Making your presence felt in a cutthroat industry

Manya Pamnani is the Director of Advisory & Consulting of Horwath Mak, Auditors & Business Consultants

Globalisation and recent developments in technology coupled with growth in ecommerce has brought about unprecedented
expansions in logistics, giving companies a pivotal role to play in providing the link in the customer supply chain as volumes of online purchases increase.

According to the Fred Smith, CEO, Federal Express Corporation, logistics data “allows you to operate the business more and more precisely against demand”.

A recent industry report has valued the GCC logistics market at more than AED40.4 billion (US$11 billion). Currently Dubai alone channels more than AED62.4 billion (US$17 billion) of imports annually, and this too is set to increase enormously. Michael Profitt, CEO, Dubai Logistics City (DLC), says, “Currently, Middle East air cargo growth is the highest amongst all regions in the world.”

But with vendors and customers spread across locations, there are several issues which are critical to logistics. They are movement of product and information, timeliness of service, cost and integration (within the company, between the company and its customers and between the company and its vendors).

These issues have given rise to the concept of third and fourth party logistics. The term third party logistics (3PL) describes the handover of logistical operations, which includes integrated warehousing and transportation services, supply chain services and value added logistics such as subassembly, postponed manufacturing, labelling and kitting. Operators functioning within the 3PL sphere are usually highly integrated logistics providers, with large diverse networks with the ability to customise and manage the customer’s entire supply chain.

The most recent progression in the provision of logistics services has been the emergence of fourth party logistics (4PL), which describes a company involved in the redesigning of a client’s supply chain; implementing the solution and then managing the logistics companies used as part of the overall solution. The industry is mainly dominated by players running their own fleet of vehicles and owning/leasing ships, aircraft and warehouses, while only utilising the services of other providers where their own capabilities suffer from deficiencies.

Logistics companies must make available to their clients the kind of product they expect in this competitive world. Broadly, it is a solution rather than a product. And that solution should be provided efficiently while remaining both flexible and innovative to remain globally competitive. Technology plays a pivotal role in achieving this.

There are certain areas which always pose challenging for logistics operators. They are efficient warehouse record keeping, synchronisation of material movement resulting in high inventory levels, overstaffing in the absence of integrated information systems resulting in work redundancy, integrated information systems for seamless planning and execution of work, efficient and effective information systems for customer services.

Such teething problems hinder companies in a big way. This is the challenge both for the industry and for businesses operating within it. Growth potential, demand and other unique problems are reasons a plethora of logistics companies have been researching methods for improving performance and getting expert advice.

Manya Pamnani is the Director of Advisory & Consulting of Horwath Mak, Auditors & Business Consultants

You, too, can bring in the big bucks. Just ask Farook Al Zeer, Managing Director for Schenker in the UAE

Farook Al Zeer, Managing Director, Schenker for Dubai and Abu Dhabi

Walk into the Mirdiff villa office of Farook Al Zeer, Managing Director for Schenker in Dubai and Abu Dhabi, and you will quickly understand you are not dealing with an average freight forwarder. The artwork on the walls looks pricey, the suit is certainly designer and the personality is definitely debonair. After a few minutes of conversation, this first impression will make sense, however, because you will understand that you are not dealing with merely a freight forwarder, but rather an investor.

“During the time I was with Kuehne + Nagel, I was building up my investments,” says the Jordanian who started his career with K + N as a clerk and later returned to be Managing Director for its UAE office. “It was a win win situation.”

During this time, in 2001, Al Zeer and a local partner invested in a local franchise of the massive freight forwarder BAX Global.

“BAX was always a big company, especially in the United States, and they had certain valuable products. This is why we invested in the name. We owned the company 100 per cent.”

And BAX in the UAE took off. “BAX had an excellent start,” says Al Zeer. “We started with three people, and in two to three years we were close to 40 people, with nice operations, a nice office and good staff.”

While he will not reveal numbers, you can see the dollar, or dirham, signs in his eyes.

“BAX was a very successful project. We made profits in the first year. It was very good. Even we were surprised. We were prepared to invest and inject money for three years. In our studies, we thought that in the first year you need to build and expand, in the second year you need to stabilise the company and have branches outside, and the third year you make money.”

He likely saw even more dollar signs five years later in 2006 when Deutsche Bahn, owners of Schenker, bought out BAX. While Schenker already had an agent in Dubai, it chose to go with the BAX office instead. “In BAX we were Making history also a franchise, so Schenker had to make a decision between us and its own agents,” says Al Zeer. “The decision came to our own benefit.”

This may have to do with the fact that Al Zeer was already in Shenker’s good books. “Fortunately, I have known Schenker for quite some time,” he says. “In fact, we worked together in Abu Dhabi, because Salem Freight was their agent for several years. That made their decision even easier.”

In 2006, the two companies set up a joint venture in the UAE, and as of September 1 this year, the company was officially established as Schenker LLC. “It was the official announcement that Schenker has started its own operations,” says Al Zeer.

Unlike most mergers, this consolidation came without lay-offs in the Dubai office. “Fortunately, we employed more people in Dubai,” says Al Zeer. “When Schenker took over, BAX was a relatively small company, but the potential was huge. We moved from 40 people to almost 140 people in less than two years.”

Al Zeer seems confident that the venture has made his company stronger than ever. “Schenker brought many more opportunities to sell in the local market,” he says. “The good thing about them is that they have many products. They have a strong sea-air service, they are strong in fairs and exhibitions, they have a projects department, as well as aero parts and marine parts divisions.”

