Moving past the marketing

If bringing together an IT issue is tough, I imagine deciding what and how much IT to integrate into your business is even tougher. Breaking through the marketing hype and deciding what you really need, after all, can be difficult. Of course a GPS provider will tell you that you need GPS, an RFID vendor is going to push his tags and a software developer will insist that her product is the ‘streamlined’, ‘tailor-made’, ‘one-stop-shop’ solution for you. We at LOG.Middle East heard many such statements this month.

In fact, we were relieved to come across the honest remarks of one logistics provider who described RFID as just another way for consultants to make money. Sadly, however, he asked for the quote to be removed, so we went ahead and removed his article.

But let’s not bash RFID too much. The costly technology will prove useful for inventory you cannot afford to lose. Damas jewellery, for example, is using it to keep tabs on its stock and American passports apparently have RFID tags hidden neatly away in their covers.

Soon, you and I may have our own personal RFID chips, which we use as portable health insurance, ATM and credit cards. Don’t even bother shoplifting with one of these in your arm.

By the way, did you notice that the cost of fuel is rising? At this point you can sit and cry over your invoices, or you can use these hard times to proactively change the way you do business. This means investing in fuel efficient technologies and carefully planning your routes. If oil prices are ever to drop, the changes you make now could lead to major profits in the future.

Perhaps one of your strategies to offset rising costs is switching from air or road freight to sea freight. But do you ever really think about what happens out on the open ocean? In this issue, Casey McFann provides us with a guide to maritime shipping and a First Officer helps Munawar Shariff uncover the mysteries of life at sea.

China, to most of us, remains a mystery. We all know the country is growing faster than even the Middle East. But how do we get a piece of this growth? Anyone who can find a way to fill up the empty containers heading from this region to China is in for big bucks. Containers moving from China to the Middle East, after all, are already packed full. I wonder if China has any need for sand. For this, we’re going to need some marketing hype.

Kathryn Semcow
Editor
kathryn.semcow@dvvmedia.com

Between the picture of a Togolese pineapple growing in his backyard he sends out to friends via email, the Mickey Mouse satchel bag hanging from the door knob of his office closet and a confession that he will still clean the upholstery of a plane at 3:00 am if need be, Tom Ronell, CEO, Istithmar World Aviation Holdings, clearly does not take himself too seriously.

Tom Ronell, CEO, Istithmar World Aviation Holdings

In fact, the son of Swiss musician parents who grew up in both “Mafioso” Brooklyn and “Soprano Country” New Jersey tells the story of a very serious career as if it were a joke.

“I credit myself for making the worst career move in aviation history,” he proclaims, explaining how he left his position as Vice President of Sales with Airbus to set up a western- style business airline in Russia for Boris Yeltsin.

This was 1991, however, when Gorbachev sent troops into Latvia and Lithuania and started cracking down on entrepreneurial business activities.

“In four quick months, I went from being Vice President of Sales for Airbus to being an unemployed fugitive of the KGB,” he recalls.

Three days after the fall of the U.S.S.R, however, Ronell returned to Russia to help start the airline Transaero. “We had the first western aircraft in the Soviet Union,” he says proudly.

Ronell can also be proud of making some of the smartest moves in aviation history.

The Wharton Business School graduate had earned his position at Airbus by the time he was 30, after all, he convinced the European company to market planes to the US.

At first, Airbus thought he was joking.

“Everybody said, ‘You’re crazy! That’s like selling refrigerators to Eskimos. Nobody in the US is going to buy a European aircraft.’”

But within months after Ronell started in 1984, his team had sold 12 white tailed A-300s; and, by the time he left the company, sales in North America had reached US$50 billion.

“That was really the coming-of-age of Airbus in North America,” he says.

After his Transaero stint, Ronell made it a habit to start or restructure carriers, setting up a carrier in Turkmenistan, as well as Trans International Express in New York and Leisure Air, a charter for European fans to and around the US for the 1994 World Cup. He also helped privatise Air Aruba and Puna, the national airway of Uruguay and restructure Panama’s Copa Airlines.

Now, he is in charge of Dubai World’s aviation and aerospace investments, grouped under Istithmar World Aviation Holdings, an entity worth at least US$1 billion. Assets include major stakes in Air Djibouti, Spice Jet, Dubai Aerospace Enterprise and SR Techniques, the Swiss Air maintenance centre in Zurich. He also manages Dubai World’s corporate jets and has turned its executive jet operations commercial. “We want to make Istithmar the premier executive jet operations in the Middle East,” he says.

But Ronell wants to take this new organisation even farther – as far as outer space. “My goal is to move into space operations and turn the Maktoum Airport into the Maktoum Airport and Spaceport,” he proclaims. “I would like to make Dubai the world centre for commercial space activities.” And something tells me he’s not joking.

