SCLG YEARBOOK 2013/2014

sclg-t2-5th may:Layout 1 6/1/13 8:55 AM Page 1


This is my pleasure to present to you the SCLG Yearbook 2013 - a detailed lookat the regional industry today. We can see a surge in infrastructure projects GCC-wide, governments are continuously prepping for the future despite the recent globalfinancial crises as well as unrest in some of the countries in the wider MENA area.There is an expectation for the GCC countries’ GDP to reach growth levels of fiveper cent per year until 2020 and subsequent population increases of approximately50 per cent. So not only are national infrastructure needs being forecasted and met,but on a regional level preparations are going ahead for an integrated rail connectionfor freight and passengers. This is being actively planned and coordinated by allgovernments.

We have compiled a comprehensive look at the status of all the modes of transportin the GCC with strong article updates on each level. The yearbook is publishedunder the banner of the SCLG - The Supply Chain and Logistics Group bySignature Media. Signature Media is a strong new player in the market with adedicated team of professionals catering to all media, events and consultationservices in the region.

The purpose of this yearbook is to bring together in one place an overview of themajor branches of the industry, to be able to provide an insight for all our membersas to what the status has been and where the industry is headed. There’s never toomuch of the right information to steer you businesses in the right direction.

Hence the 6th SCLG Summit and Yearbook is being held and launched at the righttime when the industry is turning around for growth and innovation and leavingbehind the period of global financial confusion.

I would wish to take this as an opportunity to extend thanks to all individuals andcorporates who supported in developing and delivering the book well on time. Aspecial mention to our colleagues at AT Kearney who have diligently supported useach time with their comprehensive and concise country reports.

I would also like to extend my sincere thanks and appreciation to Dubai Chambersfor providing direction, support and encouragement in advancing the supply chainand logistics industry in the UAE, the region and around the globe. It is my pleasureto add that since the Supply Chain and Logistics Group is based in Dubai - theinspiring and vibrant city of innovation, knowledge, economy and global tradeconnectivity - we shall continue our efforts in bringing excellence to the supply andlogistics industry globally.

SHASHI SHEKHARChairmanSupply Chain and Logistics Group, SCLG

FOREWORD

3SCLG YEARBOOK 2013 | WWW.SCLGME.ORG




CONTENTS

08 What the future holdsExperts from SCLG’s distinguished members panel look at the industry’s present and future

COUNTRY REPORTS

13 Logistics in the GCCThe emergence of a transcontinental hub

16 BahrainResilient progress

22 KuwaitNew opportunities up ahead

28 OmanAn expansionary fiscal policy

36 QatarA continuing balance-of-payments surplus

42 Saudi ArabiaTempered growth

52 UAECore assets - trade, tourism, infrastructure - prove resilient


6 SCLG YEARBOOK 2013 | WWW.SCLGME.ORG

BY ROAD

60 GCC rail connectionRealising GCC unity

BY AIR

82 World air cargo forecastA round-up of the year

94 On a highEmirates sky cargo

96 Taking control with SAPSAP transforms Panalpina

BY SEA

102 Full steam aheadDP World remains confident about their long term vision

105 Jebel Ali expansion on targetDP World talks about new developments

106 Khalifa portAbu Dhabi container operations move to Khalifa port

107 Khorfakkan exceeds expectationsSharjah’s Khorfakkan port experienced most growth in the Middle East



Published for the Supply Chain and Logistics GroupDirectorKanchan R. Vora

Exclusive Sales AgentSignature Media LLCP.O. Box 49784. Dubai, UAE

Deepak ChandiramaniEmail: [email protected]

Jason VerhovenEmail: [email protected]

EditorMunawar ShariffEmail: [email protected]

Design and Layout byDesign BucketEmail: [email protected]

Printed by United Printing Press (UPP) – Abu Dhabi

MANAGEMENT

110 GCC’s logistics infrastructureAsset rich and cargo poor?

116 Rock steadySSI Schaefer has a solid future strategy

121 Logistics drives regional economic growthThe region’s supply chain and logistics industry is in the driving seat

126 Winning supply chains integrate today’scapabilities with tomorrow’s goalsA bullet proof supply chain is the way forward

132 Logistics outsourcing trends - a strategicinsightChallenges of outsourcing a part of the supply chain

Contributor’s opinions do not necessarily reflect those of the publisher or editor and while every precaution has been taken to ensurethat the information contained in this handbook is accurate and timely, no liability is accepted by them for errors or omissions, howevercaused. Articles and information contained in this publication are the copyright of SCLG and Signature Media LLC and cannot bereproduced in any form without written permission.

CONTENTS



Bob Collier, Owner and CEO of LydonConsultancy

How mature and steady is the region's supply chainindustry?The industry in the region is long established and is very steady.

Although volumesfluctuate with seasonaldemands there is ahistory of continuityand client focus helpingthe region maintain itsimportance in thesupply chain.

How have theequationschanged cominginto the present?With the constantdemand for lower pricedgoods and services,buyers in the region

have switched their sources of supply. This has been a gradualswitch from USA and European suppliers to South East Asian andFar East sources. This affects the supply chain transit times anddocumentary requirements and with lower prices this means a

reduction in customs revenue for the respective countries.Although this is marginally off-set by increased volumethroughput.

What do you see as the major challenges goingforward?I do not see any major challenges going forward as the region’smembers have the experience and capability to plan ahead forpositive growth.

From here where do you see the market going andhow does it compare internationally?We are in a vibrant, growing region with a growing purchasingpower, which places it ahead of most International regions toattract major investment.

Which is the most promising country in terms ofgrowth in the MENA region?Because of international sea lanes and the proximity to the RedSea route to Europe, then Oman must be considered as a majorcompetitor to further develop as a regional transhipment hub toserve both the Middle East and African markets.

Where is your area of concentration today and in thefuture?My main focus today is establishing a niche market for discerningcustomers where service and commitment are more importantthan a low price.

WHAT THEFUTURE HOLDSFour of SCLG’s exper ts share their vision about what’s in store for the supplychain and logistics industr y regionally and internationally. Munawar Shariff spoketo Bob Collier, Owner and CEO of Lydon Consultancy; Mark Millar, ManagingPar tner at M Power Associates, Dr Donald Tham, Professor at Ryerson University,Canada and Mishal Kanoo, Deputy Chairman of the Kanoo Group.



Mark Millar, Managing Partner at M Power Associates

Mark Millar provides value for clients withindependent, external and informed perspectives

on their supplychain strategies inAsia – includingChina and ASEAN.His presentations,seminars andcorporate briefingshelp companies toimprove businessoperations, planmore effectivelyand increase theefficiency of theirsupply chainecosystems. Markser ves as AsiaPacific Regional

Advisor for SCLG. His contact [email protected].

How do the two regions - the Asia Pacific and MENA- compare in terms of supply chain efficiency andmaturity in the logistics industry?There are many similarities between the Asia Pacific and MENAregions – both are complex and dynamic with plentifulopportunities and challenges in the context of logistics and supplychain management. Both regions comprise multiple differentemerging and developing markets, all at various stages ofdevelopment and maturity – and therefore cannot be serviced bya one-size-fits-all approach.

What excites you most considering the presentscenario of markets improving and businessesexperiencing more success than previous years?There are many exciting opportunities – particularly with therapidly emerging consumerism across the regions which is drivingexponential growth in FMCG, retail and electronics sectors. We

are also seeing an expanding proportion of intra regional tradeand the development of substantial E2E (emerging to emerging)business.

However, what would be your cautionary advice?In this exciting environment, there are many challenges within thesupply chain ecosystems, with the major ones typically relating toInfrastructure development, regulatory environment andavailability of human capital.

Different economies are at differing stages of investing in thetransportation infrastructure that is needed to empower and enableefficient logistics networks. Multi-modal hinterland connectivity isessential to effective supply chain ecosystems, but often getsneglected in the early stages of infrastructure expansion.Regulatory environments vary across the different economies,with some markets having cumbersome administrativeprocedures, restrictive licensing frameworks and inefficientcustoms processes that cause costly delays that inhibit successfulsupply chain execution.

Skills shortages across the white collar sectors of logistics andsupply chain often manifest themselves in environments ofrapidly developing economies, where the demand forexperienced logistics personnel easily outstrips theavailable demand, further compounded by the industrytalent pools frequently not expanding rapidly enough at theintake level.

How much are the emerging markets (India andChina) contributing towards propelling tradethrough the GCC? How have those figures changedin the last few years?The ‘Chindia’ trade will continue to expand apace, with south-south trade flows projected to grow faster than most. GCC willcontinue to play an essential pivotal role in many of theseexpanding trade routes and will also increasingly act as thefulcrum for sea-air supply chain options between Asia andEurope.

Where do you see the industry headed over the nextcouple of years?We will see further rapid growth of economic prosperity across

SGLG MEMBER INSIGHT



emerging and developing markets, as the centre of globaleconomic gravity continues to shift eastwards.E2E and intra-regional trade flows will expand.

Within the 3PL sector we will see further consolidation throughmerger and acquisition activity, whilst customers also reduce thenumber of service providers that they deal with. Persistentproliferation of mobile internet and e-commerce business willchallenge traditional logistics networks leading to last milefulfilment experiencing some interesting innovations during theyears ahead.

From your vast experience, what would be yourword of advice to logistics companies in the GCC?Focus on adding value for your customers and always adopt aflexible and responsive approach to the market. Ensure you areregularly accessing the independent informed insights that willempower your business to continuing profitable growth in therapidly changing environment.

Dr DonaldTham,Professor atRyersonUniversity,Canada

How have supplychain and logisticsacademicschanged over theyears?The reality is thatcorporations andgovernments from allover the world, more so

from North America and the Euro Zone, have organically becomeassociated with "long or extended supply chains" in their quest tosearch for low cost geographies for materials and labour inputsinto the products and services they provide. The physical logisticalentities and associated control procedures needed to maintain theintegrity, sustainability and legality of these extended supply

chains have become challenging tasks. It is this context orframework that should drive the changes in supply chain andlogistics academics over the years. Educational courses shouldstrive to provide the balanced content towards exposing studentsto appropriate theories, best practices, researched findings andtechnologies so that graduates of such courses may be able tooperate successfully within this reality framework.

What in your opinion is the industry specific courseor specialisation of the moment?In my opinion, it is very difficult, if not impossible for me toidentify the industry specific course or specialisation of themoment. However, based upon my academic and industryexperiences over three decades,

I feel confident that a well rounded post-secondary undergraduateprogramme in Industrial Engineering tends to produce highlysuccessful and productive employees for corporations andgovernments operating in the reality context or framework I putforth for your previous question.

How have the industry requirements led to andenhanced course contents?By virtue of the global or extended supply chains we live with orhave to live with, the traversing of physical borders of countriesover land, sea and air is given. This exposes the industry playersto encounter various types of terrains, waters, skies, supportinginfrastructures, governmental and financial laws, cultures, businesspractices, technologies, environmental laws, human behaviour,industrial relations, languages, foods and eating habits.Consequently, industry requirements have led to course contentsthat have been enhanced through case studies whereby studentsare being exposed, for example, to various governmental,environmental and finance related laws, coupled with sustainabilityand pollution issues.

More so, course contents complemented with case studies andcollaborative inputs from students of various countries are beingdelivered and discussed by various "visiting professors" therebybringing a global experience to the classrooms made seamlesslypossible today through varying communication and informationtechnologies. Further, exchange students may take courseelectives outside his/her country with supplemental workinternships in the visiting country, as all part of earning a course



credit. In short, the "internationalisation" aspect of coursecurriculums driven by industry requirements have enhanced the"course contents".

What can you identify as areas yet to be explored insupply chain and logistics knowledge?

The aspects of ensuring accountability, responsibility, traceability,sustainability, integrity, quality and the right performance metricsin real time throughout the supply chains are some areas yet to beexplored in the supply chain and logistics knowledge domain.Case in point - the mystery of horse meat on some supermarketshelves! I rest my case.

There's just so much to learn and adapt to ineveryday business, how quickly do you see newtechniques being implemented today?The agility towards the implementation of new techniques beingimplemented will always depend on various factors:- one, theoutlook perspective of senior management coupled with riskacceptance and the complacency factor - do not upset the apple-cart!Therefore, just keep the status quo. Two, the prospect of the generaleconomy impacting the company's market share. Though, it may besaid that many of my company clients are driven towardsimplementing new techniques quickly notwithstanding the generallypoor economy with the conviction that they can leverage from thenew technique/technologies to beat the competition and improveprofitability. Three, the abilities and skills of the company's workforce.In this respect, there are senior management players that promote andsubsidise costs to better train and educate their workforce.

In many ways, this is an enabler towards the agile implementationof new techniques. Four, the competition factor to the company’sproducts and services. If the company is in a niche market verticaland faces little or no competition, the company may tend topostpone the implementation. Though one must be cautioned thatsuch a situation may make the company overly complacent. Thismay sometimes prove to be detrimental to the company.

What's the future looking like for the industry fromyour wide academic vision?The supply chain and logistics knowledge domain will continueto gain in prominence, visibility and significance for enterprisesby the dynamic factors evolving around the world. For example,

low cost geographies for materials and labour are shifting fromChina and India to the African Continent. This demandsdirectional and operational changes to various extended supplychains. The crushing economic declines within the Euro countriessuch as Greece, Portugal, Spain and Cyprus, leading to theausterity measures imposed on those countries by the ECB andthe IMF. Now with the formation of the BRICS Bank, there willbe a shift in the trading zones thereby calling for a demand in theexpertise of the supply chain and logistics domain too. Hence,there is optimism in my outlook for the industry.

Mishal Kanoo,DeputyChairman ofthe KanooGroup

What is the currentlogistics scene inthe region?It is blooming. This isstill the most importanthub on the east/westcrossroads. Some citieswill do fine while otherswill do great.

Where is it headed?We are about to exit a financial crisis. It might not feel like it, butwe are. As the global economy grows, so will the industry.

What challenges are you facing in your freight andshipping businesses presently?The main problem that we are facing is getting the right talent atthe right price.

In your opinion, is the logistics industry lacking inany way in the GCC? How does it (the local logisticsindustry) compare with global supply chains?This is a growing market but not a mature one. It is covering

the commodities freight but not the niche markets … at least notyet.

SGLG MEMBER INSIGHT


COUNTRY REPORTS

Disclaimer: This document is presented exclusively for information and/or evaluation purposes and A.T. Kearney Limited accordingly makes norepresentations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the informationfor any particular purpose and confirms that it will, under no circumstances, be liable for any loss or damage including without limitation,indirect or consequential loss or damage, or any loss or damage whatsoever arising from-, out of-, or in connection with, the use of theinformation.

Sources: A.T. Kearney Analyses, Business Monitor International, CIA Factbook, Containerization International, Economist Intelligence Unit,Factiva, Frost & Sullivan, International Monetary Fund, MEED, National Governments, National Ministries of Transportation, NationalPort Authorities, World Bank, Zawya


13

Logistics and transportation infrastructure developments enable theregion to boost its local economies as it progresses towardsdiversification. With an estimated growth of the gross domesticproduct (GDP) around five percent per year until 2020 in the GCC,and a forecasted population growth of up to 50 percent by 2040,GCC governments are expected to continue to invest in theirexisting logistics infrastructure and build new facilities to cater togrowing population needs. The GCC is undertaking thesesignificant investments both at an integrated regional level, e.g. withthe GCC rail network development, as well as at a national level,e.g. with projects in airports, seaports and roads.

Coordinated investments integrating existing and new logisticsinfrastructure assets across the GCC as well as across multimodallogistics and transportation concepts remain crucial to strengtheningGCC’s overall economic development and global competitiveness.While mainly focused on meeting growing local demand, improvingoperational efficiency as well as developing the required servicesector to operate these logistics assets are essential for success. Interms of operational efficiency, the GCC countries continue toimprove customs, tracking and tracing processes as well astimeliness. Based on these investments and process improvements,airports, ports, roads and railroads are becoming key enablers tosustain GCC wealth and growth. To fully leverage theseinvestments and efforts, it is important to note that the “intelligent”connections – communications, logistics, scheduling, and IT systems– are every bit as significant as the physical connections of roads,railways, and pipelines.

Improved integration with ports and markets along the Indian

Ocean is likely to bring further prosperity to the GCC providingaccess to some of the world’s fastest-growing markets in CHIMEA(China, India, Middle East and Africa).

Trends and Challenges for Logistics inthe GCC Region

Overall, the GCC experienced substantial economic growth in theaftermath of the global recession. GCC’s 2012 GDP growth was4.8% and is expected to reach 4.1% in 2013 and pick up in the yearsto come.

Oil prices aside, GCC economies are increasingly implementingmeasures to become less vulnerable to fluctuations of oil prices whileimproving economic development and competitiveness. Forexample, three of the GCC countries have moved up in the WorldEconomic Forum Global Competitiveness ranking (Qatar, Bahrainand United Arab Emirates).

Regional logistical improvements were also revealed in the 2012World Bank Logistics Performance Index where the United ArabEmirates, Saudi Arabia and Qatar improved their logisticalperformance scores compared to last year.

The United Arab Emirates advanced across all dimensionsespecially in customs, logistical competence tracking and tracing andtimeliness. Saudi Arabia advanced international shipments andQatar improved customs, international shipments, logisticscompetence and tracking and tracing.

LOGISTICS IN THEGCC–THE EMERGENCE OF ATRANSCONTINENTAL HUB

OVERVIEW




Sector Analyses

Airports and aviation

The Middle East has become one of the fastest growing regions interms of aviation. Passenger traffic levels have been steadilyincreasing and are expected to continue to increase given the GCC’sstrategic location. The number of passengers is expected to growsubstantially in future years. In the coming years the GCC countriesare expected to invest an estimated total amount of $90 billion inairport infrastructure for passenger and cargo traffic. Numerousmajor airport projects are already underway to create sufficientcapacity to meet the anticipated demand.

