Global Supply Chain March 2014

K u W a I T ’ s s T r aT e G I c I N s I G h T

V O LV O ’ s L aT e s T T r u c K s From farm to fork Right bite’s food chain

Equine transport

Prepping for Dubai’s racing season

Warehousing EnhanCinG ThE buSinESS oF loGiSTiCS

Rushing for same day delivery

52 46 42

r I s K M I T I G aT I O N

March 2014 Issue 02

SUPPLY CHAIN

FINANCE solutions that work

THE WORLD IS OUR BUSINESS LET US TAKE CARE OF YOURS

London to Abu Dhabi, daily When Paul Owen needed to get machine parts to Abu Dhabi, he called Etihad Cargo. With 35 passenger flights we offer a total weekly capacity of 642 tons from London to Abu Dhabi and beyond.

So whether it’s machine-parts or computers, visit www.etihadcargo.com for more information, or contact your local Etihad Cargo representative and we’ll take it from there.

Paul Owen, Freight Forwarder, London, UK

paragonmc.com

6500 HECTARES OF BUSINESS OPPORTUNITY IN OMAN Port & Freezone Sohar is a joint venture between the Government of Oman & Port of Rotterdam in the Netherlands.

Set in the Sultanate of Oman just before the Strait of Hormuz, it offers direct advantages in terms of location.

Port & Freezone Sohar offers an ideal location for downstream industries, logistics and business growth.

Friendly incentives and global connectivity mean that business opportunities area easy at Sohar. Port of Sohar is an ideal point of entry for products shipped around the Gulf countries and as a gateway to the rest of the world.

Kuwait Bandar Abbas

Doha Abu Dhabi

Khasab Dubai

Sohar

Karachi

Muscat

SAUDI ARABIA

Mundra Duqm

Salalah

Head Office: PO BOX 9, Postal Code 327 Sohar, Sultanate of Oman Tel: +968 2685 2700 Fax: +968 2685 2701 www.portofsohar.com

Indian Ocean

The money issue This issue is about all things money. Finance is the biggest part of any business and supply chains need to be tightly streamlined to give as much value as possible.

Banks in the region are cautious in speaking about the financing options available for businesses here.

While the recession has changed how supply chains are financed, coming to terms with these changes in your own value chain is the most important lesson and one which many are not willing to share.

Besides finance, the issue has an in-depth focus on Kuwait; providing an overview of current business status quo and an idea of government involvement for future growth plans.

We’ve also done a detailed story on the logistics involved in transporting expensive race horses from around the world and getting them into the UAE in time for racing season which starts this month. As equestrian events increase internationally, the already successful air cargo business has another area to focus, improve and cash in on. And as events increase, interest grows and services improve everyday.

Lastly, from this issue we start a very interesting page called Unwind (page 60), where we speak to an industry personality about the actual realities of leading a logistics team or company in the region.

Matthias Hoewer, GM of SSI Schaefer is our first interviewee. Enjoy it.

Do write in to let me know what you think.

Munawar Shariff Managing Editor munawar@signaturemediame.com

2 March 2014

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

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

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.

Contents

10 Oil rich Kuwait 16 Kuwait - a strategic insight

46 Transporting million 48 Robust growth ahead 52 Warehousing for

33 The supply chain

56 Safety first

safety net

40 Technology top 5 42 From farm to fork

60

dollar horses

24 SCF - solutions that work

March 2014 Issue 02

instant gratification

58 Services excellence at Dubai Trade

60 Trust and respect

46 March 2014 3

Trina solar awarded EPC contract for Jordan’s largest solar power project

Trina Solar Limited, a global leader in photovoltaic modules, solutions and services, recently signed an EPC contract with Fresh Fruits Company, a food storage and logistics company in Amman, Jordan, for a 2 MW rooftop solar power plant on the company’s stores and warehouses. Under the contract, Trina Solar is responsible for the engineering, procurement and construction of the project. The project will use Trina Solar TSM-PC05A Honey 260 Wp, high efficiency modules that adapt well to dry and high temperature conditions prevalent in the Middle East.

This will be the first mega-scale rooftop

solar power project in Jordan. The construction is scheduled to start this month and is expected to be completed in the third quarter of 2014. The 2 MW rooftop solar power project is estimated to produce 3,200 MWh every year. The utilisation of this solar power project will prevent emissions of approximately 38,400 tons of CO(2).

“We are delighted to have been awarded this mega-scale project in Jordan,” said Jifan Gao, Chairman and CEO of Trina Solar. “Our successful selection as the EPC provider for this project demonstrates our ability to develop large-scale projects in the Middle East.”

Gao added, “For oil and natural gas importing countries like Jordan, they are vulnerable to fluctuations in global oil and natural gas prices. Solar energy provides Jordan with a viable alternative and we see huge potential for growth in this market.

Following this EPC contract and a previous supply contract for 1 MW of Trina Honey photovoltaic modules also in Jordan, we will continue to actively pursue new opportunities in this emerging market.”

“The rooftop solar power project will be of great benefit to our business,” commented Omar Hashlmon, General Manager of Fresh Fruits Company. “Our business of operating cold stores is an energy intensive operation. This project will significantly contribute to a reduction in our annual electricity expenditure.

It will also be a sound investment for our company due to the expected quick recovery of the initial investment thanks to favorable renewable energy policies enacted by the local government.”

Omar Hashlmon added, “We received more than 20 offers from both local and international companies. Trina Solar stood out due its experienced team consisting of strong local technical professionals in the Middle East and its commitment to excel in project development in the region. Trina Solar’s support will enable us to gain necessary approvals from the local government.”

DB Schenker expands contract logistics capacity in Dubai DB Schenker recently started construction work on its upcoming facility in Dubai Logistics City, planned to offer general cargo warehousing, distribution and value-added services.

The logistics centre will have a warehouse space of

4 MARCH 2014

8,500 sq metres and a total storage capacity of 8,500 pallet positions with two mezzanine levels dedicated for value added services and spare parts operations. It will contain temperature-controlled areas as well as ambient temperature zones to suit the

different customer needs.

“The centre aims to offer a smooth and accelerated flow of sea-to-air and air-to-sea cargo transportation, thus facilitating customers’ goods movement in their global supply chain,” said Ako Djaf, DB Schenker Logistics,

Regional Head of Contract Logistics / SCM, Region Near Middle East/Africa.

The main goods to be processed in the warehouse are automotive, industrial spare parts as well as fashion items. Operations will have a focus on value-added services.

New polytechnic in Dammam, KSA, for next generation of petroleum industry personnel Representatives from Saudi’s oil and gas sector gathered in Dammam recently with His Royal Highness Prince Saud bin Naif bin Abdulaziz, His Excellency, Eng. Ali Ibrahim Al-Naimi, Minister of Petroleum and Mineral Resources; Dr Ali Nasir Al-Ghofais, Governor of Technical and Vocational Training Corporation (TVTC) and His Excellency Khalid Al-Falih, President and CEO of Saudi Aramco to inaugurate the Construction and Drilling Training Centre.

This is the fourth Saudi Petroleum Services Polytechnic (SPSP) to be opened in the Kingdom, with the original SPSP campus also located in Dammam, and other centres in Al Khafji and Rabigh.

The Polytechnics are a joint initiative of the Saudi Ministry of Petroleum and Mineral Resources, the TVTC and Chevron, Saudi Arabia, Aramco Gulf Operations Company and Saudi Aramco. The SPSP colleges have been designed to provide training solutions specific to the oil and gas industries.

The Construction and Drilling Training Centre will offer two year courses in Crane Operations,

Rigging, Scaffolding and Drilling, all of which combine an academic component with practical application. Short courses will also be on offer in the areas of Health and Safety, Construction, Drilling and Management. The centre has a purposebuilt training area complete with vessels, pipe-work and structures all designed for future riggers, scaffolders and heavy machinery operators to practice new skills in a realistic, but safely controlled environment.

TQ will supply the new centre with all academic and technical training, curriculum

development, professional development for educators and support services. The internationally recognised qualifications available through the centre are accredited

by TQ’s parent company, Pearson.

A recent International Labour Organisation (ILO) report found that skills shortages in petro-chemical industries are a global problem. An aging workforce compounds the problem, with more than half the industry’s employee base likely to leave the workforce over the course of the next decade, and an inadequate number of young people joining its ranks.

DGCX and China’s Dalian Commodity Exchange launch plastics futures simultaneously The Dubai Gold and Commodities Exchange (DGCX) and Dalian Commodity Exchange (DCE) simultaneously launched their respective polypropylene futures contracts recently.

The concurrent launch of both the Exchanges’ contracts was designed to raise substantial liquidity for the global trading of the products. The contracts went live on February 28.

DGCX and DCE have been working closely to develop plastics contracts following the signing of a memorandum of understanding (MoU) in 2012. DGCX’s new polypropylene futures contract, the first ever in the region, will create a transparent market and new pricing benchmark for the MENA

region. The contract is sized at five metric tons (MT), with the contract price quoted in US dollars per MT. Physical delivery will ensure price convergence between the futures market and the physical market. DGCX has approved leading warehouses in Jebel Ali (JAFZA) and Dubai World Central (DWC) Free Zones for the delivery of the product.

Gary Anderson, CEO of DGCX, said, “The GCC region produces more than 50 million tonnes of plastics a year with a significant percentage being exported to the Far East. We believe our plastics futures contract will be a key risk management tool for all participants in the plastics supply chain, including producers, traders, convertors and end-users. “

“We have timed our contract launch with that of DCE in order to maximise liquidity and provide trading opportunities between the two contracts. There are a large number of plastics producers in this region while China is the largest consumer of plastics in the world. I would like to congratulate Dalian Commodity Exchange for the launch of their polypropylene futures contract,” added Anderson. Li Zhengqiang, CEO of DCE, said, “Though China is the largest importer of polypropylene, participants in the market have been exposed to significant price risk for several decades. We have been working with DGCX to structure a similar plastics contract that helps the plastics industry to hedge their exposure effectively.

MARCH 2014 5

High level ecuador delegation visits Jebel Ali

HE Sultan Ahmed Bin Sulayem, Chairman, DP World (centre) and Mohammed Sharaf, Group CEO, DP World (extreme left) with the high level Ecuadorian delegation led by HE Excellency Francisco Rivadeneira, Minister of International Trade, Ecuador.

His Excellency Sultan Ahmed Bin Sulayem, DP World Chairman met with His Excellency Francisco Rivadeneira, Ecuadorian Minister of International Trade, and his accompanying high-level delegation when they visited Jebel Ali recently.

His Excellency was also welcomed

by DP World Group CEO Mohammed Sharaf and other senior DP World officials. Talks covered matters of mutual interest to Ecuador and the UAE and ways of furthering the already strong ties between the two countries.

HE Francisco Rivadeneira was accompanied by HE Jose Xavier Orellana, Deputy Minister of Policies and International Trade Services, Ministry of International Trade, HE Kabalan Abisaab, Ambassador of the Republic of Ecuador to Qatar, Eng. Antonio Ruales, Executive Director, Mr. Hussam Hassan, Head of Commercial Office in the United Arab Emirates, Eng. Delia Guerra, Ministerial Adviser for logistics issues, Ministry of International Trade and Eng. Damian Velasco, Director of Communications, Ministry of International Trade.

Following the meeting, the delegation

6 MARCH 2014

toured DP World’s flagship Jebel Ali Port where the visitors were briefed on the technology-driven operational efficiencies that have helped place Jebel Ali among the top 10 container ports globally. That position will be further enhanced with the opening of the world’s largest semi-automated facility this year - the four million TEU (twenty foot equivalent container unit) capacity Terminal 3, which takes total capacity at Jebel Ali to 19 million TEU. HE Sultan Ahmed Bin Sulayem, Chairman, DP World, said, “We warmly welcome His Excellency Rivadeneira and the senior Government delegation to the UAE and Dubai. Their visit builds on the strong ties already in place between our two countries and we hope it further cements our relationship. Ecuador is a country with bright economic prospects and great potential. The experience of Jebel Ali port and our current South American operations demonstrate how efficient infrastructure and modern, innovative technology support the development of communities, cities and countries, contributing to economic growth over the long term.”

FedEx Express in top 10 UAE employer list FedEx Express, a subsidiary of FedEx Corp., was officially recognised as one of the Top 10 companies to work for in the UAE, for the fourth consecutive year. The ranking of the nation’s top 15 ‘great places to work’ is based on the confidential feedback of employees and an audit of the management process by the Great Place to Work® Institute, during its annual study of workplace excellence.

“Being recognised again is a great endorsement of the inspiring workplace environment at FedEx Express that sets us apart,” said David Ross, Senior VP of FedEx Express Middle East, Indian Subcontinent & Africa operations. “Our people are our biggest asset, and we go great lengths to ensure that we provide our extraordinary team, a positive, rewarding work environment that nurtures their personal and professional growth. I dedicate this honor to every team member at FedEx Express in the UAE, who through their enthusiasm and commitment make our company truly a ‘great place to work.’”

The ‘People-Service-Profit’ (P-S-P) philosophy is the foundation of how FedEx operates. The company takes great effort to uphold the P-S-P culture, which is based on the strong belief that team members come first not just because it is the right thing to do, but because it is good business practice.

When the needs of our people are taken care of, they in turn will serve customers passionately and make every FedEx experience outstanding.

Their ‘promotion from within’ policy ensures that current team members are considered first for any job openings, as part of the FedEx development and career progression program. Globally, 80 per cent of positions are filled by internal promotions and 75 per cent of managers at FedEx Express entered the company as entry-level team members, couriers or hub handlers.

MARCH 2014 7

Emirates SkyCargo to start trucking operations between Dubai International and DWC Emirates SkyCargo is gearing up for the move of its freighter fleet to Al Maktoum Airport (DWC) by signing a trucking contract with Dubai-based Allied Transport LLC, an established land transportation services provider within the United Arab Emirates and Gulf Cooperation Council (GCC). The five year contract will see Allied Transport provide road feeder services between Dubai International (DXB) and DWC for Emirates SkyCargo, including the operation of up to a fleet of 45 trucks in the first year.

Starting May 1, Emirates SkyCargo freighters will call Al Maktoum International Airport their new home. The freighters will be handled exclusively from DWC while passenger fleet belly cargo operations will continue to operate from Dubai International Airport. Therefore, the trucking of cargo between the two airports will form a critical part of the new Emirates SkyCargo operation. Dedicated road feeder services between DXB and DWC for connecting cargo will be introduced to maintain the minimum possible transhipment times between freighters and the passenger fleet.

For this year Emirates SkyCargo expects to have approximately 10 trucks per hour running between DWC and DXB during peak times, with frequency to increase over the coming years. The cargo will be moved via purpose-built truck docks at both airports to achieve quick turn-around.

“Emirates SkyCargo’s terminal at DWC, the new home of our entire freighter fleet, is a global cargo terminal with world-class facilities. The development progress is well on track and we are ready to start operations soon,” said Nabil Sultan, Emirates Divisional Senior Vice President, Cargo.

“Our freighter fleet today already accounts for 35 per cent of Emirates SkyCargo’s revenue and the new terminal is at the core of our growth plans. Looking

8 MARCH 2014

at the bigger picture, the new infrastructure also has a positive multiplier impact on Dubai as it will create a cargo corridor that connects the Jebel Ali port, DWC and Dubai International Airport,” he added.

