Best Worst 2008

It was the best of times, it was the worst of times. Industry leaders share their thoughts

Ingo Roessler,
Vice President Cargo, Royal Jordanian

The best
We have not increased in volumes a lot, but we have been able to find more attractive business, and have done a lot more charters. If you compare this year with 2006, for example, we are at almost ten times the volume. The 310 freighter has become particularly popular. Obviously, the more expensive fuel gets, the less competitive were the Ilyushins or Antonovs that are able to fly loads in the 35 to 40 tonne range.

The year we made a lot of changes. The second phase of our complete warehouse remodelling is being completed now. We doubled the amount of pallet storage, and can now store more than 7,000 pallets in a semi-automated environment with bar codes. We put in new doors, we put in fencing, we put in access control, we put in a lot of new equipment to store and move the pallets. On January 1, we will move over to our new IT solution, Cargospot from Champ Cargosystems. We are also working on an improved interface to Jordan Customs. Eventually we will have the ability to offer on-line booking for the clients, via our new website.

The worst
The worst thing to happen was the spike and sudden drop in fuel prices. Yes we did some hedging to mitigate, but I don’t think any mathematic model actually reflected such a development. It has been a difficult situation for everyone. If the price had stayed at US$150, we would not have seen many freight operators continue to operate the aircraft.

Bill Hill,
Group Vice-President, Logistics Services, GAC

The best
The wide-ranging investigations into the global freight forwarding and air cargo industry by anti-trust agencies in several countries, including the United States and European Union, which started back in early 2006 has put the spotlight on possible anti-competition practices engaged by selected industry players. The probes have led to heavy penalties for errant companies which have violated anti-restrictive business laws with price fixing of cargo rates, fuel and other surcharges – the events culminated in one of the largest antitrust settlements in history in June this year. The resounding message sent by the governments is that they will not tolerate any malpractices. This is a big step forward for the global logistics industry towards the cleaning up and eradication of unfair and restrictive business practices. This action not only helps level the playing field for all industry players, especially those who practice ‘good corporate ethics’, but more importantly, benefits our customers through greater transparency and competitive pricing.

The worst
With the onset of the global financial meltdown, all businesses including the transport and logistics market are now entering a period of uncertainty as the effects of the crisis, start to be felt. In the interconnected world which we operate in, all industries and markets will be affected to varying degrees.

Konstadina Kottoros,
Legal Consultant, Fichte & Co Legal Consultancy

The best
Pre credit crunch and in the not so distant past, the UAE industry was booming at an exciting rate with an expected sustainability for at least the next five years. Import of project cargo was on a roll to facilitate the construction boom, the number of tonnage entering the region doubled in capacity, further attracting investors worldwide in real estate and shipping. Given the booming year for shipping and in the region, our firm has dealt with a high number of shipbuilding and sale and purchase contracts and ships finance transactions related to the new build vessels expected for delivery in the next years, with further popularity over the purchase of second hand vessels as well while shipowners speculated the market. There has been in fact a high demand for tonnage to accommodate this significance in commodity trading, while at the same time airports and sea ports throughout the UAE equally embraced the burgeon and put forth plans for expansion.

The worst
We have experienced a healthy 2008 throughout up until the recent crash in the economy which has slowly but surely leered its head in our parts of the world. How and to what extent this financial crisis will affect private practices in the region remains to be seen.

André N. Verdier,
Senior Vice President Supply Chain, Itsalat International Company

The best
The realisation that the supply chain is actually the value chain and it has a place at the corporate top.

The worst Rising oil prices and terrorism in Pakistan.

Duncan Alexander,
Vice President, Mercator

The best
The best thing to happen in 2008 was SkyChain. It will transform cargo operations and improve it for everybody. It’s a fundamental change in the way we do business. It will be much more affective and profitable.

The worst
The worst was the global economy and prices. Logistics are a barometre of world trade, so people in the industry could see the problems coming very early. That has been the worst thing for everybody. Margins are now wafer-thin. Normally, our region just lies through crises but this is a different wind of change that might be a real problem.

Des Vertannes,
Executive Vice President Cargo, Etihad Airways

The best
The best thing to happen in the air cargo logistics industry was having to compete with an understanding that ocean freight has become more competitive in terms of timelines. It’s not just about faster ships. It’s the fact that they can accelerate their process on the ground while air cargo still has to fight with greater security requirements before it can get its freight in the air. Of course, the cost variation precipitated by fuel prices has meant that a lot of the air cargo commodities have been converted to sea. That’s going to make people working in the air cargo supply chain think of ways to make up for the differences. I think this is a good thing, because if you’re challenged you tend to stretch yourself that much further. As your competitors start to close the gap, you want to try and widen that gap. It causes you to be far more innovative.