Saudi Arabia and the United Arab Emirates account for the majorityof airport capacity in the region, becoming transcontinental hubslinking the East and the West. Together their airport capacity in2025 is expected to be 314 million passengers ( Saudi Arabia - 114million passengers and UAE - 200 million). Qatar is also very activeand is seeking to position itself as a transit zone, but also as both a

business destination and a “the tourism hub” especially for the“2022 World Cup. Qatar airport capacity is expected to reach 60million passengers in 2025. Oman, Bahrain and Kuwait arereinforcing themselves and upgrading their airport infrastructure inorder to strive with their GCC partners. Their goal is to promotetheir standing and anchor a well-deserved position on the aviationmap while diversifying their economies away from naturalresources. Bahrain intends to hit a capacity of around 14 millionpassengers by mid-decade while Kuwait has forecasted a capacityof 25 million in 2020. Oman’s master plan has set a target of around12 million by 2014 and a goal of 50 million by 2050.

Air Cargo also is expected to continue to grow, especially focused

on upgrading handled goods. The United Arab Emirates, Saudi,Qatar and Oman have invested extensive amounts in building andimproving their actual infrastructure to become the heart of theMiddle East in air cargo handling.

Ports and marine transportation

Ports continue to attract the interest of the GCC governments.Across the region, a number of seaport developments aim to adjustcontainer and solid as well as liquid bulk capacities due to increasinglocal export and import demands. In addition, the GCC has alwaysbeen the link between East and West, i.e. a significant share of worldcontainer traffic between Europe and Asia pass through the Gulf.This growing trade allows GCC ports to embrace the transshipmentbusiness. GCC governments are continuously investing in state-of-the art port infrastructure with some specialization taking place.In this perspective, Bahrain has designed its ports with an ability toexpand but most importantly focused Khalifa Bin Salman port on

transshipment and specialized Mina Salman Port on the export andimport of building material. Kuwait sets its goal towardtransshipment and focuses on serving its northern neighbors byexpanding its main port to handle up to 2.5 million TEU by 2016.Oman’s ports act as the main source of jobs and the backbone ofthe industrial sector. The Salalah port expansion emphasizes oncargo handling and transshipment capabilities with a cost of around $650million, while Sohar port targeted deep-water jetty and dry bulkterminals at a cost of around $250 million. Duqum port’s upgrade willinclude a liquid terminal to be completed by 2017 as part of a free zone.Qatar has plans to spend $5 billion for a new deep sea port focusing oncontainers and transshipments, its other ports have also been enhancedand specialized. Mesaieed is focused on handling bulk and oil and Ras


Laffan on handling liquid products (LNG). Last year Saudi Arabian portsgrew at around 13%, e.g. Jeddah Islamic Port and King Abdulaziz PortDammam expanded and upgraded their infrastructure and storages.Jubail and Yanbu are expanding towards positioning themselves as themain gateways for petrochemical exports. Ras Al-Khair is focusing ondry bulk, liquid bulk and general cargo while the port of King AbdullahEconomic City (KAEC) is expected to expand its transshipmentcapabilities in a free zone environment. Hence decreasing the customclearance and becoming more efficient. Khalifa Port in the United ArabEmirates became the main container terminal with an expansion allowingthe capacity to hit 15 million TEUs by 2030 while Jebel Ali port isexpected to handle around 55 million TEUs by 2030.

To create a long term sustainable network of ports in the region,there are three important dimensions to consider; cargospecialization, transshipment hub and free zone developments. Byacting along these lines, GCC governments will be able tosustainably manage port expansions, decrease potential competitionand increase the value creation potential of port investments.

Rail and road developments

Investments in rail, roads, causeways and bridges are flourishing acrossthe GCC. Bahrain is intending to connect itself to Qatar before the2022 games in Qatar while Qatar has set aside $30 billion to developand upgrade the national road network supporting industry, tourismand linking Doha to major industrial, oil and gas developments. Kuwaitplans to invest $14.2 billion in country road work to be completed overthe next five years connecting internal ports and towns and Omanallocated around $3.2 billion as the second priority budget area in the8th Five Year Plan for road building. Saudi Arabia is spending around$45 billion on its rail network adding 7,000-kilometres of track. Finally,the United Arab Emirates is planning numerous road and rail projectsconnecting airports and free trade zones.

Among the many projects it is worth mentioning the plans tointerconnect the GCC states by building an extensive railwaynetwork for both passenger and freight traffic. This will furtherregional trade and economic development.

The combined GCC railway projects being built cover around2.200-kilometres covering the coast of the Gulf and extending fromOman to Kuwait, passing through the UAE, Qatar and SaudiArabia. The network is expected to be completed within thisdecade. The combined GCC rail and road network connectingcountries, free zones and ports is expected to enhance cross countrycooperation, develop local economies, and balance intra-GCCtrade. Overall it will enable the increase in freight volumes to becovered by the available ports decreasing waiting times and turnovers, hence increasing efficiency and growth across all GCCmarkets.

The various investments in road and rail, especially the rail networkplan in coordination with the port developments will position theGCC as a transcontinental hub. This is important for the overalleconomic development of the region as well as especially forpetrochemical exporters to increase their outputs and volume flows.It will also open doors for potential new business opportunities andnew markets that could be reached by rail in the future.

Outlook

In the long term, continued investments in GCC logistics andtransportation infrastructure as well as related service sectordevelopments are expected to boost regional trade. The integrationof air, sea and land transportation modes will be vital in establishingthe GCC as a global transshipment and export hub allowingsustained and coordinated economic growth leveraging businessopportunities across the emerging markets of China, India, thegreater Middle East, and Africa. a world class

About A.T. Kearney:A.T. Kearney (www.atkearney.com) is a global management consulting firm that uses strategic insight, tailored solutions and a collaborativeworking style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’sleading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 39 countries. From ourMiddle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney supports both private and public sector clients as well asnations to excel and prosper by combining our regional expertise and global business insights to achieve results. For more information,visit www.middle-east.atkearney.com.

OVERVIEW




GCC LOGISTICS PROFILES 2013

BAHRAIN



BAHRAIN

Trends and Challenges for Logistics in Bahrain

GDP and Federal Finances• Real GDP recorded at around 2.0% in 2012• The petroleum and minerals sector is expected to constitute 86% of total treasury income in 2013 and 2014 while it has accounted

for around 76% of budgetary sources in 2009 and 2010• Bahrain is projecting a budget deficit of $1.76 billion for 2013• In 2011, the GCC decided to give $10 billion of financial aid to Bahrain and Oman each over a span of 10 years to help them

overcome socio-economic and socio-political issues

FDI Confidence and Competitiveness• FDI inflows in Bahrain have rebounded in 2011 from relatively low values in 2010, rising to a level of $781 million with an

increase of around 400%• Bahrain is ranked 35thin the World Economic Forum’s 2012-2013 Global Competitiveness Index

Development Outlook• Bahrain’s GDP is expected to stabilizearound 3.7%between 2013-15 and then to increase to around 4.7% in 2016-17• However, port and other infrastructure capacity continue to make Bahrain an attractive logistics hub given its drive to diversify

its economy and the likeliness of Khalifa bin Salman Port becoming a transshipment hub in the near future• Bahrain has emerged from the crisis experienced in 2011, and the same has been reflected in improved ratings, yet the same is

constrained by fiscal dependency on sustained high oil prices and international donor support• Oil price volatility remains a source of risk as exports and services are vulnerable to changes in demand• Regional political instability has the potential to adversely impact foreign investments, development

Infrastructure Investment Outlook

• “Vision 2030” is an action plan to fast track development projects in the infrastructure sectorthroughout the country• Around ~$600 million has been allocated for infrastructure facilities in the 2013budget and the same was dedicated for 2014• Bahrain is seeking to reduce government financing in infrastructure projects through Public Private Partnership (PPP)




Logistics Projects and Outlook

Overview• Forecasts predict that the country’s shipping sector will experience steady growth in the medium term due to

Khalifa bin Salman Port, which may become a major transshipment hubKhalifa bin Salman Port• APM Terminals Bahrainis slated to operate both Mina Salman and Khalifa bin Salman Port for 25 years• Khalifa bin Salman Port’s initial capacity is 1.1 million TEU per year with a possible expansion of up to 2.5

million TEU• The port wasopened in 2009, and has been designed to allow for future expansionMina Salman Port• In response to the growing demand for building materials in Bahrain, the former main container and general

cargo terminal, Mina Salman Port has been converted to a dedicated import and export building materials terminal. It has been re-commissioned and is in operation since January 2012

• In addition, the US Navy is also expanding the port.A $580 million project is scheduled to be completed in 2015, and will include utilities infrastructure, a consolidated port operations and harbor patrol facility, personnel barracks, administrative buildings, dining facility and a flyover bridge connecting Naval Support Activity (NSA) Bahrain to the new port facilities

SEA

Overview• The GCC is set to invest around $90 billion in the next few years in order to meet the growing need and

Bahrain is likely to receive some of these fundsBahrain International Airport• The expansion of Bahrain International Airport is expected tohit a passenger capacity of around 13.5 million

per year with an expected budget of ~$4.7 billion• The original timeline for the expansion project suggested completion of Terminal 1A by 2013, and demolition

of the existing terminal to commence construction of Terminal 1B in 2014. Formal launch of the Bahrain international Airport expansion project was made in June 2011

• The project also features nearly five additional contact gates, nine remote gates, 40 additional check-in counters, and a large transfer facility and other capacity enhancements and value added facilities

Bahrain’s Sakhir Air Base• A ~$15.4million project to upgrade the infrastructure at Bahrain’s Sakhir Air Base was completed on schedule

in early 2010

AIR

Overview• The GCC region is united in a push towards developing rail transportation in the region, Bahrain stands to

gain from GCC interconnectednessBahrain Rail Network• Bahrain envisions the construction of a ~110-kilometre network in three phases by 2030; and is awaiting

approvals to begin initial studies for the $8 billion rail plan• 90 km rail will link Bahrain and Saudi Arabia, which is estimated to cost $4.5billion

RAIL



BAHRAIN

Bahrain monorail• The project calls for the construction of the Bahrain Monorail that will link the various regions of Bahrain to

ease traffic (it is part of a whole public transport network project including Light Rail Transport (LRT), a monorail, trams and a Bus Rapid Transport (BRT))

• The first phase i.e. the Green Line is a 23-kilometre long section which will extend from Juffair through Manama to Seef district

• The entire project, measuring around103-kilometres, is planned to be completed by 2030• Phase 1 budget is ~$1 billion, complete project budget is ~$8 billionSaudi Arabia-Bahrain Rail Link• Discussions are taking place to develop a rail link between Bahrain and Saudi Arabia, linking Al-Khobar with Manama• The project will cost around $4.2 billion. The proposed construction will take place in parallel to the King Fahd Causeway• The feasibility report is expected to be available by the end of 2014 with the aim of the project being operational in 2017

Overview• Bahrain is well situated, only 40-kilometres from Saudi Arabia. In case theBahrain-Qatar Causeway is

constructed, Bahrain could further strengthen its regional economic and logistics positionBahrain-Qatar Causeway• The recently redesigned causeway is expected to connect the western costal region of Qatar with eastern

Bahrain (the so-called 40-kilometre ‘Friend-ship Bridge’)• It will carry four vehicle lanes and two railway tracks between the two countries• It is planned to be finished before the World Cup in 2022 with an expected budget of ~$2.9 billion

King Fahad Causeway• The 25km-long King Fahd causeway links the Kingdom of Bahrain with the Eastern region of the Kingdom

of Saudi Arabia• Expansion work on the King Fahad Causeway, connecting Bahrain with Saudi Arabia will be developed over

a period of 20 years and is supposed to cost around $5 million• Workshall include construction of additional lanes for incoming and outgoing traffic and a waiting yard on

each side of the causeway.King Fahd Causeway Authority received bids from firms for the Project Management contract for the first part of the expansion project in Feb 2013

North Manama causeway • The project includes building:- Anupgrade of the two junctions and the improvement of the at-grade movements of Al Fateh / King Faisal Highway, and Al Fateh / Shaikh Hamad Causeway- The construction of a new signalized traffic junction for entry / exit into the Manama Lagoon area halfway- The construction of new 2.42 km of roads along Al Fateh Highway and the eastern and northern sides of theBahrain Bay- The construction of a new 238 m long curved left turn flyover to provide a two-lane single carriageway access to the Bahrain Bay- The construction of a new 51.4 m long single span bridge to provide three-lane dual carriageway across an architectural canal along the northern side of the Bahrain Bay

• This~$265million contract is nearing completion, with major portions now open to the public (as of February 2013)Mina Salman Interchange• Ongoing tunnel project worth~$123 million and expected to be completed in November 2013

ROAD


Bahrain – Key Economic Drivers





BAHRAIN




KUWAIT



Trends and Challenges for Logistics in Kuwait

GDP and Federal Finances• Real GDP recorded an estimated increase of 5% in 2012and is expected to grow by ~4.6% in 2013 with the non-oil sectors

contributing around 5%• Kuwait’s economy is reliant on the petroleum sector which accounts for more than 90% of all exports• The Government reported an inflation slow-down from 4.8% in 2011 to 4.3% in 2012.Kuwait passed 2012-13 budget with a

deficit of around $26 billion mainly through calculating oil income at a conservative price• The budgeted revenue was posted at around $48 billion, an increase of 3.7% on last year’s estimated income

FDI Confidence and Competitiveness• According to the World Investment Report, Kuwait has attracted an FDI inflow of $399million during 2011• Kuwait is ranked 37thin the World Economic Forum’s 2012-2013Global Competitiveness Index

Development Outlook• Kuwait's fiscal system remains the most dependent on oil income. The petroleum sector at large, including sales of gas, will

account foraround 95% of government revenues (Kuwait non-oil revenue increased by 6.8% in the first 10 months of fiscal year 2012-13)• Diversifying the economy away from oil is the long-term development strategy of the country• Regional political instability has the potential to adversely impact foreign investments, development potential and waterway access

• Kuwait budgeted $111 billion to the development of new infrastructure projects as part of the Kuwait development plan• The Kuwait government announced plans to invest ~$12.6 billion in 320 projects covering roads, bridges and government

buildings to ease traffic congestion, provide improved access for more isolated regions and upgrade existing infrastructure• In line with GCC rail plans Kuwait is dedicated to pursuing a rail development initiative


KUWAIT





Overview• Kuwait is committed to diversifying its economy and becoming a regional hub with its northern neighbors.

Investment in ports is part of realizing that goalExisting Kuwait Ports• Mina Al-Ahmad handles most of Kuwait’s oil exports• Kuwait’s existing ports face capacity constraints:‒ Shuwaikh (next to Kuwait City, surrounded by a free-trade zone): ~800,000 TEU capacity‒ Shuaiba SeaportShuaiba Sea Port• ~200,000 TEU capacity• A new trailer driver, sailor building and a monitoring tower are to be added. The bid is expected be closed in

mid-2013Mubarak Al Kabeer (Bubiyan) Port• Kuwait plans to establish a new seaport at Bubiyan Island to serve as a trade hub with its northern neighbors.

