With all the new rules and regulations doing the rounds in the UA E, heavy duty driver’s licenses and safety on the roads are turning out to be two areas of focus.

It’s astonishing to think that, for all the thousands of trucks pounding the UAE roads, there would probably be even more were it not for issues with driver license processing. New applicants, particularly those from the Subcontinent, are waiting on average for three months – one case was reportedly as long as nine months – meaning some suppliers are in the unenviable position of having trucks to go but no drivers.

Middle Eastern states are all looking at ways to stop more vehicles spilling out onto their already crowded roads. In one of the more radical proposals, foreigners who earn less than 500 Bahraini dinars (US$1,326) a month might not be allowed to apply for Bahraini driving licences.

Dubai is caught at a cross-roads, trying to reconcile soaring demand with rising congestion. Effectively, it’s giving with one hand, and taking with the other.

The number of vehicles registered in Dubai increased from 743,769 in 2006 to 853,827 last year – yet at the same time, the number of driving licences issued fell from 156,974 to 87,825. The Roads & Transport Authority, while spending billions on road improvements, is aggressively targeting water and rail, recently launching Ferry Dubai, which will have a 10-vessel fleet.

Trucks, meanwhile, remain in the firing line. In a new anti-congestion purge, more than 9,200 fines were issued for offending tankers and trucks that blocked traffic in the last month. Further up the Emirates Road, the Department for Economic Development in Ras Al Khaimah enforced a new rule in July, temporarily banning the issue of licences for new heavy trucks in the emirate in order to allow the government to amend the heavy trucks licensing law.

The licensing niggles aren’t the only things UAE haulers have to worry about; they may pale into insignificance compared with proposals to phase out all old trucks next year in a bid to boost road safety and cut accident rates. The plans are likely to impact haulers operating the larger 20 and 40-foot fleets most. “We’re heading for a major crunch in the market and rates will go up,” said one manager.

Quite rightly, the UAE isn’t prepared to be seen as a global dumping ground for non roadworthy vehicles – but implementing and enforcing the legislation will be tricky.

Spotting bald tyres and dilapidated engines may be one thing, but more complex challenges remain in identifying counterfeit vehicles.

Counterfeit, in any sphere, is a nebulous world. In the haulage industry, it can mean models which may purport to be five years old or less, are indeed much older once the composite parts are stripped bare and properly analysed.

There are cultural issues to address too; in the UK and US, truckers take pride in their vehicles, seeing them as vital assets which are integral to their commercial livelihoods. How many UAE truckers view their vehicles the same way? Judging by the way they drive them along the highways, probably not that many.

This in itself raises key questions over maintenance, and we need a more concerted response from industry and authorities to ensure vehicles are kept in good condition.

DP World’s much publicised Jebel Ali Port is already congested. But there’s hope in the form of a second phase

Jebel Ali hasn’t had the easiest of years, with Dubai’s ongoing growth and the closure of Port Rashid causing berth congestion at DP World’s flagship port. Reports of ships being kept waiting up to 10 days just to find a slot have made it a trying period for shippers and carriers alike.

DP World’s volumes for Jebel Ali and Port Rashid topped 5.8 million TEU in the half year to June, a 17 per cent increase, with rising loads from Australia, India and Middle East. Jebel Ali’s volumes alone rose by 22 per cent in the six months to June 30, a rate which any port globally would find hard to sustain.

The decision by the Dubai government to redevelop Port Rashid for urban real estate and maritime activities, such as cruise tourism, prompted its closure and the switch of traffic further south – and this understandably further increased pressure on Jebel Ali’s operation.

Nothing stays the same for long in Dubai though, and respite may not be too far away. The port will continue to roll out the second phase of new capacity, totalling five million TEUs by February, taking overall capacity to 14 million TEUs. With its 17 metre draft capacity, Jebel Ali can cater to the next generation of ‘mega ships’ that exceed 13,000 TEUs – and with more emphasis on large vessels, that should mean fewer ships calling and theoretically, less congestion. One ship alone, the Grete Maersk, docked in July with a capacity of 8,200 TEU.

Remember Jebel Ali isn’t just serving growing container volumes. With all the major development projects on the go, including the construction of the AED121.2 billion (US$33 billion) Dubai World Central close by, the Middle Eastern hub is also dealing with increasing heavylift cargoes such as steel rebars, coils, plates, channels, angles and pipes. Dubai’s non-oil direct foreign trade jumped by 54.3 per cent during the first half of this year, and Jebel Ali is very much at the ‘coal face’ of dealing with this growth.

It’s not alone in facing challenges. Jebel Ali’s trials are all part of a wider GCC picture, in which the chief challenge facing port operators is providing enough capacity quickly enough to serve the region’s booming economies.

The Pearl Oil Project is requiring huge volumes to be delivered at Qatar’s Ras Laffan Port, which is struggling to keep pace with demand, and business leaders have been calling for urgent action to improve congestion at Jeddah Islamic Port, which is forcing many vessels to find alternative routes.

None of this is much consolation for shippers though, who are not only having to deal just with capacity constraints but also rising costs. A 20-foot container at Jebel Ali now costs AED750, up from AED380 in February last year, and 40-footers have risen to AED870, compared with AED460 at the start of the year.

Importers were additionally hit, as they weren’t able to raise the cost of goods following a decree by Dubai Municipality not to hike prices during the holy month of Ramadan.

All of which means logistics companies are having to put on a brave face at the moment. But with more capacity coming on stream, the tide should start turning by next year.

Proposals for a series of truck stops in the UAE would be welcome for haulage drivers and serve as a focal point for logistics services

As the weather starts to cool and UAE motorists start to dream up enjoyable daytrip itineraries, spare a thought for the thousands of truck drivers who, come winter or summer, drive through the heat for hours on end, are restricted in when and where they can drive, and have little in the way of amenities and services to help them off the roads.