Tom Ronell entertains Kathryn Semcow at his office in Emirates Towers, Dubai

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.

It’s the most environmentally friendly fossil fuel – liquefied natural gas (LNG). Used in homes as well as in industries, LNG is the future

Global economic growth has become dependant on the clean-burning LNG

Setting sail in January 1959, a converted World War II freighter traversed the Atlantic Ocean, fully laden with liquefied natural gas (LNG). Billed as the world’s first LNG tanker, the Methane Pioneer would carry seven additional loads from Louisiana, United States to Canvey Island, United Kingdom, chartering a course for all future natural gas transports.

In what is today a multi-billion dollar industry, global economic growth has become dependant on the clean-burning fuel. Used for heating and cooking in homes, as well as the manufacture of fabrics, glass, steel, plastics and paint, natural gas maintains a reputation for burning cleaner than other fossil fuels, such as oil and coal, and produces less carbon dioxide per unit energy released.

LNG is the condensed form of natural gas. In fact, it is principally used for transporting natural gas to markets. More than 200 ships carry over 150 million tonnes of gas each year.

While it takes up about 1/600th the volume of natural gas in a normal state, LNG proves far more efficient for transporting natural gas long distances. Often termed the ‘floating pipeline’, LNG’s supply industry has logged 50,000 plus voyages with no major accidents.

Once ashore, LNG is re-gasified and distributed as pipeline natural gas. It remains odourless, colourless, non-corrosive, and non-toxic, and when vapourised, burns only in concentrations of five to 15 per cent when mixed with air. Contrary to popular belief, neither LNG, nor its vapour, can explode in an unconfined environment.

“There are statements likening LNG ships to floating bombs,” says Bill Wayne, General Manager of Society of International Gas Tanker and Terminal Operators (SIGTTO).

Left: Bill Wayne, General Manager, Society of International Gas Tanker and Terminal Operators (SIGTTO) Right: A LNG tanker

“This is nonsense because, while clearly flammable, the rate of release of energy, in the event of ignition of a vapour cloud from spilled LNG in order of magnitude, is lower than that for high explosives (TNT) or nuclear bombs. The blast potential, hence damage, remains a function of rate of release of energy,” says Wayne.

“There is an issue behind all this because the popular misconceptions are frequently raised in planning processes and not all planners know better.”

Attending an LNG conference, one cannot help but notice the theme that seems to permeate throughout the entire logistics industry: staffing shortages. In the case of LNG, the unprecedented global demand has been accompanied by a drastic increase in ship construction, subsequently creating a need for more qualified personnel.

“Perhaps the biggest concern of all is will there be enough skilled manpower to handle the booming future ahead,” says Nigel Carden, Deputy Chairman, Thomas Miller P&I.

“The future poses new problems, but we see no reason to suspect those manpower problems can’t be resolved,” says Carden.

“The simple answer is to train, train and train,” says Wayne, who also thinks the foreseeable shortage will be overcome. Though as time progresses, new concerns will inevitably arise.

“There are further issues, like how to take a person who has completed training and develop them into a fully competent officer. There has to be an element of experience which only comes with time on board. Having trained and developed a fully competent ship’s officer, there are then issues around retention which need addressing,” he adds.

In 2007, the world production of LNG stood at about 170 million tonnes. When Qatar completes their current processing upgrade, the Middle East will be contributing around 50 per cent of the world’s demand. A staggering figure. This does not account for Egypt, who is currently supplying 12 million tonnes, and has a further five million tonne production capacity planned, as well as Yemen who will begin turning out 6.8 million tonnes by 2009. As demand grows, so too must supply and the Middle East is ready to position itself accordingly on the global stage. How important, then, is the region to the current and future success of LNG supply?

“Absolutely essential,” says Wayne. “For the future health of the industry, it is vital that all the existing capacity continues to operate reliably and the new capacity comes smoothly and on time.”

So just how regulated is the LNG industry? Not very, say most insiders, as regulation remains pretty minimal. Could the global trade stand to use more?

“The LNG industry is relatively lightly regulated – in a way, this is a measure of its success as it is based on a record of safe and reliable operation,” says Wayne.

“Perhaps one area worthy of looking at is that relating to treatment of seafarers in ports and by port states. There is a tendency towards criminalisation of response to issues which should be resolved by civil law.”

One such example would be the imprisonment of the master of the VLCC Hebei Spirit in December. The oil tanker, inadvertently struck by a barge off the coast of South Korea, subsequently spilled 11,000 tonnes of her crude in the Pacific. As it was later acknowledged, the fault was not of the tanker, or the master. Wayne feels the criminal-civil approach to the problem is worthy of international attention and perhaps regulation.