The worst
The credit crunch and the impact is has had on consumer confidence, the economies of the world. Consumers are feeling the pinch and putting their hands in their pockets and not spending. This means that less goods are going to be purchased, shipped and moved.

 Viktor Fuchs,
Managing Director, Pro Service GmbH

The best
In the first half it was a pretty good year. Our VIP cargo business for Arab tourists lasted until August/September, so there was not much I could complain about.

The worst
The worst thing to happen in 2008 was the start of a global economic crisis. Nobody really knows where it is going to take us. Germany, as you know, depends on three main commodities for business: cars, machinery and chemistry. All three of them were badly affected by this situation, so fingers are crossed for a lucky development. Logistics companies are directly connected to such developments: Every order missing in the industry is a transport missing in our books. My hopes go to the new US President elect, a more steady political situation in the world’s biggest economy might stabilise other economies as well, or at least help the situation.

Satya Prakash Singh,
Senior Manager, Warehouse / Logistics, Landmark Group

The best
Infrastructure development in the UAE, for example roads, logistics cities, rail and free zones has supported the supply chain and logistics industry in 2008.

The worst
Differences in diesel prices in two emirates of the same country (Dubai and Abu Dhabi) put logistics companies under pressure to look into their bottom line.

Alexander Borg,
Regional Director & Co-ordinator, The Chartered Institute of Logistics and Transport

The best
The logistics industry in Dubai is contributing to nine per cent of the emirate’s total GDP. The Government of Dubai has recognised this important factor and sector and this year has issued a Directive to the Department of Economy to start working on a strategy to increase this sector up by 13 to 15 per cent. Also, with the increase of this year’s budget, about 30 per cent was budgeted for education in which logistics education plays an important role. All this shows that this sector is giving positive results and it is growing at a rapid pace as Dubai continues to distinguish itself as a logistics hub.

The worst
Cost of fuel made international shipping and transport difficult. Companies had to revise their costs of operations to remain competitive. The worst is when you have already forecasted and planned your operations and in the middle you have to revise your costs. This impacts the bottom line and could lead to less investment from the private sector.

Gerhard Mattrisch,
Daimler AG, Research and Development Society and Technology Research Group

The best
The best thing to happen in 2008 was related to vehicle technology, especially hybrids. From my point of view, the majority of commercial vehicle manufacturers made a considerable step in the direction of sustainability. Sure, the looming market crisis might form some kind of a retarding moment in this development, but in the long run the movement will gain momentum, ending up in those advanced drive technologies as electric and fuel cells. This way, the sustainability footprint of the whole transport sector should become much more “dainty”.

The worst
The worst thing to happen in 2008 was related to fuel prices. What happened in the first half of 2008 was almost a catastrophe for the logistics business, and, as we can see now, was completely inadequate. In other words – the financial and energy markets have been in the position to grab (or steal) hundreds of billions of dollars from private consumers and energy-consuming industries, including transport and logistics. This money has gone, and insofar cannot be used for modernisation, upgrading and investments.

Dirk S. van Doorn,
Business & Product Development Manager,DHL Express

The best
The best thing to happen this year was the excellent boom in the supply chain industry across the Gulf. Investments are at an all time high and there is a massive demand for services from the various industry and sectors across the Middle East. The foundations have been laid by the supply chain industry as a whole for a competitive industry to operate out of the Gulf and the UAE. The industry is well positioned to be in the top three when it comes to the management of supply chains globally.

The worst
The worst was the continued hike in the fuel price. The industry as a whole in the Middle East and specifically in the GCC countries is facing spiraling costs. From trucking costs, to aircraft costs, to the cost of construction of warehousing and distribution centres – all have taken a toll on the profits of the supply chain industry. However there is a silver lining and that is if the industry as a whole in the UAE and Middle East can manage its costs in times like this, it should be in a strong position to achieve a competitive position in the global supply chain and make reasonable returns.