But if proposals for truck stops by oil major Emirates National Oil Company (ENOC) are given the green light, then at least that last point will be consigned to the scrap heap.

The spacious, trucker-focused facility would have everything on one convenient site with designated sections for specialist oil, water, truck wash and repair facilities, as well as a convenience store with first level accommodation, garbage skips, weighing stations for trucks and power generating points. A stand for taxis and buses would also be available to shuttle drivers to and from the city.

ENOC has earmarked five locations in various Emirates, including one in the heart of Dubai Industrial City, but hasn’t received approval yet, or consequently started construction.

“It’s something that’s really been ignored,” says Zaid Alqufaidi, Chief Operating Off icer, ENOC, which operates 170 stores across the UAE. “Drivers come from Jordan, Syria, Turkey and Lebanon – where do they go? They end up sleeping in the trucks. If a driver wants to go to the washroom, he has to go behind the truck which is really uncivilised – or they end up cooking under the truck. I’ve heard of a lot of bizarre accidents where people have been sleeping and someone has backed up into them. Since the whole country is developing, we should be part of the development.”

The weight monitoring facility would be a useful service, especially as by 2013, the UAE will have 49 bridges crossing water, so operators will need to know their loads and be aware of any restrictions. The convenience store would be modified to serve drivers’ specific tastes – “these guys don’t eat Burger King”.

Emergency services would also be on site. “Whenever we have an accident today, the ambulances are finding it hard as they get stuck in traffic – so having them on the highway may help them get to the scene quicker.”

Power points would enable leads to be connected to trailers so chilled units can be kept running in a more environmentally friendly manner. “A lot of people bring in fresh dairy and meats – and they end up running the trucks just to keep the products cool.”

The current sticking point is the investment. ENOC hopes to get the RTA on board and other government partners to help get the project off the ground. He said once the truck stops are up, you can create a mandate and law around them. “If you see someone park on the side of the road, the authorities can impose heavy fines or confiscate the truck,” he says.

“This really has nothing to do with our business – unless we end up charging them, and if they can park on the side for free, why would they want to pay?,” he added. “It’s a good service but if it doesn’t justify it economically, it will be hard to sell to the board. The government can help by giving us the land, but we still need help for the rest. Putting everyone together on one table will take time. Then there’s the issue of who will manage it. But it’s not impossible.”

With shorter work hours and regular deadlines, how does anything get done during the Holy Month?

Meeting Ramadan deadlines is challenging for all Middle Eastern companies, given the shorter working hours and allowances for Muslim staff who are fasting and praying. But for logistics companies, the Holy month can present additional challenges, since global trade never stops and the industry, in any given month, ticks to a 24-hour beat.

This Ramadan effectively means an even longer summer than usual. But with all GCC countries tied up in a plethora of infrastructural, real estate and energy-related projects, and the peak season around the corner, it’s unlikely to be a quiet time for the logistics sector.

But ultimately, everything slows down noticeably across the Middle East, and that’s why one decision taken in one office – “the manager is out now, sorry, you’ll have to wait” – can soon impinge on the operations of another. That said, it would be wrong to see Ramadan as ‘anti business’ it’s quite the opposite. Many managers see the chance to network after sunset over a leisurely iftar or sohour meal, as particularly beneficial. In these CSR-conscious times, it works out to be the perfect opportunity to showcase a company’s charitable or humanitarian credentials.

As it’s a convivial, interactive month, ideally sales teams should tear themselves away from their emails and blackberries and see key clients face-to-face. They should catch up with old contacts and make new ones. It’s a month of spiritual reflection at heart and a good time for everyone to reflect on where they’re heading.

For express operators, the biggest issue is working out the vagaries of the traffic flows in their immediate neighbourhood and making allowances for roads becoming clogged in the pre-iftar rush. Employees out and about on deliveries or meetings also have to make additional provisions on where and when they will eat – for most, the ‘no eating or drinking in public during daylight hours’ isn’t restrictive, but it can pose challenges for drivers who are out on the roads for hours on end. It’s also a dangerous time of the year to be on the roads, with impatience, hunger and fatigue fuelling accident rates.

Agility strives to make sure it’s ‘business as usual’ during Ramadan and that its customers’ SCM requirements remain unaffected. Ali Mikail, Country Manager, Kuwait, says the key is to prioritise tasks and realign resources to meet operational demands.

The challenges vary for specific operations, for example, co-operatives see a surge in demand for foodstuffs, so its warehousing facility operates round-the-clock to ensure speedy and efficient delivery of items. On the other hand, freight logistics works closely with clearance of import shipments through port/airport, and deliveries for military cargo must match mission objectives.

“We lay emphasis on our people and in view of this, we try our best to maintain shorter work hours for our employees, especially those that work outdoors in field operations,” says Mikail.

As if soaring inflation was not enough, the VAT is coming soon. Contrary to popular belief, experts say it could be a blessing in disguise

The UAE is set to be the first GCC country to introduce value added tax (VAT) on consumer goods and services in early 2009, paving the way for the tax to be pan-regional within five years – Oman and Syria are also proposing to introduce it next year. VAT will likely be set at between three to five per cent in the UAE, replacing the five per cent customs duty.

Small businesses with revenues under US$1 million will be exempt from the tax, according to a statement by Dubai Customs, and companies within the health and education sectors could also be exempt – but it is unlikely those in the logistics sector will escape.

It may seem curious timing to introduce a tax, particularly with oil prices going through the roof and regional governments accumulating huge surpluses, but GCC states need to find non-oil revenue sources to make up for the loss in customs revenues that will be the result of implementing free trade agreements currently under discussion with the EU, China and India.

They also need to raise additional non-oil revenues should oil prices fall in the medium to long term and in view of their rapidly expanding populations, which is leading to increasing demand for government services.

