Logistics News March 2016

In Focus: Iran

Face to Face

Transport: Shipping

The latest data and insight from the region’s newest market

The first in a new interview series with Logistics Executive

Riding the waves as economics bite

Connecting trade professionals with industry intelligence

March 2016

DERAILED How and why the UAE’s national rail network came to a halt

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Start 8 | News 16 | News Analysis

The latest emerging markets data explained

Contents

Features 20 | Cover Story How and why the UAE’s Etihad Rail project fell on tough times 26 | In Focus: Iran The latest data and insight from the region’s newest market 34 | Face to Face

The first in a new interview series with Logistics Executive

40 | Transport:

20

Shipping Riding the waves as economics bite

50 | Supplier News The latest innovations from industry suppliers 52 | Case Study: Jafza The numbers behind the new integrated facility

44

26

40

30 Logistics News ME | March 2016 | 3

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Editor’s Note Right on track

I

t’s full steam ahead on the rail puns this month as Logistics News ME takes a closer look at the GCC’s rail projects following the news in January that Stage Two of the Etihad Rail project, linking the UAE to Saudi Arabia and Oman, has been suspended.

While the news comes as a huge blow, it was little surprise.

The first part of the project, linking points within the UAE, ran well and completed to schedule. But when it came to linking to Saudi Arabia and Oman, official project updates dwindled while dozens of MoUs were signed, all with 2017 – the initial estimated completion date – drawing ever closer.

Many fingers have been pointed, but the most interesting of all is pointed at an entity which is yet to come into existence: a GCC-wide rail authority.

In a region where leadership – effective and supportive – has been key to achieving many ambitions, establishing a bipartisan authority to lead without politics or allegiance to any single stakeholder seems like the first thing to do.

An empowered and centralised body should have been charged with ensuring that each country’s plan was aligned to the same standards, fully viable and essentially, due to complete on time. Ultimately safeguarding that all six GCC states can reach the momentous goal of a unified interna-

tional rail network, on time and together.

Instead, all major decisions have been subject to up to a 12 month approval process as they pass through various entities.

At the mercy of process the UAE has fallen behind, with knock on effects for Oman and, to an extent, Saudi Arabia.

This month brought news that the ancient Silk Road was successfully, somewhat, revived between China and Iran, with a cargo train covering more than 10,000km in 14 days, a whole month less than the sea route from Shanghai to Bandar Abbas.

The ability create and maintain a GCC-wide multi-modal transport and logistics offering is now even more important.

Manners-Bell says the Iranian government has allocated $605mn to improve the country’s rail network, largely focused on projects which will facilitate the international flows of goods. China has also agreed to provide financial aid for the development of a 900km high-speed railway link between Tehran and Iran’s second city Mashhad.

These developments come as the shipping industry faces business conditions worse than those of 2008 and the likes of Maersk post a net loss of $2.5bn for 2015, further underlining how international connectivity through multi-model transport models, are the only way to retain competitiveness as a new economic era dawns.

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RHS Logistics Established 1910

news

In The NEWS Trade growth of 21% reported between Jafza and Korea Jafza and South Korea have experienced a 21% growth in trade, reaching volumes of $3.3bn in 2014, up from $2.7bn in 2014.

Korea, which currently ranks ninth in terms of trade in Jafza, is now looking to double the number, with Jafza inviting “more multinational Korean companies from all sectors to provide services to the local and regional markets”.

The comments were made in a meeting between Ibrahim Mohamed Al Janahi, deputy CEO and chief commercial officer and H.E. Heo Nam Duk, the Consul General of Korea to the UAE, at the Jafza headquarters last month.

The meeting, aimed at reviewing the cooperation between Jafza and the Republic of Korea, also explored opportunities to develop bilateral relations and contribute towards increasing the volume of trade and the smooth flow of goods and services.

Speaking on the occasion, HE Sultan Ahmed bin Sulayem, chairperson of DP World and the Ports, Customs and Free Zone Corporation said: “We intend to double the volume of trade with Korea over the next five years and invite more multinational Korean companies from all sectors to provide services to the local 8 | Logistics News ME | March 2016

Ibrahim Mohamed Al Janahi, deputy CEO and chief commercial officer a ‎ nd H.E. Heo Nam Duk, the Consul General of Korea to the U ‎ AE

and regional markets. Korean companies have always led large-scale projects and they will have a significant share of these projects that will be implemented in the coming years.”

He continued: “Jafza has become a milestone in the economic development of Dubai. Korean products have gained a reputation in consumer confidence due to

efficiency and quality. Those companies looking to extend and strengthen their market presence in the Middle East and Africa should benefit from setting up at Jafza.”

Over 57 Korean companies, including a number of prominent companies such as electronics giants Samsung, LG, Hyundai, Humax, Industrial systems, and Korea Express have their base in Jafza.

The volume of trade has doubled in terms of weight by more than twice in the past decade, rising from 194,161 kg in 2004 to 504,677 kg in 2014 and includes equipment, electronics, automotive, aircraft and transport equipment, foodstuffs, construction materials, plastic and rubber products, chemicals and related industries.”

Turn to page 52 for details of Jafza’s new development

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AL Futtaim to develop KSA logistics hub The UAE-based Al-Futtaim has signed an agreement with Saudi Arabia’s King Abdullah Economic City (KAEC) to buy a 325,400sqm plot along one of the world’s busiest shipping routes.

The area, situated in Industrial Valley (IV), will be used to develop a logistics and distribution facility, according to a company statement released last month.

The decision to invest in the Industrial Valley at KAEC was made in consideration of its position on the Red Sea coastline next to the King Abdullah Port, on what is one of the world’s busiest shipping routes, said Omar Al Futtaim, VC of Al-Futtaim.

“Our decision to invest in the Industrial Valley component of the visionary KAEC

development was made in consideration of the valuable strategic location it occupies on the Red Sea coastline and adjacent to King Abdullah Port on one of the world’s busiest shipping routes,” he added.

KAEC has so far attracted more than 110 leading national and international businesses, of which 20 are currently in operation and 30 are under construction.

Al Futtaim group has significantly expanded its business operations in recent years through a strategic acquisition plan and has entered a number of new territories, increasing its footprint beyond the GCC and greater Middle East to encompass South East and North Asia, Australasia, East Africa and Europe.

Truck appointment system activated at Sohar Oman International Container Terminal (OICT) has officially unveiled its truck appointment system (TAS) for its operations at Sohar Industrial Port Company.

“TAS includes new roads and dedicated truck lanes and brings us a step closer to making the entire logistics system more efficient in terms of our own operations and our customers’ supply chains in Oman,” said Albert Pang, CEO at OICT. The launch of the new system follows total investments made by OICT in the expansion of infrastructure at Sohar of over $184 million.

TAS will allow truck drivers to schedule collection and delivery of cargo at the container terminal in advance of their arrival through either a mobile app, a dedicated website, or an interactive voice response number.

“We continue to expand our container handling capabilities as part of our commitment to cater to the world’s largest container ships. At the same time we recognise the importance of facilitating smoother land transportation. The TAS system will enable us to do just that,” said Pang.

TAS will be available for use immediately and will serve logistics companies linking up with some of the world’s biggest shipping companies, including United Arab Shipping Company, CMA CGM and APL, which operate out of OICT.

Dun & Bradstreet risk report highlights Iran caution According to a report powered by Dun & Bradstreet, global supply chain risk is up for the second quarter in a row, standing at 79.3, almost twice the pre-financial crisis high of just 40.7 at the end of 2002.

MENA provided 9.1% of this risk in Q4 2015, a number which has stayed relatively consistent since the start of 2014. However, Iran’s reentry into global supply chains, will add both benefit and uncertainty to supply chain risk in the region the report found.

The report, the CIPS Risk Index, powered by Dun & Bradstreet and produced for the Chartered Institute of Procurement and Supply, added that Iran’s imminent re-introduction to global supply chains is encouraging cautious optimism for its logistics partners.

The country made the final preparations to comply with its nuclear sanctions deal at the end of 2015, with many sanctions finally lifted in January 2016. In the short term, Iran’s long standing logistical partners will benefit from an increased flow of goods and services in and out of the country.

Sam Achampong, General Manager, CIPS Middle East and North Africa said: “Dealing with a business culture which has been cut off from the world for so long, requires a set of skills often absent from procurement departments. Supply chain managers will need to understand the Iranian way of doing business and develop trusting relationships, often over an extended time period.

“Iran represents a once in a generation opportunity for supply chain managers to break into a new market. Ultimately, it will be having professionals with the right soft skills in the right places at the right time which will determine whether Iran’s re-introduction to the global trade flows will reduce or increase supply chain risk.”

Turn to page 26 for more analysis on the impact of a trading Iran

The Highlights • With $600bn worth of trade expected between Iran and China alone over the next ten years, the UAE is likely to be one of the trading hubs to benefit.

• Suppliers contributing goods and services to the civil aviation or automotive sectors will be the first to feel the advantages of Iran’s opening up, but working with the country will also pose unique challenges to supply chain managers.

• The domestic market in Iran is dominated by the influence of the clergy, the Revolutionary Guard and state institutions, while binding business agreements in Iran are traditionally made in person which may therefore have consequences for international trade through the country.

• With 9.3% of the world’s known oil reserves and 18.2% of proven gas reserves, the most significant impact could be felt on the commodities market. Higher levels of supply are likely to keep energy prices low for the foreseeable future, with the possibility that more expensive production techniques such as those deployed in the production of shale gas most notably in the USA, will be forced to halt production entirely.

Logistics News ME | March 2016 | 9

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Abu Dhabi Ports eyes 51% Emiratisation in 2016

ADP has unveiled more than 100 job openings for Emiratis, at Tawdheef, Abu Dhabi’s leading recruitment event for UAE Nationals. The drive is part of its efforts to achieve 51% Emiratisation in 2016, building on the 47% rate achieved in 2015. The company also detailed its tailor-made mentoring, training and development programmes to develop Emirati talent, at the three-day event last month.

RSA co-founder named Endeavor Entrepreneur

GCC investors eye ASEAN logistics market

Following the launch of a fund focused on logistics and industry in Asia, Guidance Investments has reported a surge in interest from GCC investors, who seek a “cautious investment and stable yields”.

Dr. Hasnita Hashim, CEO of Guidance Investments, said: “With a global market impacted by geopolitical tensions, a slowdown in emerging markets, rising interest rates and a declining oil market, investors are taking a more cautious approach towards the investment choices they make.

While most investors are shying away from high-risk funds, we have witnessed an increased demand from investors to proceed with opportunities that offer lower yield but secure more consistent, stable returns.”

Bahrain to host GCC Logistics Conference

The inaugural GCC Logistics Conference ‘Costs and Challenges’ will take place on March 30 and 31 at the Ritz-Carlton Hotel in Manama, following the growth of Bahrain as a logistics hub and the continued advancement of related infrastructure.

Ralf Jahncke, president and chief executive officer of TransCare, said: “Bahrain has recently liberalised the entire transportation and logistics market, everyone can settle here with hardly any restrictions.”

10 | Logistics News ME | March 2016

Abhishek Ajay Shah, co-founder and MD RSA Logistics, and board member at RSATALKE chemical logistics, has been selected as an “Endeavor Entrepreneur” by the Endeavor organisation, joining the UAE’s growing portfolio, of 15 entrepreneurs running 11 high-impact companies from various industries.

“This international panel caps off a great second year for Endeavor UAE and for our entrepreneurs. We are proud to have Abhishek join a great group of amazing entrepreneurs who are among the best in the world. The accomplishment, energy, and potential our entrepreneurs have demonstrated is amazing,”

said Endeavor UAE MD Noor Shawwa.

“Endeavor gives entrepreneurs like me an opportunity to develop as a leader and propel exponential growth. Needless to say I am thrilled to have been selected and my organisation and I look forward to working with the Endeavor team,” said Abhishek Ajay Shah, managing director of RSA Logistics.

In a bid to create a specialised service hub in the Middle East for the storage of dangerous goods, RSA partnered with German chemical logistics experts in 2013 and created RSA-TALKE. RSA has also started operations in Kenya and India to further its global presence.