“Another aspect is the prevention of seafarers going ashore for R and R (rest and relaxation), usually the International Ship and Port Facility Security (ISPS) code is used as an excuse. These issues also link back into the problem of staff shortages.”

How it works

The liquefaction of natural gas involves removing components such as dust, helium, water and heavy hydrocarbons, which can cause difficulty downstream. It is then condensed into a liquid at close to atmospheric pressure (maximum transport pressure set around 25 kPa (3.6psi) by cooling it to approximately −163 degrees Celsius (−260 degrees Fahrenheit)). The reduction in volume makes it much more cost-efficient to transport fuel over long distances where pipelines do not exist. Where moving natural gas by pipelines is not possible or economical, LNG can be transported by specially designed cryogenic sea vessels or cryogenic road tankers.

Source: SIGTTO
www.log.ae

What security measures are in place to ensure your cargo moving on the sea is safe?

At any given time, billions of dollars worth of cargo and merchandise are in transit on the open seas. From suppliers to buyers, each is dependant on their respective goods reaching their destinations. Though often overlooked, the fundamental factor remains securing against vulnerabilities.

“As the maritime transportation system underpins the world economy, it remains the dominant support for global commerce,” said Michael Chen, CEO of ST Education and Training (STET), at the 2008 Maritime Security Forum in Dubai last month.

“Therefore, safety and security measures in all aspects of the maritime industry remain vital to continuous growth of business activities, while safeguarding the industry assets and protecting the people involved.”

Based upon excerpts from programmes and guidelines of best known practices, both internationally and regionally established by the ISO, APEC and the EU, STET offers some simplified solutions for maintaining secure port facilities and ships:

• Prevent, detect and deter unauthorised entry of goods/material
• Control and prohibit unauthorised access to facilities
• Screen prospective employees
• Establish a regular security training programme
• Ensure process and control of documents are complete and secure
• Establish written and verifiable security procedures
• Provide a coordinated, structured and comprehensive response to an incident
• Safeguard the custody and integrity of cargo movement – entering, within
  and leaving port
• Extend supply chain security to include organisation’s business partners
• Build resilience while being prepared to handle crisis and emergencies

“Make sure implementation is up to par,” says Chen “It’s a trust system.”

How to protect yourself from pirates

• When near pirate waters, always keep a lookout, especially at the pirates’ favourite boarding point, the stern
• If unknown vessels approach or behave suspiciously, get the crew on deck and maintain their alertness
• Lay out high pressure hoses to blast the pirates with water
• Alert the International Maritime Bureau (+44(0) 207 423 6960) immediately, relaying your coordinates
• Shoot flares in the air to draw as much attention to your vessel as possible
• If armed pirates do board, do not take unnecessary ‘heroic’ risks
• Preserve life at all cost

When it comes to maritime shipping, few claim to be experts. Yet almost everyone involved in the logistics or supply chain industry (or in any industry for that matter) is in some way dependant on maritime transport

Operating out of some 3,000 deep sea ports around the globe, over 50,000 cargo ships are on the seas at any given time. Recognised as the safest and most environmentally friendly form of commercial transport, maritime shipping is responsible for 90 per cent of all world trade. Without it, transport of bulk raw materials and manufactured goods over such long distances would prove far too costly, if not impossible.

As the balance between global supply and demand ultimately depends on product availability, and the time required to acquire it, ships are always in high demand. Events like war, good or bad harvests, natural calamities and government subsidies, all to some degree, affect shipping. These days, with rising fuel costs and ever more emerging or volatile markets, maritime shipping is becoming more expensive. Yet the industry has never seen more demand. In 2007, the world’s fleet of cargo ships increased by some 8.8 per cent, while 2008 is expected to see a rise of 10 per cent.

Today, ships are specialised to the requirements of their cargo. Here are some of the more common types of cargo carriers:

Bulk carriers: Used primarily to transport cargo items such as cement, ore, rice or grain. It can be recognised by the large box-like hatches on its deck, designed to slide outboard for loading. These ships can carry upwards 365,000 tonnes at a time.

Container ships: Used to carry entire loads of truck-size containers, transporting the majority of the world’s dry cargo. The larger ships have the ability to carry some 15,000 containers at a time.

Tankers: Used to transport fluids such as crude oil, petroleum products, liquefied natural gas (LNG), and chemicals. There are just over 4,000 tankers in the world, with the largest class being the Ultra Large Crude Carrier (ULCC), able to carry 550,000 DWT (Dead Weight Tonnage). Tankers comprise one third of the world’s shipping tonnage.