The UAE has spent three years studying VAT and the infrastructure to levy it – and it is certainly not new in the Middle East. Jordan, Egypt and the French speaking North Africa all levy a sales tax or VAT, with the tax accounting for 22 per cent of total revenues.

News that VAT is around the corner in the tax-free UAE has been greeted with a chorus of disapproval, with many businesses and commentators predicting it will increase costs and inflation, which rose about 11 per cent last year, and possibly hinder competitiveness – although that seems unlikely. Egypt has an average VAT of 10 per cent but it does not curb economic activity.

Fears also abound that VAT’s introduction could lead more expats to pack their bags. Over 65 per cent of respondents in one poll said they were considering leaving the UAE, believing VAT would inevitably lead to other taxes, such as income tax.

But Warren Erfmann, Group CEO for Swift Freight and Barloworld Logistics Middle East & Asia, believes VAT is a good thing for a growing country like the UAE. “Although VAT is not very popular, as we foresee this generally as an additional expense, it should be stressed that VAT, if properly implemented, will ultimately enhance and ensure economic sustainability.”

This is the stance of Dubai Customs, which believes that VAT in the UAE and GCC region, in general, will have a significant positive impact on strengthening the economy, and raising current living standards.

Healthcare logisticians are eagerly awaiting Dubai Logistics City’s full opening
in two years’ time, but must keep their speedy transport options open in the
interim.

It’s all systems go at Dubai World Central, as its myriad components home in on a series of deadlines in the next few years. The first flight is targeted to arrive by the end of the year, the 200,000 sq metre office complex aims to be ready by April next year and the industry awaits the full opening of Dubai Logistics City (DLC) by 2010, with 150 plots currently reserved.

“This year and the next will be heavy construction years, so by 2010, we should have a very active community,” says Michael Proffitt, Chief Executive Officer for Dubai Logistics City. “We’re providing the platform, so the companies will be doing the actual interaction with the authorities. We want to make sure that the authorities are clear about what’s being developed in the timeframe, so they can work with us and have the processes in place ahead of the companies starting.”

Providing all certifications and approvals are in place, the first plane at Al Maktoum International should be touching down by the end of the year, although Proffitt concedes that might be tight. “The sooner we get it going, we’ll get a ramp up,” he says. “It’s really about taking pressure off Dubai International Airport – it’s a coordinated approach to transfer airlines to Al Maktoum International Airport.”

Emirates, which will open its new terminal at the existing airport this summer, has confirmed the whole of its operations will move to Jebel Ali at some stage in the future.

“As the new airport becomes fully developed, it will be the airport of choice for the region,” says Proffitt. “There will be the Metro links, but from a road point of view, it’s not finalised.” He says DLC is constructing three buildings for forwarders who don’t want their own buildings, which can be leased, with units measuring from 80 to
1,000 sq metres. “We want to cater for small, medium and global players,” he says. “It will most probably be used by companies looking to start-up and as they expand, they can take a plot.”

Given the high-value nature of the pharmaceutical market, DLC will be looking to handle goods in transit as well as serve the regional market. Saudi Arabia represents around 65 per cent of the AED 9.9 billion (US$2.7 billion) GCC pharmaceutical market.

“If you look at the evolution of the pharmaceutical market, there’s more emphasis on the temperature-control- led supply chain,” adds Proffitt. “It’s one of the sectors of interest because we’re looking for companies in the supply chain focused on the region and with air-freight volumes.”

Philip von Bismarck, National Contract Logistics Manager UAE, Kuehne + Nagel, says despite the local building sector facing shortages in building material and manpower, construction of its new DLC facility is on schedule and will go into operation this year.

It chose DLC as its new Middle East logistics hub due to its strategic location close to sea and airports, the good infrastructure and the “highly efficient” customs processes. “There is a growing demand for integrated logistics services in the region, with a strong focus on quality and cost-efficiency,” he says. “Consumption is growing tremendously and global manufacturers are penetrating the market more and more. In addition, storage, handling and import regulations for healthcare goods are also changing rapidly.”

These two trends call for a focus on end-to-end healthcare supply chain quality and reliability, as well as sound local knowledge to fully comply with regional regulations.

“Once operational, we will transfer some of our existing healthcare customers to the new facility,” he says. “The terminal will provide us with the capacity to accommodate new accounts, too; healthcare logistics is one of the key industry segments we will be catering to, alongside FMCG and hi-tech.

DLC will offer cool storage below 25 degrees Celsius and temperature-controlled distribution across the Arabian Peninsula. “Our warehouse management system supports all healthcare industry requirements, such as batch control and expiry date management,” he adds.

The company will also provide repacking and product labelling services and arrange for Saudi Arabian Standard Organisation (SASO) certificates and its new Cargo 2000-based airfreight products, as well as aviation logistics services.

Maher Kheder, Business Development Group Director, Pharma World Holdings, which plans to move into its new facility at JAFZA in February next year, says airfreight is vital in the shipment of important drugs, particularly injectables.

“Dubai World Central has huge potential and business wise, it’s all located in this area,” he says. “Commercially it’s going to be an important asset for the region.” But he says the timing of the opening is an issue and it will need full warehousing and logistics services. “If the airport opens by 2010, then that’s fine, but in the interim we will continue to use Dubai International Airport.”

EXPANDING

The region’s healthcare industry is growing rapidly as it seeks to keep pace with its rapidly expanding population. Investment could increase to AED 220 billion (US$60 billion) in the next 17 years, more than twice the amount that is spent today.

Alongside the UAE Ministry of Health – which has an annual budget of AED 1.6 billion
(US$439 million) to improve medical services – are the Health Authority Abu Dhabi, Dubai Department of Health & Medical Services, Emirates Medical Association and Dubai Health Authority (launched last March) and Dubai Healthcare City, as well as a number of private hospitals, clinics and pharmacists. The Abu Dhabi-based Al Yasat Holdings, part of the Al Mazroui group, plans to develop a healthcare city too on Shams Abu Dhabi, worth AED 3.5 billion (US$960 million) uniting wellness and clinical services.