The new port is expected to handle up to 2.5 million TEU, with the ability to receive 2 million TEUs by 2016• The port is scheduled to be completed in 4 phases, the construction of new roads and the railway scheme; the

dredging of the planned harbour site; the creation of nine new docks, followed by an additional seven; and theaddition of 33 new docks (bringing the total to 60) by 2033

• The commissioning date of the port’s first phase is 2016 while construction is scheduled for completion in 2014with an expected budgetof~$2 billion

Silk City Mega Container • It is part of the Silk City project, which aims to revive the ancient Silk Road trade route by becoming a major

free trade zone linking central Asia with Europe• Progress on the $77 billion Silk City project stalled after Kuwait called for a review of its master plan

Overview• The Middle East airfreight has had a very strong growth. Kuwait’s International Airport is likely to experience

year-on-year growth in traffic in the medium termFarwaniya Kuwait International Airport• Airport capacity will be increased in Phase 1 to 13 million passengers per year by 2016 and in Phase 2 up to 25

million passengers per year by 2020• The expansion includes the construction of runways, airplane hangars, roads, docking stations, substations and

related facilities• This includes a new terminal building, extensions to the two existing runways plus a new third runway, with

an expected budget of $3.3 billion• A third phase has been discussed, which would see the facility expanded to a capacity of 50 million passengers

per year

SEA

AIR



Overview• Kuwait plans to invest heavily in its rail sector in the short and medium termKuwait Metro• Kuwait plans to build a 171-kilometre four line metro system for up to ~70 million passengers annually. 60-

kilometres will be underground and will span across 60 stations• Expected budget: $7billion• The metro will be built in five phases until 2035• Up to 50% of the project was expected to be financed through an initial public offering (IPO)• Preparations of expressions of interest for the first package of the project were being undertaken, when the

same was put on hold in late-2012, after the Government ordered a review of the plans while it considers bringing them back under government ownership

• The first package covering the rolling stock is planned to be tendered in 2013Kuwait Rail Network• Plans are in place for the construction of a 550-kilometres railway in Kuwait, which will stretch from the east

to the west of the country and will link into the railway networks of neighboring Saudi Arabia and Iraq; withan expected budget ofaround $10 billion, and expected completion by 2017

• Feasibility studies for the project were being conducted when the same was put on hold in late-2012, after theGovernment ordered a review of the plans while it considers bringing them back under government ownership

Silk City Rail• A rail network between major Middle East cities and China –the route will travel through Kuwait, Damascus

and Baghdad, and will eventually link the Middle East with China• This is part of the Silk City project expected to be completed by 2030• Progress on the $77 billion Silk City project stalled after Kuwait called for a review of its master plan

RAIL

KUWAIT




Overview• Kuwait has one of the best road systems in the GCC with considerable coverage of the entire country. Plans

are in place to further improve the country’s roads• $14.2bn worth of road work to be completed over the next five yearsSubiya Causeway• Kuwait plans to construct an eight-lane bridge of 37.5-kilometrelength across the Bay of Kuwait connecting

Shuwaikh Port with Subiya New Town Development• The $2.6 billion contract for the designing and building of the causeway shall also include two man-made islands

of 30 hectares, one on each side of the bridge, for housing of maintenance and traffic emergency buildings, fuelling stations and boat docks

• The project is expected to be completed by Q1 2018Al Jahra Road Upgrade• The project involves upgrading Jahra Road to increase its capacity and improve road facilities and services• It includes a 7.2-kilometre long viaduct and construction of a 21-kilometre motorway, a 1-kilometre tunnel, an

elevated 7-kilometre motorway on the viaducts, which consists of approximately 8,500 precast segments to cover a total area of 38,000 cubic meters

• The Jahra Road Development project was formally launched in February 2011Sheikh Jaber al-Ahmed al-Sabah Bridge (Doha Link Bridge)• A16 km long bridge will connect Shuwaikh to the port villageof Doha in the Jahra region,it will connect to

Subiya Causeway project• The bridge will contain three traffic lanes and an emergency lane in each direction.• The project is expected to cost ~$1 billion

ROAD

Kuwait – Key Economic Drivers

ROAD



KUWAIT




OMAN



OMANTrends and Challenges for Logistics in Oman

GDP and Federal Finances• GDP recorded an estimated growth of 5% in 2012, driven by oil production increase. It is estimated that the economy will continue

to grow by 5.1% in 2013• Oman has the second most diversified economy after Bahrain in the GCC region, with the oil and gas sector contributing less

than 50 per cent of GDP (41% in 2009), and is expected to drop to 9% by 2020• The country will continue to invest in economic diversification, following its Economic Vision 2020 plan which aims to reduce

the contribution of oil and gas to roughly 20 per cent of GDP, while raising the manufacturing sector to 15 per cent of GDP• Following the diversification drive, the government’s 8thFive Year Plan (2011-15) allocated more than ~$3.9 billion towards

development of non-oil exports including the construction of basic infrastructure such as ports, airports and tourism development projects• Nevertheless the government continues to invest in oil and gas. It has plans to increase Oman’s crude oil production in the 8thFive

Year Plan (2011-15), setting aside ~$1 billion for that purpose

FDI Confidence and Competitiveness• Oman based its 2013 budget on a price estimate of $85/barrel, significantly below the Bloomberg forecast of $111/bbl(for Brent

Blend), therefore providing a buffer in case of a fall in oil prices• FDI inflows in Oman aggregated to $788 million in 2011, experiencing a decline from previous years on account of socio-economic

instability in the region, affecting investor confidence

Development OutlookThe government plans to invest ~$78billion between 2011-15 in the development of oil industries, hospitals, education and roads.This value represents a 113% increase over the last five year plan. Major tourism investments are also planned• Oman’smerchandise trade surplus is rose to ~$24billion in 2012• Exports are expected to grow by 6.5% in 2013, driven bystable oil prices and sea port developments• Imports are also expected to grow strongly by 10%, boosted by an increased domestic demand for consumer goods• Endeavors to increase the role of the private sector in large-scale projects are expected to continue• The transport sector is expected to continueoutpacing the economy, driven bynew and continued infrastructure projects in airports

and roads• Improved business environment will most likely attract more private investments for infrastructure projects• However regional political instability has the potential to adversely impact foreign investments, development potential and

waterway access


• The Oman government’s 8thFive Year Plan (2011-15) plans to invest~$31.2 billion ininfrastructure development. From that sum the planned spending for projects in airports is~$6 billion, for roads~$3.2billion, and for seaports ~$1.4 billion

• Airports and roads form the bulk of the spending between 2011-15





Overview• $1.4 billion has been allocated to develop the seaports of Oman as part of the 8th Five Year Plan (2011-15)• The Muscat port is being turned into a tourism and maritime heritage facility and the transfer of traffic is due

to be completed by the end of this year• Oman’s ports are playing a central role in supporting the country’s growing industrial base and providing more

employment opportunitiesSalalah Port• In 2012, Salalah port handled 3.6 million TEUs of container shipping, as well as 7 million tonnes of bulk cargo,

compared with 3.2 million TEUs in 2011. Volumesare forecasted to continue growing• The first phase has been initiated with the expansion of the General Cargo Terminal (GCT) which has 1.2-

kilometre of multipurpose berths with drafts up to 18m• Salalah Port Services Company, a joint venture between the Oman Government, AP Moller Maersk and other

Omani investors, is aiming to complete an expansion of its cargo terminal by Q1 2014• The expansion scheme will increase Salalah’s cargo handling capacity to 20 million tonnes a year (t/y) of dry

bulk commodities and more than 6 million t/y of liquid products, up from a total cargo handling capacity of 6.5 million t/y during 2011

• The construction award for the expansion of the general cargo terminal is valued at ~$143 million• The expansion of the general cargo terminal is part of the $645 million expansion of Salalah Port that will be

carried out over 20 years• There will also be several contracts floated during 2013 related to the rehabilitation of Salalah’s old port. There

are also plans to look at building new container terminal berths in 12-18 months’ time, which once completedcould add 3.5 million TEUs of capacity

Sohar Port• Sohar port plans to announce further expansions to its capacity as it is assuming an increased regional market

share• Expansion work on the Port of Sohar is in progress, with two main project developments: a $250million major

deep-water jetty and a dry bulk and aggregates terminal• The jetty and the dry bulk terminal are scheduled to be completed in 2013 and in mid-2014, respectively• In January 2013, Hong Kong – Hutchinson Whampoa won a $130 million contract to build and operate a new

terminal at Sohar Port. The terminal will double the port’s capacity to 1.5 million TEU from existing 800,000TEU

Duqm• Duqm port is part of a special economic zone authority, which includes an industrial zone, a fishing harbour,

and tourist and logistic areas. The port is due to be completed by 2015• The Duqm port was scheduled to have a soft opening in 2013, as a part of the gradual roll-out to be carried out

until the commercial quay is fully operational in 2015. The roll-out began in 2012 with the opening of the drydock

• The estimated value of the contract is~$75-$200 million• A new development is planned to be added for a major liquid terminal at the port. The terminal is set to be

completed by 2017• It will have a capacity of 230,000 barrels a day. The port will comprise a multi-purpose terminal with a capacity

SEA





of 0.8 million tonnes, a container terminal with a capacity of 3.5 million tonnes and a dry bulk terminal with acapacity of 5 million tonnes

Port at Al Halaniyat Islands• There is a plan to construct a fishing port at shuwimiah on Al-Halaniat Islands for around $16 million in 2013Hasik Port• The new construction at the Hasik port is expected to cost around $100 million including development of quays

enabling express ferries calling the port

Overview• The country has plans to establish a comprehensive national rail network of more than 1,000-kilometres,

including both freight and passenger rail. This rail network will connect with rail in neighboring countriesOman Rail Lines• Oman is planning a ~$15 billion and more than 1,000-kilometrescomprehensive national rail network, including

both freight and passenger rail, which will link major cities and rail projects in neighboring countries• The rail network is set to play an important role in connecting the industrial zone of Sohar, Duqm and Salalah• The project is divided into five sections initially (260-kilometresbetween Sohar and Muscat, 526-

kilometresbetween Muscat and Duqm, 140-kilometresbetween Sohar and Buraimi, 58-kilometresbetween Soharand KhatmatMelaha, and 646-kilometres between Duqm and Salalah)

• The rail network design stage is expected to be completed early next year and the construction of the first stageis due to begin by the third quarter of 2014 with expected completion in 2018


Overview• ~$6 billion has been allocated to develop Oman’s airports. It is one of the topbudget area in the 8th Five Year

Plan (2011-15)Muscat International Airport• The on-going expansion of Muscat International Airport is planned to increase annual passenger handling

capacity to 12 million by 2014 while the overall master plan is to accommodate 48 million passengers (more than 8 times its current capacity) by 2050

Salalah International Airport• The Salalah airport development plan will have capacity for 1 million passenger and 100,000 tonnes of cargo

annually by 2014• The expansion will enable the airport to host modern and large aircrafts such as the A380Adam Airport in Dahiliyah region• The airport will have a capacity to handle 250,000 passengers per year with a runway of 4km• The commercial operations is planned for 2014 with project costs of around $150 millionSohar Airport• The construction of an airport terminal atSoharis planned to accommodate 500,000 passengers and 50,000

tonnesair cargo per year• The project will include a runway, a fire station, fuel tanks, lighting and drainage system at total expected costs

of around $150 million

AIR

RAIL



OMAN

Overview• Road traffic has been increasing steadily in recent years and therefore requires infrastructure adjustments• $3.2 billion has been allocated to develop Oman’s roads. It is the second priority budget area in the 8th Five

Year Plan (2011-15)Al-Batinah Coastal Road • The contract for the first phase of the construction of a four-lane carriageway from Naseem Garden to

KhatmatMalaha in Wilyat Shinas was awarded in March 2012 at a cost of $360 million• The second phase of the contract, worth $328 million, was awarded to a Malaysian/local joint venture in August

2012 but was subsequently cancelled in 2013Nizwa-Thumrait Road• The first phase of the 758-kilometre Nizwa-Thumrait dual carriageway project started in 2010 with an estimated

budget of~$650 million• A $132 million tender to build a 48km stretch of the road between Izz and Adam in the Dakhilyah governorate

was awarded in 2012• The build and habilitation of the road will allow the link between Muscat and Salalah to be fully dualised along

its length of more than 1,000kmBidBid-Sur Road• The first phase is worth~$325 million for 115kmand the total budget for the dualization of the road is

approximately ~$623 million• Oman's transport ministry has decided to add a third lane to the Bidbid-Sur road dualisation project

Ibri-Jibrin road project• The dualisation of the road is budgeted at~$190 millionOther road project• The construction of lKhassab-Lima-Dibba road at around $700 million• The dualisation of Mahda Al Rawdah road at around $100 million• The Rehabilitation of SinawMohootDuqum road at around $200 million• Asphalting Wadi Al Mayh road at around $62 million

ROAD

• The project will be implemented with the funding support pledged by the members of the GCC bloc, and bidshave been invited for network design in February 2013

GCC Rail Network• Oman will be in charge of the Batinah railway, which will run parallel to the Batinah highway, and eventually

will connect to Kuwait through the GCC rail network• The link will run 260-kilometresfrom Muscat to the border with the United Arab Emirates, and earlier reports

cite the possibility of linking the railway to Al Duqm in the future• The first phase of the project involves the construction of 1,000-kilometre of track, linking Muscat with Sohar

and then extending to the UAE. This phase is expected to take four years to construct and will begin operationsaround 2017

• The second phase of the project may connect Muscat with Salalah in the south, and involves the constructionof 600-kilometresof track





OMAN

Oman– Key Economic Drivers





QATAR



QATAR

Trends and Challenges for Logistics in Qatar

GDP and Federal Finances• GDP growth in 2012 was highreaching5.8%. Government authorities expect 2013 growth to be ~4.8%• Qatar’s economy grew in 2012 thanks to a 9.3% rise in the non-oil and gas economy over the full year, as well as elevated LNG

prices• Total budgeted fiscal expenditure was ~$49 billion for 2012.The actual expenditure for H1 2012 was ~$19.3 billion• Despite the difficult global economic scenario, financing of infrastructure projects continued. The government sovereign wealth

fund, the Qatar Investment Authority, assisted with funding whenevercredit unavailability threatened the projects’ timely progress• Facilities are also being developed with a perspective of hosting the 2022 FIFA World Cup, the country is preparing itself for an

around $60 billion construction boom• Traditionally Qatar has used loans and bonds to finance economic development projects

FDI Confidence and Competitiveness• Qatar demonstrates solid growth, with plans to spend around $80 billion on construction of buildings and around $60 billion on

energy related projects• $60 billion-plus are to be invested for the 2022 World Cup and around $18 billion to develop petrochemical and industrial projects

and schemes• Qatar is ranked 11thin the World Economic Forum’s 2012-2013 Global Competitiveness Index, up from 14thin 2011-2012

Development Outlook• Expectations for annual GDP growth are around 6% in the coming years, putting Qatar within the top Middle East economic

growth performers.The operating environment remainedpositive for infrastructure developments with projects being executed across the country. The transport sector registered a growth of 15% in 2012

• The government continues to invest in the country’s transport infrastructure and in diversifying the economy mainly through thedevelopment of natural gas resources and gas-based industries

• The inter-modal balance has gradually adjusted to reflect the country’s development while strong investments in the transport infrastructure will persist. In addition, the government will continue to favor state and private sector partnerships in the freight transport business

• Qatar is working to develop infrastructure to absorb the huge influx of visitors for the 2022 FIFA World Cup event• Nearby regional political instability has the potential to adversely impact foreign investments, development potential and waterway

access


• Qatar plans to make large investments in improved infrastructure in order to host the FIFA world cup in 2022• Along major investments in ports, airport, rail and roads, the government allocated fundsfor the tourism development which will

include new stadiums and increased hotel capacity





Overview• There are around $5billionplanned spending on a new deep sea port development• Qatar has three portswith different purposes. The new port at RasLaffan has LNG berths, liquid-product berths,

container and solid cargo berths which serve the gas industry, the Massaieed port handles the bulk of industrialgoods and oil, and the Doha deep-water port serves as a container and transshipment point

RasLaffan Port• This project provides the expansion of berths and infrastructure to handle growth in liquefied natural gas

exports, dredging, land reclamation and new breakwaters• The port needs to follow the expected expansion of the RasLaffan Industrial City, which should nearly double

in size by 2015• The beginning of the expansion phase includedthe largest dredging operation in history, where 20 million cubic

metres of sand was reclaimed and 21 kilometers of breakwater was built• The expansion included alsobuilding five new LNG berths, four small tanker berths, navy/coastguard and tug

berths, container exports berths and onshore infrastructure, including electrical power distribution• Expected overall budget: ~$3.5 to $3.8 billionUmm Said / Mesaieed Port(New Doha Port)• Located at Masaieed, south of Doha, 5-kilometreeast of Doha International Airport, this new port is intended

to replace the Doha Port downtown while supporting the local industrial development• The port development is based on different phases. The first phase of the New Doha port will accommodate 2

million TEUs. It is also designed to accommodate larger ships• The project is set to completion in 2016, phases two and three will take place after 2022, to expand the port in

line with demand for capacity• The Gabbro terminal will also be expanded and a new jetty for export of liquefied petroleum gas will be

developed• The cost of the new port is expected to be $7bn covering 26.5 square kilometres and including the construction

of a naval base and an economic zone• The existing port in Doha’s city centre is capable of handling up to 300,000 containers a year and this new port

is intended to replace Doha Port

SEA

Overview• Qatar plans to spend about ~$17.5 billion on a new airport and ~$1 billion on a crossing between the airport

and northern Doha• The aviation sector is already thinking beyond 2022. The construction of New Doha International airport is as

much about supporting Qatar Airways’ expansion plans as it is about transporting World Cup-related traffic• Passenger traffic at the current Doha airport is increasing at roughly 14% a year, driven by Qatar Airways’

rapid growthDoha International Airport• The first phase of the Doha International Airport is expected to open by mid-2013• The project’s first phase will bring capacity to 24 million passengers a year and will create 42 contact gates, 6

of which will be dedicated to the Airbus A380

AIR



QATAR

Overview• Up to~$40 billion is expected to be spent on developing the country’s rail lines per Qatar rail and Qatar

Development Bank. In case the Bahrain-Qatar Causeway is constructed, Qatar could further strengthen its regional economic and logistics position

Qatar Integrated Rail Project• The ~$35 billion nationwide rail and metro network is expected to conclude in 2026, although the sections

necessary to host the world cup in 2022 should be ready by 2020• It will have 643-kilometres, 318-kilometres of metro lines within the greater Doha area and 325-kilometres of

ground rail network• The project will contain passenger and freight railway linking RasLaffan and Mesaieed via Doha, a high speed

link between the New Doha Airport, Doha City Center and Bahrain, the Doha Metro, and a light rail peoplemover in Lusail, Education City and Westbay

• The high speed link is expected to complete in 2017 and the first of the four lines of the metro network is dueto be operational in 2019

• Initially, Qatar Railway Development Company (QRDC) was the authority in charge. In 2011, the responsibilities of QRDC were transferred to a new entity, QRail

• Following the restructuring, QRail reordered the planned construction phases of the integrated rail plan, decidingto prioritize the 300km Doha metro project

• Doha metro green, red and golden line are expected to be awarded for tunneling in 2013 as well as the Msheirebstation's and the 30km Lusail light rail network's construction

Bahrain-Qatar Causeway• The recently redesigned causeway is expected to connect the western costal region of Qatar with eastern Bahrain

(the so-called 40-kilometre ‘Friend-ship Bridge’)• It will carry four vehicle lanes and two railway tracks between the two countries• It is planned to be finished before the World Cup in 2022 with an expected budget of ~$2.9 billion

