Breaking boundaries

DHL Global Forwarding CEO Hermann Ude explains why the company looks at Dubai as a shining example for the world.
Breaking boundaries
Hermann Ude, CEO of DHL Global Forwarding.
By Robeel Haq
Thu 27 Jan 2011 12:00 AM

Initiated in 1996, the annual CEO Summit organised by the Asia Pacific Economic Cooperation (APEC) is normally an opportunity for industry leaders to lock horns about the latest roadblocks and routes to business in countries such as Malaysia, Singapore, China, Japan and Indonesia. However, during its latest edition in Tokyo, it was actually the trade philosophies of the United Arab Emirates that were espoused by Hermann Ude, CEO of DHL Global Forwarding, who highlighted his belief that Asia Pacific countries should be looking to the Middle East for inspiration.

“The success factor for somewhere like Dubai is the government’s mindset, which constantly asks how the efficiency of logistics trade can be improved,” he explains during an exclusive interview with Logistics Middle East. “Compare that to the numerous heavy-handed administration procedures around the world and you will find that it’s lighter-handed in Dubai without being any less effective.”

Such confidence in the UAE, and Dubai in particular, has resulted in a string of local investments by DHL Global Forwarding over the years. In September 2010, Danzas – a joint venture between DHL and Al Tayer Group – celebrated its first cargo charter flight at the newly-opened Al Maktoum International Airport in Dubai World Central, where the company has also reserved three plots of land for a logistics centre and airfreight operations.

Around US$50 million was also spent the previous year to open a flagship warehouse for Danzas in Jebel Ali Free Zone, further consolidating its Middle Eastern footprint. The 80,000m2 facility - the equivalent of 11 football pitches – was billed as the largest of its kind in the region, offering the perfect platform for companies to leverage their supply chains using the new hub as a global gateway. “The Middle East is ideally positioned, with access not just to Europe, Africa and Asia, but also to the fast developing Indian subcontinent and its huge manufacturing output,” continues Ude.

“As the world’s leading logistics group, we anticipated our customers’ wishes and made continuous investments into the region. We remain committed to giving our customers the best possible service in the Middle East to help support their growth aspirations. This is what drives our commitment to invest in new infrastructure.”

These large-scale investments appear to be well-placed. Growth within the Middle East-Africa-Asia triangle will account for 14% of the planet’s trade by 2028, spurred largely by China’s trade with South Africa, Saudi Arabia and the UAE. India’s contribution to the triangle’s growth is also expected to be significant, as it boosts raw material imports. However, Ude admits that the key to DHL’s plans could be unlocking the tricky administration stances of China and India, as well as the other two so-called ‘BRIC’ nations of Brazil and Russia.

“On average, BRIC countries have ten times more physical cargo inspections than ‘best-in-class’ countries, without notably improving security. They also require twice as many import and export documents versus Singapore or Germany,” says Ude. “As a result, paperwork can be the single most time-consuming element in the life of a shipment, with vital days lost and costs increasing as products spend more time in warehouses than on the move. It’s a cost we have to charge through to our customers, and it’s a cost that is the same for everybody, no competitor can avoid it.”

Ude therefore stresses that the emergence of the BRIC nations is a roadblock that must be hurdled by all logistics players, not just DHL. During the 60 days spent to deliver a typical ocean freight shipment from India to Mexico, for example, goods were on the move for less than half of the time, with around 32 days spent on documentation and customs.

In response, the company has published three key levers to help emerging economies improve their logistics efficiency and reduce the cost of trading by up to 30% by 2020. During the APEC CEO Summit, it appealed to governments, shippers and logistics companies to become active partners in reducing paperwork and administration, reform customs and security processes, and invest in infrastructure to maintain the competitive advantage of APEC countries.

“Over the past 30 years, world trade as a percentage of GDP has increased from a third to over 50 per cent,” he states. “If you want to have continued growth in terms of trade, you have to not only work on the roadblocks that are here now, but also the roadblocks ahead which may impact growth in four or five years time. And this is one of the main things we have to hammer on to get out of the way.”