Bahrain proposes unified GCC trucking insurance Bahrain Chamber of Commerce and Industry’s Transport and Logistics Sector Committee headed by board member Abdulhakeem Al Shemeri has raised the committee’s proposal to issue a unified insurance policy for the trucks covering all Gulf Cooperation Council (GCC) countries.

In a news report carried by the Chamber, Al Shemeri stressed the importance of the proposal and its prospect in streamlining the path of businesses in the transport and logistics sector, reinforcing the sector’s robustness, enhancing its contribution to the national economy, and augmenting trade and business activities amidst the GCC countries.

He also pledged to raise the proposal to relevant bodies, including the Central Bank of Bahrain and insurance companies, to probe its implementation.

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Aramex announces 5% growth in 2015

The highlights from Aramex’s announcement of its 2015 full year financial results for the year ending 31 December 2015 • 2015 revenues increased by 5% to AED3,837m, compared to AED3,643m in 2014 • Revenues in Q4 increased by 5% to AED1,003m, compared to AED957m in Q4 2014.

• Operating profits increased by 1% and net profits decreased by 2% • Exposure to major currency fluctuations, primarily the Euro, South African Rand and Australian Dollar, had a 4.4% negative impact on full year revenues, which would have resulted in an increase of 9.4% in total annual revenues and 8.5% increase in Q4 revenues.

• The company’s 2015 Full Year Net Profits decreased by 2% to AED311m, compared to AED318m in 2014. Q4 net profits reached AED57.6m, which represent a decrease by 36%, compared to AED89.4m in Q4 2014. This decrease is due to a one time provision to account for an employees’ incentive scheme in order to retain and reward talented and senior executives, in-line with international best practices.

• Excluding this scheme provision, Aramex’s Q4 net profit would have been approximately AED104m, which represents 16% growth over the same quarter last year. Also, full year net profit would have been approximately AED358m for the year 2015, which represents 12% growth over year 2014.

• Aramex’s Logistics and Supply Chain Management decreased by 2% in Q4 reading AED52m, with full year revenues growing 4% to AED 206 million.

• Freight Q4 revenues decreased slightly by 5% to AED298m, and full year revenues down 3% to AED1,203m. Despite growth in volumes, Freight revenues were affected by lower selling rates driven by lower oil prices and global currencies fluctuations.

Commenting on the results, Hussein Hachem, Aramex CEO said: “We had another strong year and we are very happy with our 2015 results.

Despite global economic uncertainty, substantial drop in oil prices and currency fluctuations, our 2015 performance was very solid in revenue 12 | Logistics News ME | March 2016

growth, primarily in international and domestic express, led by continued expansion of our e-commerce business across key growth markets. Aramex has also achieved solid growth across its geographies, with the GCC remaining the largest contributor to revenues in 2015. ”

Abu Dhabi eyes 8% non-oil growth

Abu Dhabi is reportedly targeting non-oil GDP growth of 8% over the next 20 years through the development of the education, healthcare and logistics sectors, and with a renewed focus on fintech (finance and technology).

According to Abu Dhabi Department of Economic Development undersecretary Khalifa Salem Al Mansouri the emirate is “on track for non-oil growth of between 6% and 8% for the next 20 years”.

Abu Dhabi Global Market chairperson Ahmed Al Sayegh said the capital’s financial free zone was aiming to become the regional financial technology hub.

“Our intention is to promote Abu Dhabi as the fintech hub in the GCC in partnership with key stakeholders,” he has been quoted as saying. While fintech is expected to cause a significant level of disruption to the banking industry, which could be detrimental to Abu Dhabi’s plans to create a strong financial hub, globally it is estimated to reach values of $8bn by 2018.

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Tiger scoops top prize at lndo-UAE Business Summit Tiger Logistics (India), took the prize for World’s Greatest Brand, 2015 Asia & GCC, at the lndo-UAE Business Summit awards.

The award ceremony was held in Jumeirah, Dubai as part of the two day conference.

Knight Frank Wealth Report 2016 Dubai’s positioning as a global hub for financial services, logistics, hospitality and trade, has placed it above Shanghai, Paris and Sydney, in Knight Frank’s 2016 report.

2. New York

US cuts Logistics jobs

Logistics firms in the US reportedly cut 5,300 jobs in February 2016, contrary to the current uptick in the US employment market.

Railroads lost 2,900 jobs as they cope with the commodities downturn and courier hiring fell by 4,000 in an apparent post-holiday hangover.

The overall economy added 242,000 jobs in February, but there are ominous signs for the transport sector in the numbers, according to a report in the Wall Street Journal.

1. London 4. Hong Kong

3. Singapore

FRA Pharma takes place in Frankfurt

Air Cargo Community Frankfurt presented the broad range of services for the shipment of pharmaceutical products by airfreight at Frankfurt Airport to BVL International (the German Logistics Association) in the Rhein-Main region, to 80 participants at FRA Pharma “Specifically, the pharmaceutical industry has the most demanding requirements for airfreight. Many shipments are of very high value and extremely temperature sensitive and they often have to get to their destination quickly,” says Joachim von Winning, executive director of the Air Cargo Community Frankfurt.

“Frankfurt has an innovative world-class service offer that stands for speed, safety and reliability. This is what we want to make better known with ‘visit FRA pharma’. I am therefore all the more happy about our good partnership with BVL. Thanks to their support we were able to welcome a lot of its members to ‘visit FRA pharma’”.

5. Dubai

6. Shanghai

7. Paris

8. Sydney

9. Beijing

10. Geneva 14 | Logistics News ME | March 2016

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N E W S A N A LY S I S

BEHIND THE NUMBERS: EMERGING MARKETS INDEX 2016 Following the publication of the Emerging Markets Index, Logistics News ME caught up with Bassel El Dabbagh, Abu Dhabi CEO, Agility, to discuss driving factors and new territories THE USUAL PLAYERS FEATURE AS “POTENTIAL FOR INVESTMENT” INCLUDING CHINA, INDIA AND UAE. WERE YOU SURPRISED TO NAME VIETNAM IN THIS LIST? In consideration of Vietnam’s proximity to China, its maybe not such a surprise to see it so high on the list of emerging market prospects for investment, as we have been seeing a growing trend of companies increasingly locating their manufacturing hubs in Vietnam over China due to pricing. The labour force in Vietnam is similarly more competitive than China, providing added incentive to choose it as a manufacturing hub over its neighbour.

The increasing levels of FDI Vietnam is attracting as a result, coupled with strong growth over recent years and a growing population, combined with the size of the market, make for favourable prospects.

IN THE REPORT, MALAYSIA IS CREDITED WITH BEING “BEST CONNECTED”. WHICH ELEMENTS OF INFRASTRUCTURE ARE STRONGEST AND WHAT DOES THE COUNTRY STILL NEED TO FOCUS ON? Malaysia has invested significantly in its infrastructure, transforming it into one of the best connected markets of Asia. From its rail networks connecting its world class transportation hub Stesen Sentral, to its well-maintained highways, airports with well-developed air cargo facilities and finally its several sea ports which supports 90% of the country’s trade, all supported by first class telecommunications networks, have supported Malaysia’s number two position in market connectedness in this year’s EMI. Today Malaysia is a leading exporter of 16 | Logistics News ME | March 2016

N E W S A N A LY S I S

THE HEADLINE FINDINGS THE NUMBER ONE HEADLINE OF THIS YEAR’S EMERGING MARKET INDEX, IS THAT THE UAE, HOME TO THE POWERHOUSE ECONOMIES OF DUBAI AND ABU DHABI, IS RANKED SECOND IN THE EMI THIS YEAR, UP FOUR SPOTS. It ranks ahead of much larger economies, finishing second overall behind only China and, to put this into context, China’s economy is 25 times larger than the UAE’s; India’s five times the size; and Brazil’s six times larger. The ranking points to the success of the UAE government in creating an attractive business landscape predicated on multiple elements from infrastructure and connectedness to ease of FDI. THE OVERALL OUTLOOK ON THE GCC REGION IS POSITIVE, WITH IT HOME TO TWO OF THE TOP TEN COUNTRIES RANKED BY THE EMI (UAE RANKED AT NUMBER TWO AND SAUDI AT NUMBER NINE).

It offers some of the best business conditions in the world. Government policies of diversification and economic and business reform have helped bolster the ranking of the UAE, helping it leapfrog commodity dependent economies such as Saudi Arabia. Despite falling oil prices, many of the GCC states are well equipped to deal with the impact.

Security challenges rather pose the biggest threat to regional players.

electrical appliances, parts, components and palm oil. Thanks to the cost advantages it offers for manufacturers and producers, it is increasingly competing with China, helping to boost further growth and development. To ensure Malaysia’s continued place among emerging markets however it must focus on reducing its debt and ensuring a transparent business envi-

ronment devoid of corruption or scandal to continue to attract FDI. WHAT IS THE UAE’S ROLE IN THE GROWTH OF EMERGING MARKETS AND HOW, IN TURN, DOES THIS SUPPORT THE GROWTH OF THE UAE? The UAE’s achievement of reaching the number two spot in this year’s overall

EMI is a testament to the UAE’s successful policy of diversification, the development of world class infrastructure, successful positioning of the country at the cross roads between East and West, ease of conducting business, and finally strong consumer appetite. How does this help the growth of the UAE? Well in creating confidence in the UAE’s business enviLogistics News ME | March 2016 | 17

“To ensure Malaysia’s continued place among emerging markets however it must focus on reducing its debt and ensuring a transparent business environment devoid of corruption or scandal to continue to attract FDI.” Bassel El Dabbagh, Abu Dhabi CEO, Agility ronment the country will continue to attract more business to its shores, thereby attracting further FDI, helping to further diversify its business interest and all the while further boosting its population.

Combined with its positioning as a world class logistics hub located conveniently between East and West the UAE has driven ever more business opportunities. This can be most recently seen for example in the increasing trade from Dubai into Africa which is becoming a hub for the region. International companies are utilising it as a hub for delivery of goods into Africa, and even 18 | Logistics News ME | March 2016

taking over from the likes of South Africa.

THE MOST PROMISING TRADE LANES ALL START IN ASIA. WHAT DOES THIS MEAN FOR THE GCC IN TERMS OF THE COMPETITIVE ADVANTAGES IT STILL NEEDS TO CREATE? The GCC has been very successful, through its establishment of world class, multi-modal logistics hubs and ports, in becoming a leading trade hub thanks to its geographic position between East and West. Asia’s advantage over the Middle

East is of course its position as a leading manufacturing hub. From its large and competitively priced labour force and low shipping and operational cost, Asia still leads the way as a production base for many multinational companies.

Countries such as the UAE however are increasingly looking to develop their own manufacturing capabilities and are attracting multinationals with attractive free zones incentives, such as 100% foreign ownership. The country’s Economy Minister recently announced that the UAE is looking to grow GDP contributions to 25% up from 11% by 2025.

De-railed: The story of Etihad Rail

20 | Logistics News ME | March 2016

Cover Story

Following the suspension of tendering for Stage Two of the Etihad Rail project in January this year, Anoop Menon explores the potential next step for the UAE’s troubled rail network

I

n the afternoon of 26 January 2016, Etihad Rail, the developer and operator of the UAE’s national rail network, send out an email which confirmed what had been a source of considerable speculation: the suspension of the tendering process for Stage Two of the Etihad Rail project.

The email stated: “The Company has suspended the current Stage Two tender process whilst it reviews the most appropriate options for the timing and delivery of this phase of the project.” Stage Two involves connecting and extending the UAE rail network to the Saudi border at Ghweifat and the Omani border at Al Ain, and connecting the industrial hubs of Mussaffah, Khalifa Port and Jebel Ali Port in Dubai to the railway network.

Prior to suspending Stage Two, Etihad Rail had actually planned to retender it after spending almost two years evaluating the submissions of the initial project.

The announcement by Etihad Rail put a stop to the little momentum that remained on the 2,177km GCC Railway project. Weeks later, Oman’s Transport and Communications Minister announced that Oman may instead focus on constructing its domestic rail network owing to uncertainty over when the project will proceed.

