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Mon 20 Jul 2009 04:00 AM

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Opportunity knocks

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.

Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks
Opportunity knocks

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."

Booz and Company’s Fadi Majdalani highlights future trends in the Middle East 3PL sector• Companies providing basic logistics services will face increasing competition

The market is saturated with service providers that offer simple transport and warehousing services. Since there will be only moderate growth in this market segment, it is expected that competition and price pressures will increase. Hence, companies providing these basic services will face substantial challenges to grow their business in a profitable manner.

• Companies investing in sophisticated logistics services will be able to realise attractive premiums for their services

Customers are looking to achieve higher efficiencies in their supply chain. This means 3PL firms must provide a quality service, with transparency in cargo movements and optimisation in storage procedures. Companies with a solid track record in these areas are best positioned to expand their market share. What's more, they will be profitable, because customers are willing to pay a premium for these services due to the positive impact on their own customers.

• Companies that offer region-wide services will benefit from serving large regional and international customers

A growing number of customers are looking for a regional-wide service. Instead of using different logistics companies in each country, customers want to consolidate their distribution network and deal with a small number of service providers. In Europe, this change happened in the 1990s, which resulted in a wave of consolidation because European players were forced to expand their services across multiple countries in the region. Large players and some aggressive mid-sized players were able to strengthen their position significantly, while others were taken over or had to terminate their business.

• Project logistics and petrochemical logistics will become "hot spots" in the Middle East once the economy recovers

The aspiration of oil-rich countries in the region to develop downstream industries will drive huge investments into refinery capacity and petrochemical plants. Additionally, significant efforts are required to maintain the region's oil and gas production capacity. As most of the respective equipment is manufactured outside of the region, project logistics will see an unprecedented boom. Once the equipment is installed and the new petrochemical plants are operating, the products will have to be transported to the major consumption markets. For petrochemical products this will be mainly Asia. Hence, companies that have the expertise for handling petrochemical products and can provide distribution services to Asia will be well positioned to serve this attractive market.

3PL company profilesInterviews with ten of the smartest players in the Middle East 3PL sector RHS Logistics:Richard Bell, general manager

What range of services does RHS Logistics provide in the Middle East?

RHS Logistics supports the requirements of manufacturers, distributors and freight forwarders to access the growing regional market with a stockholding point in Jebel Ali Free Zone. Our 50,000m2 distribution centre offers temperature controlled warehousing, supported by computer systems that use the latest radio frequency, barcode and RFID technology, plus value added services and local distribution.

What makes your firm different from other 3PLs?

We only focus on the provision of warehousing services and seek to provide the broadest and highest quality range of value added services, so that principals can concentrate on their core business.

For example, we can localise products from generic stock, provide packaging and pre-retail services, printing and labeling, as well as customised IT solutions.

How strong is demand for 3PL services?

Although volume has contracted in response to the global recession, demand for quality service providers is strong. Dubai remains an excellent place to establish a regional distribution platform, mainly because of the geographic position and friendly business environment. A growing number of clients are taking advantage of this opportunity.

Which companies use your services?

Customers include Legrand, Toshiba, Dell, Hewlett Packard and Early Learning Centre. CEVA Logistics:Shamsudeen Ahmed, Middle East director

What range of services does CEVA Logistics provide in the Middle East?

We provide a complete range of logistics, transportation and consultancy services. In addition, we customise services for specific industries, such as companies in the oil and gas sector.

What makes your company different from others in the Middle East logistics market?

CEVA leads the market in terms of expertise, experience, infrastructure and a solid global network. In addition, we have introduced a ‘LEAN programme' to improve productivity, reduce costs and enhance the quality of each customer's logistics operations.

How strong is demand for 3PL services?

Demand is strong and continues to grow. In response, CEVA has revealed plans to significantly bolster its warehousing space in Dubai from 38,000m2 to approximately 163,000m2 by the first quarter of 2010. This includes a 65,000m2 facility that is scheduled to commence operations in Jebel Ali Free Zone this year. We also have similar expansion plans in Saudi Arabia and Jordan.

Is the market competitive?

It's highly competitive, although there is plenty of business for 3PL firms to secure, develop and retain. The core success of CEVA in the Middle East has been realised by listening to customers, designing solutions that meet their needs and making sure we deliver on promises.

Which companies use your services?

Our clients in the Middle East include GO Sport, Technogym, Croc Shoes and Wabco.

How will CEVA Logistics develop its presence in the Middle East?

We've operated in the Middle East for two decades and this region has been identified as a leading area of growth for our global operations. To support this expansion, around US$800 million will be invested to develop our infrastructure, technology and people, with an initial focus on the UAE, Saudi Arabia, Jordan and Oman. GAC Logistics:Phil Showering, general manager

What range of services does GAC Logistics provide in the Middle East?