Upon full completion, the terminal will be equipped to handle 700,000 tonnes per year, with the potential for further expansion to reach one million tonnes. The new Emirates SkyCargo terminal will feature state-of-theart technology, including a fully automated material handling system which is one of the world’s first to have an automated Unit Load Device (ULD) that enables quick transfer of 6 ULDs simultaneously. In addition, an automated pallet handling system, advanced storage system, offices, workstation areas, modern communication and security systems, canteens, and other amenities will be installed. The terminal infrastructure also includes 46 truck docks and 80 truck parking spaces, in addition to 12 aircraft stands directly in front of the terminal.

Emirates SkyCargo currently operates a freighter fleet of 12 aircraft - 10 Boeing 777Fs and two Boeing 747-400ERFs – all of which will move to Dubai World Central Al Maktoum International Airport. Operations at the new cargo terminal will commence with 250 staff, which will be increased to 500 staff gradually.

UPS offers faster international shipping from UAE UPS recently announced a new express air freight service, UPS Worldwide Express FreightSM, for urgent, time-sensitive and highvalue international heavyweight shipments to and from the UAE. This new service is an extension of the UPS Worldwide Express package portfolio and offers customers a seamless experience between shipping express package and express freight.

Customers in the UAE now can ship pallets over 70 kg (150 lbs.) as easily as packages exclusively within UPS’s global air network to 42 destination countries and territories. This day-definite, door-to-door service with a money-back guarantee* features some of the fastest times in transit in the industry, including one- to three-day shipping from the UAE to most destinations in Europe, two- to three-day shipping to most destinations in the US and Canada, and three- to five-day shipping to Asia. The service will help to meet continued demand for UPS services that stem from the company’s UAE capabilities.

The UAE represents an important node for UPS’s network.

The company recently doubled its contract logistics capacity in Dubai with a multipurpose, state-ofthe-art facility of nearly 15,000 sq metres. This new facility – along with UPS Worldwide Express Freight – expands the company’s capability to connect trade throughout the Middle East region as well as to Europe and Asia.

Boeing to optimize in-flight operations for Qatar Airways

Boeing and Qatar Airways recently announced a five-year agreement to provide Boeing Wind Updates services for the airline to maximise in-flight operational efficiency. Boeing Wind Updates provides customised, real-time wind and temperature information to

aircraft. This data allows for more efficient trajectory prediction during pre-flight operations and continuous optimisation in-flight by providing tailored wind information for flight crews and the aircraft flight management system. As part of the agreement, Boeing Wind Updates will

be integrated fleet-wide, across all Qatar Airways Boeing and Airbus aircraft.

“We are pleased to upgrade our wind uplink capability by integrating the Boeing Wind Updates service into our operations at Qatar Airways to properly predict and measure current wind conditions,” said Akbar Al Baker, Chief Executive Officer, Qatar Airways. “In a highly competitive business environment, the Boeing Wind Updates service will provide us with a means to reduce fuel burn and increase routing efficiency, which leads to improved bottom line results.”

Boeing Wind Updates uses industryleading technology and Boeing-developed algorithms to select wind and temperature information specific to each flight’s trajectory and considers wind conditions at a specific time.

“By providing more current and accurate wind data, Boeing Wind Updates will enhance the efficiency of every Qatar Airways flight,” said Per Noren, vice president, Customer Solutions, Boeing Digital Aviation, a business unit of Commercial Aviation Services. “We salute Qatar Airways as the first Middle East operator to use Wind Updates, as this technology solution supports continued optimisation from pre-flight planning through real time, in-flight optimisation.”

DHL and Etihad Cargo increase connectivity through the Middle East DHL and Etihad Cargo have agreed to share capacity on DHL’s new five times a week freighter service operating through Abu Dhabi.

The new cargo services use DHL’s Airbus A300-600 freighter fleet, and will operate from Bahrain to Abu Dhabi and onwards to Bagram, Lahore and Karachi and back to Abu Dhabi, where cargo can transfer onwards to Etihad Cargo destinations across the globe.

The DHL Abu Dhabi service

started in January 2014 and has already resulted in improved transit times for DHL cargo coming to the UAE from cities in Europe, the Middle East, Asia and North America. DHL shipments from the United States to Abu Dhabi now arrive half a day earlier, providing customers with an improved 48-hour time frame for door-todoor deliveries.

Commenting on the partnership, Frank-Uwe Ungerer, Country Manager

for DHL Express in the UAE, said, “Adding Abu Dhabi to our network will enable us to better service all-important trade lanes and markets in the Middle East and Asia.

“The partnership with Etihad Cargo will also enable us to offer customers of both carriers a wide array of flight options and speedier deliveries. We are confident that this will be a successful collaboration.”

David Kerr, Etihad Airways Vice President Cargo, said,

“DHL is a proven leader in the logistics field and together, our partnership will strengthen cargo operations through our Abu Dhabi hub for the benefit of our respective customers.

“In particular, having access to DHL’s new five times a week freighter service from Abu Dhabi to Bahrain and more freighter capacity out of Pakistan enables us to provide our customers with more cost competitive and enhanced routings and quicker delivery times.”

MARCH 2014 9

Oil rich Kuwait

10 FEBRUARY 2014

Country report

Trends and Challenges for Logistics in Kuwait GDP and Federal Finances Real GDP recorded an estimated increase of 5% in 2012 and is expected to grow by ~4.6% in 2013 with the non-oil sectors contributing around 5% Kuwait’s economy is reliant on the petroleum sector which accounts for more than 90% of all exports The Government reported an inflation slow-down from 4.8% in 2011 to 4.3% in 2012.Kuwait passed 2012-13 budget with a deficit of around $26 billion mainly through calculating oil income at a conservative price The budgeted revenue was posted at around $48 billion, an increase of 3.7% on last year’s estimated income FDI Confidence and Competitiveness According to the World Investment Report, Kuwait has attracted an FDI inflow of $399million during 2011 Kuwait is ranked 37thin the World Economic Forum’s 2012-2013Global Competitiveness Index Development Outlook Kuwait’s fiscal system remains the most dependent on oil income. The petroleum sector at large, including sales of gas, will account foraround 95% of government revenues (Kuwait non-oil revenue increased by 6.8% in the first 10 months of fiscal year 2012-13) Diversifying the economy away from oil is the long-term development strategy of the country Regional political instability has the potential to adversely impact foreign investments, development potential and waterway access

Infrastructure Investment Outlook Kuwait budgeted $111 billion to the development of new infrastructure projects as part of the Kuwait development plan The Kuwait government announced plans to invest ~$12.6 billion in 320 projects covering roads, bridges and government buildings to ease traffic congestion, provide improved access for more isolated regions and upgrade existing infrastructure In line with GCC rail plans Kuwait is dedicated to pursuing a rail development initiative

February 2014 11

Logistics Projects and Outlook

SEA Overview Kuwait is committed to diversifying its economy and becoming a regional hub with its northern neighbors. Investment in ports is part of realizing that goal EXISTING KUWAIT PORTS

Mina Al-Ahmad handles most of Kuwait’s oil exports Kuwait’s existing ports face capacity constraints: - Shuwaikh (next to Kuwait City, surrounded by a free-trade zone): ~800,000 TEU capacity - Shuaiba Seaport SHUAIBA SEA PORT

~200,000 TEU capacity A new trailer driver, sailor building and a monitoring tower are to be added.

The bid is expected be closed in mid-2013 MUBARAK AL KABEER (BUBIYAN) PORT

Kuwait plans to establish a new seaport at Bubiyan Island to serve as a trade

hub with its northern neighbors. The new port is expected to handle up to 2.5 million TEU, with the ability to receive 2 million TEUs by 2016 The port is scheduled to be completed in 4 phases, the construction of new roads and the railway scheme; the dredging of the planned harbour site; the creation of nine new docks, followed by an additional seven; and the addition of 33 new docks (bringing the total to 60) by 2033 The commissioning date of the port’s first phase is 2016 while construction is scheduled for completion in 2014 with an expected budgetof~$2 billion SILK CITY MEGA CONTAINER

It is part of the Silk City project, which aims to revive the ancient Silk Road trade route by becoming a major free trade zone linking central Asia with Europe Progress on the $77 billion Silk City project stalled after Kuwait called for a review of its master plan

AIR Overview The Middle East airfreight has had a very strong growth.

Kuwait’s International Airport is likely to experience year-on-year growth in traffic in the medium term FARWANIYA KUWAIT INTERNATIONAL AIRPORT

Airport capacity will be increased in Phase 1 to 13 million passengers per year by 2016 and in Phase 2 up to

12 February 2014

25 million passengers per year by 2020 The expansion includes the construction of runways, airplane hangars, roads, docking stations, substations and related facilities This includes a new terminal building, extensions to the two existing runways plus a new third runway, with an expected budget of $3.3 billion A third phase has been discussed, which would see the facility expanded to a capacity of 50 million passengers per year

Country report

RAIL Overview Kuwait plans to invest heavily in its rail sector in the short and medium term Kuwait Metro Kuwait plans to build a 171-kilometre four line metro system for up to ~70 million passengers annually.

60-kilometres will be underground and will span across 60 stations Expected budget: $7billion The metro will be built in five phases until 2035 Up to 50% of the project was expected to be financed through an initial public offering (IPO) Preparations of expressions of interest for the first package of the project were being undertaken, when the same was put on hold in late-2012, after the Government ordered a review of the plans while it considers bringing them back under government ownership The first package covering the rolling stock is planned to be tendered in 2013

KUWAIT RAIL NETWORK

Plans are in place for the construction of a 550-kilometres railway in Kuwait, which will stretch from the east to the west of the country and will link into the railway networks of neighboring Saudi Arabia and Iraq; with an expected budget ofaround $10 billion, and expected completion by 2017 Feasibility studies for the project were being conducted when the same was put on hold in late-2012, after the Government ordered a review of the plans while it considers bringing them back under government ownership SILK CITY RAIL

A rail network between major Middle East cities and China –the route will travel through Kuwait, Damascus and Baghdad, and will eventually link the Middle East with China This is part of the Silk City project expected to be completed by 2030 Progress on the $77 billion Silk City project stalled after Kuwait called for a review of its master plan

ROAD Overview Kuwait has one of the best road systems in the GCC with considerable coverage of the entire country. Plans are in place to further improve the country’s roads $14.2bn worth of road work to be completed over the next five years Subiya Causeway Kuwait plans to construct an eight-lane bridge of 37.5-kilometrelength across the Bay of Kuwait connecting Shuwaikh Port with Subiya New Town Development The $2.6 billion contract for the designing and building of the causeway shall also include two man-made islands of 30 hectares, one on each side of the bridge, for housing of maintenance and traffic emergency buildings, fuelling stations and boat docks The project is expected to be completed

by Q1 2018 AL JAHRA ROAD UPGRADE

The project involves upgrading Jahra Road

to increase its capacity and improve road facilities and services It includes a 7.2-kilometre long viaduct and construction of a 21-kilometre motorway, a 1-kilometre tunnel, an elevated 7-kilometre motorway on the viaducts, which consists of approximately 8,500 precast segments to cover a total area of 38,000 cubic meters The Jahra Road Development project was formally launched in February 2011 SHEIKH JABER AL-AHMED AL-SABAH BRIDGE (DOHA LINK BRIDGE)

A16 km long bridge will connect Shuwaikh to the port villageof Doha in the Jahra region, it will connect toSubiya Causeway project The bridge will contain three traffic lanes and an emergency lane in each direction.

The project is expected to cost ~$1 billion

February 2014 13

Country report

International airport City

Farwaniya

Airport Name

Kuwait International Airport

Annual Cargo (kilo-tons per year)/ % change vs. prior year

Annual Passengers (thousands)/ % change vs. prior year

Year

Throughput

% change

Year

Throughput

% change

2012

181

-7

2012

8,979

6

Other airport Military airport – Ahmed Al Jaber Air Base, Ali Al Salem Air Base, Udaairi Army Airfield

Major seaports City

Port Name

Major Terminal Operators

Annual Containers (thousand TEU)/ % change vs. prior year Year

Throughput

% change

Kuwait City

Shuwaikh Seaport

Kuwait Ports Authority

2011

780

2.6

Shuaiba

Shuaiba Seaport

Kuwait Ports Authority

2011

125

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Kuwait

February 2014 15

kuwait

A strategic insight on

Kuwait

Being the third largest GDP economy in the GCC, Kuwait, has a lot of unexploited potential. Srinath Manda, Program Manager, Transportation and Logistics Practice, Middle East, North Africa and South Asia, Frost & Sullivan, gives us a clear perspective on its current status

16 March 2014

kuwait

I

Srinath Manda

n terms of GDP (Gross Domestic Product), Kuwait is the third largest economy in the GCC, (the Kingdom of Saudi Arabia (KSA) being the first and UAE second).

Situated in the northeastern part of the Arabian Peninsula at the head of the Persian Gulf, Kuwait is a dominant provider to the global energy markets with its rich oil reserve base. The country has a geographically small, yet rich, relatively open and oil-dominated economy.

The official proven crude oil reserves of Kuwait are about 100 billion barrels, which is almost 7.5 per cent of the world and about 21 per cent of the GCC crude oil reserves, making it the second largest amongst the GCC countries after KSA. Around half of the country’s GDP comes from the oil and gas sector, while other manufacturing and service sectors account for the remaining share. Within the non-oil portion of the GDP, service industry sectors account for a large share, meaning the manufacturing sector contributes to a very small share of the economy.

Logistics spend incurred by an industry depends on the nature of its products and the associated ease / complexity in handling, transporting and storing them. As a result, the cost of the logistics function in a country varies widely by industry, based on the nature of operations of the industry and the complexity of the industry’s supply chain. Within Kuwait, industries like food, FMCG, pharmaceuticals incur more cost on their logistics activities due to the necessity of specialised logistics infrastructure and equipment. Other industries like engineering goods, metals and automotive incur comparatively less cost on their logistics activities.

March 2014 17

kuwait

Logistics spend as percentage of revenue for major manufacturing industries The sum of logistics spend made by all industries in the country during a year is considered as the total logistics market in the country for that year.

Logistics Spend as Percentage of Revenue for Major Manufacturing Industries, Kuwait, 2013 16

The total logistics market in Kuwait was estimated at about US$ 8.50 billion in 2013. The market comprises four broad segments - Transportation, Warehousing, Freight Forwarding and Valueadded Logistics (VAL). Considering that the oil industry is export oriented and most other industries import dependent, the freight forwarding function that facilitates these activities, accounts for the largest share in the logistics market. Warehousing (storage of goods) represents the second largest share of the total market followed by transportation (domestic movement of goods) at third position. VAL contributes to a very low share in the market since most of these functions have integral links with manufacturing activity.

14

18 March 2014

Logistics Spend as % of Revenues

Logistics market size and segmentation

Exhibit

1

12 10 8 6 4 2 0

Automotive

Building Chemicals Materials

Source: Frost & Sullivan analysis

Electrical Engineering and Goods Electronic

FMCG and Food

Mettals

Oil & Gas

Pharma and Medical Products

Textiles Garments & Leather Goods

kuwait

March 2014 19

kuwait

Logistics market break-up by segment From the perspective of end-user industries, the oil and gas sector accounts for the largest share of the total logistics market, contributing to almost half of the market.