RAIL

Overview• Qatar has a paved network of 1,160-kilometres, linking Doha to major industrial, gas and oil

developments• $30 billion is to be set aside to develop and upgrade the national road network to support industry and tourismBus Rapid Transit (BRT) System• The project includes special lanes for buses parallel to the Salwa Road and the Industrial AreaLocal Roads and Drainage Program (LRDP)• Qatar’s Public Works Authority will be overseeing the development of 136 kilometer of new roads by 2014,

and upgrading others• The complete program is valued at $14.6 billion, with the construction of roads expected to complete by

2014

ROAD

• The New Doha International airport will be able to assist to a certain extent in importing cargo into Qatar• When complete, the airport is expected to handle 50 million passengers a year, along with 2 million tonnes of

cargo and 320,000 aircraft landings and take-offs




Qatar – Key Economic Drivers



QATAR




SAUDI ARABIA



SAUDI ARABIA

Trends and Challenges for Logistics in Saudi Arabia

GDP and Federal Finances• As oil production stabilizes in Saudi Arabia, the real GDP growth is expected to be 4.1% in 2013• With the global economic environment still recovering, the public sector and state credit institutions become additionally important

to finance investment activities• Private investment is being encouraged in partnership with state owned companies (PPP) or in projects contracted out by the

public sector• The government continues to monitor its economic intereststhrough substantial stakes in state owned companies which are partially

privatized by IPOs

FDI Confidence and Competitiveness• Saudi Arabia continues to reform with the goal oflanding on the top tenof the World Bank’s annual doing business rankings• Saudi Arabia is ranked 18thin the World Economic Forum’s 2012-2013 Global Competitiveness Index• Tariffs for power and water have risen but the government is unlikely tolevy additional direct taxes unless revenues from oil

underperform• The corporation tax (capped at 20%) is likely to continue to apply to non-Saudi firms

Development Outlook• 2015 logistics sector revenues are forecasted to hit around $20.6 billion• Extensive growth opportunity exists for the freight forwarding market due to the high growth in exports of ~$381 billion in 2012

and imports ofaround $137 billion and a rise in domestic uptake of major manufacturing and consumer oriented industries suchas retail, fast-moving consumer goods, engineering, chemicals, food and electronics

• The government plans to invest on multimodal logistics networks that integrate air, sea and rail, thus saving costs, increasing performance, connectivity and supporting economic development

• Saudi Arabia’s logistics sector is attractive for Logistics Service Providers (LSPs) due to the large regional economy size, which accounts for nearly two-third of the GCC’s economy

• Saudi Arabia continues to grow its infrastructure in line with growing logistical demands, increasingthe quality of service and resolving capacity issues in the current road network in Saudi Arabia along international borders with the United Arab Emirates,Yemen, and Oman, which resulted in significant delays for load carriers in the past

• Nearby regional political instability has the potential to adversely impact foreign investments, development potential and waterway access


• The 9th Development Plan for the Kingdom of Saudi Arabia signaled its intention to continue with its infrastructure investment and diversification drive. Saudi Arabia plans to invest ~$385billionuntil 2014 in social and economic infrastructure

• In 2012, the Kingdom of Saudi Arabia had awarded construction contracts worth ~$16 billion• The government has also enhanced its transportation and communication projects budget to~$17billion for 2013• In addition, Saudi Arabia has major plans to improve its rail and metro network, investing an estimated ~$45 billion and adding

7,000-kilometre of track through many major railway projects• Plans to invest more than ~$50 billion in port projects over the coming 10 to 15 yearsalso exist





Overview• In 2012 Saudi Ports handled over 185 million tons, growing 13.8% compared to 2011• This growth was driven by both imports and exports, which grew respectivelyby 18% and 10.4% vs. 2011• General cargo handling and RORO vehicle handling grew respectively by 30.5% and 36.7% while container

handling grew by 17.6% from the previous yearJeddah Islamic Port• In 2012 till March 2013, around 20 maintenance and internal projects were undertaken at JIP at a cost ofaround

$186million including the modernization of the electricity network, garages, sanitation channels, rehabilitationof roads, the construction of administrative buildings, renewal of port docks, construction of new workshopsetc.

• Expansion of the northern container station by adding three piers, back yards, and by adding gantry cranes and rubber-tired gantry (RTG) cranes, in addition to supporting equipment. The operational and handling capacity of the terminal stands now at more than 2.5 standard containers per year

• Construction of a new container station on the north western side of the port. The terminal is made up of fourpiers, and is equipped with 10 gantry cranes and 30 RTG cranes. The operational and handling capacity of theterminal stands now at more than 2 million standard containers per year with plans to upgrade the southern container terminal to increase the operational and handling capacity to more than 2.5 million standard containersper year

• JIP administration is currently conducting a study for the upgrade of JIP's operational and handling capacity, through the construction of a new container terminal in the southwestern part of the port. JIP is also studyingthe possibility of expanding the three container terminals currently available at the port

Dammam King Abdul Aziz Port• The construction of the second container terminal at King Abdul Aziz in Dammam will raise the capacity of the

port to about 4million TEUs annually. The construction started in August 2012 and is set to end in 2014• The investments in the 2nd container terminal project is estimated at$533million with a capacity of up to 2

million TEUs after the completion of construction stages• Several large projects to connect Red Sea ports with Arab Gulf ports are being executed. In addition, the planned

railway network will link Ras Al-Khair Port to other ports at the Arab Gulf (e.g. King Abdul Aziz Port in Dammam and Jubail ports)

Jubail Commercial Port• The handling capacity has reached 9 million tons and 300,000 containers• Logistics projects backed by major petrochemicals exporters is intended to make JCP the main exporting gateway

for petrochemical products (mainly polymers) in the Kingdom• In addition, the port currently supervises the Jubail fishing harbor with prospects to develop a stronger fishing

sectorRas Al-Khair Port• The Kingdom is building a three-berth port to handle dry bulk, liquid bulk and general cargoto boost the dry

bulk export capacity in the Eastern Province,worth $600million• Ras Al-Khair port handled its first vessel in February 2011. The port is suitable for tonnage up to 70,000 dead

weight tonnes and can handle a range of industrial commodities including aluminum, bauxite, construction materials and chemicals

SEA



SAUDI ARABIA

King Abdullah Economic City Sea Port• KAEC Sea Port’s capacity is expected to commence operations in2013 with a gradual expansion to around

4million TEUs by 2016.The construction will cover a 14 million square-metre seaport at a cost of $6billion• The maximum potential capacity of the port is expected to be 20m TEUs• The port is expected to become the only port in the Kingdom to be located within a free zone hence decreasing

custom clearance efforts and becoming more efficient• KAEC Sea Port has the long-term potential to provide alternative/ additional capacity to Jeddah Islamic Port

for shipments between Saudi Arabia and Europe or Asia• The construction contract is stipulated to complete in 2019

Overview• There is a need to adjust airport infrastructure to accommodate the increasing passenger demands while GACA

plans to invest up to$53billion in the air transport industry over the next five years.GACA plans to spend around $10.66bn on building new airports until 2030. GACA is planning additional new airports at Al-Qasim and Abha

King Khalid International Airport (Riyadh)• Saudi Arabia’s General Authority for Civil Aviation (GACA) has selected the joint venture of Turkey’s TAV

and the localAl-Arrab ContractingCompany for the estimated $400million contract to build the new Terminal5 building at King Khalid International airport in Riyadh

• Terminal 5 is part of GACA’s significant expansion program for King Khalid International Airport, which willincrease the airport’s annual capacity to about 24 million passengers from the current 14 million

King Abdulaziz International Airport expansion (Jeddah)• This $8billion development of a new passenger terminal will increase the handling capacity in Jeddah in three

phases, taking capacity to 30 million, 45 million and 80 million in stages 1, 2 and 3 respectively. The project isexpected to complete at the end of 2025

• About 40 percent of work on King Abdulaziz International Airport expansion project has been completed withthe new Jeddah airport is expected to be operational in 2014

• The new Jeddah airport is designed to become one of the largest hubs in the world, covering an area of 670,000square meters. It will consist of 82 domestic, international and VIP lounges in addition to 96 air bridges

Muhammad Bin Abdulaziz Airport (Medina)• GACA is expanding the Prince Mohammed bin Abdulaziz airport in Medina while adding a second runway

with a new 256,000 square metres passenger lounge and commercial areas.Also the current runway is being upgraded as is the existing passenger terminal

• The airport will have a planned capacity of 8 million passengers a year after the completion of the expansion project

• The $1.5billion contract is expected to be completed by the end of 2014 covering passenger terminal, runways,apron and taxiway, new passenger lounge (670,000 sq m), air control tower (136 meter long), commercial areasand associated facilities

Jizan Airport• The airport will be located at a distance of 30 kilometres fromJizan Economic City(JEC) and will have an

estimated value in excess of $500 million

AIR




• The airport will have the capacity to handle up to 2.4 million passengers a year. The project will involve buildinga three-storey passenger terminal, a control tower, air cargo zones and other facilities. The terminal will have 10 gates and a VIP lounge

Hail Airport• The international airport is planned to be completed by 2025 and will focus on cargo linking in with the

development of the Hail economic city which will focus on logistics

Overview• Saudi Arabia is spending ~$45 billion on its rail network adding 7,000-kilometres of track through many projects• The first of which is the Saudi Landbridge project, a 950-kilometre railway which will connect Jeddah and

Dammam. Secondly the 450-kilometre Haramain high-speed which will connect Mecca and Medina via Jeddahand finally the North South Railway which joins the northern mineral belt with Riyadh and the industrial cityof Jubail

Saudi Landbridge• East-West connection between Riyadh and Jeddah (950 km), will upgrade the existing Riyadh-Dammam line

and then be extended from Dammam to Jubail (115 km)• The Landbridge will offer freight opportunities for the transport of containers between the country's main

container ports, Jeddah and Dammam, passing though the Kingdom's capital of Riyadh. It will connect the redsea to the Arabian gulf

• The Land bridge Project is one of the largest projects in the GCC for“Build, Operate and Transfer” (BOT) work. It allows freight of cargo imported from East Asia via the port of Dammam, and from the western countries via Jeddah Islamic Port

• It is forecasted that in 2015 the number of container handled will be more than 700,000 while over 8 million tons of freight cargo will be distributed in the Kingdom and neighboring countries

• For passenger transport, it is expected that the (Riyadh-Jeddah-Makkah), and the (Jeddah-Riyadh), and the (Jeddah-Dammam) lines will serve several million passengers per year

• The railway project linking Riyadh to Jeddah will alone cost around $7billion constructed over 7 years• The project is pivotal for the petrochemicals industry of the country and for interconnection with the GCCHaramain High-Speed Railway (Mecca to Medina)• The ~$13billion and 450-kilometre rail project will connect Mecca, Medina, Jeddah, and KAEC by high-speed

passenger rail (360 km/h). This project is intended to alleviate congestion on roads between Mecca and Medinamainly during the annual Hajj period

• The project has been divided into 2 phases:- Phase 1 covered 2 packages, the first package focused on the civil work construction with an implementation

plan that would cover 36 months. Package 1 was extended until end of 2014 at a cost of around $3billion. Package 2 covers the development of the stations. Its completion is planned for 2015 at a cost of around $2.5billion. The main stations at Mecca and Medina will include concourses, 5 platforms, mosques, civil defensestations, helipads, 10 terminals, parkings, lounges shops and cafes

- Phase 2, includes the construction of the tracks, the installation of signaling and telecommunication, electrification, operational control center, buying 35 trains and the operation and maintenance over 12 years. The contract value for this phase totaled around $8billion

RAIL





North-South Railway• It is a 2,400-kilometre passenger and freight rail line originating in the capital city Riyadh, in the north-west of

the country, to Al Haditha near the border with Jordan• The line is expected to transport four million tons of commodities (phosphate from Hazm Al-Jalamid and Bauxite

from Al-Zubayrah) and two million passengers every yearGCC Rail Network• Saudi Arabia is expected to provide a critical contribution to the proposed pan-GCC Rail Network, with direct

connections to Kuwait, Qatar, and UAE• The overall project will cover around 2117km with 663km within Saudi Arabia• The Saudi-Bahrain connection is estimated to exceed $5billion covering around 90kmYanbu-Jeddah Line• This project will be pivotal for the petrochemicals industry of the countryTaifKhamisMushayt – Abha Line• The length of this line is about 706km that will link Al-Taif with the land bridge on one side and Abha and

KhamisMushayt, on the other sideJeddah and Jizan Line• This line with 660km connects Jizan region with the city of Jeddah due to the rising economic growth promoting

the importance of this line for Jizan regionThe Mecca Mass Rail Transit (MMRT)• The project will include the construction of 4 rails, 88 stations and more than 180km of track to be completed

by 2017

RAIL

Overview• Saudi Arabia continues to enhance its road network and border crossings to support economic developments

ROAD


SAUDI ARABIA





Saudi Arabia – Key Economic Drivers


A D V E R T O R I A L




UAE



UAE

Trends and Challenges for Logistics in United Arab Emirates

GDP and Federal Finances• Real GDP of the United Arab Emirates (UAE) grew by 3.4% in 2012 (est.) and is expected to grow by 3.7% in 2013 due to higheroil prices and production

• Expenditure in the approved 2013 federal budget is projected to increase by around 7% compared to 2012’s budget

FDI Confidence and Competitiveness• UAE ranked 24th in the Global Competitiveness Report 2012-2013 published by the World Economic Forum (WEF)• A.T. Kearney’s 2012 Foreign Direct Investment Confidence Index ranked the UAE 15th

Development Outlook• 51% of the budget is allocated to the “social development”, with 22% allocated to education sector• The UAE is making a concerted effort to diversify its economy away from hydrocarbons. The government is spearheading numerous infrastructure projects, including housing, schools, roads and other infrastructure

• There are many infrastructure projects in the pipeline with an emphasis on rail and air logistics given the continued growth in airtransport and the regional potential for rail

• Nearby regional political instability has the potential to adversely impact foreign investments, development potential and waterwayaccess


• The UAE allocated~$1.4 billion, or approximately 12% of its 2013 budget, to infrastructure projects• Future rail projects include a high-speed link, the purple line, which will connect Dubai International Airport and the new

Al-Maktoum Airport at Dubai World Central in the Jebel Ali area• Dubai's transport department declared that it will spend ~$1.7 billion in 2013 on transportation infrastructure projects • Dubai’s ~$1.1 billion Al Sufouh tram line will link to the metro system and is expected to be completed by 2014• An estimated 340-kilometres of two-way tram tracks will service the Central Business District and the Capital District, parts of

Khalifa City A, Yas Island and the airport in Abu Dhabi





Overview• The UAE is focused on diversifying its economy, the government’sdesire is to accommodate all ship sizes,

including additional dry bulk shipping capabilities to accommodate heavy industryKhalifa Port (Abu Dhabi)• Khalifa Port is planned to grow to a capacity of 15 million TEUs and 35 million tons of general cargo through

phased development through 2030• Phase 1 infrastructure was completed inSeptember 2012 with initial capacity of2.5 million TEUs container

traffic. The port’s infrastructure has the potential to provide 5 million TEUs of capacity• Khalifa Port has replacedthe container terminal of Mina Zayedport allowing inland port traffic to bypass the

capacity constrained downtown Abu Dhabi city areaJebel Ali Port (Dubai)• Jebel Ali faces increased trans-shipment competition from Salalah port in Oman• The current capacity at Jebel Ali port is 15 million TEUs a year while the expansion of Terminal 2 will increase

the capacity by about 1 million TEUs and is due to be completed in 2013• A joint venture of Japan’s TOA and France’s SoletancheBachy has formally signed an agreement to build

Terminal 3 at Jebel Ali port, which is expected to expand capacity at Jebel Ali by 4 million TEUs and will openin 2014. The total handling capacity will then be of 19 million TEUs

• Bids have been invited for the design and build of Terminal 4 at Dubai’s Jebel Ali port. Terminal 4 has the potential to add a further 10 million TEUs to the overall long-term port capacity

• These expansions are part of a larger program covering 15 different phases to be completed by 2030 and makeit the largest port in the world with a handling capacity of 55 million TEU

• The estimated cost of the expansion of Terminal 2 is $1.5billion, while the construction of Terminal 3 is estimated to cost $850million

• The two expansion projects are expected to create more than 1,000 jobsKhorFakkan (Sharjah)• The need to expand is becoming imminent as the levels of throughput are rising. The throughput got to 3.3

million TEU in 2012, marking an increase of 28% on 2011• An evaluation study for the port expansion is expected to be released in 2013Mina Saqr Port Expansion (Ras Al Khaimah)• The capacity of the port is expected to increaseto 3 million TEUs by 2020

SEA

Overview• Air freight is expected to continue growing steadily in the medium term indicating the potential for additional

airport expansion projects• The Middle East aviation market is one of the key success stories for logisticsdevelopment especially due to

hubs in Dubai, Doha and Abu Dhabi that enjoy both a well-positioned location and the ability to handletransittraffic while regional airlines are strongly backed by their respective local governments

Al Maktoum International / Dubai World Central International Airport• Phase 1 of the Dubai World Central Al Maktoum International Airport is completed and is fully operational.The

AIR



UAE

Overview• Rail is an important transportation method for the UAE. The country is looking to utilize rail as a cheaper,

faster alternative means of transporting freight and offering convenient transportation for residents and touristsDubai Metro and Al Sufouh Tram• Three new Metro lines — Blue, Gold and Purple — and a Jumeirah tram route are planned to be operational by

