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Middle East Logistics Park

WANTED FOR THE GULF

OVERVIEW. There is much logistics activity in the six countries of the Gulf Cooperation Council (GCC). The six are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Much has, is and will be invested in ports, highways, railroads, airports, warehouses and more. The LOG.Middle East Yearbook 2010 provides a good overview.

The investment was and is being done as part of an economic vision strategy for the respective countries. The purpose of the strategy is economic diversification beyond the oil and gas industry and job creation for the citizens.

REALITY. The results of the overall GCC investing show -

  • Shortcomings in logistics strategy design and development
  • Shortcomings especially with regards to strategy execution and implementation
  • Insufficient recognition that there are two market / customer segments
  • Lack of "building" the strategy and execution from the customer back toward what infrastructure and assets are needed
  • Inadequate recognition of present logistics capabilities
  • Under emphasis on logistics services
  • Over emphasis on infrastructure / creating assets
  • Insufficient emphasis on integration of assets
  • Redundancies with infrastructure / assets
  • Resultant underutilized assets
  • Not providing for and positioning to be logistics and maritime leader in the Gulf
  • Not providing for and positioning to be supply chain leader for customers in the Gulf
  • Over emphasis on transshipment cargo
  • Insufficient emphasis on integration of logistics services
  • Transport carrier potential and logistics provider potential are sliced thin among competing ports and activities
  • Confusion in the market
  • Insufficient differentiation among the GCC competitors
  • Lack of strong value proposition for either of two customer / market segments
  • Not fulfilling the full potential for a logistics park and the economic visions

STRATEGY AND EXECUTION ACTION PLAN. Wherever a country is in its logistics efforts, from strategy development through to strategy execution, there is opportunity to adjust and adapt to becoming the logistics leader for the Gulf. A strategy is not easy. The two steps of development and execution are difficult. (See "Plan of Attack", Log.AE, April 2011).

Logistics has been an effective growth sector for Rotterdam and for Singapore. Panama is looking, beyond the Canal, to use logistics for its economy. What logistics and trade have done for The Netherlands and for Singapore attract interest as a viable approach for diversification, expansion and growth-to establish the dominant position as the Middle East logistics park for the Gulf.

Every two years, the World Bank rates and ranks the logistics performance of 155 countries. Each country is ranked as to Customs, Infrastructure, International Shipments, Logistics Competence, Tracking & Tracing and Timeliness. The 2009 Logistics Performance Index prepared by the World Bank shows Singapore ranked #2 and The Netherlands is #4.

This plan places the logistics center in a leadership role in the GCC and, even, in MENA. There are billions of dollars in potential gain with the successful logistics center. That gain has a GDP multiplier effect and translates into long term economic viability and employment.

The design recognizes the success of Rotterdam with regard to logistics by emulating it. But it also reflects regional differences. It especially recognizes and builds on the perceived void in what is being done presently. It is not intended to mimic what others ports. It works on what countries is not doing. There is an appreciable difference between a logistics hub and a transshipment facility. Transshipment leaves much economic opportunity as unrealized; the logistics park does not. The intent is not to spend in a shotgun manner; it is to spend on targeted, smart opportunities.

The comprehensive, integrated action strategy has four purposes and benefits -

  1. to distinguish and separate one country from competing ports and countries involved with international shipping by creating a sustainable advantage
  2. to use logistics and supply chain management to build the economic growth
  3. to make the leader attractive for customers because of costs, operations and administration
  4. to make the leader country the crossroads for international trade in the Gulf

Key components of the strategy and execution are:

  1. Approach. Being the Middle East logistics park and differentiating--and branding it versus competitors-should include:
    1. Using logistics and technology as the key focus of the logistics center.
    2. Design and implement in two directions:
      • Forward. This is the traditional, fundamental approach using ports and other assets to develop underlying infrastructure of service capabilities and service providers
      • Reverse. This will determine key market sectors and determine the logistics infrastructure and capabilities needed. This will target and put emphasis on what is needed for customers and for the logistics service edge that will be needed.
    3. Recognize and address the institutional structure with the public/government sector and the private sector that further established its role and importance, including with regards to training.
  2. Design. The design should:
    • Analyze the market segments and volumes in the Gulf for providing logistics services
    • Analyze the logistics capabilities and services required for each market segment
    • Analyze present logistics service providers for each market segment
    • Identify and assess the gaps between the total, integrated logistics abilities and the requirements of key, select market sectors
    • Develop plan on how to develop those logistics opportunities
    • Integrate the logistics capabilities, services and services providers for an efficient, and easy-to-service for customers
    • Execute and implement plan
    • Recognize ongoing sustainability and growth
  3. Focus. The focus of the plan should have two parts -
    • Logistics - logistics capabilities, services and service providers
    • Technology - supply chain technology capabilities and services
  4. Customers. It is important to understand that there are two underlying sets of customers that the plan must targets:
    • The logistics service providers-carriers, warehouses, 3PLs, forwarders, etc.--that are important to provide needed supply chain services.
    • The end-user customers that will actually choose and use the center for their logistics and trade needs.