Engineering equipment, metals, automotive, and FMCG and food are the other leading contributor industry segments to the market.

Key challenges for logistics service providers (LSPs) Access to the country’s goods markets is highly regulated and restricted due to pervasive tariff conditions, which is proving to be a major obstacle in transportation for trading across the Kuwait borders.

This could be attributed to the historically low importance of non-oil trade in the country’s agenda, which is reflected in the volume of non-oil exports and imports that cross the Kuwait borders, duty-free. Also, road is the only available mass transport mode for domestic as well as cross-border movement of goods. The movement of

20 March 2014

products via road involves huge costs and long transit periods, which poses a major hurdle to the transporters providing services to the end users. It is also restraining the growth of international companies in the logistics industry. As per the World Bank LPI (Logistics Performance Index), out of 155 countries, Kuwait ranks 70th, being the last amongst the GCC nations for its international trade logistics infrastructure.

KEY DRIVERS Efforts to develop domestic manufacturing non-oil industries Kuwait’s economic plans for the future are focused on diversifying its economy from a high dependence on the oil and gas sector.

Logistics Market Break-up

by Segment, Kuwait, 2013 Value added Logistics 4%

Exhibit

2

Transportation 14%

Low levels of local manufacturing is limiting scope of logistics market growth At present, Kuwait has very limited levels of domestic manufacturing activity, as the industry is largely characterised by import and trading activities. The current scenario means industries mostly need just freight forwarding activity leaving very limited scope for integrated logistics service providers; thus restraining the growth potential of the logistics market in the long run.

Freight Forwarding 63%

Warehousing 19% Source: Frost & Sullivan analysis

kuwait

Recognising the risks of its economic dependence on the oil and gas sector, and to explore other potential resources in the country, the government of Kuwait has set in motion several initiatives to expand its other existing industries. An economic development plan was launched in 2010 that pledges to spend up to US$ 130 billion over five years to diversify the economy away from oil, attract more investments, and boost private sector participation in the economy. The government is also developing a new business hub (Silk City) at an estimated cost of US$ 77 billion.

Growth in manufacturing sector activity is likely to contribute to the transportation and logistics market in the country for movement of raw materials and finished products. The demand for comprehensive logistic services from these industries is rapidly expanding opportunities for third party logistics (3PL) service providers, which brings forth professional handling of logistics services.

Focus on enhancing logistics infrastructure

OUTLOOK The total logistics market in Kuwait is likely to grow at a compound annual growth rate (CAGR) in the range of nine to 10 per cent between 2013 and 2020 to reach about US$ 16 billion by 2020. The country is expected to witness significant surge in its trade levels and domestic manufacturing activity in the coming eight to 10 years as a result of the several initiatives aimed at infrastructure development and promotion of manufacturing bases in the country.

Revenue forecast 2013-2020 Transportation practices in Kuwait are likely to change with upcoming transport infrastructure developments. This would mainly include the rail network that would be integrated into the upcoming GCC-wide railway network with tracked freight lines and road networks. This development is most likely to drive down the transportation costs significantly.

The logistics function is yet to emerge as a strategic function in most industries in Kuwait from its current nascent state of just providing freight forwarding and transportation services. Warehousing and VAL practices are also likely to improve with growth of domestic manufacturing activity.

Significant growth opportunities exist for LSPs in areas such as logistics infrastructure development, integrated global supply chain solutions, multimodal transport and specialised warehousing services. The increasing economic integration of the

GCC nations, coupled with evolution of supporting logistics infrastructure, is likely to result in progressive fortunes for the Kuwait logistics industry.

Exhibit

3

Revenue Forecast for Logistics Market, Kuwait, 2013-2020 16 14 Logistics Market Revenues (US$ billion)

In the on-going Five Year Plan (20102014), the Kuwaiti government has targeted development of a few major logistics infrastructure projects in the country. These include a major container harbour, a 25 kilometre causeway, a metro system in the capital city, country-wide rail network, and expansion of international airport in the capital city.

12 10 16.0

8 6 4

8.5

2 0

2013

2020 Source: Frost & Sullivan analysis

March 2014 21

‫‪kuwait‬‬

‫موردي اخلدمات اللوجستية املستقلني‪ ،‬والتي‬ ‫التوقعات املستقبلية لسوق اخلدمات اللوجستية وحالي ًا تعتمد املرحلة األولية له على حتميل‬ ‫تسمح مبزيد من التعامل املهني مع تلك‬ ‫في دولة الكويت‬ ‫البضائع وتفريغها ونقلها‪ .‬كذلك من احملتمل‬ ‫اخلدمات اللوجستية‪.‬‬ ‫من املتوقع أن تتغير املمارسات اخلاصة بوسائل‬ ‫أن تتحسن إجراءات تخزين البضائع واخلدمات‬ ‫النقل في الكويت‪ ،‬بفضل التطورات القادمة‬ ‫اللوجستية ذات القيمة املضافة‪ ،‬مع منو نشاط‬ ‫التركيز على تعزيز البنية التحتية للخدمات‬ ‫التي ستشهدها البنية التحتية لهذه الوسائل‬ ‫التصنيع احمللي‪.‬‬ ‫اللوجستية‬ ‫والتي تشمل في األساس شبكة القطارات التي‬ ‫تسنح اآلن أمام موردي اخلدمات اللوجستية‬ ‫تهدف دولة الكويت إلى تطوير املشاريع الرئيسية ستتكامل مع شبكة القطار اخلليجي املقرر إنشاؤها فرص عظيم في مجاالت مثل تطوير البنية التحتية‬ ‫القليلة التي تخص البنية التحتية للخدمات‬ ‫في دول مجلس التعاون اخلليجي‪ ،‬باإلضافة إلى‬ ‫للخدمات اللوجستية‪ ،‬واحللول املتكاملة والعاملية‬ ‫اللوجستية ضمن خطة اخلمس سنوات التي يجري خطوط الشحن وشبكات الطرق‪ .‬على األرجح‬ ‫املتعلقة بوسائل الشحن‪ ،‬واخلدمات املتخصصة في‬ ‫تطبيقها اآلن‪ ،‬وتشمل هذه املشاريع إنشاء ميناء‬ ‫ستعمل هذه التطورات على تقليص تكاليف‬ ‫تخزين البضائع‪ .‬بفضل التعاون االقتصادي بني‬ ‫حلاويات البضائع وطريق مع ّبد يصل طوله إلى‬ ‫النقل بشكل هائل‪.‬‬ ‫دول مجلس التعاون اخلليجي‪ ،‬باإلضافة إلى تطوير‬ ‫‪ 25‬كيلومتر‪ ،‬ونظام مترو في العاصمة‪ ،‬وشبكة‬ ‫مما سبق‪ ،‬فمن املفترض أن تبدأ اخلدمات‬ ‫وسائل تعزيز البنية التحتية للخدمات اللوجستية‪،‬‬ ‫قطارات متتد في جميع أنحاء البلد‪ ،‬باإلضافة إلى اللوجستية في الظهور كأسلوب استراتيجي‬ ‫فمن املتوقع أن يشهد مجال اخلدمات اللوجستية‬ ‫التوسع في املطار الدولي بالعاصمة‪.‬‬ ‫م ّتبع في معظم الصناعات بدولة الكويت‪،‬‬ ‫مستمرا‪.‬‬ ‫ا‬ ‫جناح‬ ‫الكويت‬ ‫في‬ ‫ً‬ ‫ً‬ ‫‪22 March 2014‬‬

‫‪kuwait‬‬

‫نظرة عامة على قطاع اخلدمات‬ ‫اللوجستية في الكويت‬ ‫متتلك دولة الكويت ثالث أكبر االقتصادات بني‬ ‫دول مجلس التعاون لدول اخلليج العربية‪ ،‬فيما‬ ‫يتعلق بإجمالي الناجت احمللي‪ ،‬وتأتي اململكة العربية‬ ‫السعودية في املركز األول‪ ،‬تليها اإلمارات العربية‬ ‫املتحدة‪ .‬كما تُعد دولة الكويت – التي تقع في‬ ‫اجلزء الشمالي الشرقي من شبه اجلزيرة العربية على‬ ‫رأس اخلليج العربي ‪ -‬أحد املوردين البارزين ألسواق‬ ‫الطاقة العاملية بفضل االحتياطي النفطي الغني‬ ‫لديها‪ .‬بالرغم من صغر مساحتها اجلغرافية‪ ،‬إال إنها‬ ‫ال عن‬ ‫متتاز باقتصاد غني ومفتوح إلى حد ما‪ ،‬فض ً‬ ‫كبيرا من هذا االقتصاد‪ .‬وفقاً‬ ‫أن النفط ُيشكل ً‬ ‫جزءا ً‬ ‫للتقديرات الرسمية املؤكدة‪ُ ،‬يقدر احتياطي النفط‬ ‫اخلام للكويت بنحو ‪ 100‬مليار برميل‪ ،‬وهو يُ ثل‬ ‫نسبة ‪ %7.5‬من االحتياطي العاملي‪ ،‬ونسبة ‪%21‬‬ ‫من احتياطي النفط اخلام لدى دول مجلس التعاون‪،‬‬ ‫مما يجعله ثاني أكبر احتياطي بني دول مجلس‬ ‫التعاون‪ ،‬بحيث يأتي احتياطي اململكة العربية‬ ‫السعودية في املركز األول‪.‬‬ ‫يعتمد حجم النفقات على اخلدمات اللوجستية‬ ‫في أي صناعة ما‪ ،‬على طبيعة منتجاتها ومدى‬ ‫سهولة أو صعوبة التعامل معها ونقلها وتخزينها‪.‬‬ ‫وبالتالي‪ ،‬تختلف تكلفة اخلدمات اللوجستية‬ ‫في أي دولة على نطاق واسع حسب الصناعة‪،‬‬ ‫وعمليات اإلنتاج التي تتضمنها هذه الصناعة‪،‬‬ ‫ومدى صعوبة سير سلسلة اإلمداد اخلاصة بها‪.‬‬ ‫فعلى سبيل املثال‪ ،‬في الكويت‪ ،‬تنشأ تكاليف‬ ‫إضافية على اخلدمات اللوجستية لصناعات مثل‬ ‫صناعة الغذاء والبضائع االستهالكية سريع احلركة‪،‬‬ ‫واملستحضرات الدوائية‪ ،‬وذلك بسبب ضرورة‬ ‫توفر بنية حتتية ومعدات متخصصة للخدمات‬ ‫اللوجستية لها‪ .‬في حني أن صناعات أخرى مثل‬ ‫البضائع الهندسية واملعادن والسيارات‪ ،‬جندها‬ ‫‪March 2014 23‬‬

‫حتتاج لتكاليف أقل فيما يتعلق بأنشطة اخلدمات‬ ‫اللوجستية اخلاصة بها‪.‬‬ ‫حجم سوق اخلدمات اللوجستية وجتزئتها‬ ‫ُيقدر حجم سوق اخلدمات اللوجستية في دولة‬ ‫الكويت بنحو ‪ 8.5‬مليار دوالر أمريكي في عام‬ ‫‪ 2013‬ويتألف هذا السوق من ‪ 4‬فئات رئيسية‬ ‫وهي‪ :‬وسائل النقل‪ ،‬وتخزين البضائع‪ ،‬وحتميل‬ ‫البضائع وتفريغها‪ ،‬واخلدمات اللوجستية ذات‬ ‫القيمة املضافة‪ .‬نظراً إلى أن صناعة النفط تتجه‬ ‫في األساس إلى التصدير‪ ،‬في حني تتجه معظم‬ ‫الصناعات األخرى إلى االستيراد‪ ،‬فإن فئة حتميل‬ ‫البضائع وتفريغها (والتي تساعد على تصدير‬ ‫النفط) تشغل أكبر جزء من سوق اخلدمات‬ ‫اللوجستية‪ُ .‬متثل فئة تخزين البضائع ثاني أكبر‬ ‫جزء من إجمالي السوق‪ ،‬وتأتي في املرتبة الثالثة‬ ‫فئة وسائل النقل (النقل احمللي للبضائع)‪ .‬إال أن‬ ‫اخلدمات اللوجستية ذات القيمة املضافة تشغل‬ ‫جدا من السوق‪ ،‬ألن معظم هذه‬ ‫جزءا‬ ‫صغيرا ً‬ ‫ً‬ ‫ً‬ ‫اخلدمات لديها صالت كاملة بأنشطة التصنيع‪.‬‬ ‫جهود تطوير عمليات التصنيع احمللية في‬ ‫الصناعات غير القائمة على النفط‬ ‫ترتكز اخلطط االقتصادية املستقبلية لدولة‬ ‫الكويت على تنويع مصادر االقتصاد عوض ًا‬ ‫عن االعتماد الكبير على قطاع النفط والغاز‪،‬‬ ‫لذا أطلقت حكومتها العديد من املبادرات‬ ‫للتوسع في صناعاتها األخرى املوجودة حالياً‪،‬‬ ‫وذلك ألنها أدركت املخاطر التي قد تنشأ عن‬ ‫اعتماد اقتصادها فقط على قطاع النفط والغاز‪،‬‬ ‫وسعي ًا منها الكتشاف املوارد األخرى التي يُ كن‬ ‫العثور عليها داخل البلد‪ .‬كذلك انطلقت خطة‬

‫لتطوير االقتصاد الكويتي في عام ‪ ،2010‬والتي‬ ‫تضمنت تعهداً بإنفاق ما يصل إلى ‪ 130‬مليار‬ ‫دوالر أمريكي على مدار خمس سنوات لتنويع‬ ‫موارد االقتصاد بخالف النفط‪ ،‬وجذب املزيد من‬ ‫االستثمارات‪ ،‬وتعزيز مشاركة القطاع اخلاص في‬ ‫بناء االقتصاد‪ .‬عالو ًة على ذلك‪ ،‬تعمل احلكومة‬ ‫على تصميم مركز جتاري جديد (مدينة احلرير)‬ ‫بتكلفة تُقدر مببلغ ‪ 77‬مليار دوالر أمريكي‪ .‬من‬ ‫احملتمل أن يؤدي النمو الذي يشهده نشاط قطاع‬ ‫التصنيع إلى تعزيز فئتي وسائل النقل وسوق‬ ‫اخلدمات اللوجستية في الكويت‪ ،‬فيما يتعلق‬ ‫بنقل املواد اخلام واملنتجات النهائية‪ .‬بفضل‬ ‫حاجة هذه الصناعات إلى اخلدمات اللوجستية‬ ‫الشاملة‪ ،‬ستتزايد الفرص بسرعة هائلة أمام‬

Cover Story

24 March 2014

Cover Story

T

The recent global economic slowdown led to companies analysing their operations on multiple levels. The most important aspect to be scrutinised is the cash flow. PWC’s Shyam Venkat and Eric Cohen unravel the supply chain finance mystery

Supply chain

finance solutions that work

imes are tough. Capital is more expensive these days and access to it is more difficult. Demand is slow, customers are paying more slowly and working capital is being tied up in languishing inventory and slow-moving receivables. As a result, companies are looking inward for ways to release trapped cash from operations. Going beyond payables and receivables, today’s CFOs and Treasurers are taking a fresh look at how their physical supply chain is impacting their companies’ cash flow and working capital management.

