality What Dubai is offering businesses is an extremely facilitated mode of operation, whether it is the logistics corridor with sea,
air, road connectivity or a single customs procedure or even paperless business. Dubai makes it look easy, but Ahmad says aligning the soft infrastructure to match the hard infrastructure was by far the most uphill task.“Anyone can build bridges, and even make airports beside their sea ports, but having all the entities and organisations aligned in order to give the customer minimum fuss and be in and out in hours is what makes our business what it is. It is our main selling point. And Dubai can achieve it.”
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There are a number of organisations involved in the entire operation, such as Dubai Customs, Jebel Ali Freezone which has its own rules and regulations and ways of working, the port operator DP World, Dubai Logistics City which is another freezone and Al Maktoum International Airport. The fact that the customs managed to align all of these entities to become a single window for the customers is extremely commendable. We wouldn’t be able to offer what we are offering without this alignment. I mean if you think about it, Dubai is a major hub connecting the East and the West, the customs authority have a huge job to protect the nation and its security, absolutely nothing can be compromised.” The joke doing the rounds here is the bridges and roads took less time to build than the complete alignment of the soft infrastructure to hard infrastructure.“The saying goes,”continues Ahmad,“the devil is in the details, and this is our story. There were many things, legal implications, when we got involved with opening up a bridge and it many routes … the areas where things need to be approved, IT details the framework, the customs, we had to ensure everything was working
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smooth before beginning, we had to be sure the the person on the counter facing the customer had all the knowledge.” Having said all of the above, what Dubai has today is this huge economic cluster of two major free zones surrounded by two major airports and a seaport on the other side. “We have something which is next to none globally. We have created a holistic solution for the whole region, if not the world.” What makes it work for Dubai or what makes this synergised operation work is the fact that all the government department were seeing the business perspective.“I have personally worked and seen international government organisations work and the difference I can see with them and in Dubai is, the customs, the police, the rest of the government, they are ready to listen, they want to work with you, they want to work with the private sector, and not as a regulatory body but rather as the regulatory hand with a facilitating arm. This is the secret of Dubai’s success. Of course ultimately there are higher objectives such as being the top tourism destination, training destination, logistics hub. All of that comes into perspective since logistics is one of the key factors.
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Ahmad does admit to having shortcomings,“Of course like any other system there are some minor issues happening time and again. For example when we have one-to-one meetings with our many multi-cultural customers, they have a wish list where-in they want facilites that other countries may be providing to them. We want to convey to them that what might work in Country A might not necessarily work in the UAE and vice versa. While we are providing them with this multi-modal solution there is an immense amount of work that has gone on in the back Dave Gould end to make this solution work. That cannot be underestimated.” The customs authority has had to wear two hats one where they want to facilitate business and the other where they do their primary duty which is protecting the country from smuggling, counterfeits and illegal things being brought in.“Yes, there are challenges when it comes to customs, but those have been well studied and so far they are doing an excellent job.”
The big shift From May all freighter operations are going to move from Dubai International Airport to the DWC. Ahmad says it will be a big impact on business. Dave Gould, Emirates Senior Vice President, Cargo Operations Worldwide tells us more about the move How are preparations shaping up for the move in May? Preparations for the move of our freighter operations to DWC’s Al Maktoum International Airport are progressing well. The construction of Emirates SkyCargo’s terminal is being carried out in phases. Phase1 was completed at the end of March, after that the cross docks and perishables area will be handed over to Emirates SkyCargo. We will then commence the testing phase of the facilities and truck runs between the two airports, before we start operations on 1 May 2014. Emirates is going to be providing an air, road, sea / air, road, air inter modal service once operations move to DWC, kindly elaborate. Emirates SkyCargo is not providing the service, it is a competitive advantage of DWC being located close to the Jebel Ali sea port, where it is treated as a single free zone and goods can be transported freely between the two. Customers can take advantage of it. We will provide road feeder services from DWC to all other UAE airports such as Abu Dhabi (AUH) and Sharjah (SHJ). What kind of a transportation network is in place for this to happen? We recently appointed Allied Transport, a well-known company in the UAE and the Gulf Cooperation Council, on a five-year contract to provide trucking services for Emirates SkyCargo to move goods between DWC and Dubai International. What routes are going to be used between the two airports, what trucks, how many trucks in the initial stage and eventually once all the phases are up and running how many trucks will be in the fleet? The Emirates Road (E-611) will be the main corridor which the trucks will use to move
cargo between DWC and Dubai International. The trucks will be able to move both general cargo and temperature sensitive cargo. There will initially be a fleet of 45 trucks, which will increase relative to our future growth. How much is the time frame for the cargo to move from DWC to Dubai International and vice versa? We are looking at between an hour and fifteen minutes to an hour and forty five minutes, excluding loading. What freight capacities are we looking at in the initial stage and eventually? The cargo terminal at DWC will have an initial capacity to manage 700 000 tonnes of cargo per annum, which can be further extended based upon our future growth requirements. Between May to October this year, we expect to manage up to 660 tonnes of cargo per day, which will increase to just over 1250 tonnes a day (452 400 tonnes per annum) post October. In phase two, the facility will be expanded and able to handle up to one million tonnes per annum. How will this move to DWC make lives easier? How will this new inter modal integration pave the way for future growth? The move of our freighter operations to DWC provide us with the opportunity to have a dedicated facility for our freighters, with the required infrastructure, space and opportunity to further expand capacity. Our freighter operations currently account for 35 per cent of our total cargo revenue, and the new terminal and facilities is a core part of our growth plans. The new infrastructure will also have a positive multiplier impact on Dubai as it will create a cargo corridor that connects the Jebel Ali Port, DWC and Dubai International. Our DWC operation will create a seamless ability between the two airports that will allow us to grow our business through better connectivity between Jebel Ali Port, DWC and Dubai International.
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يقول محسن محمد معلق ًا على ذلك« :بإمكان أي شخص أن يبني الكباري ،بل وأن ُينشئ املطارات بجوار موانئ لها ،لكن يكمن جوهر عملنا في كيفية تنظيم جميع الكيانات واملنظمات ،دون أن يواجه العميل أي إزعاج أو اضطرابات في املواعيد .تلك هي امليزة التي نتفاخر بها أمام اجلميع .ولن يقدر على الوفاء بها سوى دبي». تضم هذه العملية بالكامل العديد من املنظمات ،منها جمارك دبي واملنطقة احلرة في
جبل علي والتي تخضع لقواعد وضوابط وطرق عمل خاصة بها ،ومشغل املوانئ «موانئ دبي العاملية» ،ومدينة دبي اللوجستية التي تُعد منطقة حرة هي األخرى ،واملطار اآلخر الذي ال يعد منطقة حرة .في الواقع ،فإن تنظيم آلية عمل كل هذه الكيانات ،لتكون على هيئة نافذة وحيدة أمام العميل لهو أمر جدير بالثناء واإلطراء ،واحلق أننا لم نكن لنصل إلى ما وصلنا إليه دون هذا التنظيم .أعني أنك لو فكرت في األمر قليالً ،فستجد أن دبي ُتثل مركزاً رئيسي ًا ضخم ًا يصل الشرق بالغرب ،لذا فيقع
على عاتق سلطة اجلمارك مهمة كبيرة حلماية األمة وسالمتها ،وهذا أمر ال ُيستهان به على اإلطالق». عالو ًة على كل ما سبق ذكره ،فإن دبي اليوم تتلك هذه املجموعة االقتصادية الضخمة من منطقتني حرتني بحيث يحيط بهما مطاران كبيران وميناء بحري في اجلزء اآلخر منها .ما يجعلها وفق ًا ملا جاء على لسان محسن محمد «تتلك شيئ ًا ال ال شام ً مثيل له في العالم ،فنحن قدّ منا ح ً ال للعالم بأسره». 42 2014 84 APRIL GSC YEARBOOK 2015
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تغيير مسار سالسل اإلمداد ال يقتصر مطار آل مكتوم الدولي أو «مطار دبي ورلد سنترال» على كونه مطاراً جديداً يقع بجوار أحد املوانئ ومنطقة حرة تخضع لسياسة جمركية موحدة .الصورة الكلية لهذه املنصة اللوجيستية السهلة تتضح في كونها العامل احملفز األساسي وراء التغيير الذي شهده الطريق املُخصص لسالسل اإلمداد الدولية التقليدية .حتدثت الكاتبة منور شريف إلى محسن محمد ،نائب مدير منطقة اإلمدادات في مركز دبي التجاري العاملي ،وناقشته حول اخلطة الرئيسية.
تضم سالسل اإلمداد التقليدية شركات كبيرة مختلفة األنشطة إلى جانب مراكز توزيع في قلب املنطقة خلدمة كافة أنحائها .ميتد الشرق األوسط مبحاذاة منطقة أوروبا والشرق األوسط وإفريقيا املُشار إليها باالختصار ( ،)EMEAلذا فعاد ًة ما تعمل الشركات على خدمة املنطقة حول أوروبا. وجوا بفضل ميناء دبي اجلديد ،فإن االتصال ًبرا ً وبحرا يعني أن الشحنات قد تصل لوجهتها في ً غضون بضعة ساعات من وقت وصولها في دبي مما يعود مبزايا ال حصر لها على سالسل اإلمداد الدولية .ال شك أن دبي هي املكان األمثل خلدمة املنطقة من حولها .وفقا لنائب املدير العام ملنطقة اإلمدادات في مطار آل مكتوم الدولي ،محسن محمد ،فإن معظم الشركات تنقل اآلن مراكز التوزيع اخلاصة بها إلى مطار آل مكتوم الدولي، وهذا حتديدا ما قامت به شركة هينو ،بل ويحذو حذوها آخرون».
من حبر على ورق إلى أرض الواقع
يستطرد محمد محسن في حديثة ّ موضح ًا أن: تقدّ تسهيالت ولألعمال للشركات دبي م جزءا من اخلطة ٍ يسيرا ،لكننا عندما بدأنا إال أن هذا اإلجناز ليس سوى ً «يبدو األمر اليوم شيئ ًا ً تشغيلية ضخمة ،سواء كان ذلك بفضل الرئيسية ،إذ ُيضيف محمد محسن قائالً« :خطة املشروع في عام ،2010لم يكن هناك سوى ال من رحالت الطيران ،إال أن هذا الطريق املمر الذي ميتاز باالتصال بر اً وجو اً وبحر اً إنشاء مطار بالقرب من املنطقة احلرة في جبل عدداً قلي ً اللوجيستي بني املطار وامليناء ساعدنا في استكمال أو بفضل اإلجراءات اجلمركية املوحدة علي مت وضعها منذ عهد الشيخ راشد .من ذلك أو حتى النشاط التجاري الذي يخلو من احلني وهذه املنطقة مخصصة لتنفيذ هذه اخلطة حلمنا .جبل علي تُعد واحدة من أكثر املوانئ زحمة األعمال الورقية .ال شك أن دبي الرئيسية .إال أنه فقط في اآلونة األخيرة بدأت هذه شهر ًة في العالم؛ وذلك بفضل القيام بتحميل املنطقة تشهد بعض التط ّورات والتعديالت ل ُيقام الشحنات وتفريغها وتوصيلها إلى محطة الشحن جعلت كل ذلك يبدو يسير اً ،إال أن تنظيم البنية التحتية املرنة لتتوافق مع البنية عليها مطار وميناء بحري متصلني .لكننا اآلن حيث يجري شحنها مرة أخرى على إحدى التحتية الصلبة كان من أصعب املهام نرمي ألبعد من ذلك ،فنحن نسعى لربط املنطقة الطائرات ،كل ذلك دون املرور بأي من عوائق الشاقة على اإلطالق. ال بشبكة القطارات». بالطرق ،وربطها مستقب ً الضمانات واجلمارك والرسميات الروتينية». APRIL 2014 GSC YEARBOOK 2015 43 85
Almajdouie Logistics supports Yanbu 3 Desalination Project In mid 2014, Almajdouie Logistics transported an Evaporator weighing 5,736.8 tonNEs (gross weight during transportation), and believed to be the World’s heaviest, at the Yanbu 3 Desalination Project, Kingdom of Saudi Arabia.