Reefer ships: Used to transport perishable commodities that require temperature controlled transportation, including fruits, meats, fish, vegetables, dairy products and other foodstuffs.

Roll on/Roll off (RoRo) ships: Specifically designed to carry wheeled cargo such as automobiles, trailers or railcars, having built-in ramps which allow the cargo to be efficiently “rolled on” and “rolled off” the vessel when in port.

BY THE NUMBERS

In 2006, over 7.4 billion tonnes of goods were transported by sea. Maritime transport is responsible for 90 per cent of all trade, yet contributes only 12 per cent to world’s pollution

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Are you too late to secure space the Bahrain Logistics Zone?

Where do I hand in the Bahrain Logistics Zone tender?” an American businessman hurriedly asks the security guard in the lobby of the General Organisation of Sea Ports (GOP) in Bahrain. He is rushing to meet the deadline for applications to lease land at the one sq kilometre plot of land dedicated to re-export and value-added logistics at the new Khalifa bin Salman Port.

And he has reason to be a bit nervous. Over 60 local applicants and several international ones will find out this month if they made the cut. “We are getting a huge response and companies are expressing interest,” says GOP Assistant Director General Hamad Fakhro. “Our land is quite small, so we have to be selective.”

Despite oversubscription, the GOP was kind enough to extend the deadline by a week to ensure that the “the best of the best” 3PLs and freight forwarders handed in their applications. In fact, Fakhro says the zone will accept only around 20 local companies, as it is targeting “all the big players.”

The biggest player of them all, Danzas, the freight forwarding arm of Deutsche Post, is already on board, having signed an Memorandum of Understanding (MoU) to lease serviced warehouse space in BLZ.

Hamad Fakhro, Assistant Director General, General Organisation of Sea Ports, Bahrain

BLZ will offer 20-year leases on plot sizes from 2,000 sq metres as well as warehouses at BD 5.000 to BD 12.000 (US$13.40 to US$32) per sq metre per month.

“The majority of the infrastructure is ready,” says Fakhro. “The land, as well as the services, will be fully ready by the fourth quarter of this year.”

The BLZ will also supply office and commercial space. It takes care of licensing, registration and visa processing, and, of course, offers a customs-bonded zone.

Fakhro says the BLZ may even provide temporary workers if needed. “A company might be handling most of the Formula One logistics which requires equipment or labour for a short period of time,” he explains.

It sits adjacent to a mixed use real estate park, Bahrain Investment Wharf, which will feature labour accommodation, as well as a hotel and Bahrain International Investment Park, a zone dedicated to light manufacturing. “We support each other,” says Fakhro.

The reclaimed land BLZ sits upon is only a 10-minute drive from the Bahrain International Airport, and 45 minutes to Saudi Arabia via King Fahad Causeway. When the new 38.63 kilometres Bahrain-Qatar Causeway is ready, it will also be close to Doha.

And we cannot forget that BLZ sits on Bahrain’s soon to be busiest port. “Now this area looks like a ghost town, but by the end of the fourth quarter, the Mina Salman will be closing and Khalifa Bin Salman will be operating, so you will see a lot of traffic,” says Fakhro.

Much of the BLZ’s business focus will be not on Bahrain, but on the countries surrounding it.

“Right now Bahrain needs a capacity of 240,000 TEUs per year for itself,” says Mauricio Zuazua with A.T. Kearney, the consultancy helping develop the project. “The capacity of the new port is going to be 2.5 million TEUs per year. The strategy of BLZ is placing a lot of emphasis on transhipment, especially for the Northern Gulf countries. Even with the growth that Bahrain is expecting, there is significant capacity for shipments to other countries.”

Sheikh Daij bin Salman Al-Khalifa, Chairman of the General Organisation of Sea Ports, Bahrain for Bahrain Logistics Zone and Enver Moretti, President and CEO EMA Region, DHL Global Forwarding on behalf of Danzas AEI Intercontinental Bahrain sign MoU

This project, he says, is part of Bahrain’s master plan to become a major logistics hub in the region. “Bahrain was a trade centre many years ago, but it lost its lustre. The BLZ is part of a strategic effort to bring Bahrain back to its old glory.”

Bahrain currently ranks 36 on the World Banks Global Logistics Index compared to the UAE’s rank of 20, but still sits higher than other GCC countries. “We are working hard to move Bahrain up the ranking,” says Fakhro.

“There is still a lot of room for improvement,” he admits, explaining that port operator APM Terminals is working closely with Bahrain Customs to improve efficiency. They are moving towards an e-customs system, which will eventually link to BLZ, according to Fakhro. He says customs has processed over BD25 million (US$67 million) in the last few months. “The system is running at 99.6 per cent so far. There is only a .4 per cent error.”