For decades we have witnessed companies taking an ineffective “now we focus, now we don’t” approach to managing their working capital needs - focusing on collections, payables, and inventory during periods of cash constraints and relaxing, even losing, that focus during times of easy access to financing and liquidity. But now, even well-managed companies are being forced to consider embedding effective working capital management and associated tools into sustainable processes to eliminate those historic ebbs and flows and minimise related business risk across their customer and supply chain base.

Rising focus on Supply Chain Finance (SCF) Concerned about the rising risk in their supply chains stemming from the economic stress on suppliers, volatile commodity and energy prices and broad-based financial turmoil, today’s executives are actively looking at SCF options in terms of lowering their overall financial supply chain costs. We believe they are attracted by the promise of supply chain financial savings, increased supply chain stability and the efficiencies that SCF offers to both buyer and supplier.

Unlocking the value in the supply chain.

SCF can include different types of financing and payment arrangements between the supply chain partners. Here the focus is on one of the prominent types of SCF in which a third-party financier provides liquidity to suppliers by leveraging their buyer’s higher credit rating - an arrangement that often involves the use of a technology platform to automate transactions and provide visibility into the invoice approval status to all parties

March 2014 25

Cover Story

involved. This allows companies to unlock the value in the supply chain in many ways, including: Extending buyer’s Accounts Payables terms Accelerating seller’s access to lower cost capital Reducing risks imbedded in the supply chain Enhancing cash forecasting capabilities Supporting advanced treasury and working capital business strategies Strengthening buyer-seller relationships

26 March 2014

As a result of the recent credit crunch, we are beginning to see a new rise of fiscal discipline emerging in business - one that is as focused on the management of cash as on the generation of revenue.

In today’s world, one of the challenges facing companies is the rising risk in their supply chains. According to the McKinsey Quarterly,“Executives point to the greater complexity of products and services, higher energy prices and increasing financial volatility as top factors influencing their supply chain strategies.”This fits with

Cover Story

Executives point to the greater complexity of products and services, higher energy prices and increasing financial volatility as top factors influencing their supply chain strategies.

business executives seeking to effectively and holistically manage their companies’ supply chains. It continues to be a viable model, particularly in the light of the recent credit crisis.

SCF and its importance in a credit crisis

market-based assessment of where companies face hidden vulnerabilities in their business models. Exacerbated by today’s difficult capital markets, there are increased supply chain risks due to financial volatility and its impact on markets.

To combat these growing supply chain risks, many organisations have begun focusing their efforts on minimising the capital exposure in their supply chains.

But, ironically, these same companies can actually increase their capital exposure because of these very efforts.

Usually, companies focus on their individual supply chain issues and take their own best interests into account rather than understanding the larger picture and hence coordinating with their supply chain partners.

As a result, they fall into a classic prisoner’s dilemma - the optimum solution to minimise capital exposure between buyers and sellers is to coordinate, but because there is no coordination they work against each other and end up with a sub-optimal solution.

The maturing of Supply Chain Finance delivers a tool that can help to support

From PricewaterhouseCoopers’ perspective, SCF boils down to a balanced approach for enhancing working capital for both buyers and sellers in a transaction - using an intermediary tool to link buyers, sellers and third-party financing entities - thereby reducing supply chain risks/costs and strengthening business relationships. Said another way, the SCF solution combines a set of technology solutions and services that link all the parties in the supply chain - the buyers, sellers and providers of financing - in order to enable end-to-end visibility, lower financing costs, increase availability and expedite the delivery of cash.

SCF solutions can help combat the inherent problems created by more traditional supply chain working capital enhancement approaches such as factoring, early payment discounts, accelerated terms and deferred payment strategies.

These traditional solutions tend to view working capital enhancement from a single perspective, either the buyer’s attempt to defer payment/reduce payment size or the seller’s attempt to accelerate cash collection - often pitting one side of the buy/sell transaction against the other.

March 2014 27

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Simply shifting the burden from one party to the other can add significant risk to the supply chain, including customer loss, business continuity risk, supplier viability risk, material cost inflation, deteriorating support and a host of other issues. Supply chain finance provides an opportunity to collaborate and create benefits for each side of the transaction.

The set of solutions to effectively finance the supply chain is different for each set of companies in a supply chain situation.

We see the benefit of SCF as being greatest in situations where the buyer has access to capital at a lower cost than the seller and/or where the buyer has a significant time gap between inventory purchases and cash receipts from final sales. In these situations - given that one typically has to give something to get something - it makes sense for the buyer to use its superior

28 March 2014

credit rating to lower overall financing costs within the supply chain by reducing risk for the supplier in return for an extension of credit terms, thereby enhancing the buyer’s working capital position. When properly structured and effectively implemented, SCF is a tool that drives benefits to buyers and sellers alike.

In today’s tough times, executives are focused on ensuring cash availability to sustain the business and outlive the current economic crisis.

How it works While reducing the amount of capital tied up in Accounts Receivable and minimising investments in inventories are fairly straightforward keys that will unlock the value in your supply chain, extending Accounts Payable terms carries the potential for significant risks - supplier instability, impact to business continuity and eroded service among them.

To manage and minimise the overall risk inherent in extended payable approaches, leading companies are turning to SCF, a powerful tool that allows companies to extend the payables cycle in a manner that adds value to both parties in a trade agreement. Buyers maintain cash liquidity longer and achieve a more stable supply chain, while sellers gain faster access to lower-cost cash and enjoy improved business continuity. Cash forecasting

Cover Story

effectiveness is enhanced and buyer-seller relationships are strengthened.

The process begins with the buyer sending an approved accounts payable file to the selected technology platform. Once the file is uploaded, the seller can access the platform to view the approved buyer invoices and decide whether to request an early payment. If early payment is requested, the bank will review and approve the payment request and send the funds to the seller’s bank account on behalf of the buyer. At invoice maturity date, if the seller has sold the receivable, the buyer remits payment to the bank; if not, the buyer pays the seller directly.

Four primary players in four key roles As you can see, there are four primary players in this model, each with a key role in driving the SCF solution. When implemented properly, each party should realise multiple benefits: Buyer benefits. Because the buyer is using SCF to mitigate the costs for a seller, it will be well positioned to negotiate better terms and conditions with sellers. As a result of these negotiated terms/conditions, the buyer will realise a significant working capital benefit from an extension in payment terms and will free up cash for use in other critical areas.

Seller benefits. The seller is obtaining access to capital at a lower cost through leveraging the buyer’s credit rating.

Additionally, the seller will see a reduction in Days Sales Outstanding (DSO) and an improvement in cash forecasting, two key drivers to effectively navigate through the current credit crunch.

Funding bank benefits. Even in the recent credit constrained environment, when banks are not doing much lending, the funding bank will typically earn a higher return on this type of product than other more common financing vehicles. Banks are proponents of this model because it’s a limited credit risk; the lending periods are short, it provides an alternative revenue stream, and it opens the door to potential new business.

Technology platform provider benefits.

Typically, the system provider earns revenue

when Suppliers sell their invoices early.

Additionally, depending on the provider, there are opportunities for cross-selling other products and services.

The bottom line For companies that have a strong credit rating relative to their suppliers and are willing to explore alternative working capital strategies, SCF is a powerful tool that brings benefits to multiple parties across the supply chain.

In today’s tough times, executives are focused on ensuring cash availability to sustain the business and outlive the current economic crisis. They are beginning to understand and appreciate the value to be gained by putting new financing techniques to work to release the trapped cash in their supply chain, improve end-to-end visibility, and minimise risk across the board.

When properly structured and effectively implemented, we believe SCF is a tool that drives potential benefits to buyers and sellers alike by: Extending buyer’s Accounts Payables terms

Accelerating seller’s access to lower cost capital Reducing risks imbedded in the supply chain Enhancing cash forecasting capabilities Supporting advanced Treasury and Working Capital business strategies Strengthening buyer-seller relationships

Action steps for success While many of the best practices in implementing SCF solutions have not been fully defined, there are a handful of critical success factors that we believe should be in place as a company drives towards an effective SCF solution. To succeed, it is vital to: Establish a cross-department committee (accounting, procurement, treasury) to guide the project, address opportunities, and implement solutions Perform a thorough upfront analysis to identify potential benefits and to target appropriate suppliers.

March 2014 29

‫‪Cover Story‬‬

‫التي ميكن احلصول عليها من خالل وضع تقنيات متويل‬ ‫جديدة للعمل على إطالق سراح النقدية احملتجزة في سلسلة‬ ‫االمداد‪ ،‬وحتسني الرؤية املالية من البداية إلى النهاية‪ ،‬وتقليل‬ ‫املخاطر في جميع املجاالت‪.‬‬ ‫عند تنظيمها بشكل صحيح وتنفيذها على نحو فعال‪،‬‬ ‫نحن نرى أن متويل سلسلة االمداد هو أداة فعالة بإمكانها‬ ‫جلب فوائد محتملة للمشترين وللبائعني على حد سواء‬ ‫عن طريق‪:‬‬

‫• متديد شروط احلسابات الدائنة للمشتري‬ ‫• تسريع وصول البائع لرأسمال أقل تكلفة‬ ‫• احلد من املخاطر املتضمنة في سلسلة االمداد‬ ‫• تعزيز قدرات التنبؤ النقدي‬ ‫• دعم االستراتيجيات املالية ورأس املال العامل‬ ‫• تعزيز العالقات بني املشتري و البائع‬

‫خطوات عملية للنجاح‬

‫على الرغم من عدم حتديد أفضل املمارسات لتنفيذ حلول‬

‫متويل سلسلة االمداد بشكل كامل‪ ،‬إال أنه هناك بعض عوامل‬ ‫النجاح احلاسمة والتي نعتقد بوجوب تطبيقها من قبل الشركة‬ ‫التي تريد تطبيق حلول فعالة لتمويل سلسلة االمداد‪ .‬لتحقيق‬ ‫النجاح‪ ،‬فمن األهمية مبكان أن تفعل التالي‪:‬‬ ‫• إنشاء جلنة متعددة األقسام (نشمل احملاسبة واملشتريات‬ ‫واخلزينة ) لتوجيه املشروع وبحث الفرص املمكنة وتنفيذ‬ ‫احللول املناسبة‬ ‫• إجراء حتليل شامل مقدما لتحديد الفوائد احملتملة‬ ‫واستهداف املوردين املناسبني‪.‬‬ ‫‪30 March 2014‬‬

‫‪Cover story‬‬

‫تـمويل سـلسلة االمـداد‬ ‫وصفات سهلة و حلول ناجحة‬ ‫أدى التباطؤ االقتصادي العاملي األخير جلعل شركات كثيرة‬ ‫تعيد حساباتها وحتلل عملياتها على مستويات متعددة‪،‬‬ ‫وكان اجلانب األكثر حصوال على االهتمام والتدقيق هو‬ ‫التدفقات النقدية‪ .‬لهذا الغرض‪ ،‬قام اخلبراء شيام فينكات‪،‬‬ ‫مايك بويل وديف بيتمان من شركة برايس ووتر هاوس كوبر‬ ‫العاملية بكشف غموض متويل سلسلة االمداد لنا‪.‬‬ ‫األوقات احلالية صعبة بال شك‪ .‬احلصول على رأس املال‬ ‫أكثر تكلفة هذه األيام والوصول إليه أكثر صعوبة‪ .‬الطلب‬ ‫بطيء‪ ،‬والعمالء يدفعون ببطء أكبر ورأس املال العامل‬ ‫مربوط مبخزون جاثم‪ ،‬واملستحقات لدى الغير يجري‬ ‫حتصيلها بخطى بطيئة‪ .‬نتيجة لذلك‪ ،‬تبحث شركات‬ ‫كثيرة داخلها عن الطرق املمكنة لتحرير أي أموال معطلة‬ ‫في ثنايا العمليات‪ .‬يعمد املدراء والتنفيذيون املاليون اليوم‬ ‫لتخطي حدود املستحقات الدائنة واملدينة والنظر مبنظور‬ ‫جديد لكيفية تأثير سلسلة اإلمداد على التدفق النقدي في‬ ‫شركاتهم وعلى إدارة رأس املال العامل‪.‬‬ ‫لعقود من الزمن شهدنا شركات تعمل بطريقة ’اآلن نحن‬ ‫نركز على شيء‪ ،‬اآلن نحن ال نركز على شيء‘ إلدارة‬ ‫احتياجات رأس املال العامل لديهم ‪ -‬مع التركيز على‬ ‫التحصيل واملستحقات لدى الغير واملخزون‪ ،‬خالل فترات‬ ‫شح املال وتراجع األعمال أو حتى عند اخلسارة‪ ،‬لكن هذا‬ ‫التركيز يختفي خالل األوقات التي تشهد وفرة السيولة‬ ‫النقدية وسهولة التمويل‪ .‬ولكن اآلن تغير الوضع‪ ،‬فحتى‬ ‫الشركات املدارة جيدا اضطرت إلعادة النظر في الدمج‬ ‫الفعال بني إدارة رأس املال العامل واألدوات املرتبطة بها في‬ ‫عمليات مستدامة تهدف للقضاء على دورات التأرجح‬ ‫صعودا وهبوطا‪ ،‬و تقليل مخاطر األعمال من جهة العمالء‬ ‫وسلسلة اإلمداد اخلاصة بهم‪.‬‬

‫زيادة االهتمام بتمويل سلسلة االمداد‬ ‫)‪Supply Chain Finance (SCF‬‬

‫بسبب شعورهم بالقلق إزاء تزايد مخاطر سالسل االمداد‬ ‫اخلاصة بهم‪ ،‬تلك املخاطر التي أحدثتها الضغوط االقتصادية‬ ‫على املوردين وتقلب أسعار السلع األساسية والطاقة‬ ‫واالضطراب املالي على نطاق واسع‪ ،‬يبحث املدراء التنفيذيون‬ ‫اليوم بنشاط في خيارات متويل سلسلة االمداد‪ ،‬خاصة خفض‬ ‫التكاليف الشاملة لها‪ .‬هذه التوجه اجلديد نسبيا قد يكون‬ ‫سببه آمال ووعود حتقيق وفورات مالية عند متويل سلسلة‬ ‫االمداد وزيادة استقرارها وكفاءتها لكل من املشتري واملورد‪.‬‬ ‫‪March 2014 31‬‬

‫إطالق فوائد متويل سلسلة االمداد‬

‫ميكن لتمويل سلسلة االمداد أن يشتمل على أنواع مختلفة‬ ‫من ترتيبات التمويل والدفع بني الشركاء في سلسلة‬ ‫االمداد‪ .‬هنا يكون التركيز منصبا على نوع بارز من متويل‬ ‫سلسلة االمداد والذي يوفر طرفا ثالثا يقوم بالتمويل ويوفر‬ ‫سيولة مالية للموردين من خالل االستفادة من التصنيف‬ ‫االئتماني العالي للمشتري ‪ -‬وهي تدابير غالبا ما تنطوي‬ ‫على استخدام منصة تكنولوجية ألمتتة املعامالت وتوفير‬ ‫الرؤية الواضحة حلالة املوافقة على الفواتير جلميع األطراف‬ ‫املعنية‪ .‬هذا األمر يسمح للشركات بفتح باب فوائد كثيرة‬ ‫لتمويل سلسلة االمداد من نواح كثيرة‪ ،‬مبا في ذلك‪:‬‬