Oman’s transport minister Ahmed Bin Mohammed Al-Futaisi told Reuters that his country would go ahead with the plan to connect the ports to drive exports instead of distributing imports around the region through the GCC network.

The member states have recognised that a multi-modal transport system is crucial to achieving the goal of successfully growing and diversifying economies; rail is a key part of their

vision statements. While the GCC Rail project had been plagued by technical, bureaucratic delays, what ultimately decided its fate was the steep slide in oil prices. With their budgets squeezed, the GCC states had started the process of prioritising the expenditure and reducing what they deemed as non-essential expenditure... and long-distance railway project shave been deemed just that.

Ebere Ihetu, MD and founder, ENA Consulting, a specialist PPP financial advisory firm, says: “This should not be seen as nonessential expenditure as this type of infrastructure constitutes the backbone of any multi-modal transport system which will in turn have the knock on effect of growing and diversifying the region’s economies. We must also consider the element of job creation and resultant multiplier effect on the economies.”

Footing the bill According to a Standard and Poor’s, low oil prices will constrain the amount of funding available to Gulf sovereigns and banks to support the region’s substantial infrastructure bill in coming years.

Standard and Poor’s credit analyst Karim Nassif says: “Gulf sovereigns are cutting in areas where they can afford to, or for what we consider to be non-essential infrastructure spending. Saudi Arabia, for example, reduced its 2016 transport and infrastructure budget by 63% from the previous year. This for us illustrates the challenge Gulf countries will face to pay for infrastructure through traditional sources, including government funding.”

Even funds for ongoing projects, such as the Riyadh Metro and Jeddah’s King Abdulaziz International Airport, are expected fall to $23bn in 2016.

Logistics News ME | March 2016 | 21

Cover Story “Despite the slide in oil prices, the GCC Rail project still has a future, and such heavy capital intensive projects can still be undertaken through appropriate project structuring and innovative financing techniques,” says Ihetu. “Once the key risks are effectively mitigated, these projects will attract private financing.”

Though low oil revenues did play a role in slowing down the GCC railway project, lack of co-ordination between the GCC states and overt focus on issues like immigration and standardisation, rather than commercial issues, contributed to the delay and, ultimately, to its postponement.

The strategic rationale for a GCC railway was that it would provide a secondary freight route, bypassing the Straits of Hormuz to enhance inter-GCC trade and development. Moreover, reports on crossborder freight transport by road being subject to delays of several days, has always made headlines.

However, when rail project-related discussions gathered pace at the end of the last decade, the global economy was still recovering from the financial crisis of 2009.

The weakness in global trade and the GCC rail’s emphasis on the freight component meant decision making hit the slow track.

Just when it seemed economic stability was returning, oil prices nosedived.

While freight can sustain long distance rail, it is important to understand that economic advantages only work for large scale bulk products over long distances.

Rail is capable of carrying almost any packaging type, including break bulk, solid dry bulk, liquid bulk as well as containers and even over-sized cargo. Moreover, freight must be integrated with marine and road networks which necessitates the development of intermodal freight terminals.

Andrew Hammond, director, Arabian Railway Company says: “The region’s mining, minerals and chemicals industries can certainly benefit from railways. You cannot have too many lorries on the road so railway networks will certainly be implemented.”

For example, intermodal freight depots – where freight can be transferred from ships to trains that transported the goods long distance, with roads coming in only for the last mile. Apart from logistical and environmental benefits, the technologies that go with intermodal systems like RFID and GPS, benefit the distribution network as well.

According to John Greaves, secretary general of the Last Mile Consortia (LMC), 22 | Logistics News ME | March 2016

Images released when Etihad Rail was announced

“We firmly believe that the original concept of a single, unified development agency with sovereign power across all of the state entities involved has once again proven to the component missing today” opportunity exists to revisit the existing rail plans.

“It is very difficult in this part of the world to scale up your industry due to transport constraints. We do have the sea but the sea is only around the edge. What we are really seeking is a super rail link that allows us to bring mega trains of products facilitating 15,000 tonne lots instead of 1,500 tonne lots,” he explains.

The last mile The concept of “the last mile” rarely came up during discussions about GCC rail.

While commodity exports are better served by rail, when it comes to imports and distribution, the last mile comes into play.

This also dovetails into one of the criticisms levelled against GCC rail: there isn’t enough inter-GCC trade because trade flows are largely export oriented.

Goods are taken from plant to port, or port to port, but trains would remain empty on the return journey, effectively increasing the cost of moving goods by rail.

For example, the economic focus of free zones is clearly exports taking advantage of the time zone and location of the region,

which clearly does very little directly for intra-regional trade. Moreover, according to data from UNCTAD, intra-GCC trade volume is a modest 3% of the overall GDP. In contrast, according to Eurostat data, intra-EU trade as a percentage of GDP stands at 40%.

Other GCC countries are also competitors in some respects. For example, Oman’s plan to link all its ports fronting the Indian Ocean to the GCC Rail network would have positioned the country as a true gateway to the Gulf. Goods could be offloaded much sooner than if they were shipped to ports inside the Gulf. But with other member states like the UAE and Saudi Arabia making substantial investments in their own port infrastructure, the competitive aspects would have come to the fore sooner than later.

The passenger component of the GCC Railway hasn’t been given due consideration. Long distance passenger networks can be a viable proposition provided they are positioned competitively against road and air travel. A GCC-wide passenger rail network would not only have created competition to the airlines but also allowed greater flexibility to regional travellers. There are also environmental benefits to be had from moving people from road and air to rail.

“The Gulf air carriers face significant challenges with airspace constraints so the only sustainable and environmentfriendly way out is rail. You can develop premium side to the passenger rail offering,” says Greaves.

Improving economics With governments in the region starting to take steps to reduce energy subsidies, the

The originsl plsnned route of Etihad Rail

economics of passenger travel could improve in the long run.

The stupendous success of Dubai Metro has shown that high population densities can create sustained demand for passenger rail. Though the region’s socio-cultural context made Dubai Metro seem like a ‘trophy project’ the results have proved the huge investments made, have delivered returns both from an economic development and sustainability standpoints.

Hammond believes that the freight first focus of GCC Railway is still valid. He continues: “Freight takes Lorries off the road; it generates revenues for the rail companies which in turn generates jobs and income to develop passenger networks.

It will be quite some time before the passenger trains in this region will be making a profit to repay the investment. So what we need is a road to rail and policy.”

“What we are really seeking is super rail link that allows us to bring mega trains of products facilitating 15,000 tonne lots instead of 1,500 tonne lots” With the GCC transport ministers scheduled to meet in Riyadh this month to fix a new deadline for the GCC railway, they have their work cut out. There is still little clarity on commercial issues associated with ‘above rail’ operations like the setting of fares and tariffs or who will operate the trains.

But the biggest drawback for a project

of this scale has been the absence of an empowered and centralised GCC railway authority. Currently, major decisions related to the project need to get clearance from the transport and finance ministerial committees in the GCC secretariat and ministry of foreign affairs of each member state, a process that can take up to 12 months.

“We firmly believe that the original concept of a single, unified development agency with sovereign power across all of the state entities involved has once again proven to the component missing today,” says Greaves.

Last reported, the GCC Secretariat General had endorsed the execution of a study on forming such an authority. The study would assess its mandate and organisational structure, its scope of work with the existing authorities in

KUWAIT

QATAR

BAHRAIN

At the start of 2015, Kuwait announced it had completed prequalification of consultants for engineering design of its $6bn network, reaching 574km and connecting Kuwait and Saudi Arabia. Construction was expected to start in 2016 so that the lines become operational in 2018.

Recently, the cabinet has asked the Public Authority of Agriculture Affairs and Fish Resources (PAAAFR) to take steps to deliver the land for the railway project to the Ministry of Communications. Kuwait’s five year development plan includes the construction of both the $20bn metro system and the national railway network.

Last year, Qatar Rail issued several tenders for Phase 1 of Qatar’s part of the GCC railway, linking the country with Saudi Arabia and Bahrain.

Phase 1 consists of design and construction of an operational slab track railway using diesel rolling stock with the freight services linking Abu Samra with Doha Intermodal Freight Yard, New Doha Port Container Terminal and Mesaieed Port. Qatar Rail issued prequalification tenders for Project Management Consultancy Services, Design and Build and Civil Works. Of these, only the prequalification for the Design and Build has been completed. The design consultancy services contract for the project was awarded to a joint venture of Parsons and Systra in 2014.

Last year, Bahrain announced that it had awarded the study on $10bn Saudi Arabia-Bahrain rail link to SNC Lavalin. The 87 km line would be built on a new causeway parallel to the existing causeway, over two routes

24 | Logistics News ME | March 2016

SAUDI ARABIA Last year, a report by Saudi Gazette, quoting Mohammed Khaled Al-Suwaiket, president of the Saudi Railways Organisation (SRO) said Kingdom will implement its part of the project in 2016 by constructing the rail roads from Al-Batha in Riyadh in the south to Al-Khafji in the north. The longest segment of the GCC Railway - 663km - falls in Saudi Arabia.

Cover Story member states, and the objective of ensuring successful implementation of the railway as a regional, integrated and interoperable project.

So far, the GCC states have agreed on Detailed Engineering Design (DED) guidelines, while operations, institutional and regulatory requirements, and the master procurement schedule, are yet to be finalised. Agreements have been reached on technical interoperability, the concept of origin/destination, a common safety handbook and access charges.

The mandate from the GCC Summit was to promote a regional railway, which not only links all the member states but also integrates with their existing and planned railway networks. Given the economic scenario, the GCC states are more likely to focus on their domestic rail networks than on their long distance lines.

Not surprisingly, metro projects in Doha, Dubai, Jeddah, Makkah and Riyadh are making relatively rapid progress compared to long distance railway projects. Governments in the region see metros as a viable mode of public transport in the context of growing traffic congestion and pollution in their key cities.

According to MEED Projects, of the $61 billion worth of projects under construction in the region, more than $40 billion comprise work on the Doha and Riyadh metro schemes. Other metro schemes in the pipeline include the estimated $11bn Mecca metro and the $13bn Jeddah metro. Bidding is ongoing for the extension of the Dubai metro’s Red Line to link it with the site of the Expo 2020 development.

OMAN Oman has announced that it may decide to go ahead with domestic rail network following the suspension of Stage 2 of Etihad Rail which would have connected Oman via Al Ain to Saudi Arabia. Oman Rail had shortlisted three consortiums for the Segment 1 of the 207km stretch from Sohar Port to Buraimi. In January this year, Oman invited consultancy firms to bid for the contract to study the acquisition of land for the 240-km Segment 2 of the national rail network, connecting Buraimi and a proposed special economic zone (SEZ) in Dhahirah.

H.E. Dr. Nasser Al Mansoori - CEO of Etihad Rail

If the GCC railway is to become operational by 2020, an empowered GCC railway authority is crucial to getting the member states to coordinate their plans. And if countries move ahead with their domestic networks without a proper integration plan in place, technical challenges and economies of scale could suffer.

“Cost per tonne to manufacture, cost per kilo to deliver, cost of getting people to and from work. If you can maintain or reduce that cost level, you stabilise more than just economic factors, you stabilise people’s lives. You give them certainty, assurance, fidelity to their future,” Greaves states.

Moreover, the GCC states are looking to change the ways things are done in light of

the decline in oil revenues, such as the now confirmed introduction of VAT, the recent removal of fuel subsidies, the raising of utility tariffs – there is no reason, therefore, not to revisit the railway as well.

Hammond said: “This will be a region which will have the latest in rail technology as one integrated cross border network.

This will be hub where it is all working, which means we can export expertise to Europe and rest of the world.”

Ihetu added: “There is also an opportunity to revisit the plans that were developed years ago. Why don’t we just take a look at that book and ask ourselves if the rules are the same, the stats are the same. Why don’t we take a relook at the route?”