Kamel El-Ghossaini,
Senior Manager – Supply Chain Solutions, SPAN Group

The best
As the leading provider of supply chain solutions in the ME region, SPAN has experienced during the past year, a significant increase in the number of customers who have adopted its best-of-breed technology and automation solutions. This reflects that companies are finally realising the value of technology in minimising labour cost and improving service levels. Furthermore, the emergence of new players in the supply chain management solutions market has helped prospects distinguish SPAN’s unique solutions and service offerings in a more objective way.

The worst
The recent global economic crisis has had a negative effect on the supply chain and logistics industries. This crisis will hold down customers’ expenditures which will bring about a challenging year to come for all players in the logistics industry.

Prakash Rao,
DGM Logistics, Landmark Group

The best
The supply chain is being increasingly recognised as a competitive factor across companies. Supply chain professionals are entering into the boards of various companies and educational institutes are placing special emphasis on supply chain and developing specialised courses for the same. There has also been substantial investment in logistics infrastructure across the world with a view to the future requirement.

The worst
The increase in crude prices adversely affected the end consumer in terms of inflationary pressures. All links in the supply chain from manufacturing to transport were adversely affected in terms of price escalations. The reduction in export benefits offered to Chinese suppliers has also pushed up the manufacturing cost index. Locally in the GCC, it was a very challenging year with double digit inflation and a shortage of road freight and warehousing capacity. The Ramadan season in 2008 was also adversely affected due to the Jebel Ali Port congestion with delays in upper gulf shipments. This created increased pressure on the already constrained road freight capacity in the Gulf.

Nimesh Parekh,
Director, Calipar Trading

The best The value and importance of different services (eg. 3PL, 4PL, areas related to supply chain and logistics) became very prominent to all companies (multinational or domestic) as other costs were increasing globally. The requirement of higher standards of service has increased where the companies are willing to invest more time and effort, which in turn means higher investment.

The worst The development of different logistics parks, export oriented units, special economic zones and logistic cities in different countries has been very slow and caught up in different political stages with respect to each country. There are many sanctions and development plans which were launched two years ago but the entire process has been slow. Further, the fluctuations globally have been skewed with respect to the costs of the services to be provided which has led to windfall gains and losses.

Flemming Ravnsborg Andersen
Director, East Arabia Cluster, Maersk Logistics

The best
Mirsal II by Dubai Customs and the e-token system of JAFZA – only through automation of the processes around entry and exit of the port can we continue to support the growth in volumes.

The worst
The closure of Port Rashid causing major constraints on in-land moves and leading to the ongoing congestion of Jebel Ali port. Delaying this closure by one or two years would have enabled Jebel Ali to have completed its Terminal 2 and the hinterland infrastructure (partly DP World/partly RTA).

Auriel Newman,
Executive Manager, South African Airways Cargo

The best
The best thing we ever did was go back into Kinshasa. This year, we made a phenomenal run in terms of developing that market.

The worst
We went through a really rough patch with our long haul freighter when the volumes subsided. The worst thing that could have happened to us was losing capacity. We lost an MD 11 on May 1, but with the subsequent economic conditions it might have been the best thing that ever happened to us. We managed to recover fairly quickly and now it has opened up a whole lot of other opportunities.

Joseph Ghazal,
Senior Vice President, Prologis

The best
The better understanding of logistics and supply chain have led companies to raise the bar of their requirements or to outsource to a specialist in order to optimise their operations. As a result, the region as a whole is on its way to catch up with practices from Europe and North America in order to be able to face the continued growth and challenges of the supply chain industry. Outsourcing operations or real estate is no longer a “taboo” as companies are focusing on their core business and using their capital to grow it. Also, sustainable development is finally directed towards the industrial projects. Being a leader in sustainable development in our field, we are delighted to see that more customers are sensitive to this issue, which will certainly differentiate the players in this market.

The worst
The proliferation of logistics parks, or hubs, across the region can leave one puzzled somehow. Of course, not all the locations are 100 per cent suitable from a supply chain perspective, therefore each developer and the end user should be very diligent in his assessment to ensure the success of the operations.

Sandeep R Prabhu,
Sr. Manager Supply Chain Management and Operations, Philips Consumer Lifestyle

The best
Being recognised as the heart of the business organisation and not as a back office.

The worst
There is not enough transparency on what is happening and will happen in the supply chain.

Fervez P. Puthiyapurayil,
Operations Manager, Imation

The best
Overall the government has been very proactive in ensuring and planning ahead in terms of dedicated areas or zones for facilitating warehousing and distribution services. One has been the operational start up of Dubai Industrial City, additional space being let into the market and emphasis on dedicated zones for specific product and food groups. The planned roll out of Dubai Logistics City this and next year will also decongest the Jebel Ali Free Zone area. But importantly the government continues it’s positive approach to ensuring more options for the growth of the industry.