‫• متديد شروط احلسابات الدائنة للمشتري‬ ‫• تسريع وصول البائع لرأسمال أقل تكلفة‬ ‫• احلد من املخاطر املتضمنة في سلسلة االمداد‬ ‫• تعزيز قدرات التنبؤ النقدي‬ ‫• دعم االستراتيجيات املالية ورأس املال العامل‬ ‫• تعزيز العالقات بني املشتري و البائع‬ ‫نتيجة ألزمة االئتمان األخيرة‪ ،‬بدأنا نرى زيادة جديدة في‬ ‫درجة االنضباط املالي في مجال األعمال التجارية – زيادة‬ ‫تركز على إدارة النقد كما تركز على صنع اإليرادات‪.‬‬

‫آلية العمل‬

‫تقليل مقدار رأس املال احملتجز في حسابات املدينني‪ ،‬وتقليل‬ ‫االستثمارات في املخزون‪ ،‬إمنا هي من األشياء البسيطة‬ ‫والواضحة والتي من شأنها زيادة فوائد متويل سلسلة االمداد‬ ‫اخلاصة بك‪ .‬على اجلهة األخرى‪ ،‬متديد شروط احلسابات‬ ‫الدائنة ينطوي على مخاطر كبيرة مثل عدم استقرار املورد‪،‬‬ ‫والتأثير على استمرارية العمل و تآكل اخلدمة بني جميع‬ ‫األطراف‪.‬‬

‫إلدارة وتقليل املخاطر الكلية الكامنة في تدابير متديد‬ ‫املستحقات‪ ،‬بدأت الشركات الرائدة في التحول الستخدام‬ ‫متويل سلسلة االمداد‪ ،‬إذ تراها أداة قوية تسمح للشركات‬ ‫بتمديد دورة املستحقات بطريقة تضفي الفائدة لكال‬ ‫الطرفني‪ .‬بهذا‪ ،‬يحافظ املشترون على السيولة النقدية لفترة‬ ‫أطول‪ ،‬ويحققون سلسلة إمداد أكثر استقرارا‪ ،‬في حني يصل‬ ‫البائعون بشكل أسرع إلى نقد أقل تكلفة مبا يضمن حتسني‬ ‫استمرارية العمل‪ ،‬األمر الذي يعزز فعالية التنبؤ النقدي‬ ‫وتعزيز العالقات بني املشتري و البائع‪.‬‬

‫بيت القصيد‬

‫بالنسبة للشركات التي لديها تصنيف ائتماني قوي‬ ‫بالنسبة إلى مورديهم ولديهم استعداد أكبر الستكشاف‬ ‫استراتيجيات رأسمال عامل بديلة‪ ،‬متويل سلسلة االمداد‬ ‫إمنا هو األداة القوية التي جتلب الفوائد ألطراف متعددة عبر‬ ‫سلسلة االمداد‪.‬‬ ‫في أوقات اليوم الصعبة‪ ،‬يركز املدراء التنفيذيون على‬ ‫ضمان توافر النقدية للحفاظ على سير األعمال وجتاوز‬ ‫األزمة االقتصادية احلالية‪ .‬لقد بدؤوا في فهم وتقدير القيمة‬

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majdouie De Rijke Logistics Co. (MdR) provides supply Almajdouie Almajdouie De De Rijke Rijke Logistics Logistics Co.Co. (MdR) (MdR) provides provides supply supply ain services to the petrochemical industries including chain chain services services to the to the petrochemical petrochemical industries industries including including eiving the products from the production plant, packing, receiving receiving the the products products from from the the production production plant, plant, packing, packing, mming, internal operations, warehousing and shipping drumming, drumming, internal internal operations, operations, warehousing warehousing andand shipping shipping he finished products to the end user including of the of the finished finished products products to the to the endend useruser including including ministration and maintenance. administration administration andand maintenance. maintenance.

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ajdouie Head Office, 2nd floor, P.O. Box 336, Dammam 31411 Tel +966 3 819 8192, Fax +966 3 811 4192, Email mdr@almajdouie.com

risk mitigation

People with their transportation during a big flooding in Thailand

The supply chain

safety net Meeting demand without overinvesting in safety stock can be a real balancing act. Risk mitigation strategies protect shippers from landing hard when supply chain disruptions occur. By Joseph O’Reilly

I

n a near-perfect world, supply and demand would wobble and waver, then – in harmony with historical context and predictive hedging – find some semblance of balance. But when an unforeseen force topples formalities, there’s no quick fix for chaos.

Consider the litany of natural disasters that have sent shockwaves through supply chains over the past few years: Iceland’s Eyjafjallajökull volcano eruption in 2010; the earthquake and tsunami that struck Japan in March 2011; severe floods in Thailand that followed four months later; and Hurricane Sandy in the United States in October 2012.

March 2014 33

risk mitigation

Then add the social and economic disease spread by financial contagions – draconian realities that still resonate in many parts of the world.

Global supply chains are fraught with risk. Supply and production lines span continents, and are pulled so taut through continuous optimisation that any blip of the radar threatens to snap routine, and cause disruptions. That’s the cost of doing business.

Mitigating circumstances The greatest defense against any unseen exception is knowledge. Even a scant understanding of a supply chain’s risk exposure can help companies make necessary preparations before the inevitable eventually happens.

Ernst & Young’s Carlos Alvarenga, Principal in Professional Services believes operations finance and risk practice, supply chain risk management falls into three buckets: Physical mitigation. Think safety stock, multiple suppliers, and excess capacity. A good example is a car lot, which hedges against demand volatility.

It’s the most common tactic of the three.

Analytical mitigation. This category takes the shape of sales and operations planning, forecasting, and collaboration. It often places an emphasis on control towers and realtime visibility of transportation and materials movement. This application is widely used, but less so than physical risk management.

Financial mitigation. This approach is used by a smaller set of companies, and deals with supply chain risk from a completely different perspective. It addresses financial risk problems, as opposed to disruption or physical flow issues.

Most companies are well-versed in managing the physical part of the

34 March 2014

supply chain. Academic supply chain curricula cater to this perspective more than the financial side, says Alvarenga.

Planning for the unpredictable Part of the challenge companies face is that all risks are not equal. Leading indicators often precede weather and even political disturbances, allowing companies to plan for problems.

But some natural disasters and weather phenomena are 100-year events.“What’s the business case for planning such a contingency?”asks Perry Rotella, Group Executive of New Jersey-based information services firm Verisk (Analytics’ supply chain risk analytics business).

Companies have to compartmentalise their exposure, look at risk holistically, then prioritise accordingly. Rotella cites a pharmaceutical manufacturer that Verisk is currently working with to help safeguard product flow from point of supply to demand. Special considerations apply for moving timeand temperature-sensitive, high-value medications. Determining how to re-route shipments and keep flows moving is no small challenge.

“December poses a risk because of holiday shipments,” explains Rotella.

“If a storm occurs during that time, it could cause a disruption. So the pharma manufacturer wanted to use our weather analytics and predictive modeling to get out in front of these problems.

“Look at the Iceland volcano eruption,”he continues.“Who could have predicted that event? When something like that happens, a company needs resilience in its network to respond.”

When companies grasp the actual value at risk, they can begin to take

steps to mitigate these concerns. Many turn to physical hedges or logistics partners to provide cover.

Some companies take advantage of predictive analytics to drive competitive advantage. For example, using its climate risk management solution, Verisk helped a roofing manufacturer gain better control over demand planning by looking at extreme weather events.

Whether companies use risk analytics and modeling to cover their assets or seize market share, Rotella sees growing awareness and greater responsibility among shippers. Many are turning to logistics partners to provide support - although the companies themselves are still accountable to shareholders if a disruption occurs.

Financial flux Compared to physical and analytical mitigation tactics, financial risk management is an area that has been largely overlooked in the supply chain - yet it can have a significant impact on corporate finances.

Natural hedging occurs when a company looks at where a product is bought, then stages production close to those markets. Nearshoring and supply chain regionalisation may help reduce transportation costs and increase demand agility, but these strategies also help protect against currency fluctuation. Industries that are global, capital-intensive, or have complicated production and distribution models - such as the chemical, semi-conductor, automotive, and apparel sectors - tend to be more attuned to these financial exposures.

“In anticipation of potential currency risk, companies sometimes change where they manufacture or distribute

risk mitigation

goods,”says Alvarenga.“They also put hedging teams in place, typically as part of the treasury function.”

In the day-to-day fray, shippers and service providers are exposed to different financial risks, especially when it comes to currency exchange fluctuations.

“Gross domestic product rates of major economies are the primary indicators we monitor to determine where trade is occurring,”explains Tom Holland, VP and CFO of FedEx Trade Networks, the global freight forwarding arm of the Memphis-based expediter.

Currency flux generally has a greater impact on transportation than any

other function. Warehousing is less of an issue - and, if so, a localised one.

It’s not the inventory as much as it is the manufacturing. Transportation, accordingly, carries the greatest expense.

Monitoring transportation costs “From the supplier side, the exchange risk is not as significant as you think,” says Holland.“A lot of forwarding isn’t contractual, so pricing is dynamic. It’s not unusual for an airline or motor carrier to raise rates because of supply and demand balances. Nor is it uncommon for them to adjust pricing in response to changes in the market.”

This contrasts with FedEx’s express

operations, where all business is contractual. Pricing is less dynamic because it’s an asset-based business.

Shippers that use forwarders to procure transportation benefit because the intermediary passes along the lowest rates. At the same time, when an exceptional situation occurs and costs increase, pricing is similarly variable. But it’s a balance that generally works in favour of the shipper and consignee.

When FedEx Trade Networks sets a price, it generally tries to cost everything out in the currency of its greatest expense.

“If we’re moving a shipment from

Icelandic Volcanic Beach Reynisfiyara on the coast of norwegian sea

March 2014 35

risk mitigation

Europe to the United States using a European carrier, we price it in euros,” explains Holland.“Therefore, we don’t have a currency risk. The shipper will pay us and we’ll pay the major expense – which is transportation – in the same currency.”

There is one caveat. Many American companies like to conduct all their transactions in U.S. dollars. This requires greater care and diligence to forecast where exchange rates are trending to ensure they don’t significantly alter pricing.

“FedEx Trade Networks may be paying Japan Airlines in yen,”Holland says.“When we price it to the shipper, we have to take into account our estimate of how the yen may fluctuate.”

That’s the same for any company that enters into a contractual arrangement with a forwarder or transportation provider. It has to

36 March 2014

consider where the shipment is originating from, the currency it is using, and what it thinks the exchange risk might be.

“Most currencies rise and fall, so shippers don’t We reviewed how have to worry about it,” our contracts are set Holland notes.“China’s up, in what currency, currency seems to be appreciating historically, and our risk exposure so businesses have to take that into account. The if the euro starts to euro seems to be better unravel, or if some now, but for a while it was unstable.” countries leave the China’s renminbi has been steadily euro and go back to appreciating against their own currency the U.S. dollar at such a steady rate it is almost predictable. The euro, by contrast, has been less stable over the past few years, which requires more vigilance.

“We reviewed how our contracts are set up, in what currency, and our risk exposure if the euro starts to unravel, or if some countries leave the euro and go back to their own currency,” Holland says.

A 3-D approach As supply chain practitioners perfect the science of shipping, they are confronted by one inexorable reality: accidents happen. When they do, all bets are off.

Coming out of the recession, many companies dialed back their supply chains to focus instead on cutting costs and boosting efficiencies. Consequently, supply chains are trending leaner. They are more dynamic and demand-driven.

But at what cost?

If there’s one silver lining in the turbulent events of the past few years, it is the insights shippers have gained.

Taking stock of financial risk

Earthquake in southern China

Companies are well aware of the risks and responsibilities that exist. Now they have to attach value to those exposures, and identify how to best insulate their supply chains from future disruptions.

Alvarenga counsels shippers to look at supply chain risk from all three dimensions - physical, analytical, and financial. They need to step away from the familiar, and pull new levers to really appreciate the risks that exist in their supply chains.

“If companies don’t do that, they are missing out,”he says.

Balancing precaution with preparedness can help companies avoid being an example of the worstcase scenario.

Reprinted with permission from Inbound Logistics magazine January 2014. www.inboundlogistics.com/subscribe Copyright Inbound Logistics 2014

Because finance is still a relatively new facet of supply chain management, companies sometimes overlook risk factors buried in the ledgers. Here are three financial exposures companies should keep an eye on: Embedded costs of risk. If you have a value chain and every agent in that chain is hedging its risk, the accumulation of hedges can be significant. “For example, in the automotive industry, someone is pulling metal out of the ground, then sending it to a refinery, on to a steel cord maker, then a tire maker, an automotive assembly plant, then finally to the consumer,” explains Carlos Alvarenga, principal in Ernst & Young’s operations finance and risk practice. “By the time you add up the individual hedges at each point, they can equal 25 per cent of the cost of the product.”

Economic and financial risk. Supply chain risks fall into categories – economic and financial. “Economic means the risk is a factor, but hasn’t yet been quantified,” says Alvarenga. “Financial risks exist and have been quantified.”

Using the automotive industry as an example, he cites the way European countries such as Spain were acting before the Eurozone debt crisis. There was a lot of financing and easy capital. Companies were building inventory and production volumes based on an artificial demand signal. As a result, they were carrying a lot of economic risk.

“When the economy turned, that exposure became financial – and all of a sudden, it represented a big problem,” Alvarenga explains.

Similar examples exist today, especially related to weather. Some retailers and manufacturers carry a high economic exposure because of this potential volatility. At what point does it become a financial impact?

“Weather volatility, locational risk related to geography, and demand variability in emerging markets are all significant economic costs and risk drivers,” Alvarenga notes.

“If they become financial – and it’s hard to predict when that might happen – companies will have to rethink their supply chains.”

Currency exchange risk. Shippers and consignees need to bear in mind where they are sourcing product from, and how currency instability in those regions can impact costs. “It is naïve for shippers to price their product and transportation in U.S. dollars when they are sourcing from Thailand,” says Tom Holland, VP and CFO of FedEx Trade Networks. “If the currency changes dramatically, their transportation and product costs may go up as well.

“Businesses need to take that into account,” he continues. “They must consider how exchange rates can alter the equation.

They have to factor in where they are sourcing from.”

Japan’s supply chain aftershock Following the tragic and unprecedented Japanese earthquake and tsunami in 2011, supply chains were turned on end.

Because of the country’s manufacturing legacy, countless industries were impacted as production stoppages rippled outward.

A U.S. Congressional Research Service report delivered weeks after the accident details some of the consequences: A Hitachi factory north of Tokyo that makes 60 percent of the world’s supply of airflow sensors was shut down. This caused Peugeot-Citroen to cut back production at most of its European plants.

Two Japanese plants accounting for 25 percent of the world’s supply of silicon wafers for computer chips were closed.

Texas Instruments had to close a factory in Japan for six months, accounting for about 10 percent of its revenue.