Fact Check: How Etihad Rail was planned COST: The total investment is estimated at around AED40bn (for the core national mixed-traffic network) DELIVERY: To be delivered in multiple phases with the first commercial service to start in 2013 LENGTH: The network is estimated to extend up to 1,200 km NETWORK: Will connect the Emirates and will link the UAE to Saudi Arabia via Ghweifat in the west and Oman via Al Ain in the east ENERGY: Diesel traction with the option to electrify SPEED: Freight trains at speeds of up to 120 km/h; passenger trains at speeds of up to 200 km/h GOODS: Bulk freight (quarry products, steel, cement, etc.) and containers for general freight SPECIFICATIONS: The network is mainly double track, designed for mixed-traffic, equipped with an in-cab European signaling system (ETCS level 2), is of standard gauge, and will be built to accommodate twin stack containers

Logistics News ME | March 2016 | 25

In focus

Iran comes in from the cold

26 | Logistics News ME | March 2016

In focus

The re-emergence of an economy with 80 million people could provide opportunities for Gulf-based logistics firms…..but they must tread carefully.

Jason O’Connell writes

N

o sooner was the ink dry on the agreement to lift international economic sanctions on Iran last year, than international companies of every shade began to mobilise in anticipation of tapping into the rich economic potential of a market that is home to 80 million people.

Officials from Iran and the P5+1 (the five permanent UN Security Council members, plus Germany) announced on 14 July 2015 that they had reached a deal concerning the Islamic republic’s nuclear programme. The agreement, known as the Joint Comprehensive Plan of Action (JCPOA), will significantly limit Iran’s nuclear capabilities for 15 years in exchange for relief on sanctions, which were lifted on 17 January this year after Iran complied with all conditions.

Some of the most recognisable brands in the world - including US giants Apple, GE, Boeing and Coca Cola - have spent the past few months gearing up for their entry into Iran in anticipation of the spoils on offer, and no wonder. With vast natural resources, a large and growing middle class, a well-educated workforce and a diversified manufacturing base, Iran presents considerable opportunities for foreign companies, especially those looking to move early.

The figures being mentioned are huge. Iran is looking to attract as much as $50bn in direct foreign investment in the coming year alone.

Shortly after sanctions were lifted President Hassan Rouhani led a 120-strong delegation on a whistle stop tour of major European countries in a bid to woo some of the biggest names in industry, with very promising results.

Chinese, Indian, Japanese and Korean companies are no less interested.

For these companies to operate effectively they will need to develop supply chains that can deliver goods efficiently, paving the way for international and regional logistics firms to reap the rewards of Iran’s return to the international fold. However, having been frozen out of the global economy for some time, Iran is going to require considerable

investment to modernise its transport infrastructure. And there are still risks involved for companies seeking to do business in the Islamic Republic.

A new regional hub?

From a logistics and transport point of view it is Iran’s potential as a major international hub which is most exciting, according to John Manners-Bell, chief executive of Transport Intelligence. “Iran offers alternatives to conventional shipping routes between Asia and eastern Europe and the CIS countries,” he says. “In by-passing the Suez Canal considerable time – and money – could be saved, utilising rail and short sea shipping across the Caspian Sea. Some estimates put the time savings at as much as 40% and cost savings at 30%.”

This will however rely on significant investment in Iranian ports on the Persian Gulf. Its largest port in Bandar Abbas in the south of the country cannot come close to accommodating the world’s largest containerships and hence transhipment is required in Dubai. In fact DP World, which operates the port of Jebel Ali in Dubai, has indicated it is exploring opportunities to invest in Iran’s ports in the Gulf and the Caspian Sea where it already has port operations in Kazakhstan. While Dubai will obviously benefit from the lifting of sanctions on Iran in the short term, in the long term it risks losing some business to the country says MannersBell, however he adds this shouldn’t be overstated as “Dubai has already made the investment, has world class logistics infrastructure in place, and is an open, transparent location in which to do business.”

Shipping lines are also at the forefront of exploring opportunities, says Manners-Bell.

Maersk, MSC and CMA CGM, the world’s top three containerlines, are looking at port and shipping investments. French liner giant CMA CGM and Islamic Republic of Iran Shipping Lines (IRISL) signed a landmark cooperation agreement at the end of January covering

Logistics News ME | March 2016 | 27

In Focus capacity sharing, joint route operations, and cooperation in using port terminals.

As well as investment in ports, rail infrastructure is a priority. Manners-Bell says the Iranian government has allocated $605mn to improve the country’s rail network, largely focused on projects which will facilitate the international flows of goods. In February a cargo train travelled 10,400km from eastern China via Kazakhstan and Turkmenistan to Tehran in only 14 days, a whole month less than the sea route from Shanghai to Bandar Abbas. The line is part of the ancient Silk Road connecting the east to Europe and the Mediterranean Sea. China has also agreed to provide financial aid for the development of a 900km high-speed railway link between Tehran and the northeastern city of Mashhad, Iran’s second-largest city.

Iran signed a memorandum of understanding with Italy in February to develop its railway network. The agreement covers some $5.6bn of work to be carried out by Italy’s state-owned rail company, Ferrovie dello Stato (FS). It followed a similar agreement signed with French company Alstom in January.

Iran is also looking to update its fleet of ageing aircraft and has signed a deal with Airbus to buy 118 planes worth around $25bn. The order comprises of 73 wide body and 45 narrow body jets, including 12 A380 superjumbos. Not wanting to be left behind, US manufacturer Boeing has received clearance to open negotiations with Iran over a deal for its jetliners.

French firms have signed preliminary deals to expand and modernise major airports in Iran. Construction contractor Vinci penned a further MoU for the expansion of Mashdad and Isfahan airports, the second and fifth busiest airports in Iran respectively. Aeroports de Paris (ADP) and Bouygues Batiment International also signed an MoU for the development of the Imam Khomeini International Airport in Tehran. The project involves the renovation of the existing terminal and the design, construction and operation of new terminals to raise the airport’s capacity from 6.5 million passengers per year currently to up to 34 million by 2020.

On the road haulage front, Daimler has signalled its re-entry to the Iranian market by signing letters of intent with joint venture partners in Iran. The German firm intends to tap into the huge demand for trucks in the country by cooperating with Iran Khodro Diesel 28 | Logistics News ME | March 2016

(IKD) and Iran’s Mammut Group to produce Mercedes-Benz trucks and powertrain components in Iran. There are also plans for Daimler to return as a shareholder in the former engine joint venture Iranian Diesel Engine Manufacturing Co. (IDEM). Daimler sees eventual demand for its trucks in Iran rising to 40,000 per year compared to the 10,000 per year it sold prior to exiting the country, though the company expects stiff competition from Chinese competitors which remained active in Iran during the sanctions era.

Risky Business According to the Chartered Institute of Procurement and Supply Risk Index produced by Dun and Bradstreet in February, Iran’s re-entry into global markets could be a big boost for regional supply chain providers. With $600bn worth of trade expected between Iran and China alone over the next 10 years, the UAE is likely to be one of the trading hubs to benefit, it adds. Sector-wise, suppliers contributing goods and services to the civil aviation or automotive industries will be the first to feel the advantages.

However companies looking to do business in the country need to do their homework if they are to avoid potential pitfalls. General manager of CIPS MENA Sam Achampong said: “Dealing with a business culture which has been cut off from the world for so long, requires a set of skills often absent from procurement departments. Supply chain managers will need to understand the Iranian way of doing business and develop trusting relationships, often over an extended time period.”

He added: “Iran represents a once in a

generation opportunity for supply chain managers to break into a new market.

Ultimately, it will be having professionals with the right soft skills in the right places at the right time which will determine whether Iran’s re-introduction to the global trade flows will reduce or increase supply chain risk.”

Control Risks strongly advises companies, particularly those with significant interests in the US and the Gulf Cooperation Council (GCC), to tread very carefully before jumping into Iran.

Despite the JCPOA’s implementation, companies considering business in and with Iran will continue to face sanctions risk, the risk consultancy warned in a recent report. This is because significant restrictions will remain on US companies and persons, certain sectors will continue to face US and EU sanctions, and over 200 Iranian entities and individuals will remain sanctioned.

Furthermore, the deterioration in the relationship between Iran and Saudi Arabia over the past year could have implications for some companies in the region, Control Risks says.

“Saudi has indicated that it will seek to limit trade ties with Iran given the recent termination of diplomatic relations between the two countries. Although the implications of this are still being worked out, it is a clear indication that companies with existing business interests in some of the Gulf Cooperation Council states can expect negative reactions to their attempts to do business with Iran.

Multinational companies should identify where their brand is most exposed to reputational challenges and take proactive steps to limit the impact of those challenges on shareholder value.”

In Focus

Iran’s Transport in numbers

$605m invested to improve rail network

Imam Khomeini International Airport in Tehran to be updated

Mashdad International Airport, second busiest in Iran, to be updated

Airbus to sell 118 planes worth around $25bn to Iran

In February a cargo train travelled 10,400km from eastern China via Kazakhstan and Turkmenistan to Tehran in only 14 days

$50bn direct foreign investment expected 2016

$600bn worth of trade expected between Iran and China to 2026

Isfahan International Airport, fifth busiest in Iran, to be updated Logistics News ME | March 2016 | 29

Event review

Trade dynamics

H.E. Jamal Majid Bin Thaniah, VC of DP World, explains how Dubai is a global pivot which strengthens global trade despite changing trends. Lorraine Bangera writes

In the last 15 years, the global trade has moved from east to west, dominating routes to a completely new dynamic,” said H.E. Jamal Majid Bin Thaniah, vice chairperson of DP World.

Thaniah expressed his views while addressing a keynote discussion at the first Commonwealth of Independent States Global Business Forum (CIS GBF 2016), held at The Atlantis Dubai on 17 February 2016.

He talked about Dubai emerging as a “global pivot” after establishing its two main ports, Jebel Ali Port and Rashid Port.

Through establishing itself as a trade hub, Dubai has enhanced the prosperity of the

30 | Logistics News ME | March 2016

UAE as well as the wider Middle East region.

Thaniah said: “A strong economic platform has been created in Dubai, and this will be central to driving the north south trade connecting the emerging markets in the southern hemisphere with Russia and CIS.” He states Dubai’s ports alone serve over two billion people in the wider region, with DP World achieving a throughput of 15.2 million TEU in 2014.

With the dynamics of trade constantly changing because of trade ties, politics and several other factors, Thaniah expressed how Dubai needs to stay on top of it all to stay ahead of the times.

He recalled trade patterns years ago were

dominated by west to east, but now is mainly focussed on east to west. “This is primarily driven by China emerging as a hub for low-cost manufacturing.”

He explained Dubai took on the pivot role because there was a “vacuum” that needed to be filled. “There was a need for an efficient platform in a strategic location, which was fulfilled

by Dubai establishing itself as a trade hub.”

Thaniah said: “If you look at global trade from 2008 to 2015, you will realise east to west trade is an exaggerated economy. The global economy is becoming very volatile.

“North to south trade, on the other hand, will emerge in the future.”

Though west to east trade has dominated the past, Dubai has knowingly embraced north to south transport to make sure it is up-to-date with the evolving trade trends.

Discussing the new opportunities in developing the north to south transport corridor, Thaniah highlighted three factors affecting global trade: trade barriers, transportation costs and the tariffs.

He admitted that these barriers will still exist but, according to him, CIS will play a major role in creating new solutions. “Dubai and Russia, along with the CIS will have strategies to develop a new trade system.”

He explained that emerging markets, in particular Africa, are the future. As the talks of a new Silk Road emerges, this would be the peak time to draw partnerships and invest.

He also stressed that Dubai could be of great value to emerging nations with its knowledge and willingness to serve. For example, he said that the UAE has already taken up an advisory role in Kazakhstan, as part of the same vision.

“This is an addition to the initial dream of connecting Western China, the West and the EU—which is now a reality.”

According to Thaniah, no matter which route – north south east or west – Dubai and the UAE are a vital trade route.

The UAE, he concluded, might be small but it is a small pool of efficiency.