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total of six Evaporators will be transported by Almajdouie Logistics; four Evaporators will be fabricated in Vietnam and shipped to the site jetty at Yanbu, where they will be rolled off the vessel and transported to the foundation by use of Self Propelled
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Modular Transporters (SPMT’s). A further two will be fabricated in modules locally by Bilfal Heavy Industries, and transported to site for assembly. On the vessel arrival Almajdouie Logistics were ready at the Yanbu site jetty with their transportation team,
along with 200 axle lines of SPMT’s and 6 Powerpacks, to execute the roll-off operation and to install the giant evaporator, with Dimensions (L x W x H) 137.9 m x 32.1 m x 11.4 m, to its final location at the SWCC site. After the berthing, custom clearance
AL MAJDOUIE ADVERTORIAL
and removal of seafastening procedures, a steel plate bridge was placed between the vessel and the jetty to facilitate the rollon of the SPMT’s, which were already fitted with temporary intermediate steel supports. After the jack-up of the Evaporator using the SPMT’s integral hydraulic system, the roll-off procedure over the steel plate bridge began in conjunction with the vessel ballasting to maintain the level of the barge to the jetty, with constant close coordination between the vessel and transport operations teams. Proper planning and safety are very important in such projects, with method statements, transportation drawings, stability calculations and coordination meetings beginning from several months before the actual operations began. The transportation route had been designed and prepared for loads of 10 tons per square meter up to the foundation, and once the Evaporator load was transferred onto the foundation, using the SPMT integral hydraulic system, another successful superheavy Evaporator transportation was completed, the latest of 30 Evaporators weighing more than 2,000 tons transported by Almajdouie Logistics in the last few years. Doosan Heavy Industries & Construction is to build the Yanbu Phase 3 Seawater Desalination Plant under a contract worth US$ 1 billion from the Saline Water Conversion Corporation of Saudi Arabia. The Yanbu 3 multistage flash (MSF) plant will be built 350 km north of Jeddah to supply fresh water to the industrial city of Yanbu and the nearby Medina region. The plant will deliver 550,000 m³/d of water, sufficient to meet daily requirements of 1.8 million people. GSC YEARBOOK 2015 87
MATERIALS HANDLING
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MATERIALS HANDLING
Is it time to hire a
Materials Handling Consultant At the right time and for the right reasons, a Consultant’s contributions are invaluable. Cliff Holste, Material Handling Systems Editor with Supply Chain Digest explains why your business may need a materials handling consultant
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ll too often consultants are brought in at the wrong time for the wrong reasons. However, utilizing an internal resource person to lead the project has its own set of issues. By considering the following questions you can determine if you’re ready to bring in an outside resource As we all know change is hard! However, sitting on the sidelines will not move the company forward. All warehousing and distribution companies have staff members who are experts in managing and directing the company’s business. Most are familiar with typical material handling equipment i.e., GSC YEARBOOK 2015 89
forklifts and conveyors, but have little or no experience with automation. Fortunately, industry experts are readily available to fill the void. But before tapping into that resource you would be well advised to do your homework. At the very least, consider the following three key questions: Do you know where you’re business is headed?
It’s okay to bring consultants in to help figure out where you need to go relative to DC operational improvements. It’s not okay to have them take you there before you have figured out just where“there” is. In other words – first get your ducks in a row; get educated about what the improvement possibilities are by going to trade shows and having discussions with peers from other industry related companies. Should your own staff be doing the job?
Consultants often get asked to do things clients are perfectly capable of doing on their own. It makes no sense to hire a consultant to recommend potential improvements that in-house personnel have already identified. This is often referred to as“low-hanging-fruit”Although a second opinion from an independent source may be of some value its way more cost effect to fix the obvious stuff before paying someone else to tell you what you already know. Have consultants succeeded previously?
Consultants will only be as good as your organisation will allow them to be. If bringing in a consultant just never seems to quite work out there may be internal issues (strong resistance to change for example) that need to be resolved first. Many good projects go down the drain because of the FUD factor – Fear, Uncertainty, and Doubt. Sometimes it helps to visit installations where automated technology has made substantial improvement. The point is that the equipment and system technologies that will be most beneficial are not new. If you are seriously considering automating DC operations you will 90 GSC YEARBOOK 2015
definitely need assistance from an experienced industry professional. In general, the need for automation emerges out of some chronic pain such as rising cost, and/or customer service troubles.
Evaluation and selection While some companies automatically turn to industry consultants and/or service providers with whom they’ve had success in the past, others go through a formal evaluation and selection process. There is broad range of material handling consultants to choose from. Their capabilities, scope, and experiences vary widely. They include: Former warehousing and distribution operations executives. Academics with PhDs. Industrial Engineers. Independent supply chain logistics and materials handling industry experts (sole practitioners and large firms). Systems Integrators whose operations range from small engineering firms to very large manufacturing companies
with hundreds of employees, and everything in between. Selecting a consultant depends on the scope of the project. If you’re trying to put in place a network of distribution centres, you’re probably better off going with a large supply chain logistics firm that has networking and DC automation system experience. Many small to medium size organisations don’t have the internal resources required to do network analysis, and all the number crunching that goes into system modelling and proving the viability of the overall logistics plan. If you need a survey of your existing DC operations, looking for productivity, throughput, and/or efficiency improvements, your best bet may be an independent industry expert. APMHC (Association of Professional Material handling Consultants) is a professional society composed of individual consultants who are active in the material handling field. Another option would be a material handling system provider with whom you, and/or others in your specific industry, have had previous successful experience.
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However, when working with a system provider you may get proposed solutions that are limited to what’s in their“tool box” and not get the objectivity and diversity of thought and input that you can get from an independent consultant. Finally, if you are looking for single source design-build responsibility there are several domestic and international system integrators who are fully engaged in developing and providing automated material handling systems on a turnkey basis. They are prepared to take total responsibility for design and implementation. See the following top 20 list as published in a 2013 article by MMH.
Be specific about goals When evaluating potential service providers, be very specific about your goals and objectives. Find out what they have done for similar companies, and what results they’ve achieved. When interviewing consultants pay close attention to what they know about your company.You want to be sure that they are familiar with the peculiarities of your business model. For example, as a minimum, have they; studied your web site, know your customers and competitors, visited a typical retail outlet (if applicable). Also, it’s equally important to pay attention to how well the consultants, system integrators and other service providers listen to what you say. For sure they will want to impress you with how clever they are, but they should listen carefully to explanations of your problems before giving you the benefit of their wisdom. Not given the impact a consultant can make on your business you must dig much deeper than reviewing their sales brochures and bound proposals to get a true picture of a potential consultant’s character and capabilities. It’s crucial to clearly set expectations and deliverables
from the get-go. Even so, it’s almost guaranteed that the scope of the consulting engagement will expand as new requirements emerge. Therefore, if you are concerned about this possibility, you might want to consider negotiating a not-to-exceed or fixed price agreement instead of an open ended pay-as-you-go deal. Either way, there should be an escape clause just in case premature termination becomes (for whatever reason) necessary. If you have decided to hire an outside, independent consultant for your changeover project the following guidelines, extracted from Logistics Resources International, Inc. (http:// logisresources.com/ ), may be helpful in your selection process: Insist on solid, experienced, and wellqualified consultants: When hiring a consulting firm, get a high degree of commitment from the firm on the skill level of consultants to be used in the project. Otherwise a senior partner can come in, sell the deal, but then you get IEs and/or MBAs fresh out of school who barely know what a forklift is. Once you know who you will be working with, make sure there’s good chemistry between the consultants and your
team. Look for individuals who fill in any gaps that your team may have. Don’t look for a clone of yourself: Look for expert advisors that think differently than you do. Try to find individuals who will bring up potential solution that you would not normally consider and by doing so contribute to a much stronger result. Establish an open atmosphere: To successfully work with consultants, establish a strong relationship and set an environment and tone where, not only are you free to challenge, but where you are expected to challenge each other. There has to be a real open environment of sharing and feeling that you’re in this together. Keep the executive staff informed: It’s critical that information flow back and forth between the planning team and the executives. This will help to promote ownership and buy-in and greatly reduce the chances of getting off track and consequently presenting a project that they will not support.
Final thoughts In its booklet “Your Secret Weapon”, Deloitte Consulting (www.deloitte. com/us/consulting) suggests making this speech to your selected consultant prior to signing the agreement: I want ultimate candor. This means that we are on the same team. We will act that way and share information. There is no problem you can bring to me that will get you fired. If we have a problem, and you believe that I am the source of that problem, you must tell me. Not my team. Not my boss. Just me! In the event that we have a problem and you go over my head without bringing it to my attention and telling me that you feel I am not responding, I will fire you – period. Perhaps the above provides a clue that consulting engagements are serious business not to be taken lightly. -www.scdigest.com. GSC YEARBOOK 2015 91
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A future with
materials handling M Matthias Hoewer
Materials handling is an essential part of industry, businesses and eventually the economy. SSI Schaefer, the world’s top materials handling company would then be the best company to target to talk about trends and the future
aterials handling is an integral part of the logistics and supply chain industry. GSC spoke to Matthias Hoewer, Managing Director of SSI Schaefer, Middle East with a different set of queries relating to a few top factors (either challenges or trends) facing the industry and affecting its future in the region. Definitely an interesting read. When we take a look at the materials handling industry in the region what with its transient workforce, the many companies involved face daily challenges in the form of inadequate labour pools for many reasons, one of them being the industry’s lack of appeal, an undersized and poorly connected training and education network in addition to inadequate skills in the existing and entering workforce. Perhaps it is time for companies to create some kind of ideal initiatives with possible involvements with government/s in the country and region to undertake collectively to solve these issues? Matt Hoewer, Managing Director, SSI Schaefer says,“Looking at the area that SSI Schaefer Middle East and Africa is covering in terms of projects, there is a significant difference in the requirement of the quality of workforce from country to country. To
find the right solution for our customers in the respective countries, we also evaluate this as a factor for the decision making process and the assessment of which system we are going to propose. Training and documentation of a project prior to the handover is the key to a successful operation for our customers. With a growth of e-commerce companies, businesses have to adapt their ways of servicing their customers and eventually how their products are handled Hoewer says,“We are in a strong position within our group to be one of the leading suppliers for e-commerce solutions globally. This helps us to adapt solutions for the Middle East that are working successful in other similar markets for a number of years. At this point e-commerce is still beginning to start up and it remains secondary with the major retailers at this point. The typical Middle East customer still enjoys the“event”of a shopping experience. Being a veteran of the region sets SSI Schaefer apart in a number of ways, it is ranked number one in the materials handling world internationally, Hoewer says,“Our strategy is clearly a one-stopshop solution for our customers. Of course in selected projects we are also combining specific products from third party suppliers into our solutions, but overall we do believe that a single point of contact has the biggest benefit for our clients. It is easy to share cost or split contracts on a monetary basis but impossible to share responsibility within a project. “Regionally SSI Schaefer Middle East uses the same tools and resources than we use globally to design and plan the facilities for our clients. Every product that is available for our clients in Europe or the US is also available in the regional markets. In regards to retail applications which require diversified handling systems within a warehouse facility, we are in the luxurious position to be able to pick from a wide range of already standardised and well proven solutions. This ranges from conventional storage systems or integrated conveyor solutions and ends with fully automated warehousing facilities. Moving forward, there is an industrial GSC YEARBOOK 2015 93
outlook that envisions a more densely populated country as it grows and develops and coupled with the promise of all the good things the Expo 2020 hopes to do for the country’s economy, companies are preparing themselves for providing a wider variety of products to consumers in smaller quantities and a high percentage of home delivery with full knowledge of the high cost of ‘the last kilometre distribution’. The future would call for an open-shared, self service kiosk that could be operated and used by multiple retailers. How would the materials handling industry be able to support a future possibility of the above option? Hoewer says,“Similar exercises have been done in Europe about eight to 10 years ago with very limited success. To create automated pickup or returns stations in urban areas 94 GSC YEARBOOK 2015
sounds interesting but creates a number of challenges in terms of packing sizes and weights (a CD or DVD requires different handling from a larger box with shoes or clothing), peak performance
requirements (we all work from eight in the morning to five in the evening, which creates large peaks for pickup in the evening hours) and lastly also health and safety requirements (untrained users will
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have to operate automated machines). Ultimately the service levels that could be provided to customers with conventional pickup locations in malls or supermarkets succeeded the experience from automated locations. As the industry is big on embracing technology, with the advent of Google glass and other wearable computing equipment poised to become mainstream very soon, can we expect a warehouse with wearable technology as commonplace. Hoewer says, “I see a very limited number of applications that could allow wearable computers to be used in the warehouse environment. It is a very long way from a consumer product that is used for one to two hours a day to an application that is used for more than eight hours. Battery life, wearing comfort, light conditions in a warehouse, working
conditions at 25°C and more all have a major impact on the lifetime of these systems and applications. Just recently released research data indicates that over 50 per cent of the users that operated under Virtual or Augmented Reality felt sick or uncomfortable after continuous use of just 60 minutes. Questions of health and safety with reduced peripheral vision also need to be addressed. So you see I am a bit skeptical on this new technology entering the warehouses any time soon also due to the fact that I wrote my university thesis on this exact topic over 10 years ago and it was considered a“hot topic”back then as well. Ten years on we are still doing the order picking in the non-virtual reality. How real would a possibility of having robots in the warehouse be, then and how real is an affordable robotic order picking
system to support high throughput? “SSI is definitely one of the leading suppliers of robotic warehousing solutions worldwide. In markets with very high cost for warehouse operators and staff, robotic solutions are an alternative to conventional picking. Robotics can be very efficient in an environment with standardised processes. This is why for example automotive manufacturing today is a highly robotised process. The moment where flexibility and exceptional processes are required, a robot cannot beat the human. Fortunately nine out 10 processes in the logistics industry still require human interaction. Will this reduce over the coming years? Absolutely yes, but robots will never be able to ultimately replace human know-how for every single task within a warehouse facility. GSC YEARBOOK 2015 95
Looking ahead at more success DP World’s highlights from 2014’s many achievements that have set the tone for what is to come in 2015
With 19 highly sophisticated automated quay cranes and 50 automated rail mounted gantry (RMG) yard cranes, T3 will be at least 30% more carbon efficient than a conventional terminal operation. Importantly, automation will transform the workplace at the port, and with the cranes operated from a purpose built operations building set apart from the quayside using remote control technology, the work has attracted highly skilled – and diverse – people including Emirati women for the first time. T3 will also provide opportunities for those with special needs, with consoles and equipment in the operations room designed for wheelchair access. As automation and new technology are the way of the future, DP World is keen its new Terminal 3 will help supply chain realise the efficiencies on land that the new mega-ships generate at sea.