2030, covering 421km with 197 stations• The land has been procured for widening the existing network and new rail routes and infrastructure are

expected to be completed in three phases• Dubai is constructing the Al Sufouh Tram worth ~$1.1 billion with a 14.5-kilometre trackfrom Dubai Marina

to Burj Al Arab expected to be completed by the end of 2014Abu Dhabi Metro and Tram• The original masterplan for the metro involved the construction of 131 kilometres of line, supported by tram

and bus feeder services. Earlier this year, plans were revised with the size of the network reduced to ~70 km• As part of the Abu Dhabi Surface Master Plan the entire transport system will include a network of underground

metro lines, trams and high-speed rail• The system could be operational by 2017National Rail Network• An~$11 billion UAE national Rail Network is planned and isexpected to complete the construction of its first

route in 2014/15. Plans are to extend it up to 1,200-kilometreby 2018• It will stretch from Ghweifat on the Saudi border, pass by the coast of Abu Dhabi then Dubai and extend up

to Ras Al-Khaimah and Fujairah. One more line will stretch to Al-Ain and Oman. Finally, it will connect withthe GCC-wide railway network

RAIL

international airport currently has the capacity to handle 600,000 tonnes per annum and5 million passengers per annum (expandable to 7 mppa)

• Phase 2 of the airport, which includes the construction of an additional two automated and one non-automatedcargo terminals, is currently under way. This is expected to increase the total cargo capacity at Al Maktoum International Airport to 1.4 million tonnes per annum

• Once completed (2020s), the airport will be able to fit up to 120 million passengers a yearDubai International Airport• The number of passengers at the Dubai International Airport is expected to increase with the Emirates-Qantas

agreement• The airport opened concourse A at the beginning of January, the first concourse in the world to cater exclusively

to large A380 aircraft• Dubai is set to start refurbishing Terminal 1 in 2013Abu Dhabi Airport• Abu Dhabi International hit around 13.4 million passengers in 2012, an increase of 12 per cent on 2011. To

meet demand, the airport is investing in its mid-field terminal, due to be completed in 2016 and due to open in2017. It will handle up to 20 million passengers annually

• The $2.9billion contract covers the construction of a 700,000-square-metre terminal.A second parallel runwayis also planned




• The first phase is the270-kilometre Shah HabshanRuwais section• In February 2013 the financingof around $1.3 billion was secured for the 166 km first stage of its railway project,

comprising the route from Shah and Habshan to Ruwais

Overview• Numerous road projects are underway connecting airports and free trade zonesConstruction• In the medium-term, ongoing construction of road and transportation infrastructure results in a constantly

changing road network and detours that must be factored into route planning for local shipmentsNew Projects • There are plans for future road and transport projects in Dubai’s central business district, from the Sharjah

border in the north, to Port Rashid in the south and inland as far as Ras Al-Khor• Road contracts in the Northern Emirates worth an estimated total value of $118.4 million were approved,

involving construction of the new Ras Al-Khaimah ring road and the first phase of the Khorfakkan western ring road

ROAD

United Arab Emirates – Key Economic Drivers



UAE



BY LAND



GCC continues to grow

Initially driven by expanding oil and gas and petrochemicalindustries, GCC countries maintained robust growth through newinvestments, supported by strong governmental economicdevelopment agendas, low energy and chemical feedstock costs.The growth agenda continues to advance toward developingdownstream industries, which leverages the broader range ofmolecules available to enhance the manufacturing and serviceoffering in the region.

As a result, the overall GCC Gross Domestic Product (GDP) is

expected to grow at a stable five per cent per year until 2020, withpopulation increases of 50 per cent until 2040, driven mainly bySaudi Arabian and UAE populations (Fig. 1).

Until now, GCC economic growth was primarily enabled byinfrastructure investments in ports, as the majority of growth wasdriven by export of oil and petrochemicals to European and Asianmarkets. As local populations and economies continue to grow, theneed for advanced national and regional infrastructure becomesincreasingly important to support economic growth.

Road-based infrastructure played the primary role in this support,

GULF RAILCONNECTION:

GPCA (Gulf Petrochemical and Chemicals Association) and AT Kearney presenta detailed study on the benefits of linking the GCC by rail for the regional logisticsand transpor tation industr y.

Realising GCC unity

B Y L A N D


yet with aggressive development targets, rail infrastructure willbecome a critical enabler and driver of sustainable growth for theGCC.

Transportation and intra-GCC trade

Continued economic and population growth in GCC memberstates will generate the need for new and expanded land, seaand air transport infrastructure and services for both freight andpassenger transport. Meeting this demand with the presentmeans of transport will require significant ongoing investmentin; roads, ports and airports, and further expansion of railway

networks and public mass transport services in GCC memberstates.

Rail is well positioned to absorb expected demand increases bypassenger transport, while air and road segments are expected toincrease significantly over the next five years, and beyond. Cross-border intra-GCC trade has traditionally demonstrated lesserimportance for GCC economies; the trade volume oscillatesaround three per cent of the overall GCC GDP, with the outlookratio stable over time (see figure 2).

This creates various opportunities as a result of the GCC rail




connection. Firstly, at a minimum, freight volume addressed byrail will grow at the same rate of real GDP growth, leading to atleast a five per cent per annum growth rate, until 2020. Secondly,an integrated GCC railway infrastructure can become an importantcatalyst in driving increased economic cooperation between GCCcountries, fostering the economic, regional and nationaldevelopment agenda, supporting growth and strengtheningnational capacity integration within the GCC. Thirdly, rail canraise the profile of the importance of intra-GCC trade in the overallbalance.

Role of the petrochemical industry asa GCC growth engine and volumedriver

GCC petrochemicals are leading the current wave of economicgrowth in the region, aggressively diversifying from commodity

products and supporting the development of advanceddownstream industries in the region. The planned petrochemicalproduct capacity is increasing along with this agenda (see figure 3).Growth is focused on specialised products, adding capacities forproducts never before produced in the GCC, presenting localmanufacturing (downstream) companies with a competitiveadvantage.

The current estimated intra-GCC trade volume of petrochemicalproducts, pertaining to production by GPCA companies(encompassing plastics, chemicals and fertilisers), is above 2.5million metric tonnes per annum (see figure 4). The majority ofproducts are transported by truck supported by marine logistics ifrequired and these volumes are expected to grow along with localtrade, GDP and petrochemical capacity additions.

Linking GCC national networks and key economic centres in the

B Y L A N D


Gulf, will immediately position the GCC integrated rail networkstrongly to take over a significant portion of these trade volumes.

Enabling future GCC growth

The integrated GCC Railway will provide the requiredinfrastructure to enable rail to absorb increasing freight volumes,efficiently and economically. The planned GCC railway will linkKuwait City, traversing along the Gulf, to Muscat in the Sultanateof Oman, serving the Kingdom of Saudi Arabia, the Kingdom of Bahrain, the State of Qatar andthe United Arab Emirates. The total length of the GCC Railwaymain line is approximately 2,177 km, including about 180 km ofconnecting lines to key traffic generators such as ports andindustrial zones (see side bar 1: The GCC Railway at a Glance).

Railway length: Totalling approximately 2,177 km, the GCCRailway includes about 180 km of connecting lines to traffic nodegenerating centres and transport facilities such as ports, airportsand industrial cities. These are broken down into geographicalsegments including Kuwait (145 km), Saudi Arabia (695 km),Bahrain (64 km), Qatar (283 km), UAE (684 km) and Oman (306km).

Corridor alignment: From Kuwait to the Kingdom of SaudiArabia via Dammam to the Kingdom of Bahrain via a proposed

causeway, in parallel to the King Fahd Causeway to Bahrain, thecorridor connects key GCC city transport nodes. Extending toQatar via the Qatar Bahrain bridge, from Dammam to Qatar viaSalwa and on to the United Arab Emirates via Al-Bat’ha to AbuDhabi, Dubai and Al-Ain, and then on to Oman via Sohar toMuscat, the network will reach all member state key cities.

Railway characteristics: The GCC Railway will servicemixed passenger and freight operation, based mainly on single linetracks to standard gauge (1,435 mm), with double tracks in certainareas, dependent on demand, with diesel traction. Tunnels requiredin the mountainous regions of UAE and Oman will featureclearances to allow double stack containers. Air conditionedpassenger trains operating at speeds of up to 200 kph, will operatemainly during the day and are planned to run in each directionevery two hours. Freight trains (including container and bulkfreight) operating at 80-120 kph, will operate mainly at night.

Stations and facilities: Passenger stations will total sevenlarge stations each located at Kuwait City, SRO (Saudi RailwaysOrganisation) Interchange (near Dammam), Doha, Manama, AbuDhabi, Dubai and Muscat, supported by three small stations atSalwa, Fujairah and Sohar and an SRO station at Jubail. Asproposed in each of the GCC member states’ national transportmaster plans, metro and light rail links will facilitate connectionsto downtown centres.

Train control system: In line with key objectives for a safeand efficient operation, critical signal systems will determine therail network’s maximum speed and capacity. A Level 2 EuropeanTrain Control System (ETCS), with no trackside signals, willunderpin control 1. It will achieve this because it is safe and alreadyin commercial use, it facilitates a competitive bidding process andavoids a monopoly, allows conventional lines and the train density

nodes to be increased—especially in mixed traffic with fast and slowtrains and is reliable during operation.

Environmental assessment: An environmental baselineassessment describes the existing environmental conditions and thepotential construction and operation impact to GCC memberstates, prepared according to the applicable rules and regulations

Rail is well positioned to absorb expected demand increases bypassenger transport, while air and road segments are expected toincrease significantly over the next five years, and beyond. Cross-border intra-GCC trade has traditionally demonstrated lesserimportance for GCC economies




in each member state. As in any construction project, there aresome adverse environmental effects, but in general, they are notmajor. By aligning the project to the relevant mitigation measuresand environmental management plans, environmental impact willbe minimised.

Capital investment: The estimated capital investment (basedon 2009 figures) for the initial construction of the railwayinfrastructure collectively represents over US$100 billion (AED367 billion). This includes formation, track, sidings and yards,signaling and telecommunications, stations, workshops and otherbuildings. This is based on using diesel trains and train speeds ofup to 200 km/hr for passenger transport, as well as the constructionof the proposed causeway between Saudi Arabia and the Kingdomof Bahrain.

Allocations of project’s costs: The proposed cost of therailway is expected to be distributed among GCC member statesbased on the planned route length in each member state. The costof procurement of the rolling stock, and hence the operation andmaintenance, is expected to be borne by the private sector.Another approach for consideration is the allocation of costs inrelation to the expected benefits of each GCC member state, anapproach that requires further study and analysis during thedetailed engineering design and onward phases of project’simplementation.

Project implementation: GCC governments are expectedto pay the capital investment cost for the construction of the GCCRailway.

Benchmarking: The GCC railway compares with the use ofbest practices relevant to regional and international railwaystandards. This includes axel loads, signalling, communicationsystems and transport technologies, ensuring efficient and effectiveintegration of the GCC railway within the GCC NationalRailways. This is key to achieving maximum compatibility andutilisation between GCC member states. It is expected the GCCRailway will set a number of new standards for the railwayindustry.

Railway feasibility: GCC Railway is economically andfinancially feasible and on the condition that Governments of theGCC member states pay the capital cost for the construction of the

infrastructure, which is common practice for capital intensivetransport projects aiming to provide public transport services.

Benefits of rail

Tracking safety, efficiency and environmental benefits: Providinga safe, efficient and sustainable transport alternative is at the coreof the GCC railway’s mission. It will change the face of transportand logistics, benefiting the entire region.

An alternative, safe import and export trade route: Railways arewidely recognised for decreasing the volume of road traffic, whichprotects infrastructures impacted by excessive use of roads withoverweight loads and contributes to minimising road relatedaccidents.* (Piracy & Hormuz Strait closure threats should beaddressed in a more strategically focused way).

An environmentally friendly transport alternative: The integratedGCC railway is also expected to positively impact the environmentwith its Reinforce Responsible Care and Sustainability conceptsthrough less CO2 emissions and rationalised usages of fuel. Putsimply, diverting traffic from roads to a more environmentallyfriendly mode of transport lowers air emissions, particularlygreenhouse gases. This will also enable higher energy efficiency(easy and fast access) and reduce noise pollution levels (resultingfrom road traffic).

Decreasing congestion at border gates: The addition of on-boardinspectors, supported by pre-clearance immigration proceduresbased at the point of journey origin will make railway transportmore efficient and competitive; decreasing current delaysexperienced at borders for both freight and passengers.

Less dependency on foreign labourers: The usage of rail willsubstantially rationalise the need for foreign drivers and theassociated challenges that result from heavy dependence on themespecially during abnormal situations.

Driving economic development for GCC member states: Theintegrated railway is a powerful symbol of unity, to which all GCCmembers are committed. Apart from creating a transportationbackbone connecting and integrating major urban centres, therailway will add diversified transport infrastructure development

B Y L A N D


and service provisions across the region. Collectively this improvescompetitiveness and the investment environment, which in turnsupports the development of export trading. On a regional level,this is critical to reaching key target GCC economic developmentgoals of sustaining growth at national and regional levels, andsupporting GCC national industries in neighboring economies.*An overweight load is a load that exceeds the standard or ordinarylegal size or weight limits for a specified portion of road, highwayor other transport infrastructure.

Linking GCC member states and national railways through anintegrated and efficient transport network, strengthensinstitutional capacity, generates employment for GCC nationalsand promotes the growth of specialised skills required for thedevelopment of sustainable railways. In addition, this willenhance regional trade.

Looking forward, the railway plans to integrate and connectbeyond the GCC, region linking into other countries in the MiddleEast. Following a detailed feasibility study, this includes specificplans for connecting to the Yemeni border. Other plannedconnections include reaching Jordan via the North-South Railwayin the Kingdom of Saudi Arabia and Iraq via State of Kuwait (see

figure 5). Syria and Turkey are also target destinations representingan important step toward a European connection.

In the long term, this will include exploring the possibility ofextending a link via Central Asia and China, as well as otherdynamic Asian economies. Similarly, linking with Turkey’s railthrough Jordan will give GCC member states access to theEuropean rail grid. The goal is to become an important strand ofa reconstituted ‘Silk Road’ to position GCC member states and thewider MENA region as significant players on the transportationand logistics world map.

To capture opportunities available from the GCC integratedrailway, demand drivers and key success factors need to beprioritised to maximise the benefits to the community and theeconomy.

This includes safety measures for people on passengers, assessmentof passenger demand to improve mobility and productivity, andoptimisation of the environmental footprint of construction andoperations. Growth in commercial and business activities as wellas economic development and diversification depends on severalother enablers. For example layout and coverage of the rail




B Y L A N D





network, intermodal connectivity with hubs to stimulate regionsand industries, design capacity of railway tracks and rolling stock,investment attraction and promotion as well as rail industryestablishment and services support.

An alternative, safe import andexport trade route

With repeated threats of closure of the Strait of Hormuz, the GCC

Rail connection will provide member states with alternative exportand import options. Rail will enable connections from and to portssouth of the Strait of Hormuz, as well as other ports on the ArabianSea. The Land Bridge in Saudi Arabia will give member statesaccess to the Red Sea ports of Jeddah, Yanbu and Rabegh.

Equally important from a strategic point of view is the fact that railwill provide an important alternative to sea trading routes,currently under threat by piracy. Piracy impacts supply chains ofthe Arabian Gulf through additional cost, risks and deceased

B Y L A N D


customer confidence. Apart from the obvious negative impact onany one vessel, there is also an economic domino effect throughoutthe entire vertical value chain within the maritime sector. With onlylimited possibilities to bypass the dangerous waters zone, piracy iscurrently a direct threat to any industry using the Arabian Gulf asa transport route for imports and exports. Providing an alternative,safe transport route, interconnected with export points throughoutthe South of the Arabian Gulf, the Arabian Sea and the Red Sea,is a potent weapon against potential future instability at strategicsupply chain maritime transport routes, affected by the threat ofpiracy.

GCC rail progress full steam ahead

Each of the GCC Governments has launched various rail projects,currently worth over US$100 billion. Saudi Arabia and the UAEhave taken the furthest strides to date.

Saudi Arabia: Well under way is the North-South Railway(NSR) project in Saudi Arabia, the world’s largest railway

construction and the longest route to adopt the European traincontrol system (ETCS) to date. Trial operation began on the 2,400km passenger and freight line, which runs from Riyadh to AlHaditha near the border with Jordan, in May 2011. Today the linetransports phosphates from Jalamid to Ras-Al-Khair.

The East West Land Bridge Project will be interoperable with theNorth-South railway linking the Kingdom coast to coast; facilitatingoil, agricultural and industrial product transportation. This willpresent a coast-to-coast journey time of around 18 hours, comparedto a five to seven day journey by sea. Although the main traffic isexpected to be freight, the line will also provide passenger trainservices cutting the current Riyadh - Jeddah journey time almost

by half. When completed, it will represent a quantum leap in theKingdom’s transport sector and usher in a new era of highspeedtrains for passenger transport (see figure 6).

UAE: The UAE rail network will link all of the country’s majorpopulation hubs and connect to Saudi Arabia via Ghweifat in thewest and Oman via Al Ain in the east. The railway network willbe built in phases linking principal population centres to industryhubs in the UAE and will form a vital part of the plannedintegrated GCC Railway. The network will extend up to 1,200 kmand will initially operate on diesel, but will be designed andconstructed to accommodate electrification in the future (see figure7). It will accommodate passenger and heavy freight such as rocks,aluminum, cement, iron, steel and will cater for all other tradecommodities, as well as hydrocarbons.

Rail challenges and Greenfield railprojects

Building an integrated GCC rail network clearly offers many

benefits, but it will also present many challenges. To leveragemaximum benefit, and create sustainable value for regionalindustry stakeholders, these need to be taken into considerationwithin the implementation programme.