We started our operations in the Middle East and this remains our home market, where GAC provides a complete range of supply chain and logistics solutions, including multi-modal transportation, warehousing and distribution, and valued added services.

What makes your company different from others in the Middle East logistics market?

Reliability has always been our bedrock. We focus on the customer and provide tailor-made solutions that deliver exactly what the customer requires, not what the service provider wants to offer.

How strong is demand for 3PL services?

Demand is strong and many companies are using the economic downturn to revisit their supply chain strategies. Speed to market, costs and value for money are becoming even more important in today's context, and there is a real desire amongst customers to drive their total supply chain costs down in partnership with GAC in the Middle East.

How competitive is the regional market?

The regional market has always been competitive. You have the major global players, regional providers and smaller local forwarders. This is good for our customers and good for GAC as it keeps us fresh in our outlook, constantly re-evaluating and innovating with new products.

In the current economic climate, the regional market is facing some challenges. Logistics companies must be in good shape, well financed and hold sufficient resources to ride out the tough times. Those in such a position will capitalise on the inevitable opportunities that always arise in times of crisis - and likely emerge even stronger.

Which companies use your services?

GAC Logistics Park is home to several companies from diverse sectors. For example, we recently developed a large semi-automated hanging garment facility in partnership with the Al-Futtaim Group to support its Marks & Spencer brand. Momentum Logistics:Matthew Derrick, general manager

What range of services does Momentum Logistics provide in the Middle East?

We offer the full complement of 3PL and supply chain services, including contract logistics, freight forwarding and transport, as well as container repair. We're also developing the concept of ‘Logistics Cities' for customers to manage their entire supply chain from a single location, with projects such as Sharjah Inland Container Depot (SICD) and the forthcoming International Logistics City (ILC).

What makes your firm different from other 3PLs in the region?

A key differentiator that sets us apart is our range of services.

We are one of the first 3PL companies in the UAE that can directly provide this complete array of services. Delivering excellent levels of customer service is key.

How strong is demand for 3PL services?

With the current global situation, we believe the need for dedicated logistics companies has never been greater in the region, as customers look to streamline theiroperations and focus on their core business. With a growing number of companies now outsourcing their supply chain to the experts, demand in the region will remain strong for the foreseeable future. Kuehne + Nagel:Werner Kleymann, regional manager

What range of services does Kuehne + Nagel provide in the Middle East?

The full range services are offered in the region, such as sea freight, air cargo, contract logistics and overland. We also have niche products for industries such as the oil and gas, perishables and hopitality sectors.

What makes your company different from others in the logistics market?

Few logistics companies have such a strong presence in the region, backed with our own network of 850 locations in more than 100 countries worldwide. This is supported by the state-of-the-art visibility tools that we provide to clients, such as the KN Login software, which offers global visibility across the customer's entire supply chain.

How strong is demand for 3PL services?

Demand remains strong. From our side, if there is an upside to the current global situation, it's that the customers are more interested in the bigger picture, i.e. the savings that can be made in the value of their inventory, as opposed to a few dollars on international transportation.

What are your development plans?

A major new facility in Dubai Logistics City will provide services across the region with drastically reduced lead times. Aramex:Hussain Hachem, Gulf CEO

What range of services does Aramex provide?

Aramex provides a wide range of logistics and transportation solutions that add value in the Middle East and globally, such as domestic express delivery, freight forwarding, storage and other supply chain services.

What makes your firm different from other 3PLs?

A number of factors have differentiated Aramex, including its customer centric approach, flexibility, integrated solutions, and extensive Middle East network, which consists of logistics centres, land freight routes and intra city distribution networks. Aramex has also played a pioneering role in advancing corporate citizenship in the region with various different initiatives.

How strong is demand for 3PL services in this region?

The current economic challenges are encouraging more businesses to outsource and do business in a cost-efficient manner, which has boosted demand over the past year.

How competitive is the regional market?

The landscape is becoming increasingly competitive with the entry of many new domestic and foreign players. However, we believe that competition is healthy and a key factor in constantly improving performance and service. Al-Futtaim Logistics:Tom Nauwelaerts, logistics head

What range of services does Al-Futtaim Logistics provide?

We provide a variety of services that are mainly focused on inbound logistics, supply logistics, distribution logistics and after sales logistics. More specifically, we are heavily engaged in air-sea forwarding, customs clearance, storage and transport.

What makes your firm different from other 3PLs?

The fact that we're part of a major group like Al-Futtaim makes us unique in the market, with few comparable companies.