He says one of Shenker’s hottest products is sea-air freight, in which goods move by ship from Asia to Dubai and are transferred by plane to Europe and the United States. The company has two regular charters a week on Emirates’ Boeing 747, as well as many other ad-hoc charters.

“We make use of our Schenker capabilities,” says Al Zeer. “We use the flights from Dubai to Hann, Germany, and in Germany, they use the flight from Hann to Toledo, USA. It’s a good combination between Dubai, Hann, Toledo and return. This gives us a great opportunity. We, as Schenker, have our own space. We control the space, and we have the cargo for it.”

His office can now benefit from BAX’s strength in the United States and Schenker’s team in Europe. “You need a strong network behind you,” says Al Zeer. “How good you are locally is important, but you need those international contacts.”

He insists his team has the perfect combination of global reach and local knowledge. “We know the local market,” he says. “We’ve been here for so long. We know the customers. We have our reputation behind us. People know us.”

“A lot of multi-national companies make terrible mistakes when they move to different places in the world. They think they know the market, and then they make a mess. They make a mess with their people. They make a mess with their operations. They make a mess with their costs.”

Al Zeer seems to feel strongly that he has invested properly: “First of all, our investments are not, ‘I put money in a company and it has to give me returns in one or two years.’” he explains. “That’s not the right way to do things. I have a commitment to a multinational partner and I have a commitment to the local market. To build a company, you should have enough money to inject whenever needed.”

So is logistics a good industry to invest in? “It’s not about being a good industry or bad industry,” answers Al Zeer. “You have to have people specialised in the industry. If someone comes from outside the industry to invest, he might make mistakes and lose a lot of money. You need people who are specialised in every business. If you are specialised, definitely the Dubai market is excellent for business.”

CAREER PATH

In 1981, Farook Al Zeer started his career with Kuehne + Nagel in Amman, Jordan, working as a clerk. Within six months he had moved to Aqaba to work as second man in operations. “It was a big job,” he recalls.

In 1982, Al Zeer moved to Dubai and spent most of the decade working for a local freight forwarding company. In 1989, he started the Air Express International office in Dubai. Today, the company is known as DHL/Danzas.

In 1993, he opened both Al Naboodah Cargo Centre in Dubai and Salem Freight International in Abu Dhabi. “I wanted to start something of my own,” he explains.

Al Zeer later became Managing Director for Kuehne + Nagel’s UAE branch, and it was during this time that he and a local partner invested in the BAX franchise.

In 2005, he left Kuehne + Nagel, and in 2006 BAX and Schenker signed a local joint venture.

www.log.ae

In the world of money laundering, anonymity and a trusted supply chain remain essential

With a reputation as a global hub for the gold, diamond and property trade, Dubai has historically held a reputation as a haven for illicit money laundering. Each year, with billions of dollars flowing in and out, it remains difficult to trace how and where such funds are ascertained. In trying to clean up its image, the Dubai government has recently introduced stricter measures to clamp down on the shadowy cash trade, but the task has proved formidable.

Though as is often the case, the issue of global currency transactions and their respective legality is by no means black and white. While some move currency to legalise their clients’ unaccounted money, others use the money for trading, letters of credit and money laundering. Millions of dollars are known to be transferred electronically among operators in Singapore, Dubai and Hong Kong for these purposes, lawfully and unlawfully.

As a means of making money appear legal, embezzlers, fraudsters, drug traders and tax dodgers are fully aware of the logistical, as well as financial advantages that Dubai has to offer. Tales abound of Russian and Chinese ships coming into port, unloading shrinkwrapped pallets of greenbacks, with few questions being asked.

“‘Money launderers are no longer the criminals they used to be,” says Norman Inskter, the former president of Interpol. “Today they are astute business people and use the banking system as a way of moving money. When you look out at this sea of construction, you would like to know who owns it all.”

According to Eckart Woertz, a UAE based economist, the initial thirst for development gave local authorities little time to verify all the inflow of capital, which subsequently encouraged money laundering. “But, after achieving remarkable success in a short period of time, they are now realising the need to adopt corrective steps.”

One measure expected to have an impact is the UAE Central Bank recently ordering financial institutions to register details of anyone transferring as little as AED 2,000. At minimum, this will establish a paper trail for authorities to reference when looking into someone’s transaction history.

Last month, the Dubai Islamic Bank announced it purchased integrated antimoney laundering software from Norkom Technologies, with plans to introduce it across the bank’s operations in UAE and Pakistan. The DIB claims the software will “monitor customer transactions and identify suspicious behaviour”.

“The initiative demonstrates DIB’s commitment to improve its defences against money laundering and terrorist financing,” says Waheed Rathore, Head of Group Compliance at Dubai Islamic Bank. “Sustainable growth can only be achieved by maintaining high standards of regulatory compliance.”

In addition to the banks proactive solutions, the Dubai Multi Commodities Centre (DMCC) has pledged to fight against money laundering by ensuring transparent business in gems and other precious commodities.

Undoubtedly, one of the appeals for launderers in choosing Dubai remains its liberal free zone concept. With enticing tax exemptions and 100 per cent freehold ownerships, the areas are perceived by some as safe havens for illicit funds. However, Raymond Termini of Patton Boggs LLP, disagrees and feels established laws are coming on par with the US and Great Britain. Termini offers some advice about the current policies in place, “Within the UAE, there are four federal laws relating to money laundering and counter-terrorism, dating back to 1987,” says Termini. “Both the Ministry of Economy and Commerce and the Central Bank issue circulars on the subject, and the Central Bank issues Directives.”

