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Despite the market challenges in a global recession, the 3PL sector is still being presented with lucrative opportunities in the Middle East, according to a report by Booz and Company.

Searching for opportunitiesin the global recession is a daunting task for most companies around the world and although the Middle East has fared better than its counterparts in Europe and North America, the majority of businesses have focused their attention on survival, rather than capitalising on the growth prospects that are still apparent in this region. According to research firm Booz and Company, the value of the GCC logistics sector climbed to US$18 billion last autumn, following an average increase of more than 10% a year. Although this growth pattern is expected to continue in 2009 and 2010, the pace will be slower than previous years.

"A number of factors have contributed to growth in the GCC logistics sector, including the diversification of economic activities and increased participation in regional and international trade," comments Fadi Majdalani, partner at Booz and Company. "However, as the impact of the economic crisis becomes clearer, we see two diverse trends emerging in the sector. First, in countries with a strong domestic market and limited integration in global trade flows, such as Saudi Arabia or Egypt, the logistics market will continue to strengthen. While economic growth has slowed in these countries, there is still stable growth in the logistics sector. Second, countries that leveraged on the opportunities presented by increased globalisation, such as the UAE, will be challenged by demand stagnation - or even contraction in some segments."

Companies are best advised to tackle this situation with a focused and structured approach, states Majdalani, allowing them to develop a lasting and sustainable business platform in preparation for the inevitable upswing in market conditions. "Demand for logistics services has softened in the short-term, although the trend to outsource supply chain operations in the Middle East will provide a basis for growth in the medium-term. This will be supported by the continued development and diversification of regional economies," continues Majdalani. "To really benefit from this situation, companies must have a successful strategy to improve their service provision and a solid track record in reducing the cost of warehousing and transportation for customers."

Research from Booz and Company has indicated a three-tier structure in the Middle East 3PL sector, with Agility taking pole position in the first tier, followed by Gulf Agency Company (GAC) and Aramex in the second tier, while a broad portfolio of specialised providers are placed in the third tier. "Agility is the only Middle Eastern player that is capable of competing on a global scale. Companies such as GAC and Aramex have also grown their platform and business on a significant level in recent years and provide services throughout the region," says Majdalani. "It's not clear how the specialised companies in tier three will shape their future."

Perhaps a concern for Middle Eastern companies is the influx of international players that are expanding their presence in the region to take advantage of market opportunities. A number of them, such as Kuehne + Nagel and BALtrans, have already experienced success, while the likes of CEVA Logistics, Panalpina and DB Schenker are investing millions of dollars to develop their Middle East operations.

"As the importance of the Middle East as a regional and global distribution and transhipment hub grows, we expect that leading global logistics service providers will increase their presence and expand their investments in the region," concludes Majdalani. "This will significantly grow the competition and will ultimately lead to a consolidation of the players in the market. Overall, the only survivors in terms of local players will be those that are well prepared, have a strong business platform and are able to deliver logistics services according to global standards."

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