Nippon Chemi-Con Corp. – the largest producer of aluminum electrolytic capacitors used in everything from computers to industrial equipment – shut down four Japanese factories. It was forced to boost production at 10 overseas plants, including factories in Indonesia, Malaysia, and China.

Nihon Dempa Kogyo – the second-largest maker of quartz components, with a roughly 20 percent share of the global market – relied on operations in Malaysia and elsewhere to compensate for damage to its plant in northern Japan, which assembles quartz components for automotive applications.

Source: U.S. Congressional Research Service

March 2014 37

‫‪kuwait‬‬

‫اإلشارات االصطناعية حلجم الطلب في السوق‪،‬‬ ‫يضيف ألفارينغا قائالً‪” :‬إن تقلبات الطقس‪،‬‬ ‫وبالتالي حتملت هذه الشركات العديد من املخاطر واملخاطر التي تتعرض لها املواقع بسبب العوامل‬ ‫االقتصادية‪.‬‬ ‫اجلغرافية‪ ،‬وتغ مُير حجم الطلب في األسواق‬ ‫ويضيف ألفارينغا معلق ًا على املثال السابق‪:‬‬ ‫الناشئة‪ ،‬تعتبر كلها تكاليف اقتصادي ًة كبير ًة‬ ‫«عندما شهد االقتصاد هذا التحول‪ ،‬أصبحت‬ ‫وعوامل مسببة للمخاطر‪ ،‬والتي إذا ما حتولت إلى‬ ‫املخاطر أيض ًا مخاطر مالي ًة – وفجأة أصبحت مُتثل مخاطر مالية ‪ -‬ومن الصعب التنبؤ بوقت حدوث‬ ‫مشكلة كبيرة‪».‬‬ ‫ذلك – يلزم على الشركات إعادة النظر في‬ ‫نشهد اليوم العديد من األمثلة املشابهة‪ ،‬خاص ًة سالسل اإلمداد اخلاصة بها‪».‬‬ ‫فيما يتعلق بظروف الطقس‪ .‬يتحمل بائعو التجزئة‬ ‫مخاطر سعر الصرف‪ .‬ينبغي على اجلهات الشاحنة‬ ‫واملص ّنعون مخاطر اقتصادي ًة كبير ًة بسبب تلك‬ ‫واجلهات املشحون إليها أن تولي أهمية كبيرة إلى‬ ‫التقلبات احملتملة‪ .‬إذاً متى يكون لهذه املخاطر‬ ‫األماكن التي يتم احلصول على املنتج منها‪ ،‬وكيف‬ ‫تأثيراً مالياً؟‬ ‫ميكن أن يؤثر عدم استقرار العملة في هذه املناطق‬

‫على حجم التكلفة‪ .‬مُيعلق توم هوالند – وهو نائب‬ ‫مدير شركة شبكات فيدكس التجارية ومديرها‬ ‫املالي على ذلك قائالً‪” :‬من السذاجة أن تقوم جهات‬ ‫الشحن بتحديد أسعار منتجاتها وتكلفة وسائل‬ ‫نقلها بالدوالر األمريكي في حني أنها ستحصل مثال‬ ‫على هذه املنتجات من تايالند‪ ،‬وذلك ألنه إذا ما‬ ‫شهد سعر الصرف تغيراً حاداً في تايالند‪ ،‬فقد تزيد‬ ‫بدورها تكاليف وسائل املواصالت وأسعار املنتج‪،‬‬ ‫وعلى الشركات أن تضع ذلك في حسبانها‪ ،‬وأن‬ ‫تمُدرك كيف ميكن لسعر الصرف أن يغير املعادلة‪.‬‬ ‫كذلك عليهم أن يضعوا في حساباتهم األماكن التي‬ ‫يتم احلصول منها على املنتج‪».‬‬ ‫‪38 March 2014‬‬

‫‪kuwait‬‬

‫شبكة األمان لسالسل اإلمداد‬ ‫ال شك أن تلبية متطلبات السوق دون االستثمار الزائد عن احلد في املخزون االحتياطي لهو إجراء‬ ‫ال من التوازن‪ .‬تعمل االستراتيجيات املتعلقة بتخفيف املخاطر على حماية‬ ‫يتطلب قدراً هائ ً‬ ‫مُ‬ ‫جهات الشحن من األزمات االقتصادية التي قد يتسبب فيها تعطل إحدى سالسل اإلمداد‪.‬‬ ‫بقلم‪ :‬جوزيف أورايلي‬

‫قد يحدث ويتأرجح العرض والطلب‪ ،‬لكن الوضع‬ ‫األمثل لهما هو أن يسيرا وفق ًا للسياق التاريخي‬ ‫والتدابير الوقائية املتوقعة‪ ،‬ومن ثم يعودان إلى‬ ‫ما هو أشبه بالتوازن‪ .‬لكن عندما تطيح أي قوة‬ ‫غير متوقعة باإلجراءات الرسمية املعتادة‪ ،‬يصعب‬ ‫حينئذ التخلص السريع من الفوضى التي تعقب‬ ‫ٍ‬ ‫ذلك‪.‬‬ ‫لك أن تتأمل ما خلفته الكوارث الطبيعية‬ ‫من مشكالت أصابت بدورها سالسل اإلمداد‬ ‫بصدمات عنيفة على مدار السنوات القليلة‬ ‫املاضية ومنها‪ :‬ثوران بركان ايافيااليوكل بأيسلندا‬ ‫في عام ‪2010‬؛ والزلزال الذي أتبعه موجات‬ ‫تسونامي والذي ضرب اليابان في مارس ‪2011‬؛‬ ‫وما أعقب ذلك من فيضانات عنيفة في تايالند‬ ‫خالل األربعة الشهور الالحقة؛ وإعصار ساندي‬ ‫الذي عصف بالواليات املتحدة في أكتوبر‬ ‫‪ .2012‬أضف إلى كل ذلك الكارثة االجتماعية‬ ‫واالقتصادية التي سرت كالنار في الهشيم بني‬ ‫املؤسسات املالية على املستوى العالم – تلك‬ ‫احلقيقة القاسية التي ال تزال بعض املناطق حول‬ ‫العالم تعاني منها‪.‬‬ ‫إن سالسل اإلمداد العاملية محفوفة باملخاطر‪،‬‬ ‫فخطوط اإلمداد واإلنتاج التي تتد حول القارات‪،‬‬ ‫ويشتد عليها اخلناق بسبب عمليات التحسني‬ ‫املتواصلة التي مُترى عليها حتى أن وقوع أي خطأ‬ ‫ولو كان صغيرا جدا سيهدد بتوقف اإلجراءات‬ ‫الروتينية لها‪ ،‬بل وقد يتسبب في تعطل عملية‬ ‫اإلمداد‪ ،‬وتلك هي الضريبة التي يتحملها أي‬ ‫نشاط تاري‪.‬‬

‫سالسل اإلمداد س مُيساعد الشركات على اتخاذ‬ ‫االستعدادات الالزمة قبل أن يقع القدر احملتوم في‬ ‫النهاية‪.‬‬ ‫وفي هذا الصدد‪ ،‬يعتقد كارلوس ألفارينغا‬ ‫الذي يعمل مدير قسم إدارة املوارد املالية و املخاطر‬ ‫في شركة إرنست آند يانغ‪ ،‬بأن طرق مواجهة‬ ‫وتخفيف املخاطر التي قد تواجه سالسل اإلمداد‬ ‫تنقسم إلى ثالث فئات‪:‬‬ ‫• تخفيف مادي‪.‬‬ ‫وهو يتطلب التفكير في املخزون االحتياطي‬ ‫وتعدد املوردين و السعة اإلنتاجية الفائضة‪.‬‬ ‫أفضل مثال على ذلك هو عندما تعمل ساحات‬ ‫بيع السيارات على حماية نفسها من املشكالت‬ ‫الناشئة من تذبذب حجم الطلب في السوق‪ .‬وهو‬ ‫أشهر األساليب الثالثة‪.‬‬ ‫• تخفيف حتليلي‪.‬‬ ‫تأخذ هذه الفئة شكل التخطيط للمبيعات‬ ‫واإلنتاج‪ ،‬وعمليات التنبؤ والتنسيق‪ .‬عاد ًة ما‬ ‫تمُسلط هذه الفئة الضوء على أبراج املراقبة والرؤية‬ ‫الواضحة لوسائل النقل وتنقالت املواد‪ .‬مُيستخدم‬ ‫هذا التطبيق على نطاق وواسع‪ ،‬لكن بدرجة أقل‬ ‫من إدارة املخاطر املادية‪.‬‬ ‫• تخفيف مالي‪.‬‬ ‫يستخدم هذا األسلوب عد مُد أقل من الشركات‪،‬‬ ‫وهو يتعامل مع املخاطر التي تواجه سالسل‬ ‫اإلمداد من منظور مختلف تاماً‪ .‬إذ أنه يعالج‬ ‫املشكالت التي تنشأ عن املخاطر املالية مقابل‬ ‫مشكالت ّ‬ ‫التعطل أو املشكالت التي تنشأ عن‬ ‫عمليات التدفق والسير املادية‪.‬‬

‫حاالت تخفيف املخاطر‬ ‫ال شك أن املعرفة هي أعظم وسائل الدفاع ضد‬ ‫أي ظروف استثنائية غيبية‪ .‬لذا فإن أي مقدار‬ ‫ولو طفيف من اإلدراك باملخاطر التي تواجه‬

‫نظرة حتليلية على املخاطر املالية‬ ‫نظراً ألن إدارة املوارد املالية ال تزال مفهوم ًا جديداً‬ ‫إلى حد ما في مجال إدارة سالسل اإلمداد‪ ،‬فقد‬ ‫تتجاهل بعض الشركات أحيان ًا العوامل املسببة‬

‫‪March 2014 39‬‬

‫للمخاطر التي تنطوي عليها الدفاتر احملاسبية‬ ‫اخلاصة بها‪ .‬فيما يلي ثالث مخاطر مالية يجب‬ ‫على الشركات مالحظتها بدقة‪:‬‬ ‫التكاليف التي تتضمنها املخاطر‪ :‬إذا كان‬ ‫لديك سلسلة من األنشطة املضيفة للقيمة‪،‬‬ ‫ويعمل كل عنصر في هذه السلسلة على اتخاذ‬ ‫احليطة من املخاطر التي قد تقابله‪ ،‬فإن الناجت‬ ‫التراكمي لتلك اإلجراءات الوقائية سيكون بالغ‬ ‫األهمية‪ .‬ويضرب كارلوس ألفارينغا – مدير قسم‬ ‫إدارة املوارد املالية و املخاطر في شركة إرنست آند‬ ‫يانغ ‪ -‬مثا ًال على هؤالء الوكالء قائالً‪” :‬في مجال‬ ‫صناعة السيارات‪ ،‬يقوم شخص ما باستخراج‬ ‫املعدن من األرض‪ ،‬ثم يرسله إلى وحدة تنقية‬ ‫احلديد‪ ،‬ثم إلى جهة تصنيع أسالك الصلب‪،‬‬ ‫وبعد ذلك إلى جهة تصنيع اإلطارات‪ ،‬ثم إلى‬ ‫مصنع التجميع اخلاص بالسيارات‪ ،‬وأخيراً يذهب‬ ‫املنتج إلى املستهلك‪ .‬مبرور الوقت‪ ،‬تتراكم كل‬ ‫إجراءات احلماية ضد املخاطر لكل مرحلة‪ ،‬حتى‬ ‫تصل إلى نسبة ‪ %25‬من تكلفة املنتج‪».‬‬ ‫املخاطر االقتصادية واملالية‪ .‬تنقسم املخاطر‬ ‫التي تواجه سالسل اإلمداد إلى فئتني‪ :‬اقتصادية‬ ‫ومالية‪ .‬يستطرد ألفارينغا بالقول‪« :‬يشير‬ ‫مصطلح ’اقتصادية‘ إلى أن اخلطورة تمُعد عام ً‬ ‫ال‬ ‫لم يتحدد حجمه بعد‪ ،‬أما عن مصطلح ’خطورة‬ ‫مالية‘ فيشير إلى الوجود الفعلي لهذه اخلطورة بل‬ ‫أيضا‪».‬‬ ‫وحتديد حجمها ً‬ ‫بالعودة للمثال اخلاص مبجال صناعة السيارات‪،‬‬ ‫يضرب ألفارينغا لنا مثاال آخر عن الطريقة التي‬ ‫كانت تتعامل بها الدول األوروبية مثل إسبانيا قبل‬ ‫أزمة الديون التي أصابت منطقة تطبيق العملة‬ ‫املوحدة‪ ،‬فقد كان هناك العديد من املوارد املالية‬ ‫املتوفرة إضاف ًة إلى سهولة احلصول على رؤوس‬ ‫بناء على ذلك‪ ،‬عملت الشركات على‬ ‫األموال‪ً .‬‬ ‫تميع املخزون واحلفاظ على حجم اإلنتاج حسب‬

Technology

Technology top 5

This year’s top trends to make companies more competitive and manage their supply chains better.

By Freightgate

1 2 3 Compliance... compliance‌ complaince

As businesses continue to expand internationally, organisations are increasingly putting their global supply chains and their reputations in the hands of neutral IT oversight spanning 3PLs, carriers, customs brokers and suppliers. Supply chain compliance is now a vital component of logistics transactions and supplier relationships. This year, access to visibility and execution data will advance both supply chain conformity and transparency to help minimise and mitigate environmental, performance, process and intellectual property risks.

40 March 2014

transportation Management Systems (tMS) will become more hyper-connected and analytical as global trade expands

Transportation Management Systems (TMS) usage and sophistication have been increasing over the last couple of years becoming more responsive and agile. Global TMS growth will continue to evolve to harness and encompass more business processes to provide both execution and analytical efficacy. Business Planning and predictive analytics is now being integrated to allow both shippers and carriers to more efficiently monitor supply demand cycles with synchronisation in their transportation planning and supply chain events. A more collaborative approach in capacity management with aligned financial rewards will materialise this year.

Big Data improves global supply chain performance while quantifying risk The ability to capture and analyse huge amounts of data regarding shipment and transportation events as goods travel through supply chains around the world will continue to improve goal-setting and ascend in importance. Predictive analytics and business intelligence are becoming a decisive essential in developing supply chain strategies to improve effectiveness and efficiency of processes, and support innovation to enhanced logistics planning. The management of BIG DATA this year will be the avant-garde underpinning for cost containment, capacity control and risk management.

4

Technology

Centralised transportation management delivers improved spend control, decision making and bottom-line results Reductions in transportation spend management can be achieved by optimising all aspects of business planning, vendor collaboration, carrier selection, and shipment logistics to centralised supply chain collaboration and decisionmaking. Transportation departments who once considered success as negotiating greater discounts from carriers will shift focus to a more comprehensive synchronised spend strategy concentrating on smaller incremental reductions and performance opportunities as goods move between suppliers, factories, warehouses, distribution centres and retailers across the entire logistics lifecycle. By breaking down silos and enabling a centralised holistic view to transportation management, overall net savings will be measured through reducing routing delays, improper documentation, poor collaboration and greater in-transit inventory flexibility to changing retail trends. Additional savings in carbon emissions, finance charges, controlling inventory cycle and lead time will have a significant impact paying off by delivering improved bottom-line results and supply chain excellence.