Top 10 list
Jebel Ali Freezone & LSE Announcement
2
014 was from its beginning special for DP World at Jebel Ali Port with the inauguration of Container Terminal 3 (T3) at Jebel Ali, by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, who paid his royal visit to what is set to be the world’s largest semi-automated facility. The new Container Terminal 3 welcomed its first scheduled vessel in October adding 2 million TEU (twentyfoot equivalent container units) capacity to the port enabling it to handle as many as 10 of the new generation Ultra Large Container Ships (ULCS) at the same time, with its 21st Century infrastructure and 18 metre draft.
Last year, DP World’s flagship Jebel Ali Port was again ranked in the busiest Top 10 list, as the only port outside the Far East to make it into the list of the world’s largest ports. Jebel Ali port is the ninth largest in the world, where seven of the top 10 are in China, and the other two being Singapore, Ali added 1 million TEU capacity to its and Pusan, South Korea. Container Terminal 2. HE Sultan Ahmed Bin Sulayem, Terminal 3 represents innovation and Chairman, DP World, said: “Jebel Ali technology, featuring 19 of the world’s has consistently maintained its Top Ten largest and most modern quay cranes ranking since 1997 thanks to Dubai remotely operated from a sophisticated and the UAE’s position as the centre control room off the quayside, in safety for trade in the region, which our port and comfort, largely by Emirati nationals, including females, who will also make up the has supported and driven with constant majority of the 50 Automated Rail Mounted investment in infrastructure to stay ahead of demand. This success is entirely due Gantry crane (ARMG) operations team.
Additional Capacity Once fully operational this year, the world’s most modern container terminal will add a further 2 million TEU capacity, taking total handling capacity at Jebel Ali to 19 million TEU. In 2013, Jebel 96 GSC YEARBOOK 2015
T3 First Vessel
DP WORLD ADVERTORIAL
DP World and Al Khaleej Sugar recieve Largest Sugar Vessel at Jebel Ali
to the wise and far sighted vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai, who has always been an inspiration for us, positioning Dubai and the UAE as a regional and international leader.
Most Productive in the World 2014 also saw Jebel Ali ranked as the world’s most productive port according to the US-based Journal of Commerce (JOC). The rankings are based on the average moves of containers per ship, per hour, in 2013 as reported by shipping lines themselves, representing more than 75 percent of global vessel capacity. Jebel Ali Port led the industry with an average of 138 moves per vessel hour (MPH). According to the report, Jebel Ali Port beat 483 ports world-wide, and topped the list of the world’s top 25 ports after analysis of more than 150,000 port calls. Importantly, given the move to larger and larger ships, Jebel Ali also tops the list of ports handling ships with capacity of more than 8,000 TEU (twenty foot equivalent container units), with an impressive 163 MPH. In the first nine months of 2014, Jebel Ali and other DP World’s terminals in the UAE
JA recieves MV Mega Star
handled 11.4 million TEU, representing growth of 12.6% year-on-year. Yet another new record was achieved with 4 million TEU handled in the third quarter.
Mega vessels Jebel Ali plays a significant role as a mega gateway for the UAE, GCC and the Middle East wider region. It is the world’s largest man-made harbour and is ranked amongst the Top 10 container ports worldwide. Today, it is a premier gateway for over 90 weekly services connecting to over 140 ports worldwide. It is an integrated multi-modal hub, offering sea, air and land connectivity complemented by logistics facilities which include coolport, container freight station and warehousing. It is capable and ready to meet future demands for containerized or non-containerized cargo, with its new, state-of-the-art Container Terminal 3. In 2014, DP World joined its customer Al Khaleej Sugar in celebrating the arrival of the world’s largest sugar carrying vessel to call at DP World’s flagship. Arriving from Sao Paolo port in Brazil, MV UBC OTTAWA delivered 106,000 tonnes of sugar discharged in Dubai. Jebel Ali serves a wide variety of customers and receiving the world’s
largest sugar carrying vessel came on the heels of the arrival of the biggest ever bulk carrier to visit the port in November. The Saba Shipping’s “Mega Star”, more than a quarter of a kilometre long at 229 metres, was carrying around 79,000 tonnes of reinforcing steel from Turkey, destined for Dubai. “This sends a clear message that we are ready to meet future capacity demands in Dubai, whether containerised or noncontainerised cargo”, said Mr Bin Sulayem. Jebel Ali has intermodal connectivity, by sea, land and air, and has a proven ability to handle breakbulk, bulk, roll on - roll off cargo, livestock and all other general cargo.
Acquisition of Jebel Ali Free Zone In 2014, DP World proposed acquisition of Economic Zones World FZE (EZW), its subsidiaries and subsidiary undertakings from Port and Free Zone World FZE (PFZW). Proposal was later backed by the company’s shareholders who recognised the strong strategic rationale for the combination of Jebel Ali port and free zone. The integration of DP World and EZW will reinforce the company’s leadership in the high-growth Middle East region and enhance DP World’s integrated port and logistics offering to customers by optimising investment. It is a compelling strategic move that will allow both the port and the surrounding free zone to co-ordinate planned expansion, deliver an improved customer proposition, accelerate growth and enhance shareholder value. The acquisition provides significant strategic, operational and financial benefits to DP World, including the creation of the leading integrated port and free zone in the Middle East region. It brings attractive financial returns for DP World shareholders with the proposed acquisition expected to be more than 15 per cent earnings enhancing, to generate greater than a 7 per cent return on capital employed in the first full financial year following completion and to increase the enlarged DP World adjusted EBITDA margin to close to 50 per cent on a pro forma basis. It is anticipated that the transaction will be completed during Q2 2015. GSC YEARBOOK 2015 97
A seasoned
player
Al-Futtaim Logistics has been a part of the logistics industry for a while now. With businesses moving ahead at an increasing pace in the country, the company is gearing up to ensure it manages to stay on top of competition when it comes to acquiring all that is coming up
Raman Kumar
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E
xpo 2020 is a major event, and clients across all sectors, have already begun to make preparations to leverage their businesses.“We expect the event to increase the visibility of Dubai, as well as of the entire region, and the number of people expected to visit will definitely help the already booming retail market. In addition to this, what we hope to experience with Expo 2020 is the growth of fashion logistics, especially in light of the fact that top fashion designers are now coming to Dubai,” says Raman Kumar, Acting Managing Director and Finance Manager, Al-Futtaim Logistics. Although Italy and France remain the home of the fashion business, Dubai is becoming a hub, and its position in the global fashion arena is only going to become more central day by day.“When you consider the fact that the UAE is expected to host over 25 million visitors by 2020, the Emirate’s growth will be exponential for the general advantage of all. We expect to grow accordingly, and have started focusing more on fashion logistics specifically, with the aim of becoming a major logistics player in line with the growth prospects.”The recent
announcement of the India Fashion Week being moved to Dubai is just an example of how close to the ground the company’s ear for business is. Here is an excerpt of the conversation GSC had with AlFuttaim’s Kumar. What is the current status of the materials handling business in the region?
The GCC region always has an edge over others due to the fact that it strategically connects the globe for business and with the 2020 Expo and FIFA World Cup 2022 in Qatar on the horizon; demand for materials handling business has noticeably increased.
How much would you say is dominated by older more established materials handling companies?
Established materials handling companies definitely have leverage over the newer ones as they already have strong equity in the market. But at the same time, with business increasing and considering the growth factor being high, lots of new materials handling companies have emerged in the market. Dubai, being the epicenter of business in the Middle East enjoys the bulk of the business with a significant proportion of inflow and outflow of trade. It is very important that the materials handling company makes a strong and valued contribution to industry
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growth, whilst simultaneously raising the benchmark for excellence. Where are the industry’s needs headed?
With so many players around the market, the client is spoilt with choice. Hence, to make a significant mark in the market we need to crucially address over and above the client’s expectation through reduced lead times, innovative solutions and smart customer service (which is Al-Futtaim Logistics’ particular forte). Technological upgrades to our business systems have enabled us to deal better with this expansion and effective handling. The business should always provide value added solutions with cost effective. Could you tell us in detail about the process from start to finish about customising a solution for a potential client?