Oman’s Majan Development Company (MDC) is planning to develop a healthcare city around 100 kilometres from Muscat with an estimated investment of OR300 to 400 million (US$774 million to US$1.03 billion). A one million sq metre development earmarked to be built near ‘Blue City’ will include medical colleges, hospitals, conference halls, hotels and shopping malls.

Skilled candidates are like gold dust in all industries today – none more so than the recruitment challenged logistics sector. Robin Lyndhurst outlines some of the key issues and tries to suggest ways to boost competitiveness and
appeal

The 21st century battlefield won’t be fought outside castles or on grassy plains, but in the recruitment department of every company globally. Everyone is scrambling for skilled staff, developed and developing countries alike.

Paul Stuiver, CEO, Barloworld Logistics

Some employment experts believe the battle for talent that we see today could be just the start, and it’s all going to get a whole lot tougher in the decade ahead.

In today’s globalised world, the location of jobs that can be moved is continuously being challenged. Currently, Singapore, Peru, Japan, Argentina, New Zealand and South Africa are among the nations which are hiring most rapidly – but tomorrow, who knows? That’s the guessing game that is globalisation.

One thing we can be near certain of is that the developing world will account for 45 per cent of global trade by 2030 – which has as much significance for the developed world as it does for those emerging on the world stage. Consider this: Europe could lose up to 60 million of its workforce in the next 10 to 15 years.

Barloworld Logistics, which recently bought the Dubai-based Swift Group in a US$70 million all-cash deal, envisages that the agreement will help it spread its wings internationally – although it would be the first to acknowledge that this strategy will depend on finding the best people to do the job.

“Recruitment is a problem everywhere,” said CEO Paul Stuiver. “In Dubai, South Africa, Spain, it’s a worldwide problem. We’re not looking to export South Africans to other parts of the world. One of our core strategies is to recruit decent, local talent as much as we can.”

The logistics industry is facing challenges at all levels, from an increasing shortage of fleet drivers, which has the potential to cause severe service disruptions, to problems filling mid and even senior management positions. At a local level, many migrant drivers are being poached by driver-hungry construction firms and another complication has come from the issuing of licences – it used to be easy to transfer from a GCC licence to a UAE licence, but no longer, and applications are prone to delays.

Higher up the ladder, issues of pay, as in any industry, are vitally important, particularly for any overseas expats looking to relocate themselves, and their families, to the Gulf at a time of widespread inflation.

A click on an internet recruitment site, picked entirely at random, shows that a Warehouse Operations Manager (chemicals) currently working in the UAE can expect to earn US$90,000 a year, plus family tickets and medical. In local currency, that works out AED 27,525 a month – not an impoverished wage, but equally not a fantastic one either, when you consider the responsibilities, and what an ops manager in another field (take energy) is taking home. It’s only when you get into the top tier – eg ‘Head of Logistics’ – do you find salaries take a noticeable jump (AED 560,000 a year or 46,000 a month), but naturally, so do the responsibilities.

Perhaps it’s not all doom and gloom. Private sector salaries in the six countries of the GCC increased at an average rate of 9 per cent over the last year, according to an 18,000-strong survey conducted by GulfTalent.com, with increased competition, public sector pay rises, the depreciating US dollar, and growth in Asia all driving Gulf pay increases.

Oman led the way (11 per cent), followed closely by the UAE (10.7 per cent) and Qatar (10.6 per cent). Across the Gulf, sectors enjoying the highest pay rise were construction, banking and energy – although logistics was noticeable by its absence.

Historically under-represented in the region, it is clear the HR function is now in the corporate front line as Gulf employers grapple with the challenge of attracting, developing and retaining staff.

BIGGER PICTURE You’d think China, with its 1.3 billion population, would have no problem filling positions. Wrong. The skills drive is as fierce as in many parts of the Western world. It’s estimated the booming country needs 75,000 leaders and it’s only producing around 4,000 a year. Skilled workers, particularly those with technical training, are increasingly at a premium in urban areas and special economic zones. Consequently, pay rates are currently going “through the roof” as companies scramble for the best staff.

Andy Weber, Managing Director of Kuehne + Nagel (Asia-Pacific), said that the lack of talent within the sector is even bigger in Asia compared to Europe and America.

“There are insufficient candidates with adequate working experience or academic knowledge in the logistics industry in Hong Kong and China, compared with Europe or the Americas.”On land and water, the skills shortage crisis seemingly

The officer class of seamen who ply over 90 per cent of world trade along global shipping lanes are in ever-shorter supply – ironically at a time when carriers are returning to healthy levels of profitability.

The shortfall of trained senior off icers is estimated to be around 10,000, equating to 2 per cent of the total workforce, which is expected to increase in the next 10 years.

Many experienced seafarers from the global talent pool are reaching retirement age at a time when fewer young people are joining the industry, and even those that are joining will take years to complete their training. It’s not only skills attraction which companies need to consider, but the changing nature of the workplace itself. With the global population ageing, more corporations need to attract and retain older workers and the savvy employers will be the ones that have a strategy in place.

Developed yet emerging, conservative yet enterprising, Saudi Arabia’s transport industry is very much at a crossroads. Robin Lyndhurst reflects on the new impetus within the Kingdom’s logistics industry and outlines the projects coming up designed to cement its reputation as the premier powerhouse of the GCC

You may have struggled to buy a red rose in Riyadh this Valentine’s Day, but there’s no denying the Kingdom is blooming, particularly in the logistics arena. Macro economic cities, major rail projects and ambitious new port developments are all coming up on the horizon in the GCC’s largest and richest market, with more than SR50 billion worth of transport projects now on the table.

The current wave of investment eclipses the previous modernisation programme during the 1970s and 1980s when high oil prices allowed Saudi Arabia to begin the process towards becoming a modern state with a well-developed infrastructure.