Geographic characteristics andtechnical standards

Challenging geographic conditions and geographic sizes of nationsand distances: Building rail infrastructure over long distances indesert terrain demands consideration of very specific climaticconditions. These include shifting sand dunes and volatile ground

The UAE rail network will link all of the country’s major population hubsand connect to Saudi Arabia via Ghweifat in the west and Oman via Al Ainin the east. The railway network will be built in phases linking principalpopulation centres to industry hubs in the UAE and will form a vital partof the planned integrated GCC Railway.



B Y L A N D

surfaces. Many of the GCC countries, with the exception of SaudiArabia and Oman, are small in terms of geographic size. Due to itsnature, rail will create the highest value for all parties when allGCC countries as well as neighboring countries, are connected.

Compatible technical standards: Linking individual railways acrosscountries to form a coherent GCC network will require closecollaboration and continuous alignment by various stakeholders.In order to overcome this challenge, common specifications andstandards should be agreed to in advance. This includes projectscheduling; line, network and stations layout, access andconnections design, rolling stock selection and, signaling systemand type, number and frequency of trains, as well as environmentalimpact. The European Union is still struggling to overcome thechallenges faced by independently developed national rail

standards across Europe. For example, most of Europe is using thestandard gauge. However, Spain and former member states of theSoviet Union have widespread gauge tracks. In addition,electrification systems of lines vary from country to country(adding another barrier to true interoperability) demonstratingmultiple incompatible signaling systems.

Commercial aspects, funding andbusiness case

Lessons learned from implementing greenfield rail networksglobally show that commercial common sense needs to prevail inearly stages of any rail project to ensure successful projectcompletion. This extends to engineering and “political excitement”.Common reasons for project failure include:

l Scope creep due to overemphasis of technical and engineeringrequirements and de-emphasis of business model requirements andimpact

l Overestimated passenger ridership forecasts without consideringmode competition and overall passenger travel experiencerequirements (for example seamless interconnectivity of overall‘door-to-door’ experience)l Pure academic freight forecasts without fully consideringshippers’ decision levers and mode competitionl Unrealistically short financial planning horizons and disparitybetween expansive service offerings and viable low fares

Rail implementation requires significant investment ininfrastructure equipment and material as well as on-goingoperations and maintenance. In order to ensure long-term valuegeneration the business model for the rail project should includedemand analyses (captured and induced), scenarios for intendedoperating and management models as well as an economic model

to assess the overall economic impact. A financing plan (includingsources and schedule) is as critical as project funding and financingin meeting on time delivery of large-scale infrastructure investments.

Rail management and operatingmodel, legal requirements andcommunication

In addition to technical and commercial aspects, success or failurerelies heavily on rail management, the operating model and theimpact on regional economic development and diversification. The chosen management and operating modelwill impact all major stages of the rail value chain includinginfrastructure ownership and maintenance, rolling stock ownership,and operations and sales. Along this rail value chain, global bestmanagement practices and operating models vary from fullyintegrated to highly fragmented examples. For example, UnitedStates’ freight railroads are fully integrated along the complete

Lessons learned from implementing greenfield rail networks globally showthat commercial common sense needs to prevail in early stages of any railproject to ensure successful project completion.Rail implementation requires significant investment in infrastructureequipment and material as well as on-going operations and maintenance.





B Y L A N D


value chain and are privately owned. Examples of privatecompanies include Union Pacific, Burlington Northern Sante FeRailway and Canadian National Railway. The UK rail industryhas a public owned rail network (infrastructure ownership) withprivate operators for the rest of the value chain. France andGermany focus entirely on public ownership and operations alongthe entire rail value chain.

New high-speed rail systems in Spain and Portugal as well as inBelgium and the Netherlands are partly based on public privatepartnerships (PPP) with public and private infrastructureownership and maintenance, as well as concessions for operationsincluding leasing of rolling stock. All options have specificadvantages and disadvantages that need to be considered andcarefully evaluated in defining the best overall management andoperating model for the GCC Railway. Furthermore, legal aspectsincluding land restrictions, utilisation protection and acquisitions,bid design and launch, as well as management model relatedcontracts, need to be considered when implementing new raildevelopments. All these activities should be supported by aneffective communication and stakeholder engagement plan to buildthe required image and brand for long-term success.

Competition with other transportation modes and reflection ofshippers’ needs

Successful rail developments should consider positioning versusother transportation modes and shippers’ needs. Usually, railcompetes with road and marine transportation on multipledimensions. These include:l Differential line haul costs which can be relatively fixed and lowfor rail for long haul transportation and largely versatile and highfor road transportationl Road transfer at either or both ends leading to additionalhandling and haulage costs. In addition, favourable fuel and labourcosts for truck drivers can increase the competitiveness of truckversus rail for short haul transportationl There is usually only limited backhaul cargo for bulk transports.However, container based intermodal transportation usually offersbackhaul opportunities, even if it only constitutes empty containerrepositioning. Availability of backhaul cargo depends on overalltrade flows and segment specificsl Railcar wagon versus truck loading availability, weightrestrictions and loading times: The conversion of one railcar wagon

load to truck loads varies and depends on cargo and correspondingpackaging types and requirements. Additionally, due to the typicalhigh volume of cargo, rail transport might require relatively higherloading and unloading timesl Subsidised diesel and gasoline prices in some member states iscreating a competitive challenge for rail to compete with trucks forfreight and to compete with cars and buses for passengers

Rail projections must reflect shippers’ needs and offer priceattractiveness. This means the sizing of the “rail eligible” marketshould be based on potential markets given distances, types ofcommodities and shipments sizes. Not all cargo flows can beconsidered for rail. In addition, cost of alternatives need to beassessed on competitive service levels for the shippers, for examplecost of haulage by road, rail or ship should be compared to therequired transit time and delivery reliability on a door-to-doorbasis. Potential future changes, such as growing or changing tradeand cargo flows, additional infrastructure developments or otheroutlooks impacting shippers’ competitiveness, should also beconsidered when developing and quantifying realistic pricevolumes scenarios.

Untapped opportunities for GCCpetrochemical companies

There are additional opportunities, yet to be tapped, beyond theexpected benefits surrounding freight rail discussed so far. Theseinclude multiple benefits for passenger networks, for exampleincreased mobility and reduced costs for passengers. While railoffers higher speed together with increased reliability, based onstatistics on accidents and casualties, it is also widely considered upto nine times safer than road.

Specifically for freight transportation, rail can become thetransportation mode of choice due to its flexibility in terms of typesof goods. Rail is capable of carrying almost any packaging type,including break bulk, solid dry bulk, liquid bulk as well ascontainers and even over-sized cargo. Specifically for long haultransportation rail can open access to markets and materials acrossthe Middle East and beyond, at competitive costs. Depending onthe load and distance, rail based cargo transportation can beconsiderably more cost effective than road transportation asaverage freight trains can carry up to 1,000 tonnes of cargoreplacing around 50 truck movements.




B Y L A N D


General freight companies as well as petrochemicals companies canbenefit from using rail transportation when integrating rail intotheir existing supply chains. As already experienced in Europe orthe USA, using rail transportation can add value to shippers bysupporting existing transportation networks and creating newintermodal transportation opportunities. The benefits includeincreased choice and delivery flexibility, broader competition in thetransport sector, and optimisation of head haul and back haul bypartnering with additional players. Rail also positively impacts theability of petrochemical companies to manage their supply chainmore effectively. This means meeting customer requirements andbecoming more competitive - using rail can increase supply chainreliability, reduce supply chain volatility and risk, as well as shortenlead and delivery times. Rail transport is also reasonably resilientto disruptions due to changes in seasons or climatic conditions.

In addition, rail can support the growing sustainability efforts ofGulf petrochemical companies. Rail compares positively to truck

transportation in all categories concerned with minimising theenvironmental footprint of surface freight transportation-fuelefficiency, greenhouse gas emissions, accident and casualty rates aswell as potential spills of hazardous material. Rail transportation ismore fuel-efficient than road transportation. On an average, trucksuse more than double the energy per ton km than trains - the higherthe volume (mass) and the longer the distance, the bigger thedifference (due to the high-energy consumption of the locomotiveduring the acceleration phase).

Rail transportation with diesel engines leads to about half thegreenhouse gas emissions compared to road transportation withtrucks. Statistically, rail transportation is significantly safer thanroad transportation. Rail cargo accidents are second only to marinetransportation in terms of the ratio of fatalities to injuries peraccident. About half of the accidents associated with trains are

caused by rail crossings. Furthermore, rail transportation is saferthan road transportation in terms of potential spills of hazardousmaterials. In the United States reports of spills and hazardousmaterials are tracked in a standardised way. The number offatalities and total damage compared to the modal split aresignificantly higher for road transportation than for railtransportation.

Given the future economic development of the GCC petrochemicalsector, additional benefits can be gained from rail when consideringthe possibility of container transport. The GCC petrochemicalsector has already taken significant steps towards movingdownstream, expanding manufacturing capabilities of commoditymaterials. Expanding these local manufacturing capacities to meetboth local and international demand (for example for automotivecomponents, paints and coatings as well as healthcare products)will lead to a demand for more volumes to be transported withsmaller lot sizes and different packaging types (for example liquid

ISO containers). These additional volumes can also be transportedvia rail.

From a strategic perspective, a fully connected GCC rail networkcould become invaluable to GCC petrochemicals companies in thelong term; it could enable unrestricted access to alternative portsfor global marine exports outside the Arabian Gulf. Gulfpetrochemicals companies can position themselves strongly todayto capture the future value of these untapped opportunitiesbenefiting their customers, industry stakeholders, and the broadercommunity at large.

Getting ready to capture the futurevalue of the GCC railway

In light of the GCC rail network development, GCC

From a strategic perspective, a fully connected GCC rail network could becomeinvaluable to GCC petrochemicals companies in the long term; it could enableunrestricted access to alternative ports for global marine exports outside theArabian Gulf. Gulf petrochemicals companies can position themselvesstrongly today to capture the future value of these untapped opportunities




petrochemicals companies should determine the best overalltransportation, logistics and supply chain concept, taking intoaccount existing operations and new opportunities.Developing rail strategies requires a multi-phased approach.This includes significant effort and time to determine railrequirements as well as driving corresponding design andimplementation of required changes to integrate rail intoexisting supply chain operations.

Shippers activating greenfield rail operations or connecting toexisting rail networks usually plan the following phases indeveloping rail strategies, assessing the general feasibility ofrail and determining specific rail requirements.

Understand existing and forecastedfuture cargo flows

The first step for any petrochemicals company considering rail as afuture mode of transportation is to analyse the status quo includingrelevant business units, production plants and productrequirements. This includes understanding the relevant rail masterplan for the overall GCC, as well as planned connections to its localproduction facilities such as planned developments and schedules,status of railway projects, proposed rail connections and sidings, aswell as connections to inland hubs and seaports for marine exports.

An understanding of target markets, customer demands,destinations and requirements, as well as existing supply chainnetworks, current logistics operations and transportation modes,are just as important to determine current flows and simulate futurevolume flows. In addition, potential new business opportunities (forexample potential new markets that could be reached by rail in thefuture) should also be considered.

Petrochemicals companies should also verify their estimates offuture developments (such as cargo flows) based on sensitivityanalyses. Potential drivers and metrics include GDP forecasts,demand and trade projections, and plans to develop new industries(for example downstream manufacturing).

The intelligence gathered based on these analyses is critical todeveloping a sound understanding of approximate future freightflows (by business unit, products, packaging types anddestinations).

Assess operational cost anddetermine modal split

Knowing the operational costs of the current supply chain, as wellas estimates for the potential future supply chain including rail, iscrucial to derive the ideal modal split by product and route and todetermine potential financial support requirements to activate newrail infrastructure and operations. The assessment of cost structureand operational mode characteristics should include key costpositions (for example handling, shunting, labour, depreciation ofrolling stock, inspection and maintenance, fuel and energy costs,potential rail network access fees and rail track utilisation fees). Itshould also include operational assumptions (for example loadingtimes and cycles, transportation times, maintenance frequency).Furthermore, the role of multiple stakeholders such as investors,operators and maintenance service providers also needs to beconsidered. In order to determine the best future transportationmodel mix, such as how much road, rail and sea transportation tobe used, shippers need to evaluate different transportation concepts(for example feeder, hub, ring road) as well as traffic types (forexample wagon load freight, block train, combined traffic).Different combinations and scenarios of these concepts should beassessed in terms of operational feasibility, overall economics,safety, and emissions.

Define infrastructure and investmentrequirements

To integrate rail as a new transportation mode into existing supplychain operations, petrochemical companies need to recognise theinfrastructure and investment requirements for rail integration atproduction plants, loading facilities, rolling stock, inland hubs, andcustomer unloading stations. This requires reviewing currentlogistics and product handling infrastructure (for exampledetermining product handling requirements including; safety,operations, quality, costs, legal and customs requirements, andidentifying available space for rail sidings and loading facilities).

Based on the understanding of current facilities and available space,requirements for new infrastructure (for logistics and producthandling, road capacities, railway sidings and port connections) canbe identified. The operational feasibility of the new integratedtransportation concept, such as addressing how road and railcrossings will be used in parallel to nearby rail shunting facilities,

B Y L A N D




78

B Y L A N D




needs to be assessed. In addition, rolling stock requirements (forexample number and size of locomotives, railcars, and wagons)need to be determined. Based on these requirements, the necessaryinvestments for typical rail infrastructure can be estimated.

Petrochemicals companies are advised to share their service andoperation requirements with national and GCC rail authorities asearly as possible to ensure operational feasibility and alignment tothe rail network across the GCC. Petrochemicals companies andrail authorities will need to work hand in hand.

Developing a business case andprioritising rail integration projects

Based on the investment requirements, business case assessmentsincluding net present value calculations can be developed toprioritise key rail integration projects. When recommending viable

implementation options, short- and long-term perspectives shouldbe considered to evaluate the expected feasibility and valuegeneration potential. Rail implementation projects are usuallyphased over time.

Conduct EPC and ramp-up newoperations

In order to implement prioritised rail projects, infrastructure andoperational upgrades at chemical production plants need to bedesigned and executed.

This includes the development of detailed duty specifications aswell as the management of FEED and EPC phases to ensure thesuccessful integration of rail into existing supply chains. After

mechanical completion and commissioning, the new infrastructureshould be activated and ramped-up, based on a phased approach.During operations, intermodal logistics facilities and operations canbe improved and optimised on a continuous basis to maximiseoverall supply chain performance and customer satisfaction.

The benefits and opportunities from integrated railway networksare manifold and extensive. Community contributions extend tosafety, by contributing to reducing the number of road accidents,reduced air and noise pollution and improved quality of life.

Rail brings with it direct and indirect benefits to GCC economiesthrough increased investments in rail infrastructure and newindustries, facilitating domestic and international trade andreducing the cost of business operation. Furthermore, it enableseconomic development and diversification along and beyond therail value chain while promoting the build-up of local specialisedtalent, creating more jobs for the region. Rail will connect the GCC

region and when it is completed will position the GCC favorablyfor the development of a strategic long-term railway hub betweenEurope and Asia. Once fully operational it will be one of the bestmitigations against any abnormality due to piracy or closure of theStrait of Hormuz. GPCA members are in the unique position toleverage the benefits of these developments as they controlsignificant volumes traded between the countries and are alreadyevaluating the feasibility of the GCC Railway for selected freightmovements.

The potential benefits are mutually attractive to both chemicalproducers and rail operators, as GPCA companies can provide thecritical mass required to initiate successful rail operations.

Produced jointly by The Gulf Petrochemicals and ChemicalsAssociation (GPCA) and A.T. Kearney.

The benefits and opportunities from integrated railway networks aremanifold and extensive. Community contributions extend to safety, bycontributing to reducing the number of road accidents, reduced air andnoise pollution and improved quality of life. Rail brings with it direct andindirect benefits to GCC economies

B Y L A N D


BY AIR



An overview

Air cargo traffic contracted slightly in2011 and 2012

After rebounding sharply in 2010 from the depressed levels of2009, demand for air cargo transport began to weaken in early2011, sliding into contraction by May of that year. The slidecontinued into the first eight months of 2012, with year-to-datetraffic down two per cent. Despite the near-term slowdown, worldair cargo traffic will more than double over the next 20 years,compared to 2011 levels, with an average 5.2 per cent annualgrowth rate. The number of airplanes in the freighter fleet willincrease by more than 80 per cent over the next two decades.

In 2011, world air cargo traffic declined about one per cent, afterexpanding 18.5 per cent in 2010. This exaggerated expansion

reflects a normal recovery from the precipitous drop in cargo trafficduring 2008 and 2009, when traffic fell 3.2 per cent and 9.6 percent, respectively — the first time that air cargo traffic contracted intwo consecutive years. World air cargo traffic has expanded only3.7 per cent per year on average since 2001. Of greater concern,traffic has grown only 2.0 per cent per year since 2004 — muchslower than the 6.7 per cent historical growth trend maintainedfor the 23 years between 1981 and 2004. The slowing of worldair cargo traffic since 2004 can largely be attributed to theglobal economic downturn of 2008 – 2009 and the rising priceof fuel.

The global economic downturn of 2008 and 2009, the worsteconomic contraction since the Great Depression, dragged downall modes of transport. Statistics for world seaports show thatcontainer handling fell 9.7 per cent in 2009, promptingcontainership lines to cut services, reduce frequencies, and idle

WORLD AIRCARGO

Forecast 2012-2013The Boeing Company issues the biennial World Air CargoForecast (WACF) to provide a comprehensive, up-to-dateover view of the air cargo industr y. The forecastsummarises the world's major air trade markets, identifiesmajor trends, and presents forecasts for the futureperformance and development of markets, as well as forthe world freighter airplane fleet. Here we re-produce apar t of the summary relevant to the region.