Customising our services as per the client’s requirement has always been a core area of our business. At Al-Futtaim Logistics, we are well equipped with outstanding talent and resources who advise clients and their key role is to understand the actual needs of the clients and devise a solution which is cost effective and adds value to their 100 GSC YEARBOOK 2015
respective business. Al-Futtaim Logistics has implemented innovative solutions to the third party logistics industries. AlFuttaim Logistics has received Integrated Management Systems (IMS) certification, in accordance with international industry standards, ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007. There are two methods in place that provides regular customer feedback across both business to business (B2B) and business to consumer (B2C) markets, as well as individual clients and the end customers. This allows us to have a very clear idea of what needs to be improved or changed in order to achieve our objectives. The B2B surveys are conducted independently by a third-party research services company. The two independent surveys research customer satisfaction at different contact levels; the first is the decision-maker, and the other, the end user. It is critical for Al-Futtaim Logistics to have feedback from customers who are decision makers, as they would have commercial interests in mind, and of course, the end user must have a sense of user efficiency. Leveraging the results of these surveys allows us to benchmark our performance and work toward exceeding customer expectations.
Moving forward, how does Al-Futtaim Logistics research the regional market to know what are the new solutions you need to start offering your clients?
Al-Futtaim Logistics invests significant time in research to evaluate the ongoing trends and demands in the market whether it is a technological advancement, or improving the range of services offered to our customers which leverages our ability to provide competitive solutions to our customers. The GCC logistics sector represents about USD$35 billion, with the major contribution from Saudi Arabia, the UAE and Oman. In the UAE, there is an air-sea concept when it comes to logistics, whereby a company that brings a product by sea can warehouse on location. In the second leg of the journey, the product is air freighted to other destinations in Europe and the rest of the world. Sea-air shipment is growing in the region at a rapid pace due to the lead time and efficiency gains and Al-Futtaim Logistics is able to contribute to this requirement with our local presence in key ports and airport locations in the UAE. There is also growing interest in Egypt and the Levant, and our facilities at Jebel Ali is another factor that that gives us an edge to extend our offering to Middle East, North and East Africa.
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t a time when the focus is on adopting more automated processes in the DC, it’s important for system planners and managers not to lose sight of the benefits improving manual picking methods can provide. For example, in discrete order fulfillment operations that ship product to the same locations on a recurring basis, Product-to-Person technologies may offer a greater range of control, accuracy, and efficiency at a minimum cost. In a typical Product-to-Person system (also referred to as put system) instead of pickers frequently walking past products that are not needed, lift truck drivers retrieve containers and/or pallet loads of required products and deliver them to a put order fulfillment zone. Each zone is equipped to serve several different store/ customer orders. The operator assigned to that zone is directed to “pick and pack” the required quantity of the product into customer specific, bar coded shipping cartons. RF scanning, Put-to-Light, and Voice Directed technologies (or some Multi-Modal combination thereof) can be used to direct the operator and to insure inventory and order fulfillment accuracy. In large facilities (+300K sq. ft.) it may be cost effective to deploy some type of integrated mechanised or automated delivery system, i.e., conveyors, automatic storage and retrieval system (ASRS), or automatic guided vehicle (AGV) network.
How your picking method could lower
operating
cost
The key to lowering cost is deploying a combination of manual and automated picking methods. Stationary pick and pack methods outperform walk and pick operation, says Cliff Holste, Material Handling Systems Editor with Supply Chain Digest
The simplicity of computer directed Put Systems yield many benefits The major benefits associated with put systems include greatly reduced picker walk time which equates to higher picker productivity, and increased product storage capacity. In a put configuration, required products are brought to the operator. Therefore, the order fulfillment staff does not need to travel throughout the facility. Further, by eliminating dedicated pick faces there is no need for slotting and re-slotting. Batch picked items are directed to a consolidation/sort area, which employs a put type system. Here case/item GSC YEARBOOK 2015 101
MATERIALS HANDLING
quantities are distributed across multiple positions following the display unit “put to” instructions, thus building discrete orders in their respective pack locations. There are several well established standardised Product-to-Person systems that are available such as, horizontal carousels, vertical carousels, vertical lift modules, mini-load ASRS, and Automatic Guided Vehicle (AGV) which can virtually eliminate all picker travel time. Note: In the past few years a new generation of AGVs has come to market with flexibility improvements that make them much more suitable for DC deployment including case (and piece) order picking as well as basic transport functions. These advances include much more sophisticated controls, allowing flexible and dynamic movement paths, and in some cases “optical” guidance systems that enhance flexibility and safety. Pick rates for put systems are typically higher than conventional discrete order picking systems where there is a pick face for every SKU. Based on industry statistics, operations that migrated to put order fulfillment can increase picking rates from 1.5 to three times depending on the system configuration. However, while a put system may be great for slow movers, it may not be ideal for fast movers. Still, based on the Pareto Curve, where 20 per cent of the SKUs equate to 80 per cent of the volume, improving picker productivity for the remaining 80 per cent of the SKUs would most likely prove to be a good investment strategy. In some cases distributors are deploying horizontal carousels to handle 102 GSC YEARBOOK 2015
slow movers. For example – Coty Inc., the world’s largest fragrance company, found that while its 900 slowest moving SKUs amounted to only about two percent of total volume, they led to substantial bottlenecks in order processing. Coty implemented two 65 foot long, five-shelf, light-directed horizontal carousels, which led to much more effective picking operations and storage density for those slow movers. It is noteworthy that carousels are used extensively in service parts distribution – an environment often characterised by huge numbers of mostly slow moving SKUs. Logistics Consultants, Industry Experts, and/or System Integrators can do the ROI analysis.
Light-directed Put sortation system Put-to-light and/or Pack-to-Light are variations of put order fulfillment systems. Put-to-light commonly refers
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container that is delivered to the store/ customer. to the distribution of a product across multiple locations, where each location contains a pallet load, container or tote that is associated to an order. Pack-tolight is more specific because it implies that the location holds the shipping
Conclusion So while put systems offer excellent benefits for many general merchandise distributors, automated technologies that bring products to the picker/packer
can provide enhanced benefits for specific operations. It does not have to be an either or situation. Deploying a combination of manual and automated order fulfillment methods may be the key to obtaining the lowest overall operating cost. -www.scdigest.com GSC YEARBOOK 2015 103
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SHIPPING
Future ready Growth in the Middle East, enhancing of the east west trade route, business originating from emerging market all have meant one thing. The Middle East has become an even larger transshipment hub. AT Kearney reports on this high speed development
T
he computer game Ports of Call is a lot of fun - unless you are a port owner or operator. Then, it is likely to disappoint, as it does not account for the challenges in the highgrowth gulf countries. For those yearning to be ship captain for a day, the game Ports of Call, where players navigate harbours, load cargo, and map routes, is the next-best thing. Among real-life port owners and operators in the high-growth gulf countries, however, the game is unlikely to cultivate many devotees as it fails to reflect the challenges they confront. Ports in the Gulf Cooperation Council (GCC) countries have experienced explosive growth over the GSC YEARBOOK 2015 105
re 1
Figu
Container traffic has been on the rise in United Arab Emirates ports
moment of truth in a far shorter time frame. Indeed, growth is mimicking the global players. Netherlands’ port of Rotterdam, for example, was founded in the 14th century and became the world’s busiest port in the 1960s. It now lags Jebel Ali. We refer to this as hyper-speed evolution, and it is a phenomenon unique to this region, often attributed to rising oil prices, government investment, and a growing population and workforce (see figure 2).
Hyper-speeding
Note: TEU is 20-foot equivalent unit. Sources: World Data Bank, International Transport Forum, Organisation for Economic Co-operation and Development; A.T. Kearney analysis
past three decades. Led by the United Arab Emirates’ port of Jebel Ali, which handled 45 per cent of GCC throughput in 2010, the region’s volume of maritime traffic now far outpaces that of its major global competitors. In fact, the UAE surpassed all Netherlands’ ports during a growth boom in which container traffic reached more than 15 million 20-foot
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equivalent units (TEUs) (see figure 1). GCC ports are not alone. Other sectors in the region are experiencing similar growth rates - from construction and process industries to retail and telecom. The rise in air-freight and air-passenger transport has also been dramatic. What is interesting is that GCC ports are not only rapidly growing, but also reaching their
Hyper-speed evolutions typically consist of three phases: launch, which occurs when catalysts – such as favourable natural resources, competitively priced labour, and the ability to learn from mature companies - trigger swift expansion; rapid growth, which happens as companies capitalise on existing global networks, build competencies, and exploit gaps left by established players to quickly catch the global leaders; and the moment of truth, which arises as companies approach maturity and the strategic response determines if their rapid growth is sustainable. GCC ports have been
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through the launch and rapid growth phases, thanks to several unique global and regional factors. The age-old trade route between East and West is one factor. More than 16 per cent of the world’s container traffic flows between Europe and Asia, allowing GCC ports to capitalise on the thriving global shipping business coupled with the existing global ports network is another factor in the GCC’s marine transport boom. Regionally, budding industries fueled annual 10 per cent export growth rates, while local economies continued to support demand for imports the region’s success, building state-of-the art port infrastructures and introducing tax and tariff incentives to spur development of special free zones near the ports.
Moment of truth The industry is now facing its momentof-truth phase and is being tested by the challenges of a new business environment. The most pressing issues are rapidly developing local markets that could face oversupply and increased competition as new ports come online. Over the next 20 years, planned
re 2
Figu
Stages of hyper-speed evolution
Source: A.T. Kearney analysis
infrastructure in the GCC will increase capacity by more than 200 per cent (see figure 3). Port expansions in neighboring regions such as Jordan and Iraq will also affect supply. Other competitive threats for ports exist in the form of new transport links, such as the region-wide rail network, while the eurozone debt crisis, piracy, and tensions
surrounding Iran are having a negative effect and increasing shipping costs. The following four actions will help ports capitalise on and sustain growth, and overcome such challenges.
Choosing a strategic direction During the rapid growth phase, GCC ports relied heavily on geographic
GSC YEARBOOK 2015 107
location to maintain profitability. Given today’s emerging oversupply and regional challenges, this is no longer sustainable. And while the new regional rail system will help link ports (and exporters), it can also mean less volume as rail allows exporters and importers more port choices. To meet these and other challenges and avoid spiraling into value-destroying price wars, port differentiation will be vital to gaining competitive advantage in the region. For example, Saudi Arabia’s King Fahd Industrial Port Jubail, built to meet the needs of nearby large export industries, specializes in liquid chemicals. At the same time, ports are tailoring their services to meet specific needs and improving their services to create competitive advantage. The recently opened Khalifa Bin Salman Port in Bahrain, for example, built a bonded logistics zone to position itself as an attractive transshipment hub for the northern gulf.
Other specialisations hold potential: • Offering added services, such as toxicwaste management, hazardous-material handling, quarantine, warehousing, ship decommissioning, dry-dock services, and military vessel support • Promoting low-cost, minimum service • Providing access to demand and supply of cargo in a connected industrial zone through bonded areas, pipe, and rail, or offering incentives • Arranging for multimodal transshipments (sea to air and sea to rail) In addition, many GCC ports face costly import-export imbalances that cause empty containers to either accumulate (import surplus) or disperse (export surplus) and then must be brought in from other locations – either way, an expensive proposition. In such situations, giving importers and exporters incentives will help the balance.
Improving capabilities The benefits of strategic differentiation are often won or lost in operational efficiency. Although GCC ports have 108 GSC YEARBOOK 2015
re 3
Figu
GCC port capacity will increase 200 percent over the next two decades
Note: TEU is 20-foot equivalent unit. Sources: Drewry, Oman Ministry of Transport and Communications; A.T. Kearney analysis
expanded their capacity to address the growth, operational and logistical shortcomings prevent them from realizing their true potential. World Bank’s 2012 Logistics Performance Index, which rates ports on their ability to arrange competitively priced shipments, included only one of six GCC countries in its top 40 for international shipments. Consider this: It takes an average of 17 days to import goods into Saudi Arabia, but it takes just four days to import into Singapore IT integration, customs procedures, processes, and availability of skilled personnel are all areas that GCC countries need to address. IT integration is a pressing need, specifically establishing a port community system (PCS) that links all players in the shipping process and allows them to share information (see figure 4). A tailored PCS combined with appropriate programs to train port personnel can reduce lead times and capture the most value from expensive port facilities. Choosing the right port operator is a good way to align the port’s strategic goals with its operational capacities. GCC-based port operators such as DP World, Gulftainer, Gulf Stevedoring,
and the newly created Abu Dhabi Ports Company handle nearly 80 per cent of the region’s container throughput. However, international operators have become increasingly relevant players in the region as they seek to capture a share of the new port capacity coming online. Of the global firms, Netherlands’ APM Terminals (Salalah and Bahrain) has the strongest presence in the GCC, while Hong Kong’s Hutchison Port Holdings (HPH) and Singapore’s American President Lines (APL) operate ports in Saudi Arabia, Bahrain, and Oman. Because port owners and terminal operators have shared interests, alleviating their operational and logistical shortcomings may depend on getting both sides to collaborate in strategy development and operational execution.