Today’s young, fast-growing population is a marketer’s dream, and logistics companies are rubbing their hands from the likely spur in spending across a range of sectors — none more so than telecommunications, where mobile phone penetration is expected to grow 130 per cent in the next five years. Internet penetration, while still small among the total population of 27 million, is growing with more than $3.2 billion spent online last year, according to the Arab Advisors Group.

Saudi Arabia’s healthy investment climate is supported by increased liquidity on the stock market, which has been characterised by significantly higher turnover.

The first car manufacturing plant is slated for the eastern city of Dammam, to meet a rapidly rising demand in the car-loving country. The UAE’s Gulf Automobile Manufacturing Company (GAMC) is to launch the plant in a $100 million agreement with the Saudi Authority for Industrial Cities and Technological Regions (SACTR).

Interestingly, Saudi’s booming economy has sparked a huge rise in the number of women buying cars, despite the fact that women are banned from driving. (we need to check this, there was a recent update on this)

Despite clear signs of diversification – Saudi non-oil exports to GCC states jumped 25 per cent in the third quarter of 2007 to SR6.3 billion ($1.7 billion), led by the UAE – there’s no escaping the centrality of energy to Saudi, the world’s biggest oil exporter. Income is expected to surge to its highest levels this year, with revenues of around $185 billion, as oil prices remain strong and crude output rises above nine million barrels per day. Saudi GDP up to 2011 is expected to record an annual average growth of 3.6 per cent, with oil and gas exports driving foreign trade.

Management consultancy Contax forecasts KSA energy infrastructure investments to exceed $119 billion over 2007-2009, providing considerable opportunities for all players involved in financing, delivering or supporting energy-related projects. Consultant Khalid Irshad says: “The biggest growth opportunities will be for refining and petrochemical projects, reflecting the Kingdom’s desire to diversify from a strong dependence on pure crude exports.”

Staff recruitment and retention remain thorny issues though, with the Kingdom facing challenges to attract an experienced workforce because the attractiveness of other countries continues to draw talent away from the country – which is compounded with the high levels of unemployment and the fact that firms need to increase their Saudi-born workforce by five per cent a year.

Arguably the most arresting statistic is that almost 1,700 managers and managing directors in Saudi Arabia are illiterate, according to one regional website poll.

Be that as it may, no supply chain manager worth his salt in the region can ignore the commercial opportunities.

Maher Kheder, Business Development Group Director, Pharma World Holdings

Healthy outlook Saudi Arabia accounts for nearly two-thirds of the $2.7 billion GCC pharmaceutical market, with the largest sectors comprising systematic hormones ($291 million), Alimentary T & Metabolism ($260 million), respiratory systems ($162 million), G.U.System and sex hormones ($145 million), nervous systems ($128 million), cardio systems ($121 million) and musculo-skeletal systems ($111 million).

New 3PL service provider Pharma World Holdings, a 50-50 venture between Banaja International Group and UAE-based Ithmar Capital Fund, is among the companies keen to drive growth in the Kingdom. It is establishing a 10,000 sq metre distribution and warehousing hub at JAFZA South free zone in Dubai, which will open towards the end of this year or early next, and envisages the move will open up the Saudi market to more manufacturers and improve profitability.

Alongside warehousing and distribution, the centre will boast a modern IT infrastructure and offer pick-and-pack services (pick up to 30 orders an hour, with each pick-up comprising 30 line items) and cross docking, and have 16-metre-high storage space with an emphasis on high pallet rotations, given the speedy nature of the market. The company, which is in talks with an Indian company about bringing a manufacturing component to Dubai, is pitching itself as “a complete, end-to-end logistics solution provider.”

Maher Kheder, Business Development Group Director, Pharma World Holdings, says, imports represent 80-85 per cent of the Saudi market, which is growing “astronomically”.

“The traditional model of distribution meant foreign manufacturers would supply products through distributors who place and receive orders directly from principal manufacturing facilities,” he says. “This model lacks flexibility and efficiency for principals and means they need to find a distributor with excellent regional knowledge to optimise the process. Pharma World aims to bridge this gap between global manufactures and Saudi health care organisations. We are providing economies of scale and this is something new to 3PL. In the long run, we reduce the average cost by increasing output.”

Kheder anticipates having an even larger operation within five years at King Abdullah Economic City (KAEC), once it is established, serving not only the local market but also the growing North African and Red Sea markets. Kheder says a lot of shipments to Saudi Arabia are currently diabetes-related, with one in four Saudis diabetics.

Banaja International Group is the affiliate responsible for the international associations and investments across the MENA region, including those ties with the Saudi Import Company. Banaja is one of the leading Saudi distributors with over 60 years’ experience in the local healthcare market.

KAEC is the single largest private sector-led project in the region and has six key components: the Sea Port, Industrial Zone, Central Business District (including the Financial District), Resort District, Educational Zone and Residential Communities.

The project, north of Jeddah, will create up to one million employment opportunities in the various industries and service-oriented companies and house two million residents.

In February, Emaar The Economic City, (CHECK) the Tadawul-listed company developing KAEC, awarded a SR115-million development contract to CEMCCO.

The work is part of the first phase of development of the industrial zone, which will eventually have an area of 63 million square metres of land dedicated to industrial and light manufacturing facilities.

Tracking growth Of all Saudi’s logistics projects coming up, few are as eagerly anticipated, or as wide-ranging, as its plans for rail.

A consortium led by Kuwaiti logistics firm Agility, US firms KBR and General Electric Company and Saudi’s Al Rajhi Bank is believed to be the front runner to scoop the $10 billion Saudi Landbridge rail project. Tenders for the 950km project were submitted on November 5 and the Saudi Railways Organisation is expected to announce the winning bid shortly. Three other consortia in the frame include Al Muhaidib/ACWA, Mada and Saudi Binladin.