“Within the DIFC, the Dubai Financial Services Authority (DFSA) has produced its own anti-money laundering rules. The DFSA is the independent regulator that governs the DIFC’s financial services companies, and also ancillary service providers such as law firms,” says Termini.

“Companies must appoint a Money Laundering Reporting Officer (MLRO) and a deputy to act in their absence. The regulations require that companies carry out due diligence checks on potential customers or beneficial owners of funds. They are required to complete a comprehensive customer profile, verify their integrity and locate the source of any funds to be deposited. This duty falls on both company employees and the MLRO.”

“For financial service companies, evidence obtained under the identification procedure must be kept for at least six years after the customers’ account is closed. Other authorised firms, such as law firms, must keep their identification evidence for at least six years after the consummation of any transaction they advised on,” says Termini.

Interestingly, says Termini, if someone is investigated for fraudulent activity, he or she is not allowed to know about it. “No firm or any of its employees may inform a suspected individual that their transactions are being scrutinised for money laundering. Failure to adhere to this policy may result in a fine or imprisonment.”

However, not all smuggled money whether laundered or squandered, has to pass through the mainstream western banking system. Organised crime in the Middle East and South Asia, have long since relied on informal money transfer networks, often between trusted third parties. This process, known as hawala dates back centuries and is considered by the some the basis of the modern day 3PL model.

The extensive use of trusted connections such as family relationships or regional affiliates, are the distinguishing components of the hawala system. Often referred to as ‘underground banking the system makes minimal use of any sort of negotiable instrument or record keeping. Transfers of money take place based on communications between members of a network of hawaladars and hawala dealers. Thus, money is transferred internationally, without actually moving it from one place to another.

Largely used by people working abroad for sending money home to relatives who may not have a bank account, hawala is often misused by those who seek to evade taxes, engage in money-laundering or hide the details regarding the source of funds or their owners. As the process leaves no paper trail (because there are no accounts, cheques, signatures or ATMs involved), hawala is essential to launderers who wish to remain anonymous. However, as hawala works faster and cheaper than conventional systems and reaches places where even post offices do not exist, many low-income workers in the Gulf continue to use it to make their remittances.

The UAE Central bank remains fully aware of the futility of attempting to ban the hawala system, however it says measures are underway to increase transparency. “The system can be used by those who have legitimate reasons for doing so and those who seek to abuse the system for illegal transactions will be identified and stopped by the authorities,” the bank said.

Woertz agrees, and says the efforts to crack down on hawala operators alone will not help. “Today’s banking system has enough loopholes for manipulators to channel unaccounted money and indulge in money-laundering activities,” he added, implying that the “practice will never be rooted out completely”.

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.”

A perpetual topic of discussion, money seems to be weighing more and more on peoples’ minds lately. Is the pegging of many Middle Eastern currencies to the dollar going to signal doom?

These days, in such fiscally turbulent times, the topic on everyone’s mind seems to be money. With the recent US$700 billion government bailout in the United States, many in the GCC have turned their attention towards the region’s monetary policies.

As the UAE dirham remains pegged to the dollar, many are concerned the repercussions of such American actions will inevitably reach the shores of Abu Dhabi and the UAE Central Bank. Though the UAE maintains sovereignty over its own monetary system, the Central Bank has had to answer many questions as of late. Most notably, what are we doing to reinforce stability in the money markets?

Consider that inflation has been hitting record or near-record peaks across the world’s biggest oil-exporting region, where most states peg their currencies to the ailing US dollar, driving up import costs. Dollar pegs have forced Gulf states to track US interest rate cuts even though their economies are booming on a more than six fold increase in oil prices in as many years.

Consequently, money supply in the UAE has maintained “rapid growth” over the past 24 months, despite Central Bank measures to curb its increase by borrowing from local banks and investing the funds abroad. Bankers attribute such rapid growth to a sharp rise in private capital inflow, a fiscal boom in the country and higher public spending on development and other projects. The surge in money supply, which is normally associated with inflation, occurred despite the Central Bank’s measures to stem liquidity growth by sharply boosting the issue of certificates of deposits (CDs), as well as investing the borrowed funds in banks abroad.

According to published reports, the Central Bank borrowed more than AED170 billion (almost US$46.3 billion) from the country’s 24 national banks and 28 foreign lenders in 2007. The borrowing, mostly through CDs, has boosted the combined deposits of those banks with the Central Bank to a record AED231 billion (almost US$63 billion) at the end of 2007 from AED58.4 billion (almost US$16 billion) at the end of 2006. Such a drastic influx of capital has been accompanied by only further escalations in deposits throughout 2008.

As a result, the surge in UAE banks’ combined assets to a record AED1.42 trillion (almost US$387 trillion) at the end of June 2008, has catapulted the UAE to the position of the largest Arab banking sector by overtaking Saudi Arabia. The UAE also ranked first in terms of capital and deposits. The inflow of such investments boosted the Central Bank’s net profits by 42 per cent to AED3.778 billion (more than US$1 billion) in 2007 from nearly AED2.654 billion (more than US$722 million) in 2006. However, those measures have had no impact on domestic liquidity, as curbing money supply growth remains the only fiscal tool available to the Central Bank to tackle inflation.