But is Bahrain too late to catch up in its development? “It’s never too late,” says Fakhro. “It’s actually the right time.”

Whether it’s calculating your position by reading the stars or admiring a snow-covered deck, life for a seaman is thoroughly unpredictable

Das Choudhury Arupnarayan, Stowage Coordination Manager, Maersk

Das Choudhury Arupnarayan is just getting used to his new job on land. He has transferred from First Officer on one of Maersk’s ships to Stowage Coordination Manager in their Dubai offices. His duty timings are now from eight to five.

At 17, the regular nine to five office job held little appeal for Arupnarayan. He was looking for adventure, a challenge, something that would give him an extraordinary life. All of those wishes were answered when he applied for a position on one of Maersk’s ships. His selection was a major high.

Rules of the sea The rules of the sea are very much like the driving rules on the roads, says Arupnarayan. The lines cannot be seen but are clearly visible on the chart. The only major difference between navigating a ship and driving a car is cars have brakes and ships do not. So, a captain needs to be savvy enough to pre calculate forthcoming mishaps and stop the ship’s engine about 20 to 30 nautical miles (approximately an hour) before the location in order for the ship to stop on time. It takes about 30 minutes for a ship to stop moving from the time of shutting off the engine. This makes the role of the captain very crucial.

“Life at sea for months at a stretch can be exciting, perilous and, at times, routine,” says Arupnarayan. On a day-to-day basis, the work of the Second Officer, First Officer, Chief Officer and Captain revolves around the upkeep and maintenance of equipment and machines on the ship. All of the machines in the engine room are connected to sensors, which are connected to alarms. So if anything goes wrong, the problem is checked and rectified whatever time of day it may be.

The Second, First and Chief officers have to keep a 24-hour navigational vigil, each doing two four-hour shifts at different times of the day.

The watch takes place on a bridge on top of the ship, known as the Navigational Control Room. This room holds the radar, eco finder, path finder and other high performance equipment. These equipments provide vital information to the ship about the journey, what lies ahead, what the visibility will be like in the next few hours and whether fog is on the way. Out at sea the fog can be so thick that people cannot see each other on the ship and approaching ships are certainly not visible. Radars can spot other ships, however, and hence the control room must be manned at all times.

Weather surprises Mostly things are as usual, but the element of surprise is almost always supplied by the weather, say Arupnarayan. He has experienced plenty of hurricanes and big storms out at sea. He says that storms generate a lot of low pressure and travel through the sea at great speeds. When a ship meets a storm, its speed reduces to almost two nautical miles per hour instead of the usual 26 to 28 nautical miles per hour, thanks to choppy waters and the intimidating high waves that at times reach six metres. These storms usually lose their momentum as soon as they reach land but cause major havoc when they travel over the sea.

The crew also takes special precautions when they have a hurricane warning. As the ship is built of steel, the high speed winds can throw people into the ship’s steel walls. Hence everything on deck, inside the accommodations and everywhere has to be secured.

Today, after seven years, Arupnarayan wants routine and normalcy. He says life at sea can be stressful as he has helplessly witnessed ships sinking. And since remunerations are not extraordinary, he’s had his fill of adventure.

MAERSK in the Middle East

Maersk has agencies all around the world, but being well-established doesn’t make the shipping giant at all complacent

Being an established name makes no difference in Maersk’s growth strategy in the region, according to Robert Uggla, Managing Director, Maersk Line UAE, Oman and Qatar. “We’re an established company but the market in the Middle East is highly competitive, so we have to continue to prove ourselves. The region will continue to grow, as it has strong fundamentals so, of course, the coming year looks promising,” he explains.

The container giant deals with a number of challenges regionally. Uggla says, “Dubai is becoming a high cost location. There is very high inflation, higher salaries to be paid, higher cost of logistics. We see a shortage in the industry in some origins of 20 foot containers. It’s a matter of having containers and vessels to cater for the growth requirements. The Middle East has historically been an import region. In recent years, we’ve seen a very strong growth within the UAE, in the petrochemical segment and the industrial segment, which leads to higher demand for capacity on the export routes.”

The main concern Maersk Line faces right now is the rising cost of fuel. “Passing on the additional bunker cost down the supply chain is a challenge. The only way for us to have a sustainable business model is to make sure our clients share the transportation cost,” says Uggla.

“In the past, we’ve had a fixed freight in many contracts. Going forward, we have to make sure that the so called bunker adjustment factor is a floating part of the contract,” he adds. “It’s great to see that most of our clients and the industry as a whole share this view.”