5

Cloud based embedded analytics will transform supply chain departments

World-class companies and service providers are forming inter-departmental steering groups to manage their logistics development and supply chain expansion staying competitive in today’s dynamic and rapidly changing environment. Increased demand for Supply Chain Analysts will drive efficiency improvements of shipping processes and reallocating supply chain department resources to identify and focus on critical supply chain risk hotspots. The daily monitoring, sharing, linking and interpreting supply chain analytics will be crucial. Logistics solutions companies will continue to help shippers and carriers weed through terabytes of daily information to select its most useful components, and then use that information to formulate the best possible transportation decisions. Supply chain analytics will allow businesses to create useful key performance indicators (KPI) and incubate innovative ideas to successfully manage service levels and integrated relationships with their suppliers and customers.

March 2014 41

42 March 2014

Right bite

From farm to

fork

Who wouldn’t want freshly prepared food, as per your diet needs, delivered to your door step daily? We all would! Munawar Shariff explores the supply chain of nutrition food company Right Bite and how it keeps up with customer requirements

I

n our quest to have it all and to be looking and feeling our best in order to enjoy life to the fullest, we all juggle a variety of things to be on top of the game. What usually suffers in the process is our nutrition, eating on the go, filling up with convenient, unhealthy options … and before your know it, you’ve landed a chronic condition or have put on so much weight that your health is being compromised. Right Bite saw this huge gap in the market and decided to set up a facility where in nutritionists advise you on your diet and assist you professionally in getting your weight under control or help you get your healthy fix of the right foods to nourish your body.

Behind this customer face is a well-oiled supply chain that makes it happen for Right Bite. They have a team of nutritionists that are facing their end users – the customer. Once a customer with specific

March 2014 43

January 2014 Issue 01

Essential reading for hotel operators, owners, developers and investors

Picture perfect

Hangzhou draws hotels and hi-tech

Expo success

Dubai prepares for hotel boom

Flora and fauna Escape to Sir Bani Yas Island

N O O S G N I M CO +

SKY-HIGH AMBITIONS Emirates leads Gulf carries’ orders charge

Top.indd 1

1/21/14 3:02 PM

Right bite

diet needs signs up with Right Bite the back end comes to life in keeping the promise and delivering the goods to the customer as per their requirements.

The dietician will follow certain dietary protocol as per the customer’s diet requirements and modify the clients’ meal according to caloric and dietary needs and personal preferences. They then collaborate with the kitchen chefs and put together a diet plan with three to four options for each meal times and two snacks in between. Either this, or the customer has the option of choosing from a ready menu online and submitting preferences to the nutritionist. The kitchen chef then as per the needs of the menu puts together a market list of ingredients which is submitted to the purchasing department which in turn places orders for the ingredients with their approved suppliers all of whom are local.

To simplify things, customers are requested to order in advance for the entire week. And the kitchen is notified two-days in advance of the customers’ choices. The food for the day is prepared on the day by the chefs under ministry approved standards of safety and hygiene in their production warehouse in Al Quoz.

All ingredients are procured on a daily basis and stored at the correct temperatures to maintain freshness and quality. For quality control purposes, all ingredients pass through a process of de-boxing, sorting, culling, cleaning and sanitisation before being stored.

All dishes are then handmade fresh by the chefs with recipes controlled by the dieticians.

Once the food is prepared and ready to be dispatched to the customer, it is packaged in the appropriate box or bag. All packaging materials are procured food graded from approved suppliers. Microwave safe containers

are used for meals which need to be heated by the customer before consumption. Specific containers are used for each dish, suitable to maintain its freshness till consumption, then food is transported in thermal cooler bags.

Starting out 10 years ago, Right Bite leased temperature-controlled vehicles from a transport company. Today with a growing customer base, they have a fleet of 28 temperature controlled and Dubai Municipality approved (to carry fresh food in chilled conditions) CMC Veryca Vans.

Each truck is large enough to carry food for around 30 to 40 customers at a time.

Regardless of outside temperatures, inside the truck the temperature is always maintained at between zero to four degrees Celsius.

Once the food reaches the customer, they are advised to store the food refrigerated which has a shelf life of two days as all food is fresh and has no added preservatives.

March 2014 45

horses

As the number of equestrian events around the world increases, so does the need to transport equines in the right welfare conditions.

Munawar Shariff spoke to Emirates Sky Cargo and Janah Management Company as they manage horses arriving for racing season in Dubai

Transporting million dollar

horses How long before the world cup races begin are horses brought into Dubai?

This is dependent on whether the horses come for a preparatory race during the Dubai World Cup Carnival or directly for the Dubai World Cup. The arrival of the horses in Dubai is very dependent on the country they are coming from, the logistics and the trainer’s training programme. Horses from the United States normally arrive 10 days before the time

46 March 2014

and horses from the European Union seven days before, while some would arrive four to five days before the event.

How long is the travel period?

The travel period is dependent on the country from which they are coming. We always try to transport the horses on direct non-stop services using the best Air Stables in a two horse per container layout.

What kind of planes are used (assuming they are air freighted) for the transportation of the horses? How many can be loaded onto a plane?

Emirates SkyCargo operates two types of freighters - the B777 Freighter and the B747 Extended Ranger Freighter - to transport the horses. The B777 Freighter, can carry up to 72 horses, while B747 ERF,

horses

World Cargo Symposium on air transportation of horses

can carry up to 81 horses. This is based on the assumption of a three horse per container layout.

Are there are specific temperatures they are transported on, what are the handling specifications? What are they fed, how do they rest while travelling?

All horses have access to hay throughout the flight and each horse has its own meal (feed) as per individual requirements. Water is also available throughout the flight. The temperature is maintained at 17 degrees, depending on the load, and its stays constant throughout the flight and during transit.

The horses are accompanied on all flights by a Janah Management Company professional groom.

What are the necessary precautions taken for the horses when they travel over long distances?

The air stables vary slightly depending on the make and model of the aircraft used.

Horses can travel in either a one (First Class), a two (Business class) or a three (Economy Class) air stable configuration.

All Dubai World Cup horses travel business class. The air stable allows the horse to be safely transferred to and from the aircraft.

What are the specific health checks on arrival and departure points?

All horses would need to meet the UAE’s import conditions. These requirements will vary from country to country. The same would apply on their return.

How long are customs procedures on arrival and departure points?

These are kept to the minimum for the benefit and welfare of the horses.

What are down times once the horses arrive in Dubai before they can start racing practice?

For international runners it’s 48 hours, during which time they are restricted to quarantine.

At the seventh world Cargo Symposium organised

by IATA in Qatar last year, FEI President and OIE (World Organisation for Animal Health) Goodwill Ambassador HRH Princess Haya opened a special session by video message on the air transportation of sport horses.

The session focussed on the regulatory and logistical challenges of transporting horses as the growth of international equestrian sport reaches a record high.

“The work of IATA is vital to ensuring that the rapidly expanding and increasingly competitive air transport industry develops in an appropriately regulated manner, meeting future challenges and grasping new business opportunities,” explained HRH Princess Haya. “Naturally, as President of the FEI, the world governing body of equestrian sport, and as Goodwill Ambassador of the OIE, my focus is on the need for a consistent, global approach to high welfare standards, complying with OIE global standards on animal welfare during transport by air, for live animals when they are moved over distance.

“In the case of international sport horses, these needs are very specific, and it is vital that the air transport community evolves in tandem with the rapid global expansion of equestrian sport, so that all welfare and logistics needs are met.

“During the last five years, we have seen the number of equestrian events rise by almost 30 per cent, and this year (2013) we are expecting to see the busiest event calendar in the history of equestrian sport. Some of the most valuable horses are now competing for the most valuable prizes in parts of the world where this would have been unimaginable 20 years ago, thanks to advances in the air transport industry.”

FEI Secretary General Ingmar de Vos, who addressed the delegation alongside air transport executives from Emirates SkyCargo, Cathay Pacific, Cargolux, the Symposium’s sponsor Qatar Airways and the OIE, explained, “Our sport is growing faster than ever before, and the role of air transport professionals as we go through this growth spurt is very clear.

“In the equine sector, there is great potential for the air transport industry, particularly for carriers that are modernising their aircraft fleets so they can carry horses, and for those that are investing in suitable new aircraft specifically for moving horses safely, cost effectively and efficiently.” www.oie.int

March 2014 47

TransporT InTellIgence and agIlITy

Robust growth ahead The logistics industry shakes off year of emerging markets doubts and with spending paying off in the Gulf region it’s all systems go for businesses. However, there is no turn around in sight for Arab Spring nations

48 March 2014

M

assive public spending by Gulf countries is helping them diversify beyond oil and gas, while pessimism deepens about economic prospects for Arab Spring countries Egypt, Tunisia and Libya, a benchmark industry index and survey shows.

Saudi Arabia, the Middle East’s largest economy and biggest spender, is number three

behind only China and Brazil as per the 2014 Agility Emerging Markets Logistics Index, which ranks 45 of the world’s developing economies based on economic data, social indicators and transport infrastructure.

Among the world’s largest emerging economies, no country has improved its position as much as Saudi Arabia, which was number nine in the index rankings five years ago. Saudi Arabia is in the midst of

TransporT InTellIgence and agIlITy

an unprecedented public spending binge.

It is building and expanding airports, roads, ports, universities, industrial complexes and other infrastructure in an effort to diversify, lessen dependence on oil, and create jobs for millions of young Saudis.

The 2014 Index ranks 45 major emerging markets and identifies factors that make them attractive for investment by logistics companies, air cargo carriers, shipping lines, freight forwarders and distribution specialists.

The Index and survey provide a basis to compare countries, weigh their progress and look at their near-term prospects.

The United Arab Emirates ranks number six in the Index. The Market Compatibility

portion of the Index, which measures whether conditions are favourable for business and trade, was dominated by Gulf countries Qatar, UAE, Oman, Saudi Arabia and Kuwait, along with nearby Jordan.

The Index’s annual survey of more than 800 logistics and trade professionals shows the supply chain industry is pessimistic about the ability of Egypt, Tunisia and Libya to stabilise and grow in the near-term. Sixtythree percent say the economic attractiveness of Arab Spring countries is “in question for the foreseeable future”or“significantly weakened in the long term.”Only seven per cent say prospects are“brighter”than they were before political upheaval.

Looking at Egypt, 94 per cent say instability will hamper growth“for the next two – three years”or“for the foreseeable future.”Egypt was last among the 45 Index countries in the area of Market Compatibility, which looks at the factors necessary to create an inviting climate for business and investment. Tunisia tumbled 11 spots in the Index to number 34.

Emerging markets outlook Growth opportunities offered by emerging markets outweigh concerns about the political and economic turmoil that rattled some developing countries in 2013, the survey shows.

Seventy-four percent of logistics professionals view prospects for emerging markets as “good”or“very good”for 2014, the survey shows. Respondents remain optimistic despite signs that growth is slowing in China, stalled in Brazil and India and uncertain in other countries that could suffer if the United States reins in monetary policy stimulus, as expected.

The logistics industry’s optimism comes despite moves by the International Monetary Fund and the Organisation for Economic Cooperation and Development to cut 20132014 global growth forecasts, citing concerns about emerging markets. Emerging markets currencies and financial markets came under pressure in 2013 amid worries of a possible ripple effect from tighter US monetary policy.

The 45 countries featured in the 2014 Agility Emerging Markets Logistics Index were projected to grow at an average of 6.2 per cent in 2013. The US economy expanded 2.9 per cent while the European Union grew 1.4 per cent according to IMF projections.

March 2014 49

TransporT InTellIgence and agIlITy

“The industry’s confidence in emerging markets shows that logistics executives take a long view and see beyond today’s headlines,” says Essa Al-Saleh, President and CEO of Agility Global Integrated Logistics.“In the past, currency pressures, investor jitters, political instability or a pause in growth was a major setback that undermined confidence about other emerging markets. This time, the industry is staying focused on their enormous potential.”

“Not only does the majority of the world’s population reside in emerging markets, but these markets offer expanding middle classes and a younger average age compared to the more developed markets of the US and Europe,” said John Manners-Bell, Chief Executive of Transport Intelligence, which compiled the Index.“The need to meet the rising needs of these markets is a great opportunity for logistics providers, but it will also prove a bumpy process as economic, political and other risks will need to be navigated carefully.”

50 March 2014

The BRICs

Supply chain risks

China, Brazil and India – three of the socalled BRIC countries, along with Russia – dominate most discussions about emerging markets because of their size. They rank at the top of the Index again this year, but all three experienced erosion in their raw Index scores, suggesting that they need to take steps to improve their business climate and make additional investment in infrastructure.

Despite a troubled economy, Brazil knocked India out of the number two spot. India fell to number four, below Saudi Arabia, amid concern about chronic economic problems, lack of clear direction on the economy and a weaker rupee.

Industry executives see widely varied threats to the supply chain, depending on the region.

They ranked natural disasters the biggest risk in Asia; corruption the most serious threat in Latin America; government instability the top problem in the Middle East and North Africa and poor infrastructure the most serious risk in Sub-Saharan Africa.

Syria and Iran – two countries that are not in the Index and are subject to international economic sanctions – were picked as the least attractive markets for the logistics industry by industry professionals. Among the countries in the Index, Ethiopia, Iraq, Libya and Egypt were ranked as least attractive.

Rising, falling The Philippines, Vietnam, Nigeria, Colombia and Mexico all improved their positions in the 2014 rankings. Countries experiencing the sharpest declines: Tunisia, Ukraine, Argentina and South Africa.

Global economic outlook Logistics and trade professionals are far more optimistic about the global economy in 2014 than they were a year ago, the survey shows. Seventy-two percent expect

TransporT InTellIgence and agIlITy

“modest growth” in global economic output and trade volumes in the next 12 months. A year ago, just 46 per cent of respondents expected modest growth in 2013; an equal percentage expected output and trade to stay flat.

Industry executives view prospects for the US and EU economies almost identically. Most – 54 per cent for the Eurozone; 55 per cent for the United States - predict modest growth in the world’s two largest economies. The percentage of those seeing output stay flat was about 30 per cent for both the US and EU economies.

Regional breakdown Most logistics and trade executives (58 per cent) see emerging markets countries in Asia producing the highest growth rates in 2014.

Latin America is the top choice of 25 per cent of survey respondents.

Sixty-four per cent of executives “agree” or “strongly agree”that there is a shift in production away from China. The leading alternative destinations: Vietnam, India, Mexico, Indonesia. At the same time, China outshines Brazil, India, Russia and South Africa when industry executives look at the growth prospects of the largest emerging economies in 2014.

Eleven of 12 countries ranking worst in the area of Market Compatibility were African and Latin American countries.

The industry sectors with the most potential vary by region. In Asia, where rising incomes and policy shifts are beginning to encourage consumption, logistics industry professionals see retail/consumer, hightech and automotive as the most promising sectors for 2014. Elsewhere, they see extractive industries continuing to dominate.

In Latin America, mining and agriculture top the automotive and retail/consumer

sectors. In the Middle East and North Africa, prospects for oil and gas overshadow all other sectors. In Africa, the outlook for mining continues to hold the greatest potential in the view of logistics and trade executives.