Confronting the record-high inflation, Central Bank governors from the six-member GCC have been laying out a road map to establish a common monetary institution before 2010. GCC central bankers have agreed to create the nucleus of a joint central bank next year in a major step forward for monetary union but signalled that a new common currency would not be in circulation by the 2010 date.

This September, finance ministers of the GCC met in Jeddah and approved the proposals to establish a monetary council and a draft charter for a monetary union, bringing the six member group, including Saudi Arabia, Qatar, Bahrain, Oman, Kuwait and the UAE, a step closer to launching their single currency.

“The endorsement of the proposals constitutes a major step toward adopting a long-sought single currency,” said Abdul Rahman Al-Attiyah, GCC Secretary-General.

Youssef Kamal, Qatari Finance Minister, who chaired the meeting, confirmed the agreement, “We have asked the central bank governors to complete the requirements for the single currency in future meetings,” he said.

The Qatari minister also downplayed the effect of the region’s currency pegs to the US dollar in increasing inflation in the member countries. He hoped that the improvement in dollar’s exchange rate and fall in shipping costs would bring down inflation.

Perhaps most importantly, GCC central bank governors said last month they saw little systematic risk from the US financial crisis as their exposure to troubled US banks and subprime assets was limited.

“As far as the Gulf region is concerned and especially GCC countries, they are very far from these turbulences that are affecting global markets. Because they don’t have any connection with what has happened,” Kamal said, adding that the GCC economies remain strong despite the recent global developments.

But Dominique Strauss-Kahn, IMF Director General, who attended the Jeddah meeting, said the brunt of the financial crisis may still lie ahead and could weigh on the world economy. However, the financial crisis remains as just one of many obstacles that must be dealt with during the progressive steps to a uniform currency.

“Overcoming the current inflationary pressures, developing a clear vision of the powers of the future common central bank, choosing an exchange regime of the common currency and harmonising financial regulation will be critical to this process,” says the IMF chief.

The ministers are scheduled to meet again on October 26 in Muscat to continue negotiations as well as discuss the location of the monetary council. “Achieving a monetary union will be a major challenge as much remains to be done to enable the creation of a common currency,” says Strauss-Kahn.

What incentives does RAKFTZ offer that most other free zones do not?

RAKFTZ Business Park

RAK FTZ’s strategy in attracting customers is by providing higher value-added services, diversification of the product/property offering, intensive international promotions focusing on target audiences, availability of state-of-theart website and promotional tools and enhancement of marketing, investor servicing and project management skills.

RAK Free Trade Zone has also RAK Innovation and Promotion Centre and Business Centres in four locations in the UAE, with fully functional and ready-to-use off ices, flexi-offices (shared off ice) and flexi-desks (shared desk).

These business centres are Emirates Business Centre in Business Park (Ras Al Khaimah), RAK Businessmen Centre in The Fairmont Dubai Hotel (Dubai), RAKFTZ Promotion and Innovation Centre in Twin Towers (Dubai), and RAKFTZ Promotion and Innovation Centre in Abu Dhabi Commercial Centre (Abu Dhabi).

RAK Free Trade Zone is the first ever zone to open liaison off ices in India, Turkey and Germany. The Mumbai, Istanbul and Cologne off ices provide communities with easy, hassle-free access to a world of opportunities and incentives offered by the RAK Free Trade Zone. A new business centre and commercial liaison off ice in New York is opening by the end of 2008. RAKFTZ’s international business centres and liaison off ices are set up to attract foreign businesses and strengthen trade and industrial coordination with each country.

Projects underway RAKFTZ’s continuous commitment to provide superior service and facilities reflects in the upcoming opening of the new state-of-the art off ice building in the Business Park to meet the growing demands from their existing clients who are looking to expand their projects and operation, and to supply new businesses coming in at the free zone.

DEVELOPMENTS

Future developments include Phase Two of the Industrial Park and preparation of the new Al Ghayl Industrial Park. Other developments include six flagship projects within the next three years as follows:

• Container Port and Dry Dock initiative
• Exploring waterfront investment opportunities
• Accelerating skills provision through Education Park and Academic Centre initiative
• Aviation Park (M.R.O.)
• Navigator Business Campus
• Downtown Business Plaza

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From before the time of the ancient Egyptians till date, gold has remained a measure of value. Ever wondered, then, what the supply chain of this most precious metal is like?

Did you know that the majority of the gold which is refined annually around the world is recycled material as opposed to newly mined material? In simple words, you probably possess something Nefertiti owned.

“Gold stays around forever,” says Corey Keller, General Manager, Al Ghurair Giga Gold Refinery. “It’s there on the periodic table along with silver, platinum and palladium. It’s not going anywhere as it’s always held value and people are careful to maintain it. It might get found at the bottom of a pyramid, but regardless of where it’s found, once it is, off it goes into the recycling chain,” he says. “If it was found once, it’s probably still in the market.”

Corey Keller, General Manager, Al Ghurair Giga Gold Refinery

It is a wonder then why prices are so high these days if so much gold is circulating in the market with more being mined daily. Supply surely has to be overshadowing demand. “About four to five years ago, the gold market was responding to the basic principles of supply and demand. As gold mines were mining large quantities, supply was more than demand hence prices were low,” says Keller.

In the last year or so, however, exchange traded funds have allowed more people to buy the physical metal easily. Before one would have to visit a gold refinery or a bank to purchase gold and then find a place to store it. And if you wanted to sell, you’d have to do so only at a discount to the banks or the refineries. Other options such as mutual finds were more profitable to invest in. Now, though, the exchange traded fund works much like a mutual fund, where you just pick up the phone and a trader will buy the gold for you, store it, sell it when you want to and send you the money with the profit or charge you for the loss. This easy access to the gold market has sent prices through the roof.