Vi e w p o i n t

Agile Performance Management To review or not to review? The case for performance and change management and how to overcome the waning importance of the pay review, by Niharika Davar, consulting partner, Human Capital process? More and more organisations are coming up with a resounding “no”. A Deloitte survey showed that just 10% of respondents believe that the process is a good use of their time. In a world where uncertainty prevails with cycles of boom and bust getting shorter, the so-called time-tested annual goal-setting exercises and backward looking assessment processes no longer seem to fit.

As companies recognise that leadership, employee engagement, building capability and agility to respond to ever changing external stimuli are critical to success and survival, they also realise that effective performance management is a key lever. Done well, it can drive high individual performance and engagement, impact organisation results and be a process that individuals and their managers look forward to.

A fresh approach to managing performance is critical. The way forward is to keep the good bits of the traditional model and ditch the bits that don’t directly relate to improving individual performance and building capability. Companies leading this transformation are redefining the way they set goals, develop employees and assess performance. But what might this new agile avatar of performance management look like?

I

t’s that time of year again. HR departments are winding up their annual performance review cycles, trying to compile ratings and get decisions and approvals for annual pay increases – or not. The feverish activity most likely started a few months ago with emails and follow up chasing line managers to complete performance reviews, fill up forms online or on paper. The end goal quite often is to arrive at a set

32 | Logistics News ME | March 2016

of ratings that will form the basis for annual pay reviews. More often than not these end up being a small percentage of pay leaving many employees dissatisfied. Where then is the process serving to improve performance, motivate and engage employees or build capability to achieve organisational objectives?

Are the outcomes really worth the organisational time and energy that has gone into this

Agile and aligned goals Traditionally individual goals are set once a year on the basis of the annual business plan/financial budget. While the connection is somewhat nebulous and individuals sometimes can’t see where they fit into the big picture, let’s assume for a minute that the “cascading” of goals has been done well. In most performance management systems these goals cannot be changed and we might arrive at year-end review to find that a large part of the activity during the year

Vi e w p o i n t

has only a remote linkage to the set goals. In a world where the past no longer accurately predicts the future, the annual budgeting process has become somewhat akin to crystal ball gazing. While quarterly business reviews allow for course correction, individual goals remain static. A sure recipe for year-end confusion, gut feeling “halo” or “horns” ratings and loss of credibility for the process. In recent research, Deloitte concluded that companies who manage goals quarterly generate 30% higher returns from that process than companies who manage them annually.

How do we make the process agile?

Individual goals should be reviewed and adapted regularly to stay relevant and keep up with changing business needs, with a focus on approach and behaviours to deliver improved outcomes: the “how” to support the “what”.

While the high level purpose and outcomes of a role would remain the same, the measurable objectives need to change dynamically to respond to changing internal and external conditions. Individuals need to have clarity and alignment on the role they play in the business and understand the expectations of various stakeholders. Goals should be specific, collaborative and qualitative with financial/volume and activity targets serving as a point of reference for the best possible achievement.

Regular check-ins and frequent feedback Regular structured one to one conversations between manager and team members need to replace mid and end year reviews. The conversation should be a dialogue during which goals and progress are reviewed, challenges are discussed, and agreement reached on how to do better. The individual’s fitness for current and future roles, development needs, and progress are an essential part of the conversation. The manager acts as a coach, listening, reflecting and supporting the individual to come up with solutions to continuously improve performance and build for the future. Feedback should be real-time so that employees know how they are perceived and what they need to change.

Future focus An effective agile performance management process is forward looking with greater emphasis on growth and development for the business and individual rather than a post-mortem evaluation of the past.

Separated from compensation Performance conversations which happen once a year, with an end goal of providing a rating as input for a pay review, are not conducive to openness and honesty. Much of the time is spent talking about the ratings themselves sometimes deteriorating into a tug of war between manager and employee. They tend to drive alienation rather than collaboration within teams.

Companies that remove ratings are seeing the conversations shift from justifying past performance to thinking about growth and development. The result is better employee development, engagement and motivation. Performance ratings and forced ranking are going out of the window with a growing belief that reducing human beings to numbers or factors and forcing them into a bell curve is counter-productive.

Executing change The shift to redefining performance management as a continuous, forward-looking, agile process designed to improve results and support employees to be the best they can be is gaining traction. Large global organisations are leading the way, including Adobe, Accenture,

Microsoft and even GE, long seen as the leader in performance ranking and forced distribution.

It is seen as the next big move for HR whose role will change from driving and monitoring a year end form-filling and compliance process to facilitating high performance, developing managers’ coaching and feedback skills and providing real time support for just-in-time training and development.

While there can be no argument that agility, continuously improving performance and building capability are the need of the hour, the discussion is not complete without acknowledging that this also means a radical shift in compensation and reward practices. Interesting and exciting times ahead for HR! Niharika Davar has over 30 years of experience in HR across Asia Pacific, the Middle East North Africa and Turkey. She has worked in leadership roles with large global organisations including Royal Dutch Shell and DHL and is an expert in successfully enabling organisations to set up and implement best in class people processes and practices to significantly improve organizational effectiveness.

Logistics News ME | March 2016 | 33

Face to face

Turning up the heat In the first of a new interview series, Brian Cartwright, regional MD for Logistics Executive, catches up with Geo Therm’s Tony Dale to talk about the popularity of thermal imaging for logistics in the Middle East

I

recently caught up with Tony Dale the founder and MD of Geo Therm Ltd, a thermal imaging survey and condition monitoring company that was set up in 2002 in the UK and quickly grew into an international business.

In the early days the company was mainly servicing the oil and gas sector but in recent years, particularly in the Middle East, the firm is increasingly being asked to run surveys for logistics service providers and other organisations operating warehousing facilities.

Because of this I was very keen to speak with Tony to understand why thermal imaging surveys are becoming more important for the logistics sector in general and particularly why this is becoming so popular in the Middle East.

What types of thermal imaging surveys are you normally asked to complete?

The surveys requested have been mainly for cold storage warehouses where we are looking for temperature differences and basically air infiltration. Additionally, heavily automated facilities where compressed air is used to move parts and electrical panels to supply power. Basically we support companies in managing preventative maintenance programmes.

Is there a good example of a specific survey in logistics that you could explain?

Building integrity cooling was an issue for one of our existing clients’ XPO 34 | Logistics News ME | March 2016

logistics.

They operate temperature controlled storage facilities and a concern in many cold stores is air infiltration between each panel, creating internal snowing, ice wedge formation and product contamination, this also increases energy consumption as the refrigeration system works harder to maintain a set -20˚C temperature.

We map those areas affected by air infiltration and ice weight gain. We then flag them for repair or to create barrier zones in case of ceiling collapse. In the case of XPO we now undertake scheduled surveys, which means we provide regular cold store insulation efficiency scans to identify thermal anomalies in cladding, adversely effecting operational efficiency, energy use and product quality. XPO has since invested in our various technical equipment sensors which alert them via texts and emails about any immediate or unusual temperature differences.

You also mentioned automated facilities, how do the surveys work in this case and how does a company benefit?

Non-invasive inspections using a thermal image survey dramatically aid a facility manager’s ability to optimise their operational efficiency, as incipient problems can be measured without hindrance to the operation, enabling managers to identify overheating equipment early before it results in an unscheduled breakdown. We basically help a company to identify potential

equipment failures effectively preventing them from any unexpected surprises which could lead to shutting off critical systems, creating a back-log of orders and unhappy customers.

Do you think the need for preventative maintenance and in particular thermal imaging surveys is an area that is going to expand in logistics across the Middle East?

At this moment the Middle East is ripe for implementing thermal imaging into a facility’s management needs, however regional unrest combined with the accurate heat seeking sensitivity of thermal imaging has certain legal caveats. The technology and associated software cannot be exported to Iran and Syria in accordance with the United States of America Export Administration Regulations, since they could be used in the design, development, production or use of nuclear, chemical or biological weapons or missiles.

Nevertheless there are several thermal camera distributors in the Middle East providing a first class service offering the latest generation of hand held and stand alone thermal cameras to assist facility managers with their in-house maintenance and security needs.

As the technology and benefits become widely acknowledged new opportunities will undoubtedly arise, in particular to perform safe, non-invasive monitoring of electrical equipment to detect hot-

Face to face

At this moment the Middle East is ripe for implementing thermal imaging into a facility’s management needs

spots likely to cause system failure, fire and breakdowns, or perform security surveillance sweeps to inform of intruder alert or fire breakout in ports, airports and warehouse facilities holding millions of dollars of inventory.

The need is becoming increasingly prevalent as companies begin to revert back to the old ways of holding excess goods to buffer supply disruption in time of crisis. Operational disruption from equipment failure isn’t just years or months away – it can happen tomorrow, that’s why using a preventative maintenance strategy is vital to attain and manage logistical effectiveness. The question is will companies be ready to pay a small sum for a professional third party inspection or suffer the huge loss and indignation when disruption strikes.

Do you see any difference in how companies view this kind of thing in the Middle East as opposed to how it’s viewed in Europe?

Yes in Europe companies are opting for an independent third party inspection company to perform annual building and electrical thermographic surveys in order to comply with insurance prerequisites that are aimed at reducing risks associated with fire and consequential losses. I think it is just a matter of time before insurance underwriters in the GCC realise the virtues of thermal imaging and stipulate its use as standard practice in building facilities maintenance.

Brian Cartwright

Brian Cartwright is the Managing Director, Middle East and Africa for Logistics Executive Group, he has partnered exclusively with Logistics News to run a series of interviews with senior executives to uncover the facts and provide real time insight on what’s happening in the SC & Logistics sector across the region.

As a respected thought leader with extensive networks and knowledge of the Supply Chain & Logistics sector, he’s the ideal person to get the inside word on behalf of Logistics News.

We only have to recall the high profile fire at the Address Hotel in Dubai on New Year’s Eve to realise that one electrical short-circuit fault can destroy an entire building endangering the lives of many – all unnecessarily so.

In the logistics sector a regular topic is the importance of innovation. Are there any recent innovations in your industry that could benefit the logistics sector in this region?

Well actually yes, in March of this year I will visit the Middle East Electricity 2016 Conference at Dubai World Trade Centre where some of our suppliers will display the next generation of infrared inspection windows that have been purposely developed for the GCC market place and the harsh environmental conditions that exist across the GCC countries.

Due to the nature of electrical switchgear, 90% of components that an electrician or thermographer want to inspect are normally locked behind bolted panel covers, cabinet doors with switched interlocks etc, making it dangerous to safely remove and routinely inspect live switch gear during surveys.

Infrared inspection windows combined with our latest bolt-on gadget the Delta T AlertTM enable safe permanent visual and remote monitoring into energized electrical equipment without disturbing operations, so there is no shut down required. They can also be quickly retro-fitted into many types of electrical equipment such as switchboards, switchgear, transformers, MCCs and generator housings.

Logistics News ME | March 2016 | 35

Vi e w p o i n t

Research Laboratory (TRL), has uncovered a number of key developments expected to fuel and drive the transport industry this year. Here are the top findings…

Innovation to be further prompted by growing demand for shared mobility solutions The trend plays true to the growing preference towards paying for access instead of ownership. today’s industry is seeing the emergence of a new consumer trend which shies away from ownership as people now have expressed enthusiasm over trying out different types of transport for multiple purposes – whether taking a weekend away, commuting for work or moving house. As a result, car manufacturers and car sharing clubs, as well as public and private transport companies, are all racing to develop the next great innovation in shared mobility. It will be fascinating to see how this space evolves over the next 12 months.

The transport trends driving 2016 Akin Adamson, director Middle East, Transport Research Laboratory (TRL) highlights the automotive advances that will shape the rest of 2016

A

s 2016 rolls on, the United Nations has emphasised the continuing growth of the world’s population. In fact, one of their recent reports showed 54% of the global populace live across key urban areas, with a prediction that 66% or 6.3 billion people, will be in these areas by 2050. With a continuously growing population, we are bound to see the entry of more vehicles, which in turn is likely to result in increased congestion of our roads, more pollution, heightened stress and an endless list of unfavourable conditions.