Engaging the regulators Government regulations can also drive competitive advantage. For example, the Jebel Ali Port and neighbouring Jebel Ali Free Zone have a symbiotic relationship in that the government offers tax and duty exemptions within the free zone, which gives industries exclusive port access to export products and import
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supplies. This approach, successful around the world, is one GCC port owners and operators could pursue, engaging in discussions with regulators and other port authorities to establish rules that benefit all stakeholders.
Working with business A final vital factor for success is for ports to integrate more closely with GCC business communities. To this end, a new 2,000 kilometer rail network is under way to connect countries from Oman to Kuwait, at a cost of roughly $100 billion, and road networks are further developing to the tune of $18 billion.5 It is important to note that the“intelligent”connections – communications, logistics, scheduling, and IT systems - are every bit as significant as the physical connections of roads, railways, and pipelines. Logistics platforms that act as intermodal facilitators between roads and ports will strengthen both the intelligent and physical connections. In the longer term, the GCC has an opportunity to become a center of trade with the emerging markets of China, India, the greater Middle East, and Africa, a region collectively termed CHIMEA. Improved integration with ports and markets along the Indian Ocean can lead to further prosperity for the GCC ports as they serve as a collective conduit for local industries to access the world’s fastestgrowing markets.
Charting a course Riding the wave of the hyper-speed evolution, GCC companies have enjoyed rapid growth and substantial profits. However, as competition intensifies and industries approach maturity, each country will face its own moment of truth. From this point on, new strategies and defense mechanisms will be needed to avoid the pitfalls of fast growth. Success lies in more closely aligning companies and cultures to their growth strategies while investing in forward-looking initiatives fit for the next challenging era. As regional dynamics change, ports can act as economic enablers, both to their countries and to the wider gulf region. -AT Kearney GSC YEARBOOK 2015 109
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DP World
reinforcing trading relationships
UAE’s premier port operator DP World’s Group CEO, Mohammed Sharaf speaks about current status of business and details of developments taking place in its numerous operations across the world GSC YEARBOOK 2015 111
Kindly give us an overview of the entity DP World in the last five years till date.
Mohammed Sharaf, CEO, DP World’s Group
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DP World has a portfolio of more than 65 marine terminals across six continents, including new developments underway in India, Africa, Europe and the Middle East. Container handling is our core business and generates more than three quarters of our revenue. In 2013, we handled 55 million TEU (twenty-foot equivalent container units). With our committed pipeline of developments and expansions, capacity is expected to rise to more than 100 million TEU by 2020, in line with market demand. DP World has a dedicated, experienced and professional team of 28,000 people serving customers around the world, and we constantly invest in terminal infrastructure, facilities and people to provide quality services today and tomorrow, when and where customers need them. In taking this customer-centric approach, we are building on the
established relationships and superior level of service demonstrated at our flagship Jebel Ali facility in Dubai, which has been voted“Best Seaport in the Middle East” for 19 consecutive years. In numbers how are the last five years different?
Over the last five years there has been extreme volatility in world markets and economies. However, because our average
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concession length is around 40 years, we have long term horizons and continued to invest during that time to increase capacity in existing and new markets. Over that period, we invested over US $6 billion in our portfolio and our three year capex plan for 2012-2014 stands at US $3.7 billion. We are on schedule to have 100 million TEU capacity by 2020, up from our current 70 million TEU capacity. In terms of throughput, we handled
47 million TEU in 2008, and in 2013 we handled 55 million TEU. How have capacities at DP World contributed to the overall success of the economy?
It is our experience that modern, efficient infrastructure contributes significantly to economic growth by connecting traders to markets and reducing the time and cost of the supply chain. As businesses grow,
so does the economy – jobs are created, communities benefit and the country benefits as a whole. This is very evident in the UAE where over the past 35 years throughput at our flagship Jebel Ali facility in Dubai has grown in lockstep with the UAE’s GDP growth. What challenges have been most demanding and which achievements most noteworthy?
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As mentioned, in recent years the global economy has been dominated by continued uncertainty. Many of the major economies have shown signs of start-stop growth which continued to impede progress towards a more broadly supported growth trajectory. Emerging and developing economies provided much of the growth last year although the pace was slower than previously. Our strong financial performance in 2013 came despite muted volume growth. Economic headwinds combined with a highly utilised portfolio with limited spare capacity at key locations constrained our ability to significantly grow volumes in 2013. However, the addition of new capacity in 2014 combined with a projected improvement in global trade sets a promising tone for the year ahead. We continue to focus on delivering efficiencies, containing costs and handling higher margin containers to drive profitability. As the third largest port operator in the world and the only one with a presence on six continents, our business is well positioned for growth and we believe we are well placed to continue to outperform the market. What does the India operation add to the overall equation?
The UAE and India have strong trading links historically and it remains a major market for us. We have the largest presence of any container terminal operator in India, operating five terminals. We are currently building a new terminal at Nhava Sheva and have a development project also in Kulpi. How important are international port operations?
Vital. Ports contribute to a country’s GDP and by connecting markets they cut living costs and raise living standards. They also reinforce trading relationships. Approximately 90 per cent of the world’s merchandise and commodity trade is transported by sea. Around 60 per cent of the value of global seaborne trade more than US $5.6 trillion worth of goods annually is transported by container vessels. (World Economic Forum – the 114 GSC YEARBOOK 2015
Global Enabling Trade Report 2012). Ports support economic diversification by aiding the growth of other sectors, generating employment. For every job created inside a well-run port up to five jobs are created outside. They also build knowledge and expertise so increasing competitiveness of a country. In terms of infrastructure investments, what is on the agenda for the UAE and the rest of the world?
UAE The UAE recorded the best year in its history in 2013 with 13.6 million TEU handled. This underlines the growth not only of Dubai but also the UAE and the wider region it serves. We added one million TEU of capacity at Jebel Ali in the middle of last year and by year end we were back at almost 90 per cent capacity utilisation. We are on track to deliver the
four million TEU capacity Terminal 3 (T3) this year bringing total capacity at Jebel Ali to 19 million TEU. Elsewhere … Our investments are focused on ensuring that we have the right capacity in the right locations and the right services to meet our customers’needs today and tomorrow. The opening of additional capacity was supported by the implementation of the latest technology across our portfolio, to speed up our customers’supply chains and bring goods more swiftly to market. We continue to invest in our portfolio for future growth. Over the course of 2013, we spent US $1,063 million in capital expenditure, predominantly at our greenfield DP World London Gateway port and logistics park project in the UK, Embraport (Brazil) and the expansion of our flagship Jebel Ali facility in the UAE.
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These projects, consistent with the overall nature of our portfolio, are long-term investments. Our strong cash flows and solid balance sheet mean we are well placed to invest today to meet the long-term needs of our customers whether it is in developed markets requiring increased efficiencies or the capability to handle the increasing size of vessels or in developing markets requiring increased port capacity to meet demand or dated infrastructure. As mentioned, in 2013 DP World London Gateway port opened for business, providing the most efficient link between deep-sea shipping and the largest consumer markets in the UK. We are seeing an increasing number of shipping lines calling at our facility and since the turn of the year we have had eight unscheduled calls at DP World London Gateway, including an Asia-Europe service,
as our port was less impacted by adverse weather due to its sheltered location. In faster growing markets, we have invested in the largest multi-modal terminal in Brazil (Embraport), which is in the port of Santos, 80 kilometres away from Sao Paulo, the country’s most populous city. Our terminal has seen encouraging demand since opening as the growth of the middle class population in Brazil and wider region continues to drive demand for containerised goods. In 2014, we look forward to adding further capacity at Jebel Ali and Rotterdam. We are making good progress with T3 at Jebel Ali and it remains on track to deliver four million TEU of additional capacity. Rotterdam is on schedule to open in the second half 2014. The 330 metre terminal development in Nhava Sheva, India will add around 800,000 TEU in 2015. This capacity is
much needed as the port remains capacity constrained. This new capacity will help alleviate this. We also continue to see opportunities in high growth emerging markets such as Africa, Central and South America and Asia. What deadlines have to be met before Expo 2020?
We were delighted to be a premier partner of Dubai’s Expo 2020 bid. Our entire team was behind the bid and we are excited and proud that it was successful. Our attention now turns to making sure we have the infrastructure in place to support this event, and we will be working very closely with our customers to achieve this goal. The expo will not only create opportunities for the UAE, it will also create new opportunities for other countries in the region and for people across the world. GSC YEARBOOK 2015 115
INL Logistics – premier food service solutions provider When was INL’s DWC facility set up? When did construction begin? How big is it? We have a 90,000 sq metre plot and our facility is built up over 45,000 sq metres. Construction began in 2007 and 2013 was our first year of commercial operation. Our facility is unique in its design and requirements which meant that DWC gave us all the flexibility to build as per our needs. We have a state-of-the-art DUNBAR crane system which is unique in its height and size. Very few places in Dubai could offer us the ability to construct it. Why was DWC the chosen location? What were the deciding factors? Why not any other free zone in the UAE? We offer food service solutions with 42,000 fully automated pallet positions that offer a range of frozen temperatures. Since we’re a 3PL we clear and handle our customers’ material from the port and then store for them and either we deliver to market or they do a bulk hold of say 10,000 pallet positions where 5,000 are used for distribution in the local market and the rest in the GCC. So location is integral to our business we have the airport, the sea port, Dubai and Abu Dhabi within our reach. List the facilities provided by DWC. It was a strategic business decision to be here one of the bigger airports of the region. Operationally, getting stock in and out of DWC is very efficient, customs procedures are simple, documentation and website is very clear, the access gates are plenty. DWC’s operational 116 GSC YEARBOOK 2015
blueprint has been communicated to all its customers coming in very directly. It was cost-effective then and remains to be so. The officials are very engaged with the customer. What we would like to see in the future is a link with rail both passenger and cargo. There is still some sewage connection which needs to be completed as well as storm water system isn’t complete, but that must be on the radar and will be finished soon. As it gets more busy there will be other challenges which will appear. We’ve shared very good relations with the DWC officials as we have gone through the learning curve with them being the biggest stakeholders till date until Emirates Sky Cargo comes in.
FOOD LOGISTICS
What trends can you identify as becoming prominent in the food supply chain? What factors have led to its prominence? Demand for food products in the GCC has risen year on year with the increase in population and tourism and the Increasing number of hypermarkets, supermarkets, discount stores coupled with increasing demand for processed foods, dining out and a preference for quick meals, including fast food and ready-to-eat foods has increased the need to have robust food service logistics operations. Over 90% of the food in Dubai is imported which means food service logistics represents an enormous commercial opportunity by staying informed and harnessing the very latest technology will keep us
ahead of the demands but we must focus on squeezing efficiency and profit from increasingly complex supply chains. How do global trends influence the way the food supply chain makes its course within the region? Global trends heavily influence the supply chain due to being heavily dependent on imports to meet their consumption needs and limited domestic production combined with being exposed to hikes in global food prices due to external factors, GCC food prices have increased every year over the last decade which is then difficult to pass on to the end consumer and effects the profit margin of the companies operating in the region which then in turn reduces growth.