The entrance to the refinery

The supply chain The supply chain of gold essentially starts when someone owns a lease for a piece of ground which has gold in it. The owner of the land then invests hundreds of millions of dollars to put an infrastructure in place to mine the gold.

There are two places where gold is found: Usually, either a historic river bed where you dig up the dirt and gold comes up in the form of little flakes or nuggets, or mountains of rock with gold in it. These mountains are run through a cyanide leach which picks up the gold out of the rocks and the rocks are returned where they were found, minus the gold. These are the two kinds of gold that show up in gold bars.

After gold is found in mines, some mine owners melt the gold on site to determine the quality and value by weight and the metal’s percentage of gold. Alluvial gold from a river bed usually comes out looking like regular gold – nuggets or flakes. Those flakes or nuggets are then sent for a test to determine quality which is fairly consistent all through the river bed.

Transportation How the gold is transported from the mines depends largely on the size of the mines. Most of the huge, international mining giants who are present in places like Ghana, West Africa, have their own helicopter service from the mine site to Accra, the capital city, where the international airport is located. They also use the services of international security freight forwarding companies like Brinks or G4S who use armoured vehicles to transport the gold.

At the airport, the gold is loaded on to a commercial or private plane if the owner has delivered it by his own helicopter. If it has been assigned to Brinks or G4S, from the point the security company is signed off, they ensure completely the safety of the material to the doorstep of the refinery. In either case, the gold is insured for its value before being sent out anywhere. Without the security company the owner has corporate insurance protect the gold and in case of the security company, they always provide the kind of solid insurance policy a shipment of such high value needs. “Transportation and insurance is where all the money is made in the gold business,” says Keller.

A furnace inside the refinery

Refining “It doesn’t matter what form it shows up in at our doorstep,” continues Keller, “because it all goes into the melt sample area.” This is a place in the refinery the customer can come into as well. He is allowed to witness the melt and sample of the material. It’s basically where the gold is cleaned up from the dust and melted and poured into a nice, clean bar. A sample is sent to the lab and another sample is given to the customer to get it checked out in an independent laboratory. Values are then cross-checked. Once the client is satisfied of the accuracy, the refinery purchases the material from the client.

Once the gold has been acquired, it is converted by the refinery from an unusable metal to one that is usable and of investment grade, which is as close as it can get to liquidity or money. Customers of the refinery are anyone who wants the gold bar for investment purposes (to sit on till the price increases) or industrial purposes. Categories that fall in the industrial purpose of gold are: jewelers who melt the gold again and bring it down to 22 carat, 18 carat or 14 carat gold, depending on what kind of jewellery they are planning to make; as well as manufacturers of satellites or computers.

Biggest market Africa, particularly South Africa has the largest gold refineries in the world, which tend to be government run operations. South Africa is on the top of the list for the amount of gold being mined. Canada, too, is on the list for mining as well as China and Russia.

In terms of recycling jewellery, India is by far the biggest market. Keller says, “Going by gold sales, Dubai is somewhere near the top of the list. The Dubai Multi Commodities Centre (DMCC) – a regulatory authority we work under – suggests that 10 to 15 per cent of the annual volume of the metal is run through Dubai, so it’s certainly becoming a big player.”

The UAE is sucking up labour from around the world, and DULSCO is playing a pipeline role

Surjeet Singh, General Manager, Logistics, HR Solutions, DULSCO

Is anyone tired of hearing about staffing shortages? Likely not Surjeet Singh, General Manager for the Logistics department of DULSCO’s Human Resource Solutions division. It is his job, after all, to supply manpower for short-staffed logistics operations, from Jebel Ali Port to DNATA at Dubai airport. And he is under a lot of pressure. “Most of the time we have more requirements than what we can supply,” he says.

While Indians still make up a bulk of DULSCO’s labour force, Singh explains that workers from the subcontinent are becoming more and more difficult to find. Dubai’s ports and airports now have to compete with new airports and new ports coming up along with the new Indian economy. “You can still get unskilled workers in bulk from India, but skilled workers, for example crane operators, we are finding difficult to recruit,” he says.

While Pakistanis have also traditionally dominated the market, Singh says more and more people from Bangladesh are starting to work in the region. “Bangladeshis are almost equal to the Indian labour coming in.”

Singh says we will also start seeing more Africans around local logistics operations. “We are actually looking at Africa, as we have to keep looking for new resources,” he explains. “The only concern is – how are those guys going to be able to coexist with the other nationalities? Indians have been here traditionally, Pakistanis have been here traditionally. They know the area, they know the culture. Filipinos, also, have adjusted very well.”

S. Bala Kumar, Director, DULSCO, insists that the various nationalities living in DULSCO’s 300,000 sq feet of labour camps scattered throughout Dubai manage to coexist without segregated living quarters. “We try and mix them to keep them together,” says Kumar. “We have very good control over the camps. We do have the occasional drunken brawl on the weekends, but they have good fun.”

Kumar says the workers also manage to share their kitchens. “We’ve given them the facilities, gas cooking ranges, cabinets and utensils, the whole works. But they cook their own meals. It works very well.”

Singh adds that, socially, nationalities still tend to segregate. “They make groups. This is a danger we face. The Pakistanis will make a group. The Indians will make a group. But you can’t help it.”