B Y A I R


ships on a global scale for the first time on record. Air cargo trafficfell 12.5 per cent between mid-2008 and year-end 2009, the worstdecline since the beginning of the jet transport age. By mid-2009,however, worldwide industrial production began to perk up,nudging air cargo traffic toward recovery. Air cargo surged in 2010as world industry moved to restock depleted inventories.

Growth continued during the first quarter of 2011, expanding anestimated 4.5 per cent compared to first quarter 2010, after peakingat a level not seen since 2007. But starting in June 2010, jet fuelprices were on the rise, climbing 42 per cent by December 2011.This contributed significantly to an air cargo traffic slowdown that

was aggravated by the civil unrest of the Arab Spring uprisings,the Japan (“Tohoku”) earthquake, and flooding in Thailand. Thelatter two exogenous shocks disrupted manufacture of automobilecomponents and information technology (IT) goods, both of whichare key commodity groups for air cargo.

Rising fuel prices have been a factor in air cargo traffic slowdownssince late 2004, diverting air cargo to road transport and maritimemodes, which are less sensitive to fuel costs. The price of jet fuelhas tripled over the past eight years, and prices are likely to remainvolatile as the threat of supply disruptions persists. In the near term,high unemployment in developed economies, tight fiscal policy in




Europe and the United States, and overall restrained consumerspending will also dampen air cargo growth.

On a positive note, however, oil and jet fuel prices are forecast toremain around mid-2012 levels or, in some scenarios, even declineover the next three to five years. Economic activity, as measuredby world GDP, remains the primary driver of air cargo trafficgrowth. World economic growth averaging 3.2 per cent over thenext 20 years, coupled with the forecasted stable fuel prices, willhelp air cargo traffic grow.

Yield trends

Freight yields have declined at an average rate of 4.2 per cent peryear over the past 20 years. Continuing profit challenges atpassenger airlines have focused airline attention on opportunitiesto earn lower-hold cargo revenue. On average, cargo revenuerepresents approximately 15 per cent of total air transport revenue,with some airlines earning nearly 40 per cent of their revenue fromcargo. Declines in yield for cargo and passenger services reflectproductivity gains, technical improvements, and intensecompetition. While declining yield creates pricing pressure on allindustry segments, it also helps stimulate growth for the industryby enabling lower shipping costs for the consumer.

Averaged over the past two decades, freight yield has declined 4.2per cent per year. The most recent decade saw a slight yieldincrease of 0.9 per cent per year, compared to the 9 per centaverage annual decline recorded in the preceding decade.

Freight yield diverged from the 20-year downward trend between2002 and 2008, increasing approximately 4.1 per cent per yearduring that six-year period. Much of the increase is due to fuel andsecurity surcharges that began to rise in 2003. In 2008, significant

fuel surcharges imposed in response to the fuel crisis helped pushyields up 15.4 per cent compared to 2007. Although the globaleconomic downturn drove freight yields down 22.1 per cent in2009, yields rose steeply by 11.9 per cent when cargo trafficrebounded in 2010. In 2011, total cargo capacity increased whiledemand stayed nearly flat, holding yield growth to slightly morethan one per cent.

The higher cost of shipping by air held world air cargo trafficgrowth to only 3.7 per cent averaged over the past 10 years — wellbelow the historical trend. Industry-wide freight yields are expectedto return to the historical downward trend as more efficientairplanes enter the market, helping to stimulate market growth.

World air cargo traffic growth detail

International air freight will driveoverall world air cargo growth through2031.

Over the next 20 years, world air cargo traffic will grow 5.2 percent per year. Air freight, including express traffic, will average 5.3per cent annual growth, measured in revenue tonne kilometres(RTKs). Air mail traffic will grow much more slowly, averagingonly 0.9 per cent annual growth through 2031. Overall, world aircargo traffic will increase from 202.4 billion RTKs in 2011 (downfrom its 2010 record of 204.2 billion RTKs) to more than 558.3billion RTKs in 2031.

Asia will continue to lead the world air cargo industry in averageannual growth rates, with domestic China and intra-Asia marketsexpanding eight per cent and 6.9 per cent per year, respectively.

Latin America markets with North America and with Europe will

On a positive note, however, oil and jet fuel prices are forecast toremain around mid-2012 levels or, in some scenarios, even declineover the next three to five years. Economic activity, as measured byworld GDP, remains the primary driver of air cargo traffic growth

B Y A I R


grow at approximately the world average growth rate, as willMiddle East markets with Europe. The more mature NorthAmerica and Europe markets reflect slower and thus lower-than-average traffic growth rates.

Freighter fleet

The number of airplanes in the worldwide freighter fleet willincrease by more than 80 per cent during the next 20 years, asdemand for air cargo services more than doubles.

Freighter airplanes are crucial to the overall health of the air cargoindustry. Dedicated freighters provide reliable capacity to shippersof general cargo, mail and express packages, and cargo that cannotbe accommodated in passenger airplane lower holds. Since 2001,freighter airplanes have carried on average just over 60 per cent ofthe world’s total air cargo traffic each year.

The role of large freighters will increase as the large freighter shareof the fleet rises to 36 per cent by 2031, compared to 31 per centtoday and 22 per cent a decade ago. The significant efficiency andcapability advantages of large freighters will enable carriers tomanage projected traffic growth without increasing the number ofairplanes proportionately.

About two-thirds of fleet additions for airplane replacement andfleet growth will come from modified passenger and combiairplanes. Yet, production freighters will continue to play animportant role because their superior reliability, operating cost, andcapability can outweigh the significant on-ramp acquisition costadvantages enjoyed by conversions.

About 1,300 of the 2,754 projected freighter deliveries will replaceretiring airplanes, with the remainder expanding the fleet to meetthe requirements of projected traffic growth. Two-thirds ofdeliveries will be freighter conversions, 60 per cent of which willbe from standard-body passenger airplanes. Of the projected 935new production airplane deliveries (valued at $250 billion 2011US dollars), about three-fourths will be in the large freightercategory.

Continuing a trend of many years in the Asia Pacific region, all-cargo and combination carriers will take the greatest number oflarge freighters, which are uniquely suited to long-haul,intercontinental markets.

Express carrier networks will take the majority of mediumwidebody freighters, ideally sized to support high-yield, time-criticaloperations. Standard-body freighters will serve emerging regionaland niche markets, as well as express markets.




Despite near-term challenges, theworld economy will return to its long-term historic growth trend

World economic activity, as measured by gross domestic product(GDP), is forecast to grow an average 3.2 per cent per year through2031. GDP growth is a major driver of international trade and aircargo traffic. The current deceleration in world trade dating backto 2011 is expected to end sometime this year as the pace of globalgrowth strengthens. GDP growth is forecast to expand at a rate ofnearly four per cent by 2018, before reverting to a rate closer tothe long-term trend for the remainder of the forecast period.

After a strong rebound in 2010, global economic activity began toslow in 2011, due in part to rising oil prices and the disruptiveeffects of the Arab Spring uprisings and the Japan (“Tohoku”)earthquake. Global economic growth continued to cool in 2012.High debt levels and sluggish growth resulting from decreasedconsumer confidence and austerity measures have temperedgrowth in some of Europe’s economies. Some European nationshave already slipped into recession. High unemployment andrestrained business investment curbed growth in North America.China, along with other rapidly expanding emerging marketnations like India and Brazil, showed some signs of slower growthas 2012 progressed.

Prospects are encouraging for strengthened economies over thecourse of this year and 2014. Measured steps by Europeanpolicymakers will encourage business investment and consumerconfidence, spurring the region’s slowly recovering economy toregain modest growth by 2014. The US economy remains on amodest growth track, with continuing improvement in housingindicators and consumer spending. China’s government willcontinue to invest in infrastructure to stimulate their economy.Overall global economic expansion is expected to accelerate, fuelledby deferred demand and renewed industrial investment. Worldindustrial production, a component of world GDP, is a measure ofchange in manufacturing, mining, and utilities output. It is a keymeasure of economic performance and a significant indicator oflong-term air cargo trends. Industrial activity tends to correlate wellwith air cargo growth because freighter aircraft are often used tomove in-progress manufacturing items between productionfacilities. The strong decline in industrial production in 2009 andits subsequent rebound in 2010 helps to explain the severity of the

corresponding downturn and the vigour of the resurgence in worldair cargo traffic. Global manufacturing slowed over the course of2011 and remained muted in 2012. Growth is expected tomoderately strengthen in 2013, then expand further in 2014 to arate of more than four per cent, which will be sustained through2017, supporting the positive outlook for continued long-termworld air cargo traffic growth.

World air cargo components

The US share of air cargo RTKs fell below 25 per cent of the worldtotal for the first time in history.World air cargo comprises freight (scheduled, charter, and express)and mail, with scheduled freight and express being the largestcomponents. For most of the past four decades, world air cargotraffic carried by non-US airlines has grown faster than trafficcarried by US-domiciled carriers, reflecting both faster internationalair trade growth and slower US domestic growth. Scheduled aircargo traffic accounts for 90 per cent to 93 per cent of all world aircargo. Most shippers try to use regularly scheduled cargo capacityto meet their transport requirements. The remaining seven to 10per cent of world air freight transport is provided either by chartersor through ad hoc requests for cargo capacity, usually to meeturgent or special needs. Generally, charter freight share rises duringtimes of strong world air cargo growth and, conversely, falls duringtimes of slow or negative traffic growth. But contrary to this generaltrend, world charter air freight remained nearly flat in 2011 whileworld scheduled air freight declined 1.1 per cent.

World air cargo and maritime traffic

Containership traffic had a strong recovery, but is struggling withfinancial losses in the current economic environment.

Air cargo is only one part of the global goods distribution network.Shippers demand that shipments arrive at their destination on time,undamaged, and at a reasonable price, regardless of transportationmode. Different transport modes — road, rail, maritime, and air —can often move the same commodities. But shippers usually haveonly two choices for intercontinental freight: air and maritime.Maritime transport offers the primary benefit of low cost; airtransport offers the benefits of speed and reliability.




Comparison of maritime and air cargotransport in tonnes

The maritime transportation industry is much larger than the aircargo industry, measured in tonnes of goods transported. In 2011,the world maritime industry carried an estimated total of 8.8 billiontonnes compared to 43 million tonnes for the air cargo industry.However, this maritime traffic includes the movement of bulkcommodities such as oil, metal ores, and grains, most of whichcannot be directly compared to the high-value dry commoditiesassociated with transport by air. A more useful measure is tocompare the maritime dry cargo that remains after subtracting the5.3 billon tonnes of bulk commodities carried by maritimetransport in 2011.

Containerised cargo, a segment of maritime dry cargo, is one ofthe fastest growing forms of freight transport. Since the late 1980s,globalisation and regional specialisation of industry, particularly inAsia, have driven containership freight flows to grow rapidly.Worldwide containership tonnage in 2011 is estimated to be 1.38billion tonnes, representing about 40 per cent of the world maritimedry cargo.

Comparison of maritime and air cargotransport in RTKs

Containership cargo traffic is estimated at 10.5 trillion RTKs in2011, while world air cargo traffic is 202 billion RTKs. The largestcontainership markets mirror the largest air cargo markets. In 2011,Europe–Asia was the largest containership market, with 2.8 trillionRTKs, followed by Asia–North America with 1.9 trillion RTKsand Europe–North America with 0.3 trillion RTKs. Until theglobal economic downturn of 2009, the containership industry hadgrown steadily every year since its inception. Between 1980 and2011, containership tonnage averaged 8.9 per cent growth per year.

Both air and maritime cargo had major declines during the globaleconomic downturn of 2008 and 2009. World air cargo traffic fellby 9.6 per cent and containership freight dropped 7.2 per cent in2009. In response to deteriorating economic conditions and thedrop in demand for shipping services, the container shippingindustry reduced capacity. Measures taken include operationalchanges such as “slow steaming,” decreasing ports of call, reducing

frequencies, and taking ships out of service. At the beginning of2010, 11.6 per cent of the world containership fleet was idle.

As the global economy recovered, idled containerships werereturned to service, and by mid-2010, only two per cent of theworld containership fleet remained out of service. Global tradeincreased and containership traffic grew 12.3 per cent in 2010 andseven per cent in 2011 in terms of tonne-kilometers. In addition toreturning idled ships to service, available containership capacitywas further increased by the delivery of new ships that had beenordered before the downturn. When the economic recovery slowedin 2011, the containership industry had a severe excess of capacity,as the demand for shipping services failed to keep up with availablecapacity. As a result, containership yields dropped to very lowlevels to maintain loads. Concurrently, rising fuel prices led toincreased operating costs.

These factors were major contributors to industry losses, estimatedat US$5 billion in 2011. To minimise continued losses,containership companies are currently trying to stabilise andincrease yields. As the economy improves, it is expected thatcontainership rates will rise and return to sustainable levels.

Forecasting methods

Several approaches can be used to handle the range and complexityof forecasting challenges. Each approach is carefully matched tothe specific issue and application. Four approaches — econometricmodelling, judgmental evaluation, trend analysis, and potentialanalysis — provide useful forecasts. Econometric modelling helpsdetermine the overall importance of underlying economic factors(e.g., GDP) and provides forecasts that are linked to expectationsof those factors. This method is useful for medium - and long-rangeforecasts in regional markets.

The demand for air freight depends on the economic activity inthe importing region or country, conditioned by transportationcosts, exchange rates, and relative prices. Econometric modellingmay be used to predict demand, assuming that adequate capacitywill be in place to meet the demand and that factors not includedin the model will exert the same influence as in the past. Judgmentalmodifications often account for expected changes in non-econometric growth factors. For example, estimating the effect of

B Y A I R



Demand for the electronic services offered by Dubai Trade, the

leading facilitator of trade across borders under Dubai World,

has considerably surged in the past 12 months. More than

10,500 new trading and logistics companies joined the Dubai

Trade Portal since the end of Q1/2012, raising the total number

of companies registered for e-services to around 74,300 by end

of Q1/2013. This constitutes an increase of almost 17 per cent

– one of the highest year-on-year growth rates Dubai Trade

witnessed since it was established to serve the future needs

of the supply-chain community and spearhead the next

generation of e-services that have contributed to making the

UAE a strategic hub for global shipping traffic.

Commenting on the annual and quarterly results, Eng.

Mahmood Al Bastaki, CEO of Dubai Trade, said:

“Performance figures have almost exceeded our expectations.Thanks to strategic growth planning, implementation of bestpractices and continuous upgrade of customer-focusedsolutions, we succeeded in winning customersʼ confidence andbuilding an excellent reputation, which is creating a ripple effectin bringing on-board bigger numbers of companies.“The high demand for Dubai Trade services also supports theview that Dubai and the UAE in general are already way aheadin recovering from the pitfalls of the global financial crisis andeconomic downturn that still grip some of the most developedeconomies in the world. This buoyant businesses environment,along with enhanced solutions from Dubai Trade, has started toattract bigger numbers of companies of all sizes to our portal,not only big players,” he added.Impressive growth in the number of registered users alsoaffected the number of transactions carried out over the DubaiTrade Portal. Transactions grew by 10 per cent during only thefirst quarter of 2013 when compared with the same period of lastyear. Total number of e-transactions increased from 3.51 millionin Q1/2012 to 3.86 million in Q1/2013. Total transactioncompleted throughout 2012 approached 15 million – more thandoubling over a three-year period, when they counted 7.3 millionin 2009.Al Bastaki gave much credit to his team for the roles it played invarious projects undertaken by Dubai Trade in the past 12months, especially in putting together innovative, user-friendlyand scalable, solutions in place, which contributed significantlyto overall growth.

The team, along with strategic partners, was honoured last weekfor successfully completing 10 key projects in 2012, during theannual Employee Appreciation Ceremony 2013, which wasattended by senior executives from DP World, Dubai Customs,Jafza, ITC, Dubai World and Dubai Trade, including HE JamalMajid Bin Thaniah – Chairman, Dubai Trade, who gave theopening speech and awarded high achievers.In his speech, H.E. Al Thaniah, said: “Dedication,resourcefulness, team spirit and taking the initiative areimportant characteristics we value in our employees. It is theirhard work that is behind Dubai Tradeʼs success, completing itsprojects, ensuring customer satisfaction and meeting the overallgoal of keeping the competitiveness of the UAE as a global tradehub and the regionʼs leading business centre.”The completed projects covered several areas. Dubai TradeʼsIT infrastructure has been entirely revamped and rebuilt fromground up to sustain the overwhelming growth in business andreplace the existing platform with cutting edge, reliable, andmost scalable technologies. Enhancement of existing services and the introduction of newones continued to fuel growth in Dubai Trade. These includedthe 800-JAFZA hotline project, which migrated and integratedtwo call centres to provide a single, more efficient, end-to-endcontact service.The facilitation of trade across borders over the past 12 monthsthrough these services and many others, such as real-timeonline vessel schedule, brought Dubai Trade internationalrecognition from the World Bank and World Economic Forum,for contributing to the UAEʼs global rankings in the DoingBusiness Report 2013 and the Global Competitiveness Survey,which placed the UAE fifth worldwide in the “trading acrossborders” Category. Dubai Trade received several other accolades for itsachievements in the past 12 months including the “EditorʼsChoice Award” at the Trade and Export Excellence AwardCeremony, and the selection of Dubai Trade CEO Mahmood AlBastaki as winner of "Accomplished Leaders" at the FeigenbaumLeadership Excellence Award 2013. Al Bastaki was alsoselected to the high-profile judging panel of the Dubai regionalfinal of the 4th Annual Hult Prize held earlier this year. In turn, Dubai Trade recognised top performers among its clientsfor their support to Dubai Trade in the 5th E-Services ExcellenceAward held in January.