The project involves building a 950-kilometre railway from Jeddah to link with the existing Dammam-Riyadh railway and a 115-kilometre line from Dammam to Jubail.
The new lines, due to be finished by 2010, could redraw the region’s trade flows with containers able to move from the Gulf to the Red Sea in 24 hours, avoiding a sea voyage round the southern Gulf peninsula.

State-owned Russian Railways won an $800 million contract to build a 520-kilometre rail line connecting Riyadh’s King Khalid Airport with the Al-Zabira junction on Saudi Arabia’s North-South railway project, which is being built to move minerals from the interior to an industrial complex to be built on the Gulf coast.

Other rail projects planned to add 3,900 kilometres of track to the existing network include a 450-kilometre high-speed line planned to link Jeddah with Makkah and Medina; and a 2,400km north-south railway, which seems likely to be the highest priority due to its importance to industrial development.

A $136.8 million contract was awarded to a consortium led by the US-based Louis Berger Group a little over two years ago, to design and construct this line, which will link from Al Jalamid and Al Zabira in the north to Riyadh, with another line branching off to Ras Az Zour in the Eastern Province.

The new rail links will provide vital transportation to the multibillion-dollar fertiliser plant and aluminium smelter to be developed at Ras Al-Zour by Saudi Arabian Mining Company.

Maritime expansion China Harbour Contracting and Engineering Company recently scooped a SR2.2 billion ($587 million) contract to build port facilities at Ras Al Zour. The new facility, located on the central east coast, will include dedicated terminals for general cargo, liquid bulk and dry bulk goods.

The company, which beat off European, Asian and local firms, has partnered with the local Rafid Group to form the China Harbor Engineering Arabia Company. It is the second big contract win in the Kingdom for the company in recent months, and provides further evidence of the increasing influence of Chinese companies across the region. The $600 million port will serve nearby fertiliser and aluminum smelting complexes.

Meanwhile, the new Red Sea Gateway container terminal at Jeddah Islamic Port (JIP) will boost overall capacity by 45 per cent. The $429 million deepwater terminal, which will have an annual capacity of 1.5 million teus, should be ready inside two years and receive its first vessel late in 2009. The development will increase JIP’s importance as a regional logistics hub, particularly through its connection to the Saudi Land Bridge.

“The project reflects a major move in the Kingdom’s ongoing development to meet its growing challenges,” said Jabara Al-Seraisry, Minister of Transport and Chairman of Sea Port Authority. “In the past few years, the Kingdom’s seaports have witnessed big efforts to develop and modernise their working capability alongside the increased number of container ships.”

Saudi Arabia’s state-controlled National Shipping Company (NSCSA) said in December 2006 that it had secured SAR3.1 billion (US$825.6 million) in loans to fund 60 per cent of an expansion plan that would double its fleet of oil and chemical tankers. NSCSA owns nine double-hulled VLCCs with a capacity of 2.1 million barrels each and 14 petrochemical carriers.

GLOW buys stake in UTT Kuwait-based Global Logistics Services and Warehouse Corporation (GLOW) has bought a 75 per cent stake in United Technology for Trading (UTT) in Saudi Arabia.
The purchase of UTT complements GLOW’s specialised import and export business with Iraq alongside expanding its growing network in the Middle East.
UTT has developed an in-transit visibility and cargo tracking system that has proved useful for clients, particularly in support of the coalition’s Operation Freedom. The company was one of the first commercial trucks to operate from Kuwait to Iraq and has managed and tracked over 10,000 truck sorties.
GLOW isn’t finished in the Kingdom and is eyeing up a 75 per cent stake in another logistics company.

Riyadh in Saudi Arabia… the Kingdom is witnessing an unprecedented wave of investment

Hail opportunity Jafza International recently signed an MoU with Rakisa Holding for the development and management of Rakisa Economic City. The ambitious $8 billion project will see the northern city of Hail developed into a ‘logistical superhub’, complete with international airport, dry port, railway station and business centre.

Salma Hareb, CEO of Jafza and Economic Zones World, said the deal marks one more step towards its aim of setting up a global network of economic zones.

The project is being completed in seven phases over the next 40 years and will eventually house more than 300,000 people and provide 55,000 jobs.

New airport for Jeddah A SR256 million ($68.3 million) contract was signed between Saudi’s civil aviation regulator and international consultancy Dar Al-Handasah (Shair and Partners) in November, to manage the construction work of Jeddah’s new airport.

Under the five-year contract, the consultancy, which operates from Cairo and Beirut, will supervise the work at the largest airport to be built in Saudi Arabia, with construction starting early this year.

GACA is allocating 18 billion riyals ($4.8 billion) to develop the archaic King Abdulaziz International Airport in Jeddah into a regional hub.
The new development should take place in three stages, the first of which should be completed by the first quarter of 2011.

The new airport will have four new crescent-shaped passenger terminals, and a high-speed rail link that will connect the airport to the Islamic two holy cities of Mecca and Medina.

The expansion of the airport includes the construction of support services building, renovation of the existing South and North Terminals and upgrades to the existing runway and airfield systems to accommodate the double-decker Airbus A380s.

Beware regulatory approvals Aramex is warning shippers that, according to Saudi customs regulations, all express shipments including SHOP&SHIP shipments containing chemical, medical and telecommunication products cannot be shipped to Saudi Arabia before arranging the proper documentation and approvals from the relevant ministries.

Customers must seek approvals from the Ministry of Commerce and Industry for chemical substance shipments; from the Ministry of Health for medicine/supplements shipments; and Ministry of Communications and Information Technology for telecommunication products. Any shipment arriving without the proper approvals will be held at Saudi customs and re-exported immediately.

Shipping companies are increasingly using forward freight agreements (FFAs) to manage their spot exposure. Freight derivatives provide a means of hedging exposure to freight market risk

Today, products and services are sourced from where they are available suitably and cheaply; and sold where they fetch the best possible price. Even in this day and age, the primary channel of international trade has changed little with more than 90 per cent of total trade transported by sea. The increased complexities of modern trade have led to a larger amount of risks (and profits) both for ship-owners and their clients.