He says DULSCO has experienced little of the labour dissent that Dubai became globally infamous for several years ago, with construction workers forming unions and threatening strikes. “At the present moment, I do not think this is happening here,” he says, when asked if workers ever rebel against employers. “Most of the labourers pay a lot of money to the agents who brought them over here, and to recover that they have to stay working for at least a few years. They know that if they somehow get thrown out of their job, they will not recover that money.”

He insists that workers are quite satisfied with their accommodation, which includes a football field, gym and basketball court. And he insists that DULSCO “goes beyond government regulations” when it comes to housing requirements. “We make sure that all of our people are happy.”

Speaking of logistics Of DULSCO’s approximately 5,000 employees, around 1,200 work in logistics-related industries. Singh explains that the skill set for this sector is highly specific. “You have to have a technical knowledge to deal with vessels, aircraft, warehouse, forklifts and cranes,” he says. “This work requires more than hands and legs.”

He says staff can take classes at the labour camps, for example training to become a forklift operator, or learning English, the key to communicating on the job. “Whenever someone shows he wants to grow his skill set, we make sure we provide him with the opportunity.”

While many of DULSCO’s contracts involve either purely recruitment or permanent staffing with visa and accommodation provision, the company also offers temporary staffing solutions. Many clients keep a set number of permanent staff and then call DULSCO when they need more men. Singh says this means supplying labour to the logistics sector can be a bit of a gamble, as demand for services tends to fluctuate. “Sometimes there are a lot of goods coming into the port,” he says. “Sometimes there is a complete lull.” He explains that volumes tend to increase during Ramadan and drop during January and February.

“We have to be completely aware of what the market requires and what it will require in three months.”

But DULSCO also has logistics operations of its own – try moving 4,500 people between their accommodation and nearly 400 work sites. This takes over 60 vehicles running 24 hours a day, says Kumar. “It’s very complicated.”

What
LOG.Middle East’s second round table
Who
Gillian Lewis, Logistics and Inventory Manager, ACE Hardware, Al Futtaim Group Wade Thompson, Regional Sales Director, Middle East, CEVA, Dr. Albert Tan, University of Wollongong Dubai, Kathryn Semcow, Editor, LOG.Middle East
Why
To answer the question, “How tight are our supply chains?: Where does our region stand?”
Where
Radisson Media City, .net Room
When
Wednesday, September 17, 2008

KS: How do you all perceive the way supply chains run here in Dubai versus the rest of the world, versus the region?

WT: When I first came to the region over 10 years ago Dubai was very much “let’s put a pallet on a shelf”, although Dubai, on the back of Emirates airline was able to position itself by somewhat of an accident as a global crossway. They were talking about “supply chain management”, but what I saw certainly wasn’t supply chain management. Even now I would have to say 60 to 70 per cent of our industry is only big warehouses with pallets on shelf.

If you had a look at the 3PL companies, maybe only 10 per cent of warehouses would have VNA (very narrow aisle) racking today. So, the most simplistic of all efficiencies isn’t even here today.

GL: From my experience in the UK, I arrived here and I was really shocked. I walked into a warehouse in Jebel Ali and it was all dusty, and there was stuff everywhere. The processes in place were very simplistic and basic. What we’ve been doing at ACE for the past three and a half years is working on two things: one is working on the processes and trying to make them more efficient, two is developing an IT solution to help us with that.

I came from Woolworths where everything is delivered in full pallets and the vendor has to deliver within a certain 10 minute time slot at the distribution centre. But here it is just like, “Oh, whatever. It’ll turn up.”

KS: Is this region frustrating to work in?

GL: I get frustrated because I’m a person who wants things done yesterday, and things just don’t get done yesterday here. They take a long time to get done, and you have to have a lot of patience. You just have to keep pushing people to get things done to the standards you want.

KS: How do you define “supply chain excellence”?

WT: A supply chain solution needs to be a real solution which delivers time, cost efficiencies, whether that is through faster turnaround times in your pickand- pack, faster storage capabilities to allow itemised handling, whether that is an automated supply chain outbound, or whatever it is. You need to have tangible results, not a marketing ploy.

AT: There are three areas of supply chain excellence. One is the area of processes, because if you do not have proper processes meeting customer expectations, whatever you do, you just cannot get it done.

Another area is technology, which can help you get an information flow. In supply chain, there are three flows that are important to manage: fund flow, material flow and information flow. Most of the time we are looking at fund flow and material flow, but information flow is the key to competition. The more visibility you have, the more you can plan for the future.

The other important area is the skill set of the people working with you. You can have the best technology and the best processes, but your people may be not sure what to do with this technology, and are still following traditional ways. These three areas are all important.

WT: Talking about IT and just knowing what to order, on the logistics side we are driven by sales, but one of the biggest downfalls in the region is that the buyers are so inexperienced and the merchandisers and brand managers today are so inexperienced. We get stock forecasts with way-oversupply or way-undersupply, because all they are doing is going by an Excel spreadsheet. They have no analytical data of the stock movement.

GL: We’ve done a lot of training with our buying team on how to understand how automatic replenishment works and how the whole process fits together. They tend to look at their landed margin and don’t think about the cost of storing stuff in the distribution centre if it stays there for a year. It doesn’t enter their heads.

From Left: Gillian Lewis, Logistics and Inventory Manager, ACE Hardware, Al Futtaim Group, Wade Thompson, Regional Sales Director, Middle East, CEVA and Dr. Albert Tan, University of Wollongong Dubai

KS: Are things changing?