The 21st century will witness the emergence of a superpower that most agree is awakening to its potential. Chinese partnerships with like-minded Middle Eastern countries are proving mutually beneficial

Six centuries ago, a mighty armada of Chinese ships crossed the China Sea and ventured west to Arabia and East Africa. The fleet consisted of giant nine masted junks and was escorted by dozens of supply ships, water tankers, transports for cavalry horses and patrol boats. The armada’s crew would total more than 27,000 sailors and soldiers. The largest of the junks was said to be over 400 feet long and 150 feet wide.

Loaded with silk, porcelain and lacquerware, these vessels visited ports around the Indian Ocean, where Arab and African merchants would exchange spices, ivory, medicines, rare woods and pearls so eagerly sought by the Chinese imperial court.

The Middle East-Asian channel of trade is reemerging, based on oil, petrodollars and consumer goods

Seven times, from 1405 to 1433, these treasure fleets set off for the then relatively unknown. These great expeditions brought a vast web of trading links — from Taiwan to the Persian Gulf — under Chinese imperial control. All this took place half a century before the first Europeans rounded the tip of Africa in relatively insubstantial Portuguese caravels, claiming to ‘discover’ the Indian Ocean.

The Chinese have a long, storied history in trade with the Middle East. Overland routes such as the Incense Road and Silk Road established trade initially, but maritime trade routes eventually lead to tremendous growth in commercial activities.

This Middle East-Asian channel of trade is again reemerging, based now on oil, petrodollars and Asian consumer goods. Often termed as the ‘new Silk Road’, trade and investment between the regions has quadrupled in the past decade. According to most experts, this trend will continue to rise.

By 2025, forecasts show, China will import three times as much oil from the Arabian Gulf as the United States. As has been well documented, China will be thirsty for oil, as well as a host of other commodities. The Middle East is perhaps the richest region in terms of natural resources. But the wealth source, oil, is not sustainable. As the new Silk Road is by no means a one way street, Middle Eastern countries are increasingly seeking out greater investment in China.

Middle Eastern leaders are looking for ways to sustain wealth and their countries’ economic growth, by pursuing investments in Asian financial and commercial institutions. Many of the Middle Eastern leaders seem more interested in using their accumulated wealth to buy into other established Asian companies rather than developing Middle Eastern brands.

Consider these recent examples:

• Dubai International Capital (DIC) plans to increase its assets from US$7.5 billion to US$25 billion in the next three years, with ‘a significant portion’ of that going into China. Istithmar, the branch of Dubai World in charge of asset management, has set up an office in Shanghai, after completing its first China investment of US$50 million for a 10 per cent stake in Hans Energy, a Hong Kong listed oil and gas logistics company in Guangdong.
• The Kuwait Investment Authority (KIA) has doubled its investments in Asia in the past two years and is now the largest foreign investor in the Industrial and Commercial Bank of China. KIA also has a 15 per cent stake in the Kuwait China Investment Company (KCIC), created in 2005, which manages US$200 million in assets states its primary goal is “to establish itself as one of the premier investment companies in the Gulf by building its capabilities and knowledge in the dynamic and growing economies of emerging Asia.”
• Qatar Investment Authority (QIA) recently announced that it was looking to invest significantly in financial institutions and consumer-oriented export companies in Asia, with a primary focus on China. Signing on with Singapore’s Keppel Corporation, QIA is providing the initial funding for a 30 sq kilometre ‘eco-city’ in Tianjin, China, meant to serve as a model for sustainable development in other Chinese cities.
• Saudi Prince Alwaleed bin Talal Alsaud made his first hotel investment in China last May, paying US$58 million for the leading hotel in Kunshan, an industrial city near Shanghai and is reported to have earmarked another US$1 billion for similar investments. Alwaleed is looking to purchase properties in second and third tier cities where growth is expected to exceed that of the rest of the economy.

When factoring in the investment protectionism from the US and Europe(remember the Dubai Ports fiasco?), where traditionally Middle Eastern countries might have invested, you have the formula for a fast-growing and increasingly lucrative partnership between China and the Middle East.

The Chinese are keeping the production of container ships ‘in-house’

Dubai, it might be argued, has become the unofficial Middle East capital of this new Silk Road – a gathering place of capital, consumers and traders fuelling the growth.

“We see Dubai as a logical place to be,” says Bill Janeri, General Manager of Global Sources Middle East.

“It is the third largest re-export market in the world after Hong Kong and Singapore. That makes Dubai a critical centre for trade. Plus, on the other side of it, it is a place people want to go to, both from the manufacturer’s point of view as well as the buyers. People are able to easily converge here from places like North Africa, Middle East, Turkey and Europe,” he says.