36 | Logistics News ME | March 2016

Industry experts are calling for the development of key solutions and initiatives to help address this forthcoming challenge—urging for out-of-the-box and unconventional thinking to set the pace towards achieving sustainable mobility. As such, technological innovations are already playing a significant role in the move to improve the environmental, safety and cost performance of all means of transportation, whether individual or collective.

In our latest report, the Transport

Cyber security in the transport industry Cyber security is expected to take more prevalence this year with more manufacturers installing high-tech equipment at production and insurers offering more sophisticated aftermarket technologies. The move creates a substantial opportunity to deliver the benefits stemming from this big data increase. However, while it is clear that the majority of manufacturers and suppliers have robust systems in place, there will always be vulnerabilities in cyber-physical systems where the human element gets involved.

Urban areas to see emergence of more electronically assisted transport The Middle East region is currently witnessing a growing interest for electric vehicles. Despite making inroads in the UAE, there is still a lack in federal legislation covering use. Hybrid vehicles, electric-powered buses as well as electric cars have been plying UAE roads, particularly in Dubai, for the last few years but standards and specifications concerning the operation and maintenance are still missing. The UAE is the only country in the region that has some electric vehicle presence and, with

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Vi e w p o i n t

the vision of its leadership and drive for sustainable development, it could lead the region in low-carbon transportation.

Dubai has taken steps in this regard by beginning to set up electric vehicle charging stations but we would like to see the initiative taken up at the federal level, where there are no regulations and standards to govern electric vehicles. The emirate has spearheaded the drive to promote electric vehicles with the launch of EV charging stations as well as putting in place the mechanism and apparatus to inspect and register the vehicles, but the general ecosystem that is required for electric vehicles to compete with conventional vehicles has to be established across the country.

Adaptive restraint systems will start to make inroads in mainstream vehicles This year will see more manufacturers creating and introducing the market to adaptive restraint systems that are able to adjust to the occupant’s position and size.

These systems are already technologically possible, but as pressure to reduce road casualties increases and the vehicle market becomes more competitive, we can expect to see to manufacturers to move towards an adaptive and intelligent approach to vehicle safety.

The emergence of smart transport in the GCC region New urban challenges facing cities in the GCC provide an almost watertight justification for investment in smart transport solutions. Key focus areas could be advanced public transportation, car sharing and bike sharing, tolling and congestion charging, smart parking and traveller information systems. Smart Transport systems will have a major impact on the environment. Local governments are now tasked with attaining clearly defined sustainability targets, and these targets become ever more difficult to achieve as our reliance on petroleum-based modes of transportation increases. While Smart Transport cannot possibly hope to remove them all from the roads, it can play a huge role in reducing unnecessary emissions caused by idling in traffic or searching for parking spaces.

38 | Logistics News ME | March 2016

Technology to further drive industry regulatory changes Technology will continue to play an important role in the move to effect rapid improvements in vehicle safety. However, European manufactured cars have become so technologically advanced that it is becoming apparent that current safety regulations are out of date. These cars now exceed safety regulations by so much that, in 2016, we can expect to see steps towards

updating regulations to align with current vehicle technologies and to provide proportional cost effective solutions for today’s road safety challenges. We believe there is a very strong case to see some driver assistance systems become compulsory in new vehicles, such as automatic emergency braking (AEB) systems and driver distraction and fatigue monitoring technology, which promise to prevent collisions and mitigate injuries.

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In Focus

Tipping point for Tankers?

Middle East shipowners are facing a slowdown but analysts say the reemergence of Iran could help to buoy earnings. Jason O’Connel reports

I

t was plain sailing for Middle East shipowners last year but clouds gathering on the horizon suggest they could be headed for choppier waters as the tanker market is hit by an oversupply of vessels amid weak oil demand. That is unless the re-entry of Iran into the oil market could provide a welcome shot in the arm for owners, which some analysts believe is a distinct possibility.

The Middle East shipping fleet is dominated by tankers which transport

40 | Logistics News ME | March 2016

the crude oil and petrochemicals produced in this region to markets around the world. Tanker owners have mercifully escaped the recent agony suffered by their counterparts in the dry cargo segment, which has seen huge financial losses due to the double whammy of a slump in demand and oversupply of vessels.

In contrast it’s been full steam ahead for tanker shipping. Vessel utilisation and charter rates have remained buoyant

as producers, led by Saudi Arabia, have continued to pump oil over the past 18 months, even in the face of weakening global demand and plunging prices.

Buyers have taken the opportunity to replenish their inventories with cheap oil which has helped to keep tankers busy.

Cheaper bunkers, the heavy fuel oil that powers ships and the single largest cost component of shipping, has further boosted earnings for tanker owners.

Financial reports show that 2015 was a

In Focus

good year for some of the most high profile shipowners in the region, with profits rising and share prices outperforming weakening Middle East stock markets. Qatar Navigation (Milaha) delivered a net profit of $263.4m for the first nine months of 2015, a 17% increase compared to the same period of 2014. The company’s fleet of gas and petrochemical carriers saw net profit grow by 18% on the back of robust charter rates from its fully owned and operated product tankers and gas carriers as well as from its investments in associates.

National Shipping Company of Saudi Arabia (commonly known as Bahri) reported a huge jump in full year net profit of $485m versus SAR 533.84mn in 2014. While this was mostly down to the completion of its merger with compatriot Vela Marine International and an increase in its fleet size, the company also cited a rise in charter and vessel utilisation rates and a drop in bunker prices as the reason for the improved showing. Following the merger Bahri has a fleet of 75 vessels, including 33 very large crude carriers (VLCCs) and 26 chemical tankers.

Things have even begun to look up for beleaguered Dubaibased tanker owner Gulf Navigation which returned to profit recently following a period of steady losses amid huge debt. Its net income reached $4.26m for the nine-month period ending September 30, 2015. This was more than double the profit posted during same period of 2014. The reversal of fortunes follows the settling of a legal dispute with another shipowner and the company appears to be making headway with its financial restructuring.

Is the party over?

The current situation might not last much longer. According to global shipping consultancy Drewry, tanker shipping rates are set to decline from the highs seen last year as the trade in crude oil tails off due to ample replenishing of inventories in overseas markets. Charter rates will also come under pressure as new ships ordered two to three years ago begin to enter the market.

In other words, there is a danger that the tanker market could go the same way as the current market for bulkers unless the flow of oil recovers and owners rein in spending on new vessels.

Storage activity in both the crude and products sectors has increased substantially in the second half of 2015, leading to a number of vessels serving as floating storage because landbased storage was either full or too remote. Orders for new vessels has also picked up strongly and Drewry expects the upsurge in deliveries and return of vessels from floating storage to cap freight rates as vessel utilisation rates decline with increased fleet supply.

“Vessel owners need to moderate newbuilding activity as sustained high ordering activity risks adversely affecting tanker vessel earnings over the next five years” Rajesh Verma, Drewry’s lead analyst for tanker shipping, said in a recent report.

The Middle East is the largest exporter of Liquefied Natural Gas (LNG), most of it produced by Qatar. Nakilat, the shipping arm of state-owned Qatargas, owns the world’s largest fleet of LNG ships with full or part ownership of 67 vessels. The company posted a net profit of $208m for the nine months to 30 September, an increase of 9% as compared to the corresponding period of 2014 as it took delivery of new ships.

Fleet Profile: GCC plus Iran and Iraq According to Craig Jallal, senior data editor at online ship search, valuation and mapping service VesselsValue.com, there are currently 939 vessels with a value of $28bn in the GCC plus Iran and Iraq. The majority are owned by UAEbased companies controlling a total of around 450 vessels, but as can be seen from the table, regional values are skewed, with the much smaller Qatar fleet having a market value at $8bn (see table: GCC Owned Fleet). This is due to the high-value LNG vessels that comprise the bulk of the Qatar fleet.

When it comes to the orderbook, the GCC region plus Iran and Iraq is relatively conservative compared to the global fleet. The current orderbook amounts to approximately 4% of the current fleet by number, compared to a global average of orderbook to fleet of around 15%. However, in Dollar terms, the GCC plus Iran and Iraq orderbook is around 10% of the current fleet, which reflects the relatively higher added value of some of the vessels on order.

The tanker sector dominates GCC plus Iran and Iraq which has a market value of $11.6bn. While Bahri is the largest native GCC tanker operator currently active in the region (see table: Top GCC Tankers Owners by Value $m), all eyes are on the return of National Iranian Tanker company (NITC) VLCCs to the market. After four years of sanctions, the NITC VLCC fleet was allowed to re-enter the global tanker market in mid-January 2016. Presanctions, the NITC fleet of VLCCs was one of the largest fleets in operation, and according to tanker brokers, had a significant influence on the VLCC market. Following the imposition of sanctions, NITC dispersed the fleet, and played a game of hide and seek with some of the VLCCs changing names or allegedly changing ownership.

However, the general perception was that the majority of the VLCCs were on storage duties during the sanctions era, with only a few engaged in shipping oil to Iran’s nonsanction compliant trading partners in the Far East.

VesselsValue.com has analysed the historical activity of the NITC VLCCs, using VV@, which is a module in the internet-based VesselsValue package that displays vessel movements. This analysis shows the NITC VLCC fleet has been active over the last twelve months (to end January 2016) at four distinct levels. Six VLCCs have been active on consecutive voyages between Iran and China, which did not sign up the US-led sanctions. Another group of NITC VLCCs also delivered cargoes to China, but on a less frequent basis, while a third tranche of VLCCs only made a single voyage. Finally, there is the group of 12 NITC VLCCs that appear to have been employed in storage off the coast of Iran. The conclusion is that the NITC fleet was far more active during the sanction era than assumed, and has capacity to ramp up deliveries relatively quickly using those VLCCs that it kept active during the sanction era.

In Focus

GCC plus Iran and Iraq Fleet Live

On Order

Country

Number of Vessels

Total Value $M

Number of Vessels

Total Value $M

Number of Vessels

Total Value $M

UAE

1,016

$7,197

39

$856

1,055

$8,053

Qatar

67

$7,958

1

$2

68

$7,960

Saudi Arabia

239

$3,929

22

$1,236

261

$5,165

Kuwait

84

$4,096

6

$782

90

$4,878

Iran

178

$3,426

1

$16

179

$3,441

Oman

45

$2,408

6

$231

51

$2,639

State of Qatar

13

$2,053

-

$-

13

$2,053

Iraq

12

$111

-

$-

12

$111

Bahrain

26

$104

-

$-

26

$104

Grand Total

1,680

$31,282

75

$3,124

1,755

$34,405

Drewry predicts that LNG shipping earnings will remain under pressure in 2016 as accelerating fleet growth and changing trade patterns will weaken supply-demand conditions. As new sources of LNG supply kick in from projects coming online in Australia, demand for spot cargoes from the Middle East are expected to weaken which will adversely affect demand for LNG shipping.

“Vessel oversupply is the key problem for LNG shipping in 2016,” said Shresth Sharma, Drewry’s lead LNG shipping analyst. “Meanwhile, growing LNG supply in Asia-Pacific will reduce the dependency of Asian buyers on Middle Eastern supply which will weigh on tonne mile demand, diminishing overall LNG shipping demand. Hence, we see no let-up in vessel overcapacity, which will continue to put pressure on earnings through 2016.”

The Spectre of Iran The big question is what impact Iran will have following the lifting of sanctions in January and the country’s gradual rehabilitation back into the world economy. Iran has signalled its intent to resume oil exports straight away. The National Iranian Tanker Company (NITC) owns the world’s largest fleet of very large crude carriers but many of them saw little action during the era of US-imposed economic sanctions. Observers say it could take some time before they can all return to work for a number of reasons, including maintenance issues and the challenge of securing insurance coverage for what is an ageing fleet.

NITC has played down suggestions that it intends to build its fleet though it has strongly hinted it will gradually replace older vessels with orders for new tonnage at Chinese and Korean shipyards that could be worth close to $7bn. Reports say NITC is considering a stock market listing to raise the funds to finance the purchase of up to 26 ships to replace older vessels, though payment through oil swaps remains a possibility.