The worst
The phasing out of services and closure of Port Rashid. For the last one and a half months Jebel Ali Port has been congested which is hampering container traffic inbound and outbound. A direct result of this has also been the surcharge by shipping lines in terms of cost and delays in meeting customer commitments. I feel this shut down should have been planned when Jebel Ali was close to being ready to take on the extra load.

Nathan Vellasamy,
Regional Manger, Air Capacity Sales Asia Pacific, DHL Express

The best
The best thing that happened was that we saw positive growth in the beginning of the year, which was carried over from 2007.

The worst
Due to the financial crisis which started in the US, the Asian economies are badly affected. The goods and services transportation is a key factor to see the GDP growth of any country. We did see in July, August and September a gradual reduction in transportation. I do think this is cyclical, and will probably last about a year.

IN DEPTH

Dr. Rajiv Aserkar, Professor and Vickram Srivastava, Student,
SP Jain Centre of Management, Dubai

The best
The best thing to have happened to the industry in 2008 is the launch of the new 53-foot containers by APL Logistics. Though the first container was delivered in November 2007, the real impact of the launch could only be gauged in 2008. The new containers are poised to change the way containers are moved around the world. In the first phase, the containers have been launched in the South China-Los Angeles service route of APL. The 53-foot containers have long been in use in the USA for intermodal transportation, but have not been deemed strong enough for rigorous sea transit. The newly designed containers are reinforced and have been specifically designed for this purpose. After extensive pilot runs, APL, is set to revolutionise the supply chain. The bigger boxes have 60 per cent more capacity than the standard 40 foot containers. The extra space allows shippers to consolidate more cargo into fewer containers. The growing business in Middle East with Dubai turning out to be a major hub, will soon see the new containers being shipped to Europe and Western markets through the Suez Canal. This will have major impacts on the industry. First of all, shippers can gain better cube economics using the bigger containers. Also a lot of cost can be eliminated in trans-loading expenses. Secondly, the new containers can hold more cargo. Two 53-foot containers can hold contents of three 40-footers. This will result in fewer containers to handle, fewer moves, better consolidation and collaboration across the supply chain. Finally, the environment will benefit. Using the 53-foot containers would result in more being shipped every container resulting in less trucks required, less moves resulting in lesser exhaust emissions and pollution.

The worst thing to have happened to the industry in 2008 was the sky rocketing fuel prices. Fuel prices shot up from around US$100 per barrel touching the almost US$145 mark in just around four months in 2008. This rising fuel price forced a lot of strategy change by companies to cope. Rising fuel prices meant companies could afford fewer moves of goods. With fewer moves of goods to avoid stock out, companies had to over stock. This led to an increased level of inventories lying in the warehouses and to match these increased level of inventories companies had to invest more. Hence a full vicious circle of cost cutting led to a new cost being incurred. The sub-prime crisis in USA didn’t help much to this cause. The depreciating US dollar value added to the woes of supply chain managers, who had a tough time managing the finances attached to their respective supply chains as the biggest consumer in the world went into a recession period. The economic slowdown of the US economy coupled with the rising fuel cost resulted in a double impact to the supply chain all around the globe. Logistics and transportation costs became the point of contention with companies. With the rising fuel cost, additional costs were passed on to the end user. This resulted in inflation and a rising cost of goods in the market. With oil and logistics costs higher than the past few years, we’ll see more efforts in trying to keep these costs down. Many companies will ‘slow down’ their supply chains by using less expensive and slower transport modes. This will of course mean that inventories will increase – especially in-transit and at justin- time sites. Shippers and carriers will tend to exit non-profitable service lanes and will continue to cut costs to stay afloat as with low volumes and reduced margins their cash flow will be crunched anyways.

AND FINALLY

Brian Shepherd,
Senior Vice President, Al Tayer Logistics

The best
All doom and gloom. It is very difficult to think of anything if you take the full year into perspective. Over the last two months, I would believe that the positive adjustment in the price of oil and steel/materials for building new facilities has helped to reduce costs in the short term. How long will it last?

The worst
The worst things to happen in 2008 included oil prices, Middle East port congestion,  and costs and building costs which have all seriously affected the cost of logistics and fuelled inflation.