The capital-intensive nature, long durations of sea-voyages, demand-supply volatilities, fluctuating crude oil prices (most ships run on diesel), seasonal and cyclical variations and fluctuations in intra-currency rates all increase uncertainties in shipping.

Thus, on account of these uncertainties, risk management has a key role in the
growth of the industry. Ship owners and charterers have increasingly turned towards financial derivative products for their risk mitigation needs. Through derivative operations, the industry can today secure and normalise their future
income or costs and reduce the extent of uncertainty and volatility.

One of the key developments in the area is the introduction of Forward Freight Agreements or FFAs in 1992. FFAs are principal-to-principal contracts between a seller and a buyer to settle a freight rate, for a specified quantity of cargo or type of vessel, for one of or a combination of the major trade routes of the dry-bulk or wet-bulk sectors of the industry. For instance, one of the parties (usually the charterer) buys the FFA contracts and protects himself against the risk that the price of an agreed trade route will be higher than the current level.

The other party (the ship-owner) takes an opposite position and sells the FFA contract.

In a heterogeneous market such as shipping, FFAs have the advantage that they can be tailored to meet individual needs, are completely flexible in terms of the route, size and time period. Being purely financial transactions, they involve no delivery of cargo or ships. In their earlier form, FFAs were ‘over the counter’ products made on a principal-to- principal basis and as such, were not traded on any exchange.

Settlement is determined by the difference between the agreed upon FFA price and the actual price as on a day (derived from a common price benchmark such as the Baltic Exchange Index or Platt’s indicative prices). In the case of dry bulks, voyage-based contracts are settled on the basis of the difference between the contracted price and the average spot price of the route selected in the index over the last seven working days of the month. In tanker FFA contracts, a freight rate is fixed in world scale units on a predetermined tanker route, over a time period, at a mutually agreed price. Settlement takes place at the end of each month, where the fixed forward price is compared against the monthly average of the spot price of the tanker route selected.

In response to demands to address issues of credit risks, a new set of hybrid derivatives contracts appeared that are OTC agreements, but avail of the services of clearing houses. For an additional fee, the credit risk was eliminated and the market participants could focus wholly on their primary business. In 2001, the Oslo based Imarex (www.imarex.com) commenced the trading of both tanker and dry routes linked to the clearing capabilities of the Norwegian Futures and Options Marketplace. In 2005, both Nymex’s ClearPort (www.nymex.com/ cp_overview.aspx) and London’s LCH. Clearnet (www.lchclearnet.com) began listing freight forwards. The deals done with the intermediation of a clearing house are subject to margining rules of the clearing house. The introduction of the clearing facility also helped in increasing operational and capital efficiency. FFAs volumes shot up subsequently. With the entry of more players in the market, electronic or ‘screen based’ trading also gained in popularity.

By themselves, freight rates have no value. The demand for commodities and finished goods is what determines the demand for shipping services. With the galloping economic growth witnessed globally since 2003, shipping began to look increasingly attractive for financial investors too.

Over time, FFA options also started gaining in popularity. OTC options are currently available on individual routes as well as on baskets of timecharter routes. The advantage is that that downside cost is known in advance (equal to the option’s premium) while the upside potential is unlimited.

Looking forward, the success of a derivatives contract is a function of its ability to perform economic functions efficiently. If the derivative contract is unable to aid in price discovery or risk management, the market participants do not really have any reason to trade in them. As FFAs have so far proven to be the most effective in hedging risks, they are bound to thrive. A current limitation is that not all the trade routes are being offered in the derivative markets. With increased liquidity, better coverage can be offered to all stakeholders. As the industry expands, the importance of clearing operations will become more relevant.

If FFAs are to be truly global and attract more trading firms to enter, credit and counterparty risk concerns must be addressed. The entry of larger numbers of participants would also help in an increase in the width of the market.

As the global halal food market continues to grow rapidly, logistics providers must ensure their standards match their commercial appetites.

The halal sector is definitely the flavour of the month in the logistics industry, even if no one can agree on just how big it is. Some say $150 billion, $245 billion, or as much as $570 billion – one source even goes as far as $2.1 trillion.

There’s no doubting it is expanding significantly in tandem with the Muslim world, which now makes up close to a quarter of the world’s population and is set to grow by an additional 3.6 billion people in the next 24 years. In which case, it’s conceivable that the halal trade could account for a fifth of all food globally.

You need only glance at the trade show calendar to realise halal is now on everyone’s lips. From Australia to Abu Dhabi, dedicated exhibitions are establishing themselves, not only as pleasant meet-and-greets but vital forums for exchanging ideas in this rapidly expanding sector.

Around 50,000 delegates turned up at Amsterdam’s El Hema exhibition in January, and thanks to sites such as the halal blog (www.livehalal.com), which disseminates the latest global industry news and developments, everyone’s being kept up to speed. Everyone knows about Indonesia, Malaysia and the Middle East – but did you know China alone has a Muslim population exceeding 30 million?

All of which means halal is now an industry in its own right, one that savvy logisticians are now eager to capitalise on. Halal means lawful or permissible in Arabic, and under  Islam, halal food must be free from alcohol, pork and other substances Muslims are prohibited from consuming.

Malaysia is keen to establish itself as a ‘halal hub’, with its Northport at Port Klang earmarked to serve the one billion Muslim consumers, manufacturers and producers globally.

The national shipping carrier, MISC, pioneered the first halal service with Northport as one of the important ports of call, and a $500 million halal park, Malaysia International Halal Park (MIHAP), is earmarked for a 1,200- hectare site at Selangor.

Malaysia is also home to the Halal Industry Development Corporation, which supports, develops and co-ordinates all matters halal.