Ironically, additional volumes of Iranian crude entering the market could provide opportunities for foreign shipowners and thus help to firm charter rates in the tanker market. Shipbroker Gibson noted in a recent report that “the oil markets have grimaced at the news of more crude to be added to an already 42 | Logistics News ME | March 2016

% GCC Fleet Value by Ship Type Bulker - 3% Container - 14%

Tanker 43%

% LNG - 35%

Small Dry - 1% LpG - 4%

oversupplied market; however, tanker owners will welcome the additional cargoes. It makes little difference to the oil markets whether or not Iranian oil is delivered on National Iranian Tanker Company (NITC) tonnage or by internationally owned vessels.”

He added: “However the repercussions for the tanker market could be far more significant. If international tonnage is required to lift Iranian cargoes before the NITC fleet returns to the conventional market, tanker owners could benefit from increased demand without the drawbacks of increased tonnage supply.”

Vi e w p o i n t

Knowing what to do and not doing it, is the same as not knowing what to do Having knowledge and using knowledge are very different things. Prakash P.K. Menon explains

T

here are people who have a thirst for knowledge and learning, and it makes them go places in search of them. Over the years, they read extensively and learn a lot. They seek knowledge and they gain knowledge. Gradually, they become the scholars or the learned people who know almost everything.

Now, the real question is – What do they do with their knowledge?

Do they apply it? If yes, it was worth learning. However, if they do not apply in the real life, even some of the knowledge they gathered , it was a wasted effort. Just imagine all that knowledge left unused and going to the grave with the person.

What is the wisdom behind going to such great lengths to learn when they are not going to make any use of the learning?

How the world can become richer or a better place with the knowledge that is sitting idle in their head?

As Tony Robbins wisely said: “It not knowing what to do, it’s doing what you know.”

How is this for thought – If thousands of people before you would have done the same thing, i.e. gathered vast knowledge, but did nothing with it, where would our world have been today? We would still have been living in the caves and wearing tiger skin. We would still have been eating raw meats and moving on foot, or to strike closer home, there would have been no overseas holidays, gourmet foods, the Internet and iPhones/Macbooks.

Let’s forget about the world for a moment. Think about your personal gain. If you read hundreds of books on weight loss, but don’t exercise or cut back on 44 | Logistics News ME | March 2016

your food intake, how can those self-help books help you?

Reading and application are two different things. When you practice what you read and learn, you condition your brain to apply that knowledge at the time when you need it the most. When you put your theoretical knowledge to practice, your brain cells register the performance and connect it to a physical circuit. The more you practice, the stronger the connections become. This is extremely useful when

you have to handle a tricky situation.

Your regular practice will make you take decisions and act on them quickly and easily. It’s the practice that counts, not the theory. Remember, knowing is not the same thing as doing.

A true leader not only learns, but also puts the knowledge to practical use. Be like a leader. Do not keep the knowledge unto yourself. Give back the knowledge or apply the knowledge for your progress and the betterment of the society.

FOR SOME, THE NEED TO GROW JUST KEEPS GROWING. Successful businesses aren’t satisfied by the here and now. They prefer to ask ‘Where next?’

With nearly 150 years of experience in supporting global businesses including 65 years in the Middle East and North Africa, HSBC has long believed in businesses willing to push boundaries and cross borders. That’s why we offer access to international trade growth solutions and local expertise around the world.

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Issued by HSBC Bank Middle East Limited, P. O. Box 66, Dubai, UAE. Regulated by the Jersey Financial Services Commission and Central Bank of the United Arab Emirates. CRN 150603 © Copyright. HSBC Group 2015. ALL RIGHTS RESERVED.

Vi e w p o i n t

6 factors every supply chain manager in the pharmaceutical industry should consider The pharmaceutical industry is facing enormous changes. Michiel Veenman, Global Market Leader Pharmaceutical for Swisslog, draws on his warehouse operations experience to explain how the industry can overcome the challenges of the future.

1. New Centres of Manufacturing Two decades ago most pharmaceuticals for Europe were made in Europe. Today the majority are made elsewhere, in China, India and Pakistan. It presents issues of integration and consistency amongst a dispersed organisational structure.

India has a rapidly growing pharmaceuticals biotechnology market currently estimated to be worth over $1bn, and at the turn of the millennium was spending around $66m on medicines R&D, up from just $2.2m in the mid-1970s. Five of the world’s ten biggest pharmaceutical companies are based in the US, while the remaining five come from Switzerland, the UK and France, but this does not mean that’s where their products are made. The world’s largest pharmaceutical company for example, Pfizer, has manufacturing operations at 86 locations worldwide supporting all major markets.

2. New Regulations New regulations, increasingly more complex products, steadily expanding product portfolios and ever smaller batches increase costs and risks in logistical processes.

Changes in legislation and the move towards temperature-sensitive pharmaceuticals and OTC medications has now changed the storage, logistics and distribution process. Temperature control, monitoring and tracking is now done as a matter of course, with deliveries coming with their own ‘temperature map’.

The Place&Trace solution is an automated logistics system that can be expanded as needed by modular compo46 | Logistics News ME | March 2016

Vi e w p o i n t

nents, exactly what is needed. The benefits of this solution are clear to see.

Compared to manual pallet warehouses, automated logistics systems use existing warehouse space up to 60% more efficiently. Automated systems also offer significantly more effective handling processes in the warehouse and verifiably lower error rates in goods deliveries.

To meet the requirements associated with international compliance regulations, Swisslog’s software solutions, implementation processes and know-how allow pharmaceutical companies to validate their systems efficiently. Providing validated supplies allows customers to carefully document all drug-specific information. Place&Trace also makes it possible to trace and log all drugs, both at the batch and product level.

3. Product Licensing Some suggest that the growth in temperature-sensitive products is also in direct response to the competition companies face when exclusive product licensing expires.

Under a centralised procedure, pharmaceutical companies submit a marketingauthorisation application to the European Medicines Agency (EMA). Once granted by the European Commission, a centralised marketing authorisation is valid in all EU Member States, as well as in Iceland, Liechtenstein and Norway. By law, a company can only start to market a medicine once it has received a marketing authorisation. The process is understandably complex, and the cost of developing of new medicines can be prohibitive. On average, only three in 10 drugs launched are profitable and producing medicines that can only then be manufactured under specific circumstances offers some level of protection against future competition.

The spin-off is a need to maintain strict temperature controls throughout the supply chain.

4. Sales Channels The trend towards ever smaller batch sizes is keeping the industry on its toes. New drugs with modified – sometimes even personalised – ingredients are being brought to market. Production logistics is becoming more complex than ever.

At the same time, the traditional sales

channels, via wholesalers, are coming under the microscope. To obtain better control over the supply chain, and for drugs to reach pharmacies even more quickly, the pharmaceutical industry needs multichannel logistics systems.

With its Place&Trace solution portfolio, Swisslog is expanding its expertise in this field with approaches that combine specific know-how in pharmaceutical logistics with state-of-the-art logistics systems developed for e-commerce logistics.

5. Austerity Governments Governments have squeezed some of the profits out of the industry by renegotiating national deals in response to austerity measures. It means that manufacturers and wholesalers have had to work hard on stripping out costs, as with the trend to smaller batch sizes the result is pharmaceutical companies actively working on building new and more lean sales channels. In the traditional pharmaceutical supply chain, products move from the manufacturers to pre-wholesalers and pharmaceutical wholesalers until they reach the pharmacies. This reduces visibility on the product and its end users. It also increases stock value in the chain.

Therefore, parallel to this classic sales approach, some companies have already

come up with specific plans to build new sales channels, such as direct-to-pharmacy and direct-to-patient delivery.

6. Fear of change The pharma world is fairly conservative, and there can be a reluctance to innovate procedures in sharp contrast to the R&D that goes into product development. The other side to the coin is experience is greatly valued. Pharma companies are, of course, very knowledgeable regarding their own business, but the details of implementing automated warehouse solutions in their environment are often new, so our advice can be of great use. With new generation software that is modular, configurable and pre-tested, the opportunities to reduce implementation and maintenance efforts are now also at hand.

As always in material handling, complex moving machines attract attention, and manufacturers are more interested than ever in advanced robotic solutions for handling products around production lines.

Having studied logistics, Michiel has experience working for the Dutch Department of Defense and in automation systems simulation and analysis. Before joining Swisslog, he spent five years optimizing warehouse operations and IT systems for a pharmaceutical wholesaler.

Logistics News ME | March 2016 | 47

Event preview

Middle East Rail PROJECTS AND COUNTRIES

Keeping $352bn in railway projects on track is no easy task and, following the re-scheduling of the UAE’s rail plans, it will be a hot topic at the 10th Middle East Rail exhibition, taking place in Dubai this month

COVERED AT THE SHOW Algeria INVESTMENT:

Tunisia INVESTMENT:

Egypt INVESTMENT:

Lebanon INVESTMENT:

Jordan INVESTMENT:

Iraq INVESTMENT:

Iran INVESTMENT:

Kuwait INVESTMENT:

$34.4bn

$546mn

$30.9bn

$500mn

$3.8bn

$14bn

$24.6bn

$17bn

Metro, tram, long-distance freight and passenger

Metro, longdistance freight and passenger

Metro, monorail, long-distance freight and passenger, high speed rail

Tram

Metro, tram, long-distance freight and passenger

Metro, high speed rail

Metro, longdistance freight and passenger

Metro, longdistance freight and passenger

Nigeria

Djibouti

Saudi Arabia Bahrain

Qatar

UAE

Oman

India

INVESTMENT:

INVESTMENT:

INVESTMENT:

INVESTMENT:

INVESTMENT:

INVESTMENT:

PROJECTS:

PROJECTS:

PROJECTS:

PROJECTS:

PROJECTS:

PROJECTS:

PROJECTS:

PROJECTS:

Morocco INVESTMENT:

$10bn PROJECTS:

Tram, longdistance freight and passenger, high speed rail

$75bn PROJECTS:

Metro, Longdistance freight and passenger, high speed rail

$4bn

(shared with Ethiopia) PROJECTS:

Long-distance freight

INVESTMENT:

INVESTMENT:

$118.9bn

$12.9bn

$46.7bn

$27bn

$16bn

$140bn

Metro, tram, long-distance freight and passenger, high speed rail

Tram, longdistance freight and passenger

Metro, tram, long-distance freight and passenger

Metro, tram, long-distance freight and passenger

Tram, longdistance freight and passenger

Metro, tram, monorail, long-distance freight and passenger, high speed rail

PROJECTS:

M

PROJECTS:

ENA countries are forging ahead with plans to establish a strong passenger and freight transport network with 16 major railway projects worth $352 billion currently under way in the region, according to Terrapinn Middle East, organiser of Middle East Rail, which will be held from March 48 | Logistics News ME | March 2016

PROJECTS:

PROJECTS:

PROJECTS:

PROJECTS:

8 to 9 at Dubai International Convention and Exhibition Centre.

“With current market conditions as they are, it’s a great opportunity for international rail suppliers to enter the market. Governments are now diversifying their resources, putting more emphasis on projects that are not oil-relat-

ed. With transport and logistics sectors playing an increasingly important role in the region’s economies, governments are now looking towards innovative technologies to boost economic sectors that will boost intra-regional trade and tourism activities”, said Jamie Hosie, project director, Middle East Rail.

According to ICAEW Economic Insight Middle East report, Kuwait, Saudi Arabia, the UAE and Oman will likely net the biggest windfalls, with logistics forecast to contribute 13.6%, 12.1%, 11.7% and 11.7% to their respective economies by 2018.

Middle East Rail will be held under the patronage of His Highness Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister, Minister of Presidential Affairs, UAE and in partnership with the Ministry of Public Works UAE and the Federal Transport Authority - Land and Maritime.

Alongside a two days of keynotes, panel discussions and research sharing, the show will spotlight projects updates, with key government departments, railway operators and construction companies giving a first look at 2016 tenders.

It will feature a line-up of over 300 exhibitors, covering all aspects of rail infrastructure including rolling stock, fixed stock, systems integrators, consultancies, operators, signalling and communications, maintenance and more.

Many of the exhibitors are upgrading the size of their stands this year. Siemens, Greenbriar, Bombardier, Autodesk and Ansaldo are among the main sponsors for the show.

