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Thu 30 Jun 2005 04:00 AM

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Traffic growth

Global logistics giant, DHL is ramping up its Middle East presence, as it looks to benefit from the region’s growing economy and its role as a global transit point.

|~||~||~|DHL is investing in further increasing its presence in the Middle East. The 3PL has long been active in the region, mainly based around its hub in Bahrain; however, the company has now opened an express logistics centre in Jebel Ali, which will act as a centre for its growing trucking operations. The company is also planning one of the first major RFID projects in the local market, as it looks to improve its services.

The 3PL’s investment in the local market is indicative of the growth of the region’s economy, particularly Dubai, and its role as a trading hub. In particular, there is a huge amount of goods shipped into Dubai by sea from India and then flown on from the emirate. The Indian government’s moves towards more liberal aviation policies, along with similar moves in China, would seem to threaten this traffic, as it will become both cheaper and simpler for suppliers to transport goods directly to their international customers. However, Graham Davey, COO, emerging markets & Latin America, DHL, believes that there will still be a role for Dubai and other hubs in future trading patterns. “I still think that there is a place for an intelligent stopping point, provided that it adds value,” he says.

“If you are just going to add cost, then forget it… However, if you are able to consolidate from a global sourcing point and to then add value — in packaging, for instance, and adding the bits that make the product right for each market — then there is definitely going to be a place for distribution centres, as it is very hard to do that [kind of work] at the source… if you want to serve the immediate needs of the market,” he explains.

Dubai is, of course, well positioned to serve this role because of its geographical position and liberal trading and transportation environment. The emirate is also investing heavily in maintaining this position through the planned construction of a massive new airport at Jebel Ali, which is designed to become by far the biggest in the world. DHL plans to take advantage of the new facility, and Davey believes that Dubai’s ambitions for the new airport can succeed. “It would have been inconceivable 20 years ago that you would have so many people doing so much in terms of distribution, but here it is,” he comments.

“People are busy, it is hard to find hotel rooms, and it is hard to find [warehouse] space.”
“As such, when [Dubai’s dreams] have come true every year for 20 years, it is hard to say that they will not come true for the next 20 years as well,” he adds.

Yet, while Dubai and Jebel Ali are the centre of much of the logistics operations in the region at present — including DHL’s latest express logistics centre [see p. 8] — other countries are also aiming to develop their role within the logistics sector. As such, the 3PL may look at adding other major facilities to the centres it currently has in Bahrain, Dubai, Abu Dhabi and Amman. “Obviously, Jebel Ali is in the forefront of everyone’s minds… However, the governments and to some extent the private sectors in all of the other Gulf states and the Levant are also developing transit points,” comments Philip Couchman, area director, Middle East, DHL. ||**|||~||~||~|“As time goes by, we would [build hubs elsewhere] in line with customer demand,” he adds. “We will do what we have always done and react to what our customers want on the one hand, while, at the same time, directing them into the most efficient solutions.”

“What ultimately happens in Iraq, in terms of the rebuild there, is going to affect traffic flows through [Dubai], Kuwait, Bahrain and Jordan as gateways to Iraq,” adds Davey. “Everybody is growing… [but] the attractiveness of each place will be determined by how quickly they facilitate trade and make themselves attractive for goods.”

Alongside the new express logistics centre and increasing trucking network, DHL is also investing in the region through the implementation of RFID. Working with Tagstone, the 3PL is launching a pilot project, with the aim of putting RFID tags on all of its packages.

“We are trialling it [RIFD] around the Middle East,” explains Couchman. “We think we will find the best results at funnels in the distribution channels. For instance, it will be telling at the borders, such as on the Bahrain causeway, and any place where we have a bottleneck that we know most things have to pass through,” he adds.

Developing the local market will also require persuading more local companies to outsource more of their logistics. At present, the region’s businesses only outsource about 20% of their logistics requirements and do the rest inhouse. By contrast, the European market currently outsources 80% of its logistics requirements, which suggests that there is plenty of potential within the local market. “This is indicative of the different and undeveloped nature of the [region’s] business… but it is an opportunity that will gather momentum over time provided that we are providing and facilitating,” says Couchman.

However, convincing local companies to outsource their logistics is a major challenge that requires them to look beyond just shifting boxes and instead consider supply chain management as a strategic issue. “It really depends on the vision of the customer,” says Davey. “If their goal is just serving the local customer, they can do whatever they like.

However, if you are talking to a multinational corporation, which has a clear vision of end-to-end costs, including its inventory costs, then they take a totally different view, and that is where we come into play.”

Few companies here take this view as yet; however, increasing competition is forcing businesses to begin to look at how they can cut their costs, including moving towards just-in-time inventory, in order to be more competitive. “The family conglomerates are changing their model, they are getting funds from other sources and they are changing the way that they manage their business,” says Davey. “And, if they are involved in distribution at all, or if their products need distribution, we are going to be a natural part of that change.”

“Indeed, when a company moves to a just-in-time lean inventory system, it has to make sure that it is backed up by a very competent supply chain with reliable logistics and transportation,” he adds. “If you just have one half without the other, then you will fail spectacularly.” ||**||

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