Trade lanes No country can challenge China’s commanding position as the leading destination and origin in both air and ocean cargo. Even so, China’s air freight volume to the United States fell 7.5 per cent in 2013 – at the same time air shipments from Brazil and South Africa to the United States were on the rise. Brazil’s ocean freight to the US also increased sharply. US ocean shipments to China fell 19 per cent.

Small countries – Oman, Cambodia, Paraguay, Bolivia and Qatar – posted big percentage gains off of modest ocean volumes to the US and EU.

March 2014 51

Warehousing

Warehousing for instant gratification Same-day delivery, sustainability and increasing regulation will all have an impact on the warehousing industry, but cost will still be a key factor for most companies says John H Boyd

F

or such a well-established industry, warehousing is experiencing a great deal of change of late. In fact, distribution and warehousing are at the leading edge of a number of trends affecting other key sectors like manufacturing, information technology (IT), sales, customer service and even the head office.

Among the leading-edge trends that are forcing companies to re-examine their warehousing and distribution center (DC) operations, three in particular stand out: same-day delivery, sustainability and increased regulation.

The push for same-day delivery Society is hungry for instant gratification. To satisfy that hunger, Amazon.com is on a quest for the “holy grail” of distribution - sameday delivery. The online retailing giant’s efforts can be seen in its recent decisions to locate warehouses in large and highly concentrated markets like California, New York and New Jersey in spite of less-thanstellar business climates and high operating-cost structures. Facing increased taxes from cash-poor states and the coming of a national internet sales tax, the web merchant has shifted its DC site selection strategy from locating its fulfillment centres in low-cost, small-market cities in the hinterland to one focusing on

52 March 2014

proximity to major U.S. population centres. By doing so, the company has set the stage for offering sameday or next-day delivery to a major segment of the U.S. market.

Other companies in the booming e-commerce sector, all wanting to advance their case against brick-andmortar retailers, will be following Amazon’s lead. Look for more DCs sprouting up in states like New Jersey, Florida, Illinois, Texas, and California in 2014.

Green leads the way

John H Boyd

considerably more “environmentally friendly” than over-the-road trucking.

Consider the fact that on average, rail can move one tonne of freight 476 miles on a single gallon of gas.

This is the equivalent of your SUV getting over 250 miles to the gallon.

The U.S. Environmental Protection Agency (EPA) estimates that railroads account for less than 10 per cent of all transportation-related CO2 emissions while also alleviating highway congestion. Rail could get even cleaner if it continues to move from diesel to liquefied natural gas (LNG).

The green movement is affecting not only the location of distribution centres but also what activities they perform and how they operate. For example, Hewlett-Packard (HP) and Dell have increased the reverse logistics activities at their distribution centres. They are now receiving and processing more outmoded electronics and print cartridges at their DCs in an effort to reduce the environmental impact of their products. These efforts minimise the amount of waste that ends up in landfills and help customers dispose of unwanted products in an environmentally sound manner.

In the past decade, sustainability and “green” principles have increasingly crept into the mission statements Locating DCs near a and core values of many corporations. rail terminal can help Those ideals are having The pressure of new shippers reduce their a direct impact on regulations where DCs are located, Another trend affecting carbon footprint by what activities they distribution centre operations perform, and how is the increase in legislation making it easier for they operate. and regulation. Given the rise them to incorporate For example, in costs and the pressure on sustainability and more rail transportation margins, over-the-road trucking green goals are driving costs will increase by about into the supply chain. forces behind the 6.3 per cent this year. That’s growing trend of up from a projected 5.5 per locating new DCs close to intermodal cent rise in 2013. As labour and fuel terminals. Locating DCs near a rail expenses push overall trucking costs terminal can help shippers reduce higher, more and more companies are their carbon footprint by making it choosing to use less costly intermodal easier for them to incorporate more services and locate their DCs closer to rail transportation into the supply intermodal terminals. chain. Rail is recognised as being One regulatory act that is receiving keen attention among our logistics

March 2014 53

Warehousing

clients is the U.S. Food-Safety Modernization Act (FSMA). This law will have major implications for any company that’s involved directly or indirectly with our nation’s food supply. To comply with FSMA, food-companies will have to produce a written food-safety plan, specific to each distribution centre, that outlines hazards, prevention, monitoring, verification procedures and a recall plan. Moreover, the U.S. Food and Drug Administration (FDA) will want to see proof that food was transported at the proper temperature throughout its journey.

Both transportation companies and distribution centres will need a product-tracing system that is capable of tracking temperatures.

Compounding the difficulty of FSMA compliance is the lack of vertical integration within the U.S. food supply chain, which is made up of multiple enterprises like producers, packers, transporters, processors, distributors, wholesalers and retailers.

Rarely are more than a few of these

54 March 2014

enterprises controlled by a single entity. However, in order for FSMA compliance to work, there needs to be a certain level of supply chain integration among these enterprises.

The intermodal sector will Intermodal assume a leadership role with respect to FSMA. Intermodal players will be players will be able to build able to build upon upon their experience with multiple supply their experience dealing chain parties to oversee this level of integration. As the dealing with intermodal sector assumes multiple supply this leadership role, those DCs that handle food will see chain parties to an advantage to being located oversee this level close to an intermodal facility.

Indeed, it’s important to note of integration. that perishable goods like produce, ice cream, frozen pizza and fresh fruits and vegetables are now moving intermodally at record levels.

Costs still rule Although regulation, sustainability, and same-day delivery will all have an impact on the warehousing industry,

the overriding issue has to do with cost containment. Bottom-line economics still rules the warehouse site selection process given spiraling fuel costs, a softened U.S. economy, continued uncertainty in Europe, and an ongoing credit crunch that is expected to stretch well into this year.

For many DCs, improving the bottom line on the cost side of the ledger is far easier than on the revenue side.

Even within the same U.S. region, operating costs for a typical DC can vary greatly by geography, and a lessthan-optimum location will result in higher costs that could compromise the company’s competitive position for years.

In many cases, energy and construction costs contribute greatly to the differences in annual operating costs. For example, annual costs for land and warehouse construction in the most expensive location, Los Angeles, total US$ 6.6 million, while those costs would be US$ 4.2 million in the least expensive location, Quincy, Washington. Similarly, energy costs in Los Angeles total US$ 2.3 million per year but only US$ 713,000 in Quincy.

It’s often possible for companies to address cost containment through their efforts to respond to the three key trends discussed above for example, locating close to intermodal terminals will help not only with sustainability efforts and compliance with food safety regulations but also with reducing shipping costs.

Similarly, locating in Quincy, Washington, as opposed to Los Angeles could be not just cheaper but also greener, as the area has a green energy source: low-cost hydro power from the Columbia River.

In today’s increasingly complex operating environment, distribution centres that can find ways to effectively respond to these and other industry trends while also containing costs are the ones that will find themselves on the path to future success.

y a d o t e ib

r c S Sub

R I S K M I T I G AT I O N

K U W A I T ’ S S T R AT E G I C I N S I G H T

V O LV O ’ S L AT E S T T R U C K S From farm to fork Right bite’s food chain

Equine transport

Prepping for Dubai’s racing season

Warehousing ENHANCING THE BUSINESS OF LOGISTICS

Rushing for same day delivery

52 46 42

UNWIND

March 2014 Issue 02

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2/3/14 21:58:17

TRuck

Safety first The new Volvo trucks range was recently revealed in Abu Dhabi at a unique launch event at the Yas Viceroy Hotel.

Top: Lars-Erik Forsbergh, President of Volvo Trucks for the Middle East, speaking at the launch of the new Volvo Trucks range Left: The new FH in action on Yas Marina Circuit during the launch of the new Volvo Trucks range

T

he Swedish manufacturers unveiled three new models – the FH, FM and FMX - all offering the highest standards of reliability, handling, timesaving features, fuel-efficiency, safety and driver comfort.

At the event, customers had the opportunity to test drive the new models on the Formula 1 Yas Marina Circuit, as well as a challenging, purpose-built off-road circuit constructed next to the Abu Dhabi waterways.

Speaking at the launch, Lars-Erik Forsbergh, President of Volvo Trucks for the Middle East, said,“The Middle East is an

56 March 2014

extremely important market for Volvo trucks, the FMX has been extensively tested in Oman and Saudi Arabia to ensure that it can tackle some of the roughest, most demanding, off road conditions in the world. So we are confident that the new Volvo trucks range will provide an unbeatable transport solution for customers right across this region, whatever their specific needs.”

The trucks are very advanced with features such as the ground-breaking Volvo Dynamic Steering, which delivers exceptional handling – pretty much like a car’s – in all operating conditions, as well as intelligent I-Shift

gearbox technology and the redesigned cab, both inside and out, with improved seating position, increased usable window area and an innovative rear-view mirror design, as well as a world-first in the truck world - a steering wheel with a neck tilt function.

“Our new trucks are the result of huge investment in research and development, new technologies, and aerodynamic designs. These innovative solutions have a clear purpose: to help improve truck productivity and durability, and consequently customer profitability, while making life safer and more enjoyable for the driver,”said Forsbergh.

Technology

In pole position – the new Volvo Trucks range is launched in the Middle East

The new FMX in action during the launch of the new Volvo Trucks range

March 2014 57

Trade

Eng. Mahmood Al Bastaki

Services excellence at

Dubai Trade Dubai Trade recently honoured top performers from the trade and logistics industry in their e-services adoption rates. Here’s a brief about the event

D

ubai Trade recently celebrated with industry colleagues at an eventful night at the Ritz Carlton DIFC. Held under the Patronage of H.H. Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Dubai Trade announced the winners of its sixth E-Services Excellence Award (ESEA) programme

58 March 2014

in recognition of their superlative contribution to the use of Dubai Trade Online Services.

The ceremony was attended by H.E. Abdulla Al Saleh, Undersecretary – Foreign Trade Sector at the UAE Ministry of Economy, Mohammed Al Muallem, Senior Vice President and Managing Director, DP

World, UAE Region and Board Member of Dubai Trade, Eng. Mahmood Al Bastaki, CEO of Dubai Trade and more than 400 guests including heads of government departments and private sectors, dignitaries, Dubai Trade business units and a large number of businessmen and members of the media.

The ceremony started with Mohammed Al Muallem’s opening address welcoming the 6th ESEA guests and highlighting the leading role and growing status that the UAE is enjoying, alluding to its achievement in the trade and logistics field. He stated,“This celebration recognises the importance of Dubai Trade in empowering and enabling the supply chain through technology, which in turn drives trade in Dubai, the UAE and the wider region. We too are using technology to bring more efficiency for customers, with our new Container Terminal

The winners

3 under construction at Jebel Ali, which will be the world’s largest semi-automated facility. In pioneering large scale automation we continue to lead the industry and help realise our leaders’ vision of transforming Dubai into the frontline city of this century with smart systems using technology.”

The prestigious award, which is a Dubai Trade initiative, is organised annually since its inception in 2008 under its strategy of celebrating the successful partnership with Dubai Trade portal’s users and rewarding their excellence in e-Services adoption.

The nine winning organisations, whose representatives received the 6th E-Services Excellence Award for their top scores were: CMA CGM AND ANL (NE) L.L.C as Shipping Agent of the Year – Containerized Cargo, Naif Marine Services Co. as Shipping

Agent of the Year – General Cargo, Kuehne & Nagel L.L.C. as Freight Forwarder of the Year, E-Freight Int’l LLC as Clearing Agent of the Year, Arabian Automobiles Co. LLC as Importer of the Year, Cars 4 U FZD as Exporter of the Year, Spring Valley Trading Co (LLC) as Re-Exporter of the Year, Brothers General Transport (L.L.C.) as Haulier of the Year and McDermott Middle East as Free Zone Company of the year.

Appreciation awards were also granted to sponsors including Al Futtaim Logistics as Gold Sponsor, and Eros Group, Agility Logistics, Newage Software & Solutions, and Gulf Agency Company as Silver Sponsors.

Eng. Mahmood Al Bastaki had a word in the award ceremony and informed that the competition was very high in this cycle and the selection of the winners was a tough job

as the nominees adhere to the award criteria and standards.

In his speech, Al Bastaki highlighted the key achievements and projects that will further enhance and streamline trade and logistics practices. He also expressed his delight in informing that Dubai Trade recorded a robust growth including the number of registered companies that exceeded 90,000 companies wherein the year 2013 only an increase of 18,210 new companies was seen and the number of online transactions surpassed 16.9 million.

“In line with the direction set in by Dubai’s leadership; Dubai Trade has always been committed to boost the UAE’s status as a global hub for trade and strengthen Dubai’s position as the main gateway for international trade by providing the“soft”infrastructure for Trade and Logistics in Dubai.”Al Bastaki added..

March 2014 59

UNWIND

Trust and respect Matthias Hoewer, General Manager, SSI Schaefer Middle East, shares his management principles with Munawar Shariff in an informal chat What do they not teach you in business school?

The soft skills. Managing a team with more than a dozen nationalities with multiple cultural backgrounds in a corporate environment is not an easy task. Obtaining these skills through a university or business school is simply impossible. It is something you learn over a number of years and a process that never ends ... to be able to gather a feeling of how to manage difficult situations internally and externally.

Who is your role model? Why? I do not really have a role model as such but I do hold in very high esteem anyone with great experience in a certain field of expertise. In the first years of my career, I was lucky to have the chance to work in great teams both in Germany and here in the UAE with very experienced colleagues, many of them having more than 25 years experience in our industry. It is invaluable to work and learn in such an environment and then get the opportunity to take responsibility and lead such a team a few years later. Also today, being only 35 and 10 years in the logistics industry it would be foolish not to consider opinions and feedback from members of my team that have worked in the Middle East region for a far longer time than myself.

TRUST and control. Without trusting your employees to take decisions within their defined processes, a company from a certain size onwards will become very inefficient.

60 March 2014

What do you think is most important for being an effective manager?

TRUST and control. Without trusting your employees to take decisions within their defined processes, a company from a certain size onwards will become very inefficient. That being said, you constantly need to control and review these processes to react to the market and customer requirements. Processes, products and requirements are constantly changing and we need to adapt our way of management to these ever changing conditions.

How well do you handle stress?

What is your fool proof method of getting de-stressed?

Fingers crossed, I do handle stress very well! Even after a stressful 12 hour day, I can find the“off-switch” and relax for a couple of hours. The other important factor to de-stress is routine. When travelling I am a creature of habits, same hotels, same airlines, same agenda etc.

What do you find encouraging?

I’d say of course success is one of the most encouraging factors. This doesn’t necessarily have to be personal or financial success but if you reach a target that you set for yourself or towards your team, it gives you immense motivation to move to the next level.

What is your leadership style?

Earlier in my career I was always impressed by managers that led by example. If you are not willing to invest that extra 10 per cent yourself, it will be very difficult to push your team to the limits and beyond. So leading by example if the absolute key for me. The second very important component is respect towards your employees and team members. No matter which level of employment – construction worker or top manager – you can only gain respect by respecting others yourself.

How do you spend your free time?

I am a big live music fan and whenever I have the opportunity to see some great bands in concert you will find me on a plane to any possible destination on this planet. Locally I’m battling a couple of times a month to keep my handicap below 20, although with very limited success.

What is at the top of your agenda right now?

This interview!

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