GULF EXPANSION The red-hot Middle Eastern market is also starting to realise its potential, with manufacturers such as Khazan expanding production capacities to keep up with demand. It is planning a third factory this year, complementing operations in Kuwait and Sharjah.

“We’re looking to increase our exports, particularly with the opening of the new factories, and have been examining the US market,” says Gerhard Vogt, Khazan’s Production Manager. “We’re definitely able to supply halal products which meet US regulatory requirements.”

One of Malaysia’s leading logistics companies, MISC Integrated Logistics, has reportedly formed a joint venture company with Dubai shipping agents, RHS Group, to offer halal logistics services in the UAE.

Last year, two Malaysian companies announced they would set up a wholesale International Halal Centre in Damascus, catering primarily for the 1.3 million displaced Iraqis.

Meat & Livestock Australia has launched a halal brand for Australian meat in the Middle East, indicative of the increased sophistication of meat retailing throughout the Muslim world. Australia exported 43,071 tonnes of mutton, 17,685 tonnes of lamb and 3,312 tonnes of beef to the Middle East, valued at $242 million, in 2006.

“Australian meat exporters wishing to supply halal meat to Muslim countries must source meat from abattoirs operating under the Australian Government Muslim Slaughter (AGMS) programme, which is under the control and oversight of the Australian Quarantine and Inspection Service (AQIS),” says Ian Ross, MLA’s Regional Manager for the Middle East and Africa.

Apart from correct slaughter procedures, the welfare of animals being raised for slaughter is a key requirement of Sharia law. Careful and highly regulated transportation of livestock is a key logistical component, as is the separation of halal products from those which are ‘haram’, after slaughter, during processing, storage and transport to the customer.

EMIRATES’ HALAL PRODUCTS ON THE MOVE Halal products account for the majority of the meat transported through the Emirates’ hub in Dubai, making it a very important segment for Emirates SkyCargo.

Dave Gould, Emirates Senior Vice President, Cargo Global Operations, says perishables (which include food products such as meat, fish, fruit and vegetables, fresh flowers and pharmaceutical products) represent nearly a quarter of the cargo division’s total traffic.

“As such, we have invested heavily in our perishables facilities and in our ‘cool chain’, Emirates’ dedicated solution for the transport of temperature-sensitive products in temperature- controlled air cargo containers, over the past few years,” he says. Emirates SkyCargo’s new Cargo Mega Terminal (CMT) will open in the first quarter of this year, although it has already transferred the handling of all temperature-sensitive goods – including halal products – to the two new, state-of-the-art facility’s 6,000-sq metre temperature controlled storage areas, which are maintained at 5˚C and 15˚C respectively, complemented by a freezer set at -18˚C. A dedicated handling team is familiar with the halal (and other) products’ specific needs and authorities are located in the same building. Municipality and veterinarian checks at the CMT and at Emirates SkyCargo destination stations ensure spoilt or substandard meat does not get released to the consignees/consumers. Handling procedures from aircraft arrival to the terminal at the Dubai hub, and vice versa, have been simplified and accelerated so halal products and other temperature-sensitive goods are less exposed to Dubai’s mostly warm climes.

“Emirates SkyCargo also offers the use of our temperature-controlled Cool Dollies for tarmac transport,” adds Gould. “When the aircraft lands, ULDs containing halal cargo can be transferred directly into the Cool Dolly. This is then transferred to the CMT for collection or forwarded to its final destination.”

Comprising a steel trailer and an aluminum insulated container, the Cool Dolly’s chlorine-free cooling system, fitted with a diesel engine and an electrical backup system, is able to maintain temperatures between 40˚C and -200˚C. These units are capable of handling all types of lower deck ULDs and pallets, and handle loads up to 6,800 kg. “We also offer the option of vacuum cooling for temperature-sensitive cargo while it is in transit in Dubai,” he says.

GLOBAL STANDARDS As the halal market grows rapidly, monitoring processes across the supply chain becomes more challenging. While there are systems in place to protect consumers in the UAE, for example, the sector’s rapid growth means there is growing demand for globalised standards across all products.

Delegates attending the recent Global Halal and Islamic Business Forum in Abu Dhabi called for monitoring offices around the world to work with recognised Islamic centres to conform to the halal protocols for all foodstuffs to be imported into the GCC region. A committee will be formed to establish guidelines of the Muslim World League regarding halal slaughter and food production.

The committee will oversee the development and implementation of educational programmes for manufacturers on the approved guidelines for halal slaughter and processing as well as a recommendation for a mandate to ban the sale of haram foods, such as pork and alcohol, in all Muslim countries in the GCC.

“The halal industry needs this kind of platform to discuss vital issues affecting businesses throughout the world,” says Abdalhamid David Evans, Managing Director of Imarat Consultants. “The discussions here will have a direct impact on the growth and direction of the global halal industry. What happens in the Middle East will have an immediate knock-on effect on standards around the world.”

The complexities of the halal supply chain extend much further than the usual concerns regarding unbroken cool chains and the efficient delivery of fresh food produce — it’s an all encompassing ‘farm to table’ operation that involves ports operators, forwarders, hauliers, warehousing operators and handlers. Malaysia and Brunei are among the few countries to have formed regulatory bodies to verify halal products.

Halal supply chains include everything from the procurement and preparation of genuine halal ingredients to the manufacturing and delivery of the final product, all the way to the supermarket shelves. Consequently, operators need to maintain ‘halal integrity’ throughout the supply chain.

With the legitimacy of some halal products coming under fire, the industry is now demanding more specialised halal-compliant solutions for its supply chain process.

With technological and scientific advancement, it has become easy to test whether a product is halal or not, meaning that any contamination can be detected. Most suppliers don’t cut corners – food manufacturers have too much riding on their brands and anything that brings that into disrepute can be costly in terms of lost sales and brand damage – but the challenge remains to ensure consistency throughout the process.