The logistics hub creates value for end customers and will bring customers. Competitive costs and simple administration are important to bring customers-logistics service providers, exporters, importers, suppliers and buyers. It also enables the development of value propositions that create more customers and better customers for the logistics center.

More than transshipment. Successful implementation will separate and elevate the country from regional competitors and targeting the two sets of customers creates the foundation for a value proposition. The logistics center and its value proposition will enable the winner to take the lead as the Gulf's logistics center and to maintain that lead.

The plan recognizes that the transport carriers, both ocean and air, are important to the success of being the logistics center for the GCC. For example, being a transshipment center makes a country and its ports dependent on the carriers. That approach misses opportunities. More is needed.

Being a logistics park builds a base of activity that will bring the carriers and make a mutual relationship. It will also build a base of activity among exporters and importers in the Gulf and potentially beyond.

Success for the logistics center will require strong, efficient capabilities with multiple modes of transport-ocean-including deep sea, short sea, breakbulk and bulk; air; trucking/intermodal. This transport diversity provides flexibility and fluidity and is needed to handle the variety of logistics capabilities that the different market sectors will require from the logistics center.

Success will also require efficient capabilities-and high scores--from the logistics sectors that are part of the World Bank Logistics Performance Index. These are Customs, Infrastructure, International, Logistics, Tracking and Tracing and Timeliness. These factors are also important for customers and their supply chains.

The logistics center will be about the container. It will be about the pallet of cargo. It will be about the customer. It will be about the supply chain. With the two direction approach, identifying needed assets and services-and the investment required-will be demonstrated. This view contrasts with what some ports have done with just investing in assets with no clear understanding of markets, customers and services required. Investing in assets without recognition of customers and market sectors can result in underutilized assets and frustration with the overall results.

Logistics

Some have invested in transport, warehouses and other hard assets. Each of these assets provides a traditional commodity service. Many ports use a general approach based on transport sectors and their niches. That is a narrow view that misses the bigger picture that goes beyond country borders and leads to trade development. Assets by themselves do not make a logistics hub.

The action plan presented here builds a logistics hub utilizing the integration of transportation, warehousing, forwarding and other services. This means investing and developing a logistics approach that provides value services for customers throughout the GCC.

The logistics center would be about more than warehousing and similar operations. The center would provide value services, such as kitting and assembly, light manufacturing, postponement packaging, reverse logistics and other services. All this would create more imports (of parts and products) and exports (of assembled and finished products). It would be unique in the area for select market segments, including consumer goods, Halal, and oil and gas.

Doing all that the plan envisions places the investments, assets, capabilities, services, service providers and jobs into a dynamic sector of the economy. It also puts the investments, assets, capabilities, and services into an integrated approach as compared to those with standalone assets and services. The action plan creates synergies by and among the private sector and the country which will enable it to be the Middle East logistics park of the Gulf.

Technology

End-use customers require much more than track and trace technology to manage visible, integrated supply chains. Supply chain management technology will be an anchor and bridge for the logistics center to draw exporters and importers from various GCC and MENA countries. The logistics center will be involved with product enhancement and movement and with information movement.

The leader must have both logistics and technology. It must take this vital, integrated view of supply chain management. They look at shipping and warehousing and not at supply chain management, which is how end-users look at the total activity. Focusing on supply chain management with technology is another important factor that will distinguish the GCC Logistics Center from the competition and will drive the success of the center.

The primary focus will be needs of the two customer sets, the logistics service providers and the end-user customers who will utilize the Logistics Center. Potential areas of technology application include, but are not limited to-

Supply chain execution. This will provide global online visibility, integration and management for products that move through the logistics centers from suppliers to customers worldwide. It will cover the supply chain from purchase order through to delivery at the customer or store shelf, including activities within the Logistics Center.

E-Freight Portal/Center. This may be the shining technology program to draw both sets of customers. It would enable exporters, importers, 3PLs, freight forwarders and others to book their cargo for all carriers and modes. This would be done online and provide full booking capabilities and order visibility. It could include insurance and other tasks. Forwarders and others would book and manage it all through one portal rather than going to different carrier websites as they must do now. The present fractured booking approach creates confusion and extra work. No one else in the GCC or MENA has this online capability.