INL LOGISTICS ADVERTORIAL
How are things evolving and improving as technology and other infrastructural improvements are implemented as an integral part of the food chain? Here at Integrated National Logistics we have a state of the art logistics operation with the latest technology using a fully automated multi temperature storage and handling solution, we are able to provide speed and accuracy to the end customer, we have 42,000 high bay fully automated pallet positions which are divided into chambers so that we control different temperature requirements, cross contamination, product recall, product expiry in line with HACCP requirements. We have to move with the times and I believe that the automated storage solution used at INL
today is the way forward when it comes to a food service solution. What in your opinion is a big part of the food chain which needs to change immediately and which could enhance the food supply chain in a big way here? A regional rail network would improve the movement of freight across the region which would reduce operating cost, provide speed to market, reduce the number of vehicles on the roads and maintain the cold chain within the food service sector. As we move towards a more nutritionally aware consumer demanding food which is fresh / organic / specific to diet requirements
– such as people with food intolerances that are growing day by day – how is this going to impact the food chain in the short and long term? People are becoming more health conscious and adopting a healthy lifestyle demands for healthy alternatives are expected to increase, The organic and Halal food industry has grown with pace over the last couple of years and today’s consumers is better equipped with product information which has changed their shopping habits to a greener healthier basket mix. Manufactures and big food retailers are aware that today’s consumer have become more informed of dietary requirements, healthy eating and the benefits of organic produce and the supply chain product mix will change over time to service this demand. GSC YEARBOOK 2015 117
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SHIPPING
The impact of
shipping Global supply chains have become more complex, with many parties involved in a transaction, increased challenges, and an evolving landscape of shippers and practices. This article focusses on a detailed analysis for progressing in today’s global trade landscape
C
omplexity and challenges occur in many forms and on many levels. Distance, time, performance, currencies, numerous participants, risks, and culture are a few of them. Supply chains are not monolithic. There are really supply chains within supply chains - and these are compounded with the global positioning and organisations of the many players. There are many parties GSC YEARBOOK 2015 119
involved with a single international shipment. Hidden among all these are events that impact supply chain operations. They are often silent changes and are caused by one of the most important logistics players in international trade - container lines. The shipping landscape has been changing and continues to change. Today global trade has three major trade lanes - Asia-North America, Asia-Europe and intra-Asia, with intra-Asia being the largest. Also, in this time: fewer carriers are now in business because of mergers and bankruptcies alliances, slot exchanges, and vessel sharing among carriers have been created and changed shipping routes have been added and revised sailing schedules have been regularly made and reworked; and “slow steaming� is an ongoing practice. As trade has grown into a global business, ocean transport has grown in importance. Container shipping is an important factor in trade expansion. Ships today have grown dramatically, and are measured in twenty-foot equivalents (TEUs). New vessels are 18,000 containers large (called megaships). The largest ships are generally targeted for use in the Asia-Europe trade. There is even talk of a 22,000 TEU vessel. The size of ships and the number of ships now operating and being built are points of discussion as in whether the total supply/capacity of container ships exceeds demand. Correspondingly, main ports have changed as trade has expanded. China dominates now with its role in all three of the major trade lanes. Some of the North American and European ports are active in trade lanes other than involving Asia as an origin or destination. Various ports are used primarily for transshipment. As trade has changed and ships have grown, port authorities are deciding whether to invest significant monies in dredging, cranes, container stowage, terminals, and underlying infrastructure to keep up with 120 GSC YEARBOOK 2015
the vessel growth and to handle these ships. Given the capital cost of ships, handling means that a port must be able to quickly berth, unload, load, and get the ship sailing again - as part of the asset utilisation and turnaround time that these ships require. It is possible that fewer ports throughout the world will be able to accommodate mega-vessels.
Impact on supply chains Maritime container shifts and growth were driven by business changes, primarily with manufacturers and retailers. These corporations did basically domestic sourcing, manufacturing / assembly, and selling. There were some export sales, primarily between Europe and the United States. Companies evolved by sourcing and manufacturing in Asia. The effort transitioned from countries such as Japan, Singapore, Hong Kong, and Taiwan to where China is now the dominant origin for world trade. The ways in which carriers operate and how they revise operations - have
affected their customers’ supply chains. While some shippers only care about the rate they pay and give little attention to what is happening with carriers, serious companies who practice leadingedge supply chain management know differently. They understand that what carriers do can sometimes adversely affect their supply chains and their businesses. Performance reliability is important for international supply chain effectiveness. Usually quarterly, companies, using tools such as sales and operations planning, create weekly buckets of production / build plans and logistics plans. These build and logistics plans can be very dynamic and critical because they involve high volume, seasonality items or new products. Those plans reflect underlying lead times from suppliers to factories and from factories to distribution centers. Key factors in the lead times are prompt, dependable transit times. The effects of the carrier actions are about more than transport; they are about
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applicable in supply chain management when inventory is viewed as the supply whose yield is to be made the most of. Having the right inventory and having it positioned at the right time is difficult and challenging. Insufficient inventory means lost sales opportunities, both immediate and longer-term by customers. Too much inventory means price markdowns to sell itand reduced profits. Firms working on thin margins especially feel such pain. Many items, as retailers know, enjoy a short shelf life relative to demand to the price customers are willing to pay. Firms that are in dynamic, volatile businesses, such as fashion, and ones dealing with strong seasonality, such as retailers with Christmas, know the impact of short product life cycles.
What to do
supply chains. All these actions impact every business, and especially retailers. Supply chains require dependable service for best results. Service irregularities and resultant creep can require companies to go into fire-fighting mode in order to try to compensate for problematic service. Significant expediting may be used and is a sign of process breakdown. It creates de facto chaos. Products may be flown to keep production lines going or to meet sales needs. Multinationals, with their global scope, can be particularly concerned with all these events. Uncertainty creates a type of supply chain risk, beginning with customer service, and is the driver for carrying extra, unnecessary inventory to buffer that unknown. Consistent product availability is important. To deal with varying transit times, more inventories - more safety stock - will be added throughout the entire production and finished supply chains. Additional working capital is tied up in raw materials,
work-in-process, and finished goods. This is investment that could be used elsewhere. Such added inventories are an anathema to supply chain management and to lean logistics. The net result is there is now a third group of inventories in the supply chain. Another disruptive issue caused to carriers’ customers by service inconsistency is inventory yield maximization risk. This effect, as with the other performance problems, ripples across the entire supply chain. With multi-channel sales, the disruption can be significant. Ocean carriers practice a form of yield management. For example, on the transpacific eastbound trade, they try to balance the timing and value from the service contract signing period through peak season when space may be at a premium regardless of pricing and into slack season where price reductions are given to freight forwarders to fill ships. Yield management, which ties to shelf-space profitability for retailers, is
All ocean container customers are affected by what carriers do. Multinationals, with global facilities and suppliers in multiple trade lanes, have felt the effect even more with the various operating changes by container lines. It is about supply chains and not about ocean shipping as a logistics action. Companies need to take corrective actions. How do they recover from the ocean transport inconsistency, and how do they achieve consistency? Since transportation is often a key to speed of inventory, then its inconsistency requires different approaches for remedies. There are tactical or operational efforts that can be implemented. The emphasis for the planned actions is not about moving containers. It is about the flow of products in the containers. These include increasing the use of practices such as transloading and cross docking at ports to reduce time and handling and to better position inventories where they are needed. In addition, there is cross docking at distribution centres to more quickly place products at stores or at customers’ warehouses. Supply chain execution technology is an excellent tool to manage overall operations. It is targeted for international, can be integrated, and has exception management and event management to manage and GSC YEARBOOK 2015 121
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provide visibility to global supply chains from purchase order placement through to container delivery. It helps to coordinate the entire supply chain. Tactical adjustments, while needed, are not enough to compensate for what has happened and is happening. The effect is not limited to one origin-destination or, even, to one trade lane. Corporations are dealing with multi-echelon inventory systems and with essentially an industrywide problem with ocean carriers. It is worldwide in scope and affects the global supply chain. Three, interconnected strategic actions that companies can take are: 1) Perform holistic performance analysis. The need is to optimise the total supply chain. Core components to the assessment model are: Process Organisation Technology Product flows Information flows Financial flows Costs Key performance measures Capacity, utilisation, and scalability of supply chain The analysis should confirm that the supply chain is aligned with the corporate strategy. Start from the customers’ warehouses or from the company’s stores and build back the supply chain. Supply chains are about pull; that is why the initial point is the customer or store. Assess what is done, how, when, and why? Continue building back through critical suppliers and through their supply chains. Identify where performances are below standards or expectations and where they exceed. Determine the reasons, both internal and external, for these results. Improve the supply chain process. Then establish what logistics service providers, including ocean carriers, best fit into the new business model. 2) Implement lean supply chain. Take the holistic review to another level. Supply chain managers understand how lean logistics and supply chain management are similar with the emphasis on pull, not push, and on removing the wastes of time and 122 GSC YEARBOOK 2015
TOP 10 WORLD CONTAINER PORTS 1980
1990
2000
2011
New York/New Jersey
Singapore
Hong Kong
Shanghai
Rotterdam
Hong Kong
Singapore
Singapore
Hong Kong
Rotterdam
Busan
Hong Kong
Kaohsiung
Kaohsiung
Kaohsiung
Shenzhen
Singapore
Kobe
Rotterdam
Busan
Hamburg
Los Angeles
Shanghai
Ningbo
Oakland
Busan
Los Angeles
Guangzhou
Seattle
Hamburg
Long Beach
Qingdao
Kobe
New York/New Jersey
Hamburg
Dubai
Antwerp
Keelung
Antwerp
Rotterdam
Source: Containerisation International Ports are ranked based on the total number of TEUs handled in a year.
inventory. The lean logistics needed is about the four walls of the distribution centres and factories and more. The challenge of lean is compounded when it comes to international. Many parties and trade partners are involved which challenges the abilities to remove waste from a supply chain that extends thousands of miles. Add in the interchange of information between and among these various parties. The challenge is that each of these parties has a different role and responsibility. Each is working on the internal efficiency of their operation and not on the efficient movement, with no waste, for a shipment. Value stream mapping is a very good tool to use with the supply chain. Another important part of lean supply chain success is supplier performance. Suppliers, include container lines and other logistics service providers. Analysis of supplier reliability - and its implied impact as to time, inventory, and risk - can highlight key suppliers and their role in effective supply chain functionality. 3) Segment the supply chain. Supply chain execution deals with many variables. People and groups, both inside and outside the company, have their particular issues and requirements, some of which may conflict with supply chain plans and operations. These demands create noise that can interfere with performance. As a strategic tool, to dampen the noise, and to keep focus, especially given the strategic activity, supply chain segmentation is a very good action.
Segmenting is not unbundling the existing supply chain structure, it is using the supply chain in a targeted way to best support company strategy and to maximise return. Segmentation is focused, multi-tier supply chain management. The result is emphasising important factors that CEOs, COOs and CFOs care about, such as higher profits and reduced working capital. Supply chain executive can target select product categories, or high-value customer or market sectors, or other criterion. Conclusion Container lines have played a vital role in the growth of global trade. They have been a strong logistics service provider for companies as worldwide sourcing, manufacturing, and sales have expanded. Yet, as these carriers enjoy significant growth, they have made and are making operational changes that lack dependability and can negatively affect the supply chains of their customers. In some ways, ocean carriers and multinationals are diverging in what they are doing when the focus is placed on supply chain performance. Large shippers need to take tactical actions to counter the impact of some carrier actions. More importantly, companies should develop and implement strategic moves to improve the functioning and results with their global supply chains. -Tom Craig, LTD Management
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Facilitating trade security
Dubai Customs seeks to be a world leader in customs administration supporting legitimate trade and compliance, Ahmed Mahboob Musabih, Director of Dubai Customs, speaks about the organisation’s antismuggling efforts
I
n 2013, Dubai Customs (DC) successfully captured 4,500 seizures of prohibited and restricted items. Ahmed Mahboob Musabih, Director of Dubai Customs, says the organisation is also playing a vital role in the global trade supply chain facilitation According to Musabih, DC has an agenda to be a world leader in customs administration, and to realise that vision, it implements a comprehensive strategy whereby an efficient corporate governancecentred business operating model is developed. This has led Dubai to be ranked fifth globally in the ease of customs operations and the emirate is looking forward to improving its ranking on the index, up to number one. What is on the agenda for the Dubai Customs department to achieve in 2014?