Ude observes a huge global disparity in the handling of freight. “You tend to have three baskets. There are the ones who have found out that being efficient on administration is a value proposition for their country, so they push it by themselves – such as Dubai, Singapore, Hong Kong and some others,” he explains.

“Then there are others who say, ‘yes, maybe there’s a point in this,’ and they begin to work on their templates, but there is no governance from the top which gives a definitive order: the customs may try to improve, likewise healthcare or airport authorities, but there is no orchestrated approach,” he continues. “Then you have the third kind of country which says, ‘hey guys, we are the customs, you’re not going to tell us how to do our job,’ so they take their time, and for them it’s more a power game. If they can have a cargo pending for ten days, it’s a good thing because it shows how influential they are in that country. For the latter two kinds of countries, you need a push from the top leaders to say, ‘we want our country to become a top place for trading.’”

Another issue facing the industry is infrastructure investment, in key areas such as strategic ports and interlinked road and railway systems. DHL believes that this investment could account for six percent of its 30% reduction. “Infrastructure bottlenecks or sub-standard transport facilities can force logistics companies such as DHL to use sub-optimal routes to guarantee delivery, and this increases costs,” says Ude. “Insufficient port capacity can lead to 15 to 30% higher sea transportation rates on otherwise comparable routes.”

As well as the cost benefit, DHL claims that infrastructure investment could slash trade times by 65%, with 20 to 40% more trade being generated. Hence the millions being spent in the Middle East.

Another obstacle towards growth is the ongoing spectre of terrorism. That a bomb had been carried from the Yemeni capital Sana’a to Dubai on a FedEx flight, brought the issue of security crashing onto the cargo industry’s front doorstep. That it occurred in Dubai, supposedly one of DHL’s best-in-class states, will have deepened the wound. However, Ude is quick to highlight airfreight’s impressive track record in such cases. “The airfreight industry has a very good record on providing secure global trade: there is not a single larger incident resulting from any bomb in an aircraft. That doesn’t mean that we don’t have to do anything, but it doesn’t mean we have to be saying ‘there is a lack in security, let’s start to work on it.’ We have to continue working on it, and then the question is what can we do?” he says.

“The first question you have to ask is whether the rule was wrong, or if it was not applied. Were the people trained? Were the procedures checked and enforced? If all the rules were applied, what can we do to improve the rules in a way that such an incident does not repeat itself?” he adds.

“The second element is that in the past some countries have claimed ‘we do security’, but in the global sense this is irrelevant, because one country cannot fix the problem, it can only be fixed across all origins and destinations. That’s why the authorities have to work together, count on consistent solutions which support trade lines, and push the responsibility to where it needs to sit: at the beginning of the trade, not the end. It has to be balanced.”

A market tentatively crawling from recession hardly seems the right forum to be launching aggressive plans. But Ude is confident that, despite false growth in the first quarter of last year, the industry is settling back into normality. “Overall volume went down in 2008/2009, then we had some artificial growth beginning in the last quarter of 2009 and beginning of 2010 because there was a lot of replenishment,” he says.

“Inventory levels had been so low, that what would normally have been taken out of the inventory no longer could be,” adds Ude. “Now we are back to a normal profile. For next year we are cautiously optimistic: we’re not bullish, it’s going to be a world of surprises, but overall I don’t see a reason to be overly pessimistic.”

With all this in mind, it is easy to turn one’s nose up at DHL’s ambitious administrational plans. But Ude is confident that the firm can succeed. “30% is a big ambition, but one that governments, shippers and service providers such as DHL can jointly achieve, and must work towards achieving, if countries are to enjoy continued economic success and rising standards of living,” he concludes.

“If regulators decrease bureaucracy and become more process-orientated, logistics companies work consistently to reduce costs and improve lead times, and shippers form deeper partnerships with logistics providers, emerging market growth will stay on track.” DHL hopes the Middle East can continue to be a key player in that growth.

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