RFID (Radio Frequency IDentification). It reflects state-of-the art technology whose usage is becoming a requirement of supply chain management and use within and by the logistics center.

Cargo flow management. For ports, depots, warehouse and container storage yards that includes chassis and container use and availability, integrated hazmat information, load and discharge to vessels, receive and dispatch at gates, consolidate and deconsolidate at warehouses and docks, damage notification system to record equipment problems, maintenance and repair system to record damage repair bills, roadability checks on equipment to be dispatched, replacement of the paper EIR/TIR using wireless hip printers and real-time visibility into all activities.

Recognizing and accelerating the information and operational technology platforms can propel the center growth. The capabilities meet and exceed the World Bank LPI with regards to tracking and tracing and the information technology aspect of timeliness. All this will strengthen the leadership position as the logistics park for the GCC.

Market Sectors and Logistics Capabilities

This action plan has a focused view of specific market sectors and logistics capabilities. This means that the overall design, operation, and infrastructure will have an integration that supports growth and targets investments.

It will build a foundation of the number and type of carriers that call at the port. The leader will be the logistics hub and center of the GCC, using logistics/supply chain services and logistics/supply chain technology that, in turn, positions it as the trading center for the Gulf. The success of the plan lays a solid foundation for economic growth.

Two market analyses should be made. These would indicate market sectors that have strong potential as customers for the logistics center. This gives market focus to the design and implementation. It also aids in defining the logistics infrastructure, capabilities, services and service providers for the center. Potential markets are those in the Gulf, not just one country.

The results would be shown in two matrices-

The above analysis, as shown in the matrix, would identify markets of interest and of nominal interest. Large market size sectors with high product value would be very strong candidates as customers for the logistics center. Large size with less value and large value with less size could yield customers also. Small size and small value would not likely be viable for the logistics park.

The above analysis, as shown in the matrix, would identify markets of interest and of nominal interest. Large market size sectors with high logistics/supply chain complexity would be very strong candidates as customers for the logistics center. Large size with less complexity and large complexity with less size could yield customers also. Small size and small complexity would not likely be viable for the logistics center.

Results of these analyses would facilitate the "reverse" logistics center approach and design based on markets/customers. It would identify needed assets and capabilities that otherwise may not be recognized, yet that are vital for the logistic center. This would help prioritize funding for the center. It would also identify possible assets that have less priority for investment.

The consequence of being the logistics center would be multiple logistics parks located in areas that would facilitate efficient operations for different market sectors. This adds to the success of the program.

The focus on markets and logistics assets and capabilities permits design of each park to provide lower economic operation costs. This will add sustainability as logistics leader. It also facilitates planning for each park and the overall logistics center.

Institutional Structure

This is an underlying and crucial area for project success. Developing the needed balance between the public and private sectors is very important. It is important for success during each phase-design, implementation on sustain/grow-and for having ongoing and continued progress with the plan, including funding. It will include questions as to who does what, when it is done and how it is done.

While the present situation is evaluated, attention should be on the future. Possible institutional arrangements for the logistics center and dominance in the GCC may include the creation and development of a Logistics Center Board, a high level body, in respect to logistics and supply chain management. This would recognize the distinct contribution of logistics to the country's economy. The board, while makeup would have to be determined, would:

  • Resolve strategic issues affecting the Logistics Center.
  • Assist in the coordination of the private and public sector initiatives to develop and promote the importance of logistics, both in and outside the country.
  • Integrate the logistics capabilities, services and service providers
  • Develop and articulate a compelling vision and strategy of logistics.
  • Investigate, for logistics and each logistics sector, the opportunities for the country to be established as the GCC regional center for relevant international organization.
  • Promote it internationally as the logistics gateway to the GCC and to MENA.
  • Increase the level of involvement in the country with logistics, maritime and other logistics organizations with the view of increasing the profile of its participation/
  • Strengthen its presence in Europe, Asia and North America and its interrelationship with relevant international institutions.
  • Articulate the GCC's logistics opinions, concerns and recommendations and support its strength as a Middle East logistics leader through research.
  • Promote the country internationally explaining its high degree of economic and financial stability.
  • Take measures to increase the number and standard of trained logistics personnel for logistics service providers and end-user customers.
  • Coordinate with appropriate government agencies as to funding, customs, rents, taxes and other topic to attract customers.
  • Promote joint ventures with the private sector.

Training

Implicit with the Logistics and Technology will be the need for people and training and education. The country will need to develop a program for the training and education so its own people can get the many jobs and the good jobs that arise from Logistics and the Technology programs with the Logistics Center. Strengthening the logistics talent training will accelerate the development of the logistics industry in the country and solidify its position in the Gulf as a Middle East logistics park.