Commenting on the 10th anniversary of the show, Hosie said: “For a decade, Middle East Rail has helped shape the regional rail market through knowledge sharing, educating the market and

Event preview

The logistics industry economic contribution to 2018

Kuwait 13.6% Saudi Arabia 12.1% UAE 11.7% Oman 11.7%

facilitating influential meetings. In 2016, visiting ministries and rail operators from the Middle East, North Africa, Central Asia and the Indian Subcontinent will discuss the development of passenger and freight rail projects alike and the key challenges faced in rolling out and operating successful rail networks.�

Workshops for the conference include stations and terminal design, building intelligent transport IT solutions and GCC rail interoperability to name a few. A dedicated Cargo zone will focus on how businesses can best utilise the multimodal infrastructure in the region.

ME Rail in Numbers

$352bn railway projects underway in the Middle East

16 major rail projects underway across MENA

25% Growth since 2015, with 300 exhibitors and 9000 visitors expected Logistics News ME | March 2016 | 49

SUPPLIER NEWS Univation Technologies and Linde Group announce partnership

Unitor Life Jacket launched to boost health and safety Wilhelmsen Ships Services (WSS) has placed emphasis on health and safety of workers with the launch of its new Unitor Life Jacket, which is tailormade for the demands of the harsh offshore environment.

Making its debut at the 35th Australasian Oil and Gas Exhibition and Conference WSS, a provider of products and services to the shipping industry, is also focusing on helping the offshore industry reduce costs and increase efficiencies.

Philip Gatland, WSS Western Australia manager, explains: “Maximising efficiency and controlling cost are 50 | Logistics News ME | March 2016

currently top of their agenda, while safety is always a priority for such demanding operational environments. This is their focus, so it’s ours too.

“WSS Oceania is extremely proud to unveil the Unitor Life Jacket, specified to meet the exacting requirements of the offshore industry,” he comments. “It blends a comfortable design with class leading buoyancy rating and a hydrostatic release system designed for the ever changing humidity levels found offshore.

“Safety is paramount in this industry and our solutions are first class, available and, given the current market conditions, very cost effective.”

Univation Technologies and The Linde Group’s Engineering Division have entered into a cooperation agreement aimed at providing performance and cost efficiencies for the production of polyethylene resins.

Under the agreement, Univation and Linde will work toward delivering streamlined technology, capital expense and operational expense reduction opportunities and improved quality in early stage design to ethylene cracker and polyethylene projects. The companies believe this will be valuable for both new construction projects as well as retrofit projects.

Dr Christian Bruch, member of the executive board of Linde AG and responsible for the company’s engineering business, stated: “Our combination of technology and engineering, procurement and construction capabilities is a key driver to deliver competitive solutions to the petrochemical industry.”

Dr Steven F. Stanley, president of Univation Technologies, LLC, added: “As the leading polyethylene technology licensor around the world, we are constantly looking for ways to deliver more value for our licensees. This agreement with Linde allows us to take our solution-driven approach to the next level covering the entire UNIPOL(TM) PE Process platform including back-integration into cracker operations and improved economics for both new plant and retrofit projects.”

This agreement is non-exclusive for the Engineering, Procurement and Construction (EPC) phase of UNIPOL(TM) PE Process projects.

Supplier news

Volvo trucks reports Jordan sales NDTE opens “Mega Cash Blowout growth of 50% Raffle Promotion” Volvo Trucks Middle East has announced an increase in vehicles sold in 2015 compared to 2014, with Oman, Qatar, Kuwait and Lebanon registering the strongest growht and a sales increase of 50% in Jordan, in the face of tough market conditions.

The announcement comes at the end of a year that saw significant activity and investment by the company in the region, most notably the opening of a brand new state-ofthe-art AVI production facility in King Abdullah Economic City in Saudi Arabia in co-operation with Zahid Tractor.‎ Full year sales were up in most of Volvo Trucks’ Middle East markets. The company enjoyed a particularly successful year in Bahrain, Kuwait, Lebanon and Qatar, more than doubling sales in all four markets and a double digit growth in Oman, which is Volvo Trucks third largest market in the Middle East.

Sales in Jordan were up by 50% while Saudi Arabia and the United Arab Emirates were once again Volvo Trucks’ two biggest markets in the Middle East, and sales in both countries remained stable in 2015 compared to the previous year, as they did in Egypt also.

UAE-based logistics company National Trading and Developing Establishment (NTDE), which is the sole distributor of Vitaene C, has unveiled giving away cash and gifts prizes over AED 400,000 to consumers in its latest consumer-reward initiative tagged ‘Mega Cash Blowout Raffle Promotion’.

The promo is aimed at rewarding new and loyal consumers of Vitaene C that will run for two months from March 1, 2016 to April 30, 2016.

To participate, consumers stand the chance of winning gifts and cash prizes upon purchase of a single bottle or 6-pack of Vitaene C. Glenn Felix, marketing manager for Food Division, NTDE, said: “In line with the company’s vision to reward its new and existing consumers, we came up with the competition as a way of expressing our appreciation to millions of Vitaene C’s loyal customers. We are very proud of the success of Vitaene C Grand Raffle promotion last year because of the support of our customers.”

In last year’s competition, prizes included: a Jeep Wrangler, two Dodge Chargers, three awards of AED10,000 each, 10 units of iPhone 6, and 10 units of Samsung Note 4.

Aluminium Bahrain B.S.C. migrates and upgrades network and control solution Engineers from Rockwell Automation Global Solutions have completed a significant migration project for Aluminium Bahrain B.S.C. (Alba) at the Alba Calciner Plant, part of one of the largest single-site aluminium smelters in the world.

The site, which is the first smelter to be setup in the Middle East, comprises two campuses – the aluminium smelter and the Calciner and Marine Terminal.

The latter is a highly mechanised and automatic plant, which handles all raw materials for Alba such as aluminium, green petroleum coke (GPC) and liquid pitch. It also

produces as much as 550,000 metric tonnes of calcined petroleum coke (CPC) from GPC and desalinated water from the sea water.

The upgrade project, which was established to address obsolescence and downtime issues, saw the complete replacement of a complex and dispersed legacy PLC solution with one deploying contemporary control technology and networks. The solution, which leveraged and exploited the capabilities of the Integrated Architecture® system from Rockwell Automation, has now brought the plant up to date and gives Alba the scope to expand and enhance its operation much more easily.

At a glance: the Rockwell Automation solution • • • • • • • • •

80 ControlLogix chassis 70 Stratix switches 50 Allen-Bradley ControlLogix L73 PACs 500 I/O modules 1,000 cable and conversion kits 70 Ethernet modules 8 Allen-Bradley PanelView Plus HMIs FactoryTalk AssetCentre Dedicated on- and off-site Global Solutions support • Full project management, design, installation and commissioning

Logistics News ME | March 2016 | 51

Case study

New Clusters announced at Jafza

Last month, Jafza announced the development of 10 new clusters, developed to facilitate easy access to a “one stop shop” model. Logistics News ME finds out the details

The planned clusters • Building materials and tools cluster • Furniture, household, gardening and sports cluster • IT, telecoms, electronics and home appliances cluster • Jewellery, fashion, textiles and leather cluster • Multi-brand retail, hypermarkets and discount outlets cluster • Food and beverages cluster • Cosmetics, perfumery, pharma and healthcare cluster • Equipment, machinery, printing, packaging and plastic cluster • Transportation, logistics and heavy machinery cluster • Energy, power, engineering and chemicals cluster

The clusters will be sector based

W

hile Dubai has a long and rich history as a trading hub, until recently the mechanisms supporting trade failed to incorporate the highest levels of urban planning and technological ability, but that could be about to change.

Last month, Jafza announced plans to embark on a new development it promises will “redefine the experience of 52 | Logistics News ME | March 2016

shoppers and traders in Dubai”.

The logic is simple: traders need to fly in, view all the needed merchandises, conclude deals, pay or finance them, and sort out logistics all in the matter of few days.

The solution Jafza will pursue is described as a sector based organisation of key industries, clustered for easy access and maximum business potential.

A statement from the group read: “We

are planning a development that has the traders’ and shoppers’ experience at heart.

The development will be sector based and would enable both bulk and retail trading.

The development will provide all the necessary elements to satisfy the full experience in one place, ranging from retail, offices, exhibition space, storage, workshops and accommodation.”

Situated on the main highway, with proximity to EXPO2020 site, the development will also have an online platform in collaboration with key online market places. There are 10 clusters planned currently (see box), designed to create a “one stop shop” experience.

The full supply chain will be represented and all concerned services will be provided adding to the business opportunities presented to its global tenant base of 700 companies.

Under the Patronage of H.E. Sheikh Abdullah Bin Nasser Bin Khalifa Al-Thani, The Prime Minister and Minister of Interior, State of Qatar

24th – 26th May 2016 Doha Exhibition and Conference Center | Doha, Qatar

The region’s largest multi-modal transport and logistics exhibition and conference

Book your stand before

15th February to avail early bird discounts

NOW OPEN Free Visitor Registration

www.trans4qatar.com

Trans4Qatar 2016 proudly presents the Trans4 2016 Transport and Logistics Conference which will be a two day conference providing an opportunity for transport, shipping, logistics organisations to learn about major transport and logistics challenges faced by the Qatar 2022 FIFA World Cup Before

Register your interest for the conference and avail special discounts

15th MARCH

For more information on the Trans4 Qatar exhibition and Trans4 2016 Transport and Logistics Conference please contact our team today: FOR QATAR BASED COMPANIES:

Syed Ashraf Ali

FOR GCC AND Fathima Dhanani INTERNATIONAL T: +971 4 883 8809 | F: +971 4 355 1352 COMPANIES fathima@trans4qatar.com

T: +974 4493 0296 | F: +974 4412 8989 sales@trans4qatar.com Strategic Partners:

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Di a r y

The month ahead

Logistics News ME picks the latest and most sought-after exhibitions, conferences and seminars coming up in the industry

Middle East Electricity 2016

1 – 3 March Dubai World Trade Centre

MEE is the world’s largest power event, providing a gateway for international companies to promote their products and services to the lucrative Middle Eastern market and the surrounding African and Asian regions. The exhibition provides a platform for networking, business development, and education for the power, lighting, nuclear, new and renewable sectors.

Innovation Arabia Annual Congress 2016

7 – 9 March Jumeirah Beach Hotel

Innovation Arabia helps to capitalise on the successes and potential of the Arab World. The Annual Congress is held under the patronage of His Highness Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum, Crown Prince of Dubai and President of Hamdan Bin Mohammed Smart University under the theme of “Accelerating Innovation towards Sustainable Economy”.

Cargo Show MENA

8 – 9 March Dubai International Convention and Exhibition Centre

Helping supply chain and logistics professionals to discover the latest

54 | Logistics News ME | March 2016

services and innovations that will improve efficiency in the movement of cargo across road, rail, sea and air, the show is the biggest logistics conference and expo in the region where you can join over 3,000 peers and prospective partners to learn about the industry’s freshest and most impressive trends

Middle East Rail 2016

8 – 9 March Dubai International Convention and Exhibition Centre

Over 9,000 attendees and take up over 18,000m2 of exhibition floor space. This edition also marks the third year of its partnership with the Federal Transport Authority – Land and Maritime – to create a truly world class transport and logistics conference and exhibition for the region.

Annual Investment Meeting 2016

11 – 13 April Dubai World Trade Centre

The meeting gathers the world’s leading foreign direct investment (FDI) experts, investors, business professionals and practitioners to discuss how the FDI landscape has changed dramatically in recent years as well as the new sources of FDI. It will tackle the importance of new forms of investment and discuss the policies that promote and facilitate such investments and best practices therein.

Abu Dhabi Dubai Kuwait Oman Qatar Saudi Arabia

: Dalma Motors - +971 507414110 : United Diesel - +971 501155347, +971 43402557 : Al-Zayani Trading Co. - +965 24741598 : Al Hasher & Co. - +968 94271618 : Al Hamad Automobiles - +974 44510606 : Manahil International Co Ltd - +966 544483394