Our agenda for 2014 is determined based on our strategic goals which are: To sustain customs revenue growth; Facilitate trade and passengers’ movement; Encourage compliance and combat illegitimate trade;
Secure and protect customs posts and supply chain; Develop organisational capabilities and competitive advantage. How is Dubai Customs’ role as trade facilitator for the country been achieved till date and how do you plan on playing a bigger part in enhancing trade in the country and the region?
Dubai Customs has managed to play a major role in trade facilitation and compliance locally and regionally, through constant improvement of its proactive services and facilitations aimed at reducing the time, effort and cost needed to complete customs transactions. Hence, 84 per cent of unsuspicious (non-risky) consignments are now assessed and cleared electronically in less than two minutes, without any human intervention, due to the advanced automated systems implemented in DC. The risk engine is one of these technological developments introduced by DC and which contributed to achieving such remarkable results. The system is fed with consignment data from various channels. Our Customs Investigation Department collects, links and analyses this information to find
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out which risks are to be entered into the system, enabling the tool to efficiently turn down any risky transactions and allow the automatic clearance and release of safe shipments. DC’s trade facilitation efforts have been enhanced by the launch of smart services in response to the m-Government initiative of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice-President, Prime Minister and Ruler of Dubai. Our round-the-clock services are now fully delivered through smartphones. The Department, in cooperation with local and federal government stakeholders, spares no efforts to remove all possible obstacles and turn Dubai and the UAE into a distinguished business hub worldwide. Dubai Customs is seeking to attract more trade to the emirate, in line with Dubai’s two mega projects which are the transformation into the smartest city in the world within the next three years and the ongoing preparations to host World Expo 2020. Dubai Customs will develop all its systems and procedures up to the best international benchmarks to meet the visitors’ and exhibitors’ needs over the six-month event. What in-house measures and standards are in place in making Dubai Customs a world class organisation?
DC implements a comprehensive strategy to achieve its vision to be the world’s leading customs administration, by developing an efficient business operating model centred on corporate governance. This advanced model delivers highest levels of transparency in adopted customs rules and procedures as per the best global customs standards and practices. Over the past few years, Dubai Customs has been successful in turning the ideas of its employees into real achievements. The Department was named the best Innovative Idea of the year during the 17th edition of Dubai Government Excellence Programme Awards for ‘Al Kashif’ project – a customised mini golf cart equipped with high-tech inspection and scanning devices, and which is deployed at Dubai airports to detect any prohibited items within travellers’ baggage. 124 GSC YEARBOOK 2015
Can you tell us in detail about the training employees at customs go through for them to be able to identify suspicious individuals at all country entry and exit points?
Our inspectors are intensively trained and they attend regular workshops on all types of narcotics and ways of trafficking, drug-
related cases field inspection, counterfeit and forgery detection techniques, body language, intuition and security sense development and the handling of dangerous substances and explosives. The customs inspectors are also trained in ways to inspect people and goods, besides attending other specialised courses on effective communication, negotiation,
dialogue, persuasion and detection of forgery and counterfeit techniques. What has been your most successful / challenging accomplishment in terms of enhancing the country’s security?
Dubai Customs’ anti-smuggling efforts have paid off with around 4,500 seizures in 2013
across different land, sea and air customs points. These interceptions included, in addition to narcotics, attempts at trafficking counterfeit, prohibited and restricted goods; fake passports and travel documents, forged currency and bank cards, as well as evasion of customs duty, infringement of intellectual property rights, smuggling of endangered
species and a number of other violations. This achievement was certainly challenging but contributed significantly towards enhancing the safety and security of our country. How have smuggling practices changed over the years and how has Dubai Customs evolved to keep ahead of the challenges?
While incessantly bidding to go through customs unnoticed, smugglers are increasingly using devious ways of trafficking, such as intestinal drug trafficking, hiding drugs in clothes, underwear, secret pockets at the bottom of large bags, handbags, packed boxes, cigarette boxes, mobiles, shoes among others. Still, all of their attempts have been a complete failure due to the vigilance of the customs inspectors. Such alertness on the part of our inspection staff is the result of continuous training which enables them to detect and disrupt even the most ingenious smuggling methods. GSC YEARBOOK 2015 125
Future-oriented innovations in intralogistics SSI Schaefer at LogiMAT 2015 exhibition in Stuttgart. This year the intralogistics specialist presents itself again with a very big presence at LogiMAT. The main exhibition stand focusses on efficient storage and logistics systems. A separate stand for IT shows SSI Schaefer’s IT world with WAMAS® and SAP logistics solutions.
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n the main stand, SSI Schaefer exhibits on 330 m2 a cross section of the wide range of products and services: from racking systems, boxes and containers to dynamic systems. An integrated stand of the Customer Service & Support (CSS) division presents its extensive service portfolio. The new conveying system Weasel® demonstrates SSI Schaefer’s innovative character. The automated guided vehicle (AGV) system is highly flexible and impresses with its concept of safety and cost efficiency. Another exhibit will be the LogiMat®. The vertical storage lift operates on the “goods-to-person” principle and has numerous modern features. Three preconfigured option packages, additional optional features in the area of ergonomics and the newly developed warehouse management software supplement the solution. The shuttle system Schaefer Orbiter® System (SOS), designed for channel
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storage, consists of a shuttle vehicle and a docking station. The SOS can be used in manual and highly automated warehouses. Next to environmental and user friendliness it guarantees a high level of safety in the warehouse. Another product at the exhibition is the mobile racking system for the storage of pallets and oversized goods. In combination with WAMAS Go! the system enables transparency of inventory levels and insight in the warehouse, transport and business processes. An own IT stand proves SSI Schaefer’s leading position as a software provider in the intralogistics sector. With its software portfolio WAMAS®, WAMAS® Go! and as official SAP service partner with the logistics solutions EWM und LES the IT specialist manages and controls the processes from manual to highly automated intralogistics systems. Due to the modular structure of the software products individual solutions are possible.
SSI SCHAEFER ADVERTORIAL
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food Facilitating
logistics Sohar Port and Freezone have a new industry to cater to - food. With their recent announcements relating to investments in grain and agricultural goods as well as plans for a sugar refinery, the port is set to capture a chunk of the estimated US$53 billion (by 2020) food imports market. GSC spoke to Edwin Lammers, Executive Commercial Manager Sohar Port
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S Edwin Lammers
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ohar Port has recently taken another step towards diversifying its business offering and creating a world-class hub for handling agricultural goods. A stand at the recently held Gulf Foods Manufacturing Exhibition in Dubai was set up to engage industry leaders and attract investment according to Executive Commercial Manager, Edwin Lammers. Atyab Investment and Oman Flour Mills plan to build Oman’s first terminal dedicated to grain and other foodstuffs at Sohar. Plans also include grain silos with a capacity of around 200,000 tonnes, as well as a sugar refinery projected to generate a million tonnes in raw sugar imports. “The importing of vegetables, animal products, and foodstuffs into Oman are worth US$2.7 billion to the economy and with our new agricultural terminal, storage facilities, and transport links, Sohar is perfectly positioned to become a distribution centre for these products in the Gulf region,” explained Lammers.
“As we build this infrastructure, projects like the sugar refinery will create opportunities for other industries.” Construction work on the sugar refinery complex, also a first for Oman, will begin at the end of the year after an agreement was signed with Oman Sugar Refinery Company LLC in April last year. Under the deal, Sohar will lease 180,000 sq metres of prime waterfront area for the development of the plant. Output is initially envisaged at 700,000 tonnes in the first phase, with full capacity to be reached in three years. Can you tell us in detail the plans for Sohar Port from the food perspective?
Our immediate plans are to construct the country’s first terminal dedicated to the handling of agricultural bulk – wheat, rice, barley, and other grain products. Through this new facility our next step will be to facilitate the establishment of the national strategic food reserve the government has
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agreements with Sohar, the government, and other parties involved in the process and will soon start work on the project. We expect this process to be completed very soon, and of course, we will be doing our best to ensure that all of the necessary permits and licenses are in place as soon as possible. Construction of the terminal will begin after this has been completed, the grain silos will be built next year, and commercial sugar production is targeted by around 2016. How big or how important is the need for these services Sohar Port plans on meeting? What is happening currently? What factors led to these new changes being worked on?
planned for Sohar. This reserve was originally prompted by a cyclone that disrupted food supplies in 2007, and given that the need to distribute food in times of crisis is often immediate, the increasing connectivity at Sohar made it an obvious choice. Grain silos will be established next year and will have a capacity of 200,000 tonnes. This could be ramped up to a capacity of 300,000 tonnes in the second phase, and since the Gulf depends heavily on food imports we hope to expand our outlook and serve as a stockpile for the entire region, not just Oman. The last piece in the food jigsaw, at least for now, will be Oman’s first sugar refinery. This will have an initial production capacity of 700,000 tonnes per annum in the first phase, expandable to one million tonnes within three years thereafter. By when will these be operational?
The terminal operator is currently initiating the next steps to formalise
The Middle East continues to present tremendous growth opportunities for food industries, with imports projected to pass US$53 billion by 2020. This market growth, in a region that already imports 90 per cent of its food, is already creating demand for global transportation and logistics players looking to expand in the GCC and our aim is to ensure as much of that comes through Sohar as possible. In this regard, we remain committed to identifying ways to utilise our abundant low cost energy and skilled staff to create value for our customers. How will this differentiate your port from other major regional ports?
As a major contributor to long-term regional growth, Sohar already plays a vital role in the GCC supply chain – as a cost-effective means of getting shipments and cargo in and out of the Gulf without the additional costs associated with having to enter the Strait of Hormuz. Naturally, as the first port in Oman and one of only a handful of ports in the region to have a terminal that is dedicated to agriculture, the differentiation is clear and is something that we plan to use to attract some of the biggest names in global food manufacturing at Sohar. In much the same way as our petrochemical, logistics, metals clusters have grown, this will create opportunities for downstream industries – packaging
firms, for example, and will lead to the development of skills and areas of expertise that are unique to the Al Batinah region. Nevertheless, with a multibillion dollar trade surplus in the GCC region, there’s certainly room for growth and enough cargo to keep the region’s port and freezone developments busy. This is because of the degree of specialisation that exists at each port, and means the level of competition is reduced, especially in Oman. Salalah will remain a connection point between East and West, while we are the gateway to Oman, the Middle East, upper Gulf, and Indian Rim. Of course, there is competition, but not as extreme as in other regions. Who are partners with Sohar in this project, how much capacity is hoped to be achieved once the facility is fully operational? What are investments made by Sohar and partners in this endeavour?