This includes training for maritime, air cargo, warehousing, forwarding and customs (with the changed approach for the logistics center). It also includes education for supply chain management. For example, logistics and supply chain management are majors in colleges in the United States and Europe. This training further facilitates the employment issue for its citizens.

Actions, Questions and Issues

Doing all this and achieving each step includes these actions, questions and issues -
  • Would the government be prepared to compete strongly against the same ideas in other GCC countries? Would they be able to come to an understanding between neighbors that the other interested states would allow it to follow such development? The question is asked because of uncertainty that the volume of available cargo, even including, in addition to the local consignments, all neighboring and cross-water countries, would allow more than one port in that area to succeed successfully.
  • Would the country be willing to establish in their port a tax-free logistics center which does not only includes a tax-free area but also a reasonably priced work force to assemble final products from parts coming in from all over the world? This requires evaluating what neighboring countries actually have, even when others may advertise tax-free areas.
  • Will the country's Customs be a partner in the logistics center? Smooth and ease of access administration is an important part for the operation to attract and retain customers. There is a tradeoff of free duty storage in a free trade zone can be made up when goods are exported. Customs is the way for the country to protect its tariffs/duties and to monitor what is coming and going.
  • How are the leader's relationships with their neighboring countries? If you want to establish a logistics center you have to make sure that your neighbors support your efforts and allow their volumes to run through it. A wholehearted support for a logistics center would help profitability (establishment and maintenance cost).
  • Would it be prepared to look at their present port regulations and costs to make sure that a future distribution port (and connected authorities) makes it easy for carriers to come, for inland or feeder distributors to serve and for cargo to arrive/leave without a cumbersome administration?
  • There should be a review of the present port facilities to find out if there is sufficient space, cranes, equipment, etc to run a smooth main liner, feeder carriers, and train/truck operation with a good enough productivity.
  • Will they examine investment funding options, such as from the government, private sector or collaboration and blending of both sources?
  • Collect all volumes which could use the logistics facilities of the country in and out. Official numbers are important. The data should include the local its volume plus all.
  • Review present facilities--sea, land and air--with the goal to recommend suitable facilities for efficient operations. Being the logistics leader will mean bigger ships and larger cargo planes.
  • Compare requirements of carriers with available facilities (e.g. depth, length of pier, how many slots, etc. for ocean with runways, cargo handling, etc. for air.). Well-run facilities will tempt carriers to come or present ones to expand their presence.
  • Review present operational rates and regulations with the goal to streamline and make them competitive. Compare them with competing neighbor countries.
  • Review rates and regulations to make them simple and competitive. The purpose is to make it the least administrative/most competitive facility for both target customer sets.
  • Examine how the present logistics zone, or similar enterprise, can participate in all this and potentially take itself to a new level.
  • Review available space/regulations with regard to free zone and assembly operations and recommend suitable operation.
  • Establish logistics operations that can provide value services--kitting and assembly / light manufacturing / postponement / packaging / reverse logistics--to create more imports (of parts) and exports (of assembled product) would be unique in the area for select market segments.
  • Review present logistics vendors (sea, land and air) and recommend suitable logistics network to handle transports to/from neighboring target countries.
  • Ensure only a well run, efficient and competitive network that is essential to sell and execute smooth logistics and supply chain management.
  • Review present carrier network utilizing it and neighboring competing countries and recommend which carriers to approach to "sell" the logistics center.
  • Focus on a small number of carriers to make them an effective part of the developments. An effective carrier base is important for the 3PL and other logistics service providers to be attracted to the logistics center.
  • Establish (with local experts) a total cost and revenue forecast and present to for approval.
  • Identify and get logistics providers to operate such operations.
  • Review scalability of logistics center overall, including respective Middle East logistics park and transport capabilities.
  • Determine how any and all of this logistics activity should be funded - by the government, by the private sector or by a collaboration of the government and private sectors.
  • Make and keep the government interested in the logistics center and its operation.

CONCLUSION. Everyone wants to build ports, warehouses, airports and roads. That is nice. But the real logistics potential-and the real need--in the GCC is to design, develop and implement the logistics center concept, such as Rotterdam and Singapore have done. This type of logistics park requires more than investing in infrastructure and assets.

Design and development must recognize there are two customers and should be built on logistics and technology. It also creates a value proposition for customers and differentiates the country with the GCC logistics center and supply chain leadership from other ports and competitors. All this, combined with institutional infrastructure and training, creates a dynamic, sustainable opportunity for economic diversification, growth and employment.

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