This strong backbone and diversity allows us to support Al-Futtaim's supply chain and the acquired competence can then be leveraged into the general market for logistic services.

How strong is demand for 3PL services in this region?

Demand keeps growing, although the pace has come down a bit from its record highs. This is actually welcomed by us and seen as an opportunity to reorganise our business model and infrastructure to create a higher level of competency.

What are your development plans in the Middle East?

We will support our growth with investments in logistic infrastructure, which includes an expansion in transport fleet and warehouse buildings, as well as regional workforce. Swift Freight:Warren Erfmann, Middle East CEO

What range of services does Swift Freight provide in the Middle East?

We have a competitive offering in land, sea and air transport, in addition to perishables transport, sea-air combined transport, warehousing, logistics and distribution.

How are you different from other 3PLs?

We combine the more "intellectual" aspects of logistics that is strategy, planning, management and integration with excellent operational execution. This is achieved through the development and acquisition of skills and knowledge that spans the entire spectrum of supply chain management.

How strong is demand in this region?

Our 3PL business is still doing extremely well and has tremendous growth prospects, even during the difficult times that have been introduced through the global economic crisis. We service a diverse product range - from confectionery products, computers, and electronics, to sports goods, textiles, lubricants and many others. Also, we have particular strengths in value-added services such as sorting, stacking, racking, picking, packing and co-packing and retail distribution, which covers the GCC and neighbouring Middle East countries.

Please name some of your customers in this region?

For security reasons, we cannot divulge the names of our customers. However, our client base is made up of traders and corporate clients in industries such as retail, oil and gas, FMCG and information technology, amongst others.

How do you plan to develop your Middle East operations in the future?

Our current focus is strengthening our offices in Africa to ensure a seamless supply chain of cargo from Africa into Dubai and onto different parts of the Middle East, Far East and Europe. In addition, we are now able to take advantage of synergies brought about by the various acquisitions made by Barloworld Logistics last year. By providing niche, multi-modal solutions in the global logistics arena, we will expand our freight management services through their networks, and have the opportunity to become a significant player in a supply chain network that stretches from Asian manufacturing to Western European and African consumers. Danzas:Eric Piling, country manager

What range of services does Danzas provide in the Middle East?

Danzas offers a full range of multi-modal inbound and outbound transportation services in Dubai, as well as other 3PL and 4PL services. Within the GCC, we also offer value added services through the DHL network, such as integrated supply chain, consultancy and sophisticated IT solutions.

What makes your company different from others in the market?

Danzas is part of the vast global DHL network and a big advantage is our footprint in India, China and Africa, where we have market leading positions. These operations allow our customers to tap into these emerging economies as a seamless end to end network. We combine this unique network with a dedicated relationship management model that matches our customer's requirements with our service execution.

How strong is demand for 3PL services in this region?

We continue to experience strong demand and consider ourselves a significant industry partner for inbound and outbound logistics services to and from the Middle East and African markets.

How competitive is the regional market?

Given the worldwide economic conditions, our customers are seeking alternatives and solutions to reduce costs. In response to this, we are offering attractive services that aim to reduce costs whilst maintaining the integrity of transit times that are promised by our customers to their customers.

What are your Middle East development plans?

We will focus on developing services in line with customer expectations. With the opening of our facility in Jebel Ali Free Zone last year, we can fulfil the supply chain needs of the pharmaceutical sector, which is a main driver of our commercial strategy. RSA Logistics:Kirit Mehta, marketing director

What range of services does RSA Logistics provide in the Middle East?

We offer a range of services from our 25,000m2 warehouse in Dubai Logistics City, including sea and air freight, land transport, customs clearance, warehousing and distribution, and value addition services.

What makes your company different to other logistics service providers in the Middle East?

RSA Logistics is a family-owned enterprise and earlier this year we became the first company to commence operations at Dubai Logistics City. Accountability is the key word in our organisation. Each department is accountable for what they have been entrusted. Our personnel are extremely high calibre and complement each ongoing activity with a great deal of competency and proficiency.

How strong is demand for 3PL services in this region?

There is a slowdown in the Middle East, although we're confident about a recovery in the long-term, especially when Al Maktoum International Airport is opened. In the meantime, we have adjusted our short-term targets. For example, we initially expected to reach capacity with storage space in six months, although this has been extended to one year now.

What are your development plans in the Middle East?

RSA Logistics is already planning its second phase of development, which covers areas such as a trucking fleet and temperature-controlled storage. We have also reserved space at the freight forwarding area of Dubai Logistics City to directly handle our shipments from Al Maktoum International Airport. It's another step towards reaching our goal of providing customers with a complete solution that can be compared to the best in the world.

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