Atyab Investment, the investment arm of Oman Flour Mills – a public joint stock company engaged in the milling and food processing business – will oversee terminal operations and develop the storage component through a special vehicle that will allow it to act on behalf of the government. Funding will be provided by the government, and the components required to operate the storage facility will be the responsibility of the Public Authority for Strategic Food Reserves. We plan to add private sector partners to provide additional guidance in the operation of the terminal. Meanwhile, Oman Sugar Refinery Company LLC is investing around US$200 million in the initial construction of the sugar refinery at Sohar. Together with the agricultural terminal and grain storage facilities, this project will take advantage of the excellent facilities provided by the strategically located port, which includes a deep water port, an abundance of low-cost energy and available space in the freezone. Commercial sugar production is targeted by 2016. GSC YEARBOOK 2015 131
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PLs change and traits of leaders How do companies weather the change that is slowly being recognised as a different way of doing business as compared to traditionally. Leadership in companies have to recognise and implement staying focussed on the end result. Easier said than done. Tom Craig, President LTD Management outlines the route to stay on top
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hange is a fact of business. Only the rate of change is an issue. For the Top 50 of the Fortune 500 for 1991, only 15 companies are still there in 2011. Not only have companies changed in the Fortune 500 rankings, but so have industries. What does that mean for 2021 or 2031? The importance of“green”logistics is growing. Manufacturers are evaluating deglobalisation and onshoring. What does it mean for outsourcing and services required? Foreign firms are using Direct to Market (D2M) to sell
direct to consumers in other countries by using ecommerce, thus increasing profit margins and creating brand identity. How will 3PLs handle and manage diverse customer portfolios? What is the sales and operations approach for customers that have differing customer segments with multi-channels? How do these logistics service providers move past their comfort zone with its familiar customers and market and go beyond what they perceive as“core competencies”? What is their route-tomarket plan to assist customers? What is sustainable, and how is it achieved? Against this backdrop of continuous change, too many 3PLs practice a lemmings-like methodology and do nothing until there is mass migration in a certain direction. This is the situation in times of global economic turmoil or robust growth. The followers have no strategy or have a conglomeration of ideas, some rehashed, and that is really bad strategy. Not coincidentally, these firms deal with high customer turnover and eroding margins. They have little or no competitive differentiation in a commodity service market. Slogans and tag lines are viewed as value proposition for key customers or market sectors. They are more internally focused and less customer centric. Some 3PLs not only see trends, but they also assess how to position themselves to exploit changes and their GSC YEARBOOK 2015 133
opportunities. Why do some logistics providers take the lead to change, align, adapt, and renew themselves while many others basically mimic and follow? Leaders have traits that enable them to grow, to profit, to be resilient, and to transform. The traits are not about how many offices they have or how large their warehouses are or how many trucks they operate. They are distinguishing and complementary features that intertwineStrategy Balanced Organization Value Proposition of Blended Customer Centric and Supply Chain Channel Focus Change Management Strategy. Reacting to potential opportunities and leads can only go so far. Strategy is more than a list of 134 GSC YEARBOOK 2015
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80-90 per cent of sales turnover. This is also where everyone competes for the same customers-that commodity service arena defined by price. But they also understand that higher margins and improved customer retention can be and is achieved. They have a customer centric value proposition. It is based on what customers require with regards to their businesses and their successes. This transcends the usual focus with regards to freight rates or with in/out storage charges or other price delineator. Leaders move beyond the forwarding, warehouse, transport or whatever primary logistics service and have a supply chain focus like customers have. Those that create and implement credible value propositions and the competitive differentiation that it gives rise to – also have the foundation to adapt and to transform.
objectives and sales approaches. It is not an accumulation of ideas from different country managers or from other business segments. Strategy is needed in order to know what to do, why to do it and how to do it. It is important in order to build and maintain a dynamic portfolio of activities. Strategy has two parts - strategy development and strategy execution. They understand the hubris that planning can generate with over expectations and under delivering results. Creating and advancing a strategy includes recognising and removing impediments, both internal and external, to success. Balanced organisation. Organisations and organisation structure can create internal, myopic barriers that can restrict
focus beyond the short term. Leaders recognise the conflict between demands for short-term financial results and those for long-term viability. They have strong metrics (both hard and soft), a creative environment, a cohesiveness of purpose - both tactical and strategic, the combination of focus and flexibility, and the agility to balance existing activities with new opportunities. All of these form a culture to support and drive change, create synergies and keep the business poised for the present and for the future. Value proposition of blended customer centric and supply chain channel focus. Leaders know that profits and growth are a mixture of what they do and what customers require. The “what they do� is their base and generates
Change management. Transitioning to new opportunities is not quick and is not easy. Beginning change takes planning; maintaining change is difficult. Since change is ongoing, the real issues are establishing a culture of continuous change and having the commitment by top management. 3PL leaders understand the similarity with strategy in that change also has two parts-planning and execution. They recognise and balance the two change issues with financial performance and with people. Conclusion. Leading logistics providers are in the forefront of transforming their businesses to adapt to various business, economic and social changes. The traits that leaders apply to 3PLs and to all logistics providers-from forwarders to logistics hubs and for all service niches. Change is a requirement, not an option. Companies have to choose to either be leaders and to grow and transform their business or to choose to be followers. Those who follow will continue the cycle of high customer turnover, eroding margins and little or no competitive differentiation. GSC YEARBOOK 2015 135
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The new e-commerce/ multi channel blue ocean
strategy As new business methods make their presence felt, businesses that are constantly looking to improve the customer experience by embracing the right technology will conquer market share. Tom Craig, President LTD Management, explains the way forward
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“
e typically lose out when a market commoditises and we no longer differentiate, further aggravated by us being too slow or expensive.� -Frans van Houten, CEO, Royal Philips Electronics. Too many manufacturers, wholesalers, and retailers do the same old thing when it comes to supply chain management. They lack competitive differentiation that new supply chain management provides. As a result, these firms compete on price. They have created a de facto world of commoditisation that means missed sales and reduced margins. These firms treat their supply chains as cost centres. They provide standard monolithic supply chains services that have problems. These companies lack supply chain value innovations for customers. They are far behind the new supply chain paradigm that gives rise to blue ocean strategy. Instead, these enterprises are moving closer to competitive black holes.
Companies can create a blue ocean strategy with the new supply chain management. Examples of strong opportunities are: 1) new e-commerce 2) global e-commerce 3) multichannel / omnicommerce 4) competitive differentiator A blue ocean strategy with the new supply chain is continuation of progress for some companies; for others, it involves transformation. And it raises questions. Why are so few firms positioned to exploit these opportunities? Or the counterpoint, why are so many companies stuck in the ruts of what they are doing and cannot and do not move into these openings? Why are they more likely to change the colour of a box as an attempt to grow business instead of changing how they use their supply chains to expand? Why do any strategies of theirs not recognise supply chain management? You can easily identify these firms. Instead of seeing e-commerce as a strategic, competitive, disrupter
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to traditional selling, they basically think of e-commerce as sales done by a website and shipping orders via parcel carriers. They have much money tied up in inventory - and many are products which do not sell or are out-dated. They rationalise about the low cost of capital to explain inventory levels. But they had the same problem when interest rates were higher. Yet with all the inventory, they struggle to deliver orders, complete, accurate and on-time. Look at this quote from Kevin Plank, CEO, of Under Armour on what he sees for online shopping,“One of the big themes you hear right now is virtual reality. Imagine the day when you can put on a headset and actually walk through a mall. That’s how you have to think about selling online in three or four years.” How many firms doing e-commerce see that as reality? And what will they do about it? Divergence is occurring, both with e-commerce and with supply chain management. New e-commerce, unlike old e-commerce, has immediacy to it, as Amazon and a handful of others understand. Delivery expectation is moving to within 48 hours of ordering. Prompt, immediate deliveries complement the convenience of online commerce – and not going to brick and mortar facilities. Days, even weeks, to deliver complete orders negates the benefit of e-commerce and puts the advantage back to stores for immediate product availability and order completion. The requirement of immediacy challenges the concept of click-and-collect as a solution – and positions click-and-collect as a transient niche. Immediacy also negates much of customer returns caused by buyer remorse from impulse buying. Even businesses – and their supply chains – that originated with e-commerce are falling behind and are becoming commoditised as too many basically do the same thing. They were designed along customary ways to pull orders and ship. These use website design and shopping cart technology to mask inventory and other supply chain issues. The concerns were ignored before; now they are becoming obstacles 138 GSC YEARBOOK 2015
Old Supply Chain Management for E-Commerce / Multichannel
New Supply Chain Management for New E-Commerce / Multichannel Blue Ocean Strategy
· Are monolithic
« Are segmented by channel
· Are defined by functions
« Are defined by integrated process
· Are measured by costs
« Are measured by performance and service
· Focus on orders
« Focus on customers
· Focus on shipping
« Focus on delivery
· Focus on inventory
« Focus on product positioning and availability
· Struggle to ship orders complete, accurate and on-time
« Deliver orders complete, accurate and on-time
· Utilise technology primarily for functions, such as for warehouses and “track and trace” transport for orders
« Utilise integrated supply chain execution technology across the supply chain
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to repeat order placement and customer retention as the new e-commerce grows. Using old supply chain practices with a new business model is shortsighted. Trying to copy what another company is doing is not strategy. Imitation may be a form of flattery, but it is a poor substitute for the kind of supply chain management needed for blue ocean strategy. Copies are not as good as originals. Having a supply chain organisation does not, by itself, create blue ocean opportunity. Everyone has a supply chain group. Not everyone does supply chain management as a way to develop new business opportunities and to create important competitive differentiation. The blue ocean supply chain uses the new supply chain management and: is designed from the customer back through the company and to suppliers.
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That provides ways to incorporate service. It is not based on just picking and shipping orders from their facilities. is segmented to tailor and provide best service to key sectors. That is contrary to the monolithic supply chain now used. is built on integrated process throughout the entire supply chain. This is different from trying to cobble dysfunctional company activities together. includes high-level, integrated technology that provides visibility across the supply chain, uses RFID at the item level, and works on all devices. It is more than WMS and using carrier track-and-trace information. uses logistics service providers that complement innovative supply chain service. It is about performance, not low price bids.
The new supply chain enables a firm to be more responsive to customers. It compresses time. All of it builds brand and creates competitive advantage and value to customers. Innovative supply chains support blue ocean business strategies for global e-commerce and multichannel sales. All of this means increased revenue and profits. Omnichannel necessitates distinct ways to service each channel’s customers. Supply chains often have a single focus and are an amalgamation of discrete actions by internal and external parties that add time. Time is critical for the service required by customers. Supply chains are not designed to effectively handle multiple, distinct channel needs, especially those that are speed sensitive. The monolith supply chain management is becoming out-dated by omnicommerce service demands. New supply chain dynamics are emerging. Omnichannel and its e-commerce have become competitive forces for supply chains that force changes with internal and external participants and stakeholders. The new supply chain is innovation. Where are you on the adoption curve? &&&&& Where are you on the blue ocean supply chain for your industry and market - innovator, early majority, or laggard? What are you waiting for? What does it take to begin to transform your supply chain approach and take your company to new areas and to higher levels? Do not be complacent. Do not become a non-factor or obsolete from competitive conditions or changing markets. The change for supply chain management has begun. The power of this new supply chain will not be limited to omnicommerce. It will transition to and transform supply chains for many channels, industries and markets who will want “immediate� service performance. Drive strategy. Drive change.
Fully Automated multi-temperature and multi-user 3PL logistics solution
of high bay storage facility of fully automated frozen (0 to -30 degrees) pallet positions with state of the art crane & conveyor system
pallet positions of standard racking controlled at +25 degrees for general cargo of mezzanine storage or added value area within the facility metric tons of Bulk Stack
of rentable office area to customers that use the facility INL is a Third Party Logistics Provider (3pl) focusing on food service solutions to the end customer, it has a freight department and custom broker to assist in clearing and delivering shipments to the market. Located at Dubai World Central (DWC) with easy access to road, sea and air ports. Plots W5, W6, W7 Dubai Logistics City, DWC P.O. Box 3139, Dubai, U.A.E.
Telephone: +971 4 Fax: +971 4 8879195
8160600, +971 4 8160601 info@inl.ae
www.inl.ae