Those who attended the China Sourcing Fair last month in Dubai, bore witness to China’s desire to promote within the region. Offering a diverse marketplace of Chinese goods, ranging from kitchen utensils to furniture to cell phones, one easily interprets the fair as Shanghai’s version of a 21st century air-conditioned souk. Judging by the crowds of Middle Eastern buyers, eager for the latest China has to offer, traffic on the new Silk Road appears to be bustling.

“Buyers in the Middle East are actively looking for new ways to attract consumers and finding new and interesting products that can deliver reasonable margins is one way they are doing it,” says Janeri.

“The opportunities are huge for suppliers, traders and importers positioned to take advantage of global trade,” he added.

Forget the idea that the rise of Chinese competitors simply means cheap, low quality imitations flooding the markets. Rather, Chinese companies are starting to disrupt global competition by changing the way the game is played. Their tool of choice? Cost innovation. The strategy of using Chinese cost advantage is far reaching, in that it offers customers around the world dramatically more for substantially less.

“Product variety, reliable suppliers and cost effective products have become even more important in this year of rising inflation,” says Janeri. “Global trade ultimately benefits consumers who enjoy an unprecedented range of quality products at very competitive prices,” he adds.

Shipping With the amount of goods either leaving or destined for the shores of China, it makes sense that the Chinese are keeping the production of container ships ‘in-house’. The China Shipbuilding Industry Corporation (CSIC) oversees most domestic production and recently has been given some large orders to fill.

Companies, including China Shipping and China Cosco Holdings Co., are buying more vessels as global trade is forecast to grow 5.6 per cent this year, according to the International Monetary Fund. About 90 per cent of those shipments will be made by sea.

China Cosco, the country’s biggest container line, said recently that it will spend US$1.34 billion for construction of eight vessels, each able to carry 13,350 boxes, for delivery in 2012 and 2013. They are the largest dry bulk carriers in China and one of the largest dry bulk shipping operators worldwide. In addition, the group is the largest liner carrier in China.

China Shipping Container Lines Co., the country’s second-largest cargo-box carrier, ordered eight container vessels for US$559.8 million recently to meet demand. They said in a statement, “The purchase of the vessels will expand the fleet size for foreign trade and strengthen shipping capacity in the Europe, Middle East, and North America markets.”

The Chinese railway network is the busiest in the world, moving 24 per cent of global rail traffic with just six per cent of the world’s tracks

Rail transport is the most commonly used mode of long-distance transportation in the People’s Republic of China. The Chinese maintain about 20 principal domestic railway routes with a total length of 76,600 kilometres. It is the busiest railway network in the world, moving 24 per cent of global rail traffic with just six per cent of the world’s tracks.

The freight forwarding and logistics service company, STL, has just recently unveiled plans to build bonded warehouses and an intermodal container terminal at the Kazakhstan town of Khorgos, on the China border. The intermodal hub is due for completion by 2010 and complements the Kazakhstan government’s US$500 million investment to upgrade rail and road infrastructure throughout the country in order to meet demand for booming cargo volumes from China to Central Asia, CIS and Russia.

“We estimate that rail freight volumes to and from China will grow by 300 per cent during the next four years,” says Erlan Dikhanbayev, Managing Director, STL.

China is aware of the benefits of producing planes itself

STL has grown rapidly during the last 12 months opening offices in Singapore, India, Iran and Dubai as trading booms with the resource rich CIS and Central Asia.

“There is demand to expedite transit cargo by rail and road between China and Europe. The upgraded infrastructure and streamlined customs procedures will mean faster transit times between China and Europe,” says Dikhanbayev.

Aviation Between 2007 and 2026, China is predicted to require some 2,800 new passenger and freight planes. China’s aviation industry has learned a lot from developing increasingly sophisticated parts for Boeing and Airbus over the past 20 years, and is eager to put it to use.

With Boeing and Airbus outsourcing as much as they do, China is reaping the intellectual rewards. Currently, China makes doors and some wing parts for the Airbus A320. It is also expected to build around five per cent of the airframe of the new A350. Boeing sources not only doors and tailfins for its 737 from China, but also the rudder of its new 787 Dreamliner. To meet the demand generated by its booming economy, China has acknowledged the benefits in producing the planes themselves, for themselves.

Launching May of this year in Shanghai, China Commercial Aircraft Co (CACC) has grand ambitions. With an initial US$2.7 billion working capital, the state owned manufacturer hopes to be playing ball with the big boys, mainly Airbus and Boeing, within the next 15 years.

“The Chinese people must use their own two hands and their wisdom to manufacture internationally competitive large aircraft. It is the will of the nation and its people to have a large Chinese aircraft soar into the blue sky,” says Wen Jiabao, China’s prime minister at the launch of CACC.