WT: I believe now through all the global giants being here, supply chains are being re-engineered through new properties, rather than existing infrastructure, because that existing infrastructure is so old and tired. We’ve done extension after extension after extension.

These new properties coming up are certainly going to be in accordance with what we’ve come from in other regions. The planning for tomorrow is in accordance with global standards.

AT: Now in Dubai, many companies are rationalising the use of 3PLs. In Singapore, from my research with HP, they were starting to see too many problems from outsourcing the whole supply chain. For example, when shipping a computer from Singapore to Hong Kong, the failure rate was around 30 per cent. They were outsourcing to five parties along the way and no one would take responsibility. From there, they decided to consolidate the outsourcing to at most two parties.

WT: Even in Saudi Arabia, I’ll go to visit people and you talk to them about logistics and they’re like, “What do you mean you’ll take over my warehouse?” They’ve never heard of 3PLs.

To go to some of these companies in the region and make an Arab family board of directors outsource is difficult. The Arabs just refuse to let go of their stronghold. Outside of Dubai, they see the efficiency of outsourcing, but the bottom line remains that they can’t touch their goods anymore. It makes a difference when a company is family-controlled. Everybody owns their own warehouses, everybody owns their own vehicles. Trying to explain to someone that they should never own their own vehicle, that vehicles should always be outsourced and leased, is difficult.

AT: Have you come across any companies or 3PLs here that go to a company with a solution and say, “Now you have an inventory cost of two million. I will come in and implement best practices. If I can reduce your cost to one million, then that one million of savings, you can give me 50 per cent”? That’s what they do in Singapore. So upfront, you pay me an initial fee to do the analysis, and then you don’t pay me a thing until implementation.

WT: In Saudi Arabia, we are selling that now. We are selling “Just pay us what you are paying for logistics now. We won’t charge you anything extra.” We do a due diligence on their supply chain, so they see that we are the exact same cost. That’s the way we are trying to get Saudi Arabia.

AT: They have nothing to lose then.

KS: Dr. Tan was talking about skill sets and I was wondering, are people in this industry not getting paid enough? Is that a problem?

GL: I think so.

WT: To be honest, in higher level positions, companies are actually paying way too much. I hear of people’s salaries and they’re too much for their experience. I think the higher positions are earning a fortune.

KS: So we need to be a bit more balanced. Pay the lower guys a little more and the higher guys a little less.

AT: That’s why in Singapore, when there’s a pay cut, they start from the top down, not from the bottom up.

KS: So where do we go from here?

WT: I think that Dubai is almost over the hill, and I think that inside our industry, our customers are a lot cleverer, they’re a lot more analytical. The industry is being driven by multinational standards and requirements, the likes of HP, Ericsson, Siemens, Nokia. They’re really coming through and saying, “I don’t care if you’re in Yemen. This is what we do, this is what we expect and this is your KPI.”

Money seems to be literally floating on the seas, and at the end of the day it’s all about how much profit you make. In today’s information age, communication between owners and brokers continues around the clock, and remains the catalyst for optimising profit. As cargo bookings, weather conditions and ETA’s are variable and everchanging, the shipping industry has become far more data driven and analyst dependant. Indeed, ship brokering has evolved massively from what it used to be

Matthew Patton (Left), Chairman of Triton Lines, Alexander Hamalton (Right), a broker for Barry Rogliano Salles (BR S) Middle East

Sit down with any shipbroker and he’ll be quick to tell you, the market is changing. No longer are brokers perceived merely as middlemen facilitating ship acquisition for their clients. Rather, with daily variables such as rising fuel costs, hourly market fluctuations, futures contracts and other speculation- driven interests, their roles have become industry specific and far more real time data-driven.

“In the old days, shipbrokers were just like middlemen, ‘Get me a ship at the cheapest price,’” says Alexander Hamalton, a broker for Barry Rogliano Salles (BRS) Middle East in Dubai. “Now it’s getting a bit more like banking where there is a lot of market research. People are interested in your views on forward freight, historical freight, how the market is going to move, etc. So you have more of an analyst role.”

Hamalton says he spends most of his time interpreting market conditions and relaying information to clients as well as shipowners. With a specific focus on oil tanker acquisition, Hamalton feels that specialising in a respective industry allows brokers to stay abreast with their ever-changing markets.

“In shipping, anything can go wrong,” says Hamalton, “hurricanes, break downs and other instabilities affect the entire market. Brokers today must always cover their clients’ interests in that respect.”

“At BRS we have a designated person only watching ships’ activity. That has become an important part of the job,” he continues. “We’re trying to prevent problems before they occur.”

From a shipowner’s perspective, the rapid flow of information has proved invaluable. According to Matthew Patton, Chairman of Triton Lines, the advent of the Internet has directly impacted the global shipping market.

“The Internet has had a significant effect on the industry since it’s made the world much more ‘flat’ as they say. Cargo owners and shippers are able to quickly advertise, communicate and book cargos because the information can be sent to hundreds if not thousands of potential clients in an instant.

This type of communication was impossible beforehand and it allows market prices to correct themselves much more quickly as cargos are fixed at a much faster rate,” says Patton.

As the Middle East region continues to escape the slump that has plagued the global ship charter market since the beginning of the year, BRS and other industry analysts do not see a change in this trend anytime soon. One contributing factor is the flexible nature of the market in the region, compared to a more structured and defined European model.