The ARJ21, or Advanced Regional Jet of the 21st century, will be China’s introduction into the aerospace race. With room for 90 passengers (up to 105 in a stretch version), “the ARJ21 will prove China is striving to become a world class aircraft manufacturer,” says Wang Yawei, Vice President of the ARJ21’s financier, the state-run China Aviation Industry Corporation I (AVIC I).

“There’s never been more demand than right now,” says Luo Ronghuai, President, AVIC I Commercial Aircraft Co. Ltd. (CCAC), which oversees the ARJ21 programme.

CACC has inherited the existing ARJ21 regional-jet programme from AVIC I, a state-owned aviation firm that is one of CACC’s main shareholders. The smaller 70-seat jet, which will take to the air for the first time later this year, has already won 170 orders, nearly all from domestic Chinese airlines. CACC sees the ARJ21, and especially the forthcoming 90-seat variant, as a bridge to building a 200-seat rival to the single-aisle Airbus 320 and Boeing 737.

“China’s first jumbo jet is expected to fly by 2020 if everything goes smoothly,” said Wu Guanghui, Deputy General Manager, CACC.

“The government still controls fleet purchases,” says Richard Pinkham, an industry analyst at the Centre for Asia-Pacific Aviation, a Singapore-based consultancy. “That will provide a big boost to marketing efforts.”

So how do the duopolistic aerospace powers feel about this? Boeing says the inevitable competition will be good for business, and an Airbus spokesman describes it as “a natural ambition” for a country of China’s size to make big jets. As both Boeing and Airbus increasingly rely on global supply chains and risk-sharing partners, some of which are involved in the design stage to produce not just components, but entire sections of planes, no country is better positioned to gain from these developments than China. And the Chinese make no attempt to hide their delight over what they have learned and expect to learn, while Airbus regards the inevitable transfer of intellectual property as a necessary cost of doing business.

One German company will move anything GCC nationals want to and from Munich, including the kitchen sink

Many of us have experienced the pain of paying excess baggage fees after too much shopping on vacation, but imagine bringing 50, 500, even 800 kilogrammes worth of cargo home from a trip. This happens more often than you would think, according to Viktor Fuchs.

Fuchs is one half of the Gross Fuchs company, which specialises in cargo for GCC VIPs and royal families travelling to Munich. “Munich is a very popular tourist destination for GCC nationals,” he explains.

Viktor Fuchs

In fact, Gross Fuchs has a database of over 3,000 wealthy customers and manages between 1,000 and 1,500 shipments a year.

And Gross Fuchs is, of course, shipping only the finest of goods. “Armani suits, Rolex watches, anything you can dream of,” says Fuchs.

He says his company even ships goods from the GCC to Munich to make their clients’ stays just perfect. “Some VIPs, especially the royal families, will install their own kitchen where they are staying,” he explains. “They import their own cooks, and they import their own fish and meat on a daily basis. They want this food prepared not in a European kitchen, but in an Arab kitchen.”

He says some customers even go as far as installing such a kitchen in a hotel. “That doesn’t happen that often, of course,” he adds. “That’s really extraordinary.”

Fuchs says his company is the only one in Germany that processes the tourist tax refund with cargo transportation. The VIP can show up to the Gross Fuchs office at the airport with his or her cargo, and GF will process the tax refund documents; or the customer can pay a little extra for Gross Fuchs to come to his hotel.

“Clients can call us on a Monday evening and say, ‘I have 10 cartons to be shipped back to Riyadh,’ and we will pass by either on the same evening or next morning. We pick up the cartons, pick up all the documents for the tax refund, and then in the evening we come back to the hotel, give the client the cargo airway bills and a nice envelope with the money from their refund in it,” says Fuchs.

“We are the only company in Germany combining the tax refund with cargo transportation.”

Fuchs says one challenge of the business is explaining to the customer the difference between suitcase transportation and cargo transportation. “When you go on vacation, you’re used to the suitcase going with you on the plane. In cargo, however, the airline has no problem changing the booking. ‘If it doesn’t go on today’s flight to Doha, we’ll send it tomorrow,’ they say. This is sometimes not comprehendible to a tourist.”

And he has to urge his staff to be culturally sensitive. “It is impossible to send a female truck driver to pick up the cargo of an Arab family,” he says, for example. “You simply cannot do it.”

“The picture of our company is a very Arabic one. I think we are one of the few German companies considering the dates of Ramadan for organising the holidays of our staff.”

He says he has a particular penchant for the Middle East. “I’ve read the Quran several times. I have dozens of history books about the Middle East. I appreciate the culture very much.”