“The Middle East is more of a traders market, whereas in Europe it would be considered a systems market,” says Hamalton, comparing regional differences within brokering. “For instance, in Europe a company has a refinery which produces ‘x’ amount each month, and most of the time the product is sold in a yearly or bi-yearly contract. You just have to get the stuff moving. Here, it is far more speculative trading. A refinery pumps out a product that doesn’t necessarily have a designated destination at production, but inevitably they will still have to move the product.”

Indeed, trade lanes such as Intra-Asia and Middle East as well as Asia to South America and southern Africa routes are continuing to soak up capacity for almost all tonnage sizes.

Most brokers and industry experts agree that within the GCC there is still huge capacity and demand for commodities is growing. This has helped to keep the region’s container market afloat despite the global slump. Globally, hire rates for all ship sizes are retreating with carriers able to negotiate sizeable discounts as owners opt for lower rates rather than having their vessels unemployed.

“The one thing I think all ship-owners and brokers agree about is that the Middle East has changed drastically in the last five years, and no one expects the demand for raw materials to slow down anytime soon,” says Patton.

Carriers also are deferring charters until the last possible moment because they expect rates to fall even further during the current seasonal slack ahead of the pre-Christmas peak shipping season that gets under way towards the end of summer. However, rates of shipping containers within and out of the Middle East region have increased by an average of 60 per cent since last year due to increasing capacity and fuel prices.

“What most people want to talk about is how shipping rates have changed in the last few years,” adds Patton. “Overall, rates have definitely surged in the past five years or so years. Most of this rate increase has been attributed to what some call the Chindia effect. This is really just China and India’s demands for raw materials as those developing countries continue to grow. China has definitely had a greater impact than any other nation in the last five years, but that doesn’t mean the other developing countries aren’t contributing to this growth.

With rates already starting to correct themselves, we’ll probably see some ship yard orders cancelled and scrapping will increase.”

Indeed, reports of cancelled charters and shipyard orders have been depressing market sentiment in recent weeks. Germany’s NSB, the world’s largest container ship charter owner with a fleet of 87 ships totaling 360,000 TEUs, this month cancelled a US$620 million contract for eight 4,250 TEU vessels reportedly because it could not persuade banks to finance ships that didn’t have charter contracts. Earlier, Evergreen Line pulled out of a long term charter for eight 12,400 TEU ships from Greek owner Niki Shipping.

“When rates go up the way they have, it’s typical to see a large number of new ships ordered by shipping companies worldwide,” says Patton. “I think the past five years have been no exception. In theory the rates should correct themselves as new vessels come online to meet this increased demand, however what typically
happens is an overcorrection of the market – thus begins the cycle. If an overcorrection occurs then we’ll see rates drop significantly forcing shipowners to lay up vessels and others to send their older ships to scrap. This of course will take vessels out of the market and allow the prices to stabilise.

Then eventually there will not be enough ships to meet demand and the cycle will start all over again. The game has always been the same, we just need to learn how to play it right,” he says.

With a flood of large ships of up to 12,000 TEUs about to be delivered from Asian shipyards over the next three years, charter owners globally are bracing for rates to sink even lower. However, brokers rule out a repeat of the 2001 bear market when charter owners considered a coordinated lay-up of idled ships, largely because cargo demand and ship supply are more closely aligned now, than seven years ago.

“We have a bullish outlook on the market,” says Patton. “Since many of the vessels which are currently on order are for the most part delayed in their delivery, the market hasn’t been flooded with as many ships as expected. In actuality it will take some time before many of these ships reach the market and as a result it should dampen the effect it has on rates by some degree. Another element to the stability of the market is the fact that many other nations are developing at a rapid rate and this will require further resources. Locally we’ve seen the UAE completely transform in the last five to 10 years. We’ve seen China and India grow by leaps and bounds but we believe there are other nations that are nowhere near their full potential.”

Clarkson, the London shipbroker, has forecasted world container trade to grow by 8.7 per cent this year, down from an earlier estimate of 9.7 per cent, while ship capacity should grow by 13.2 per cent. That gap will be narrowed substantially by several factors including port congestion and slow steaming. Clarkson expects trade will grow 9.6 per cent in 2009 while the world fleet will expand by 12.9 per cent. While the cargo growth on the major trade routes is slowing, Asia to Europe shipments are expected to increase 10 per cent this year compared with 20 per cent in 2007.

So the question remains, with current market conditions are long-term structured contracts more appealing or short-term flexible deals? “I believe it’s a simple commercial decision at this moment,” says Patton. “The only reason you would sign a short term contract is because you felt rates may increase and you want to be able to capitalise on that increase. If, however, you can still make a good profit at today’s rates, then we believe it’s better to sign the vessels to long term contracts of 12 months or more. Trust me when I say this, if you sign a short term contract because you think rates will go up and you turn out to be wrong – you’ll be kicking yourself for the losses you’ve incurred. When it comes to greed I’ve always believed that it’s better to be a pig instead of a hog. Pigs get fed every day, but hogs end up going to the slaughter house.”

THE RISE AND FALL

Today, the average daily charter rate for a 3,500 TEU gearless Panamax ship has fallen to US$27,000 from US$31,000 in May and US$33,000 in March, according to Clarkson, the London shipbroker.

A 2,750 TEU vessel is earning US$22,000 a day, down US$8,000 since March, and the benchmark 1,700 TEU geared ship is pocketing US$16,000 a day compared with US$18,500 six months ago. Current rates have retreated to their 2006 average and are well below earlier years – a 3,500 TEU vessel for example, earned an average of nearly US$38,500 in 2005.

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