Dubai Trade posts impressivegrowth in numbers of users andtransactions The UAE trading community responds to Dubai Tradeʼs increased efficiency andinnovation by raising the level of its service adoption



air service agreements, trade quotas, restrictions on nightoperations, and changes in trade patterns could be vital to anairline’s strategic plan. Incorporation of anticipated increases incapacity, route restructuring, and market programs can contributeto more reasonable forecasts.

A simple trend analysis often is used to evaluate changes ineconomic factors. This approach is useful in evaluating generalchanges in the marketplace that can be attributed to the combinedeffects of a number of factors. Such trends can be extrapolated intothe future. However, extrapolation from a small base with largegrowth can produce unrealistic results.

Potential analysis is particularly useful for forecasting markets intheir early stages of development. For example, commoditiestransported by air tend to be valued at more than US$16 perkilogramme. It is therefore possible to project a potential air cargomarket based on the percentage of traded goods (regardless oftransport mode) that are valued above US$16 per kilogramme.

Market environment

Although economic activity is the primary influence on world aircargo development, other factors must be considered.

The acquisition of aircraft and expansion of services have had

particularly favourable effects on the express and small-packagemarket. Factors beyond the control of airlines include inventorymanagement techniques, modal competition, environmentalregulations, globalisation, market liberalisation, nationaldevelopment programmes, and the introduction of new air-eligiblecommodities. All these factors play significant roles in air cargogrowth. Constraints to economic growth, primarily thoseoriginating outside the airline industry, can hinder air transportindustry growth dramatically. A variety of air transport industryconstituencies and policymakers address these interrelated growthissues.

Air cargo growth has slowed over thepast decade

World air cargo growth has slowed markedly since 2004. Theglobal economic downturn and rising fuel prices are key factors inthe slowing of air cargo growth, but other macro trends may be atwork as well.

Fuel prices have been a persistent problem for air cargo. As fuelprices roughly tripled between 2004 and 2012, freight forwardersand the greater shipping community diverted a larger portion ofgeneral cargo to less expensive modes of transport. As of thirdquarter 2012, jet fuel prices were near historic highs (even afterremoving the effect of inflation). One consequence has been the

B Y A I R


contraction of world air cargo traffic by two per cent for the year2012 through July.

Changes in the containership industry have also enticed shippersto move their freight away from air cargo. Containership pricingis generally 10 times less expensive than air cargo, per unit weight.The average containership size has more than doubled since 1990,resulting in lower average unit cost per container transported. Atthe same time, the number of ships in the world containership fleethas quadrupled, allowing containership lines to expand theirnetworks to give shippers better geographic coverage and moreservice options. The rise in air cargo pricing caused by fuelsurcharges only exacerbated the problem.

Changes in the behavior of shippers have also weighed in favourof containerships. Improved telecommunication and informationaccess have had wide-reaching consequences. For example, e-mailand the electronic transmission of documents have reduced theneed to ship many types of small parcels and documents that arethe life blood of express and courier companies. In addition, “trackand trace” tools, once the sole provenance of the air expressindustry, are now commonplace at containership transportproviders. Better information and improved supply chain visibilityallow shippers to plan and manage their supply chains with ahigher degree of confidence, eroding one of the primary advantagesof air cargo. Air cargo has traditionally served as a unique tool thatenables shippers to recover from unforeseen events andemergencies. Anecdotal evidence suggests that improved supplychain visibility has reduced the occurrence of situations thatdemand the speed and reliability of air transport.

World economic growth outlook

The world’s economy is forecast to grow at an average annual rateof 3.2 per cent. The global economy is expected to outperformhistoric averages over the next five years and return to a long-termaverage of 3.2 per cent by 2031. The long-term growth rate forNorth America is expected to average 2.5 per cent per year overthe forecast period. Europe is projected to grow about 1.6 per centper year during those 20 years. In general, emerging marketeconomies, with an aggregate long term growth trend of nearly fiveper cent, continue to grow much faster than established economies.Asia will continue to lead the world’s major economies with

projected growth of 4.1 per cent per year between 2011 and 2031.China leads the other Asian economies in long term growth witha 6.7 per cent average annual increase. In contrast, Japan’seconomy will grow less than one per cent per year. Asia’s share ofworld GDP is projected to rise from 27 per cent in 2009 to morethan 35 per cent by 2031. The world GDP share held by NorthAmerica and Europe, which together currently account for morethan half of economic activity, will drop to less than 45 per cent by2031.

World air cargo traffic forecast

World air cargo is the sum of freight and mail. World air freighttraffic is strongly related to GDP and average yield. The worldairmail component, however, depends less on yield and thereforecorrelates most strongly with GDP.

Low, baseline, and high annual growth of 4.6 per cent, 5.3 per cent,and 5.8 per cent, respectively, are forecast for world air freighttraffic. High and low scenarios correspond to GDP growth of 0.5per cent above long-term projections and 0.5 per cent below,respectively. Worldwide air freight is expected to more than doubleover the next 20 years, increasing from 195.4 billion RTKs in 2011to 550.0 billion RTKs by 2031. World airmail is forecast to growat a consistent 0.9 per cent per year. Risks that could affect futureairmail growth include inroads by express operators into packagemail, increasing reliance on internet communication, entry oftraditional postal services into express air freight operations, andmore stringent security requirements. The baseline forecast for totalworld air cargo predicts that traffic will more than double between2011 and 2031.

Worldwide traffic will grow from 202.4 billion RTKs in 2011 tomore than 558.3 billion RTKs by the end of the forecast period.Sustained economic growth, along with decreasing yields,contributes significantly to the growth of the air cargo industry.

Regional air cargo markets

Air cargo markets linked to Asia, especially the Pacific Rimcountries, will lead all other international markets in averageannual growth between 2011 and 2031. Intra-Asia traffic will growfaster than any other international world market, averaging 6.9 percent growth per year. The North America–Asia and Europe–Asia




markets will expand at average annual rates of 5.8 per cent and 5.7per cent, respectively. Domestic China will be the fastest growingcontiguous market in the world, averaging eight per cent growthper year for the forecast period.

The mature markets of North America and intra-Europe will growslowly, with 20-year annual growth rates of 2.3 per cent and 2.4per cent, respectively. Also projected to lag behind the world

average growth rate are the markets of North America—Europe at3.5 per cent growth and Europe–Africa at 4.8 per cent growth.The Europe–South Asia market is forecast to exceed the worldaverage at 5.8 per cent annual growth per year. The Europe–Middle East market will grow at an annual average of 5.7 per cent.Europe– Latin America will grow 5.3 per cent, and North America–Latin America 5.6 per cent. Market shares will continue to changeas a result of varying regional growth rates. Although it will groweight per cent per year over the next 20 years, domestic China willstill possess a relatively small market share, given its current sizeand the market’s relatively short average trip distance. The shareof world air trade connected to all of Asia’s markets, including thedomestic markets of China and Japan and all international markets,will increase from 51.5 per cent in 2011 to 59.9 per cent in 2031.

Middle East

Air cargo traffic expands strongly oneconomic growth

Air cargo moving into, within, and out of the Middle East isestimated to have accounted for 8.2 per cent of the world’s tonnageand for seven per cent of the world’s RTKs during 2011.

Political instability related to the Arab Spring affected a number of

countries within the Middle East in 2011 and 2012. Despite politicaltensions, the region continued to perform well economically, withGDP growth of 5.6 per cent in 2011. High oil prices and increasedoil and gas production gave the region’s economy a strong boost,sustaining the past decade’s robust GDP growth trend, whichaveraged 4.8 per cent per year between 2001 and 2011. Over thenext 20 years, the annual growth rate is projected to average 3.9per cent. The largest economies in the region — those of Iran, Saudi

Arabia, and the United Arab Emirates — commanded more than60 per cent of the region’s GDP in 2011.

The large volume of air cargo that flows through Middle East cargohubs reflects the region’s history as the crossroad between Africa,Asia, and Europe. Dubai, in the United Arab Emirates, is thelargest air cargo centre in the region and one of the largest re-exporthubs in the world, handling more than 35 per cent of the region’sair cargo traffic in 2011. Doha (Qatar) and Abu Dhabi (UnitedArab Emirates) follow Dubai in traffic volume.

New infrastructure will reinforce the region’s role as a hub. Dubai’snew Al Maktoum International Airport received its first cargo flightin the summer of 2010 and is planned to be the world’s largestcargo hub. The airport will be home to an integrated operation,combining different transportation modes, logistics, manufacturing,and assembly in a single free-trade zone.

The region also has a significant sea-air market in which goodsfrom South Asia arrive in the Middle East on ships and continueto Europe by air. Information systems in place today are notcapable of disaggregating this component from the total air freightmoving through the region.

The Middle East is starting to diversify beyond the oil industry toindustrial and business development. A long-term effort in Dubai,

There also has been movement toward economic liberalisation andcooperation between countries. These changes should improve theinvestment climate and economic competitiveness of the region. Newroads and trade agreements will facilitate increased cargo flowswithin the region

B Y A I R


for example, has resulted in an economy that is strong in logistics,tourism, banking, and construction. This expansion will lead togrowing air cargo flows.

There also has been movement toward economic liberalisation andcooperation between countries. These changes should improve theinvestment climate and economic competitiveness of the region. Newroads and trade agreements will facilitate increased cargo flows withinthe region. Middle East nations should benefit from combining theirstrength as trading hubs as well as from the growth of their own markets.

Middle East–Europe traffic

Air cargo growth between the Middle East and Europe has beenstrong since 2001, with the smaller export market growing 12.2 percent per year to outpace the import market, which grew at a rateof 7.8 per cent.

Accounting for 1,424,000 tonnes of air cargo in 2011, trade withEurope represented 42 per cent of the Middle East’s internationalair cargo market. The primary products shipped to Europe aregarments and perishables. Leading commodities shipped fromEurope include telecommunication equipment, machinery, andfinished goods.

The Middle East exports market has grown faster than the largerimports market since 2001, averaging 12.2 per cent growth per yearwhile imports averaged 7.8 per cent. Overall air cargo traffic inboth directions has averaged an impressive 9.5 per cent growthannually between 2001 and 2011.

Middle East–North America traffic

In 2011, North America accounted for approximately 8.4 per centof the air cargo market in the Middle East at 283,000 tonnes. Aircargo shipments arriving from North America consistedpredominantly of fruits and vegetables, machinery, small packages,chemicals, and scientific equipment. Shipments to North Americaconsisted mainly of telecommunication equipment, textiles, medicalsupplies, and scientific equipment. Growth in the Middle Eastimports market from North America has been robust, with anannual growth rate of 9.8 per cent.

This flow is still small, however, compared to others in the MiddleEast region. Middle East air cargo exported to North America hasremained essentially flat for the past decade, contracting 1.6 percent annually. Total Middle East–North America traffic is down13.2 per cent from its 2008 peak. The main Middle East countriesinvolved in air trade with North America are the United ArabEmirates, Saudi Arabia, and Kuwait.

Middle East–Asia traffic

In 2011, air cargo between the Middle East and Asia represented35.4 per cent of the total Middle East traffic at 1,193,000 tonnes.The most significant products exported to Asia are personal items,machinery, chemicals, flowers, and perishable foods. Imports fromAsia include apparel, luxury goods, electronics, finished goods, andperishables.

A total of 1,193,000 tonnes of air cargo were shipped between AsiaPacific and the Middle East in 2011. Liberalising markets, economicgrowth, increasing numbers of direct flights, and lower costs willcontribute to further expansion in this market, possibly divertinghigh-value shipments from surface transportation.

Middle East forecast

Overall air cargo between the Middle East and Europe is forecastto grow at an average annual rate of 5.7 per cent between 2011 and2031.

Direct flights connecting production centres in Asia and Europepose some risk to air cargo traffic between the Middle East andEurope. Nevertheless, increasing local exports, coupled with thecontinued European market for goods transshipped from Asia andAfrica, should keep growth in the Middle East air cargo markethealthy.

The price of oil will have a significant effect on Middle Eastdemand for products from Europe, as will the ability of the region’seconomies to diversify and become more competitive. In particular,the competitiveness of local products, including perishables, fish,and textiles, together with the products of emerging light industries,will affect long-term growth prospects.




Give us a brief overview of the state of the air cargoindustry in the region currently.

The Middle East cargo market is buoyant with on-goinginvestment in expansion by regional players supporting thecontinued flow of cargo volumes both into and through the keymarkets in the Middle East. In the GCC, the infrastructuredevelopments continue to drive the need for materials andsupporting logistics, this is particularly noticeable in the UAE,Saudi Arabia and Qatar. The continued expansion anddevelopment of airport facilities across the region is also drivinggrowth, once again particularly in those countries mentioned and

we then add Oman and Jordan as well as the long termopportunities that will be seen in Iraq. A thriving and growingconsumer society with spare capital to invest and spend on luxuryitems as well as more standard consumable items, a growing tourist

industry whose expenditure on perishable goods when staying atthe growing number of hotels will continue to drive demand forfood items being moved into the region by air. All signs point toon-going positive momentum for growth.

What were expectations for the first quarter interms of cargo volumes?

The cargo market is experiencing a sustained period of flatconditions and with consumer spending at a low point, productionin the traditional manufacturing centres has dropped. As a result,the global cargo industry is experiencing a challenging period:

exports from Europe have risen and are performing better thanimports, the market in China remains soft, while trade in India,Africa and the Middle East is steady. We expect the first quarter’sglobal cargo volumes to remain relatively flat. This is due to the

Despite high oil prices being the biggest challengeto the air cargo industr y, Emirates Sky Cargo hasbeen creative in finding solutions. Ram Menen,Divisional Senior Vice President, Cargo, speaks toMunawar Shariff about managing costs andimproving their load factor.

ON A HIGH

B Y A I R


slow recovery of the world’s economy and the current high oilprices.

Which is your most profitable route in terms of yieldperformance and volumes? Which region is themost promising one to look out for?

Due to commercial sensitivities we would prefer not to answer firstpart of question.Africa, the Middle East and the Indian subcontinent have allsustained the global economic downturn better than most parts ofthe world. These regions are also growth regions and we have greatconfidence in the future of these markets. The Middle East isstrategically located between East and West, and as companies seekto expand their supply chains, Emirates SkyCargo with its hub inDubai, is able to move cargo from the manufacturing hubs in Asiaand the Far East to our extensive network in Europe, the Americasand Africa. The Middle East is therefore perfectly positioned forgrowth, and like Africa, is developing fast with an expandingconsumer base, which leads a greater demand for goods. Ourgeographical positioning, along with growth in the region and ourdistribution capability, has been a key contributor to the success ofEmirates SkyCargo and growth over the years. In recent timesthere have been widespread discoveries of oil, gas and otherminerals across Africa, which has attracted large investment intothe continent, both in terms of infrastructure and in business. Thisbodes well for the future of Africa as the shift for demand for goodsmoves from the traditional markets of Europe and the US to thesedeveloping markets.

How is demand increasing / decreasing in the abovementioned region? Any possible reasons for thisincrease / decrease in demand?

As the economies of these regions grow, the consumer base growsand therefore there is greater demand for goods.

How do times of the year affect demand fromdifferent markets?

There a number of factors that impact on demand throughout year.For example, the demand for perishables, especially fresh produce,is determined by the growing seasons of the year in different partsof the world.

What are the current challenges impactingrevenues?

The high oil price is the biggest challenge impacting on revenues.The priority for us is to be creative in finding ways to improve loadfactor and yields along with managing our costs. High oil priceshas an effect throughout the value chain and affects everyone,including consumers who have to spend more on fuel and as aconsequence they spend less on consumer goods, which reducesdemand.

How are growth markets coping with the currentfuel issue?

The growth markets are also impacted by the fuel price and itrequires on-going planning, both long term and short term inmanaging cost as efficiently as possible. For Emirates, our networkis a key strength - we connect all continents and multipledestinations. We have the capacity to help markets grow and it’sabout ensuring we have the right capacity, in the right place at theright time.

Finally what's new at Emirates Sky Cargo in termsof innovative products, services for its customers?

Emirates SkyCargo continues to expand its route network.Emirates now flies to 132 destinations in 77 countries, 12 of whichare freighter only destinations. We also recently acquired our eighthBoeing 777F, bringing SkyCargo’s freighter fleet to 11. Followingthe recent formalisation of the partnership between Emirates andQantas, Emirates SkyCargo’s customers from around the world cannow also access the large Australian market, creating further tradeand business opportunities. This also enables us to offer ourcustomers greater connectivity, seamless connections and scheduleoptions. We continue to promote and implement “e-freight” whichallows for most cargo processes to be done electronically, therebysimplifying the business and eliminating costs of paper printing,handling and processing. E-freight also reduces time by decreasingthe waiting time to process freight and increases productivity. It aimsto reduce the carbon footprint and contribute to a greener world.Emirates SkyCargo continues to prove that we have the capability,capacity and expertise to move nearly all kinds of cargo around theworld, from temperature sensitive goods to large items through ourfreighter and charter operations.



The Panalpina Group, based in Basel, Switzer land, is one of the wor ld leaders inintercontinental air freight and ocean freight shipments as well as global supply chainmanagement. Its 13,500 employees in over 80 countries are living proof of the firm’smotto “door-to-door services in six continents.”

As a result of extensive external growth, Panalpina had six SAP software applicationsin place. As each of these had its own access and authorisation processes, it wasimpossible for Panalpina to determine the related r isks. In order to establish anefficient, central r isk evaluation that would provide the security and validationexpected from a company’s internal controls, Panalpina sought to introduce a globalauthorisation concept and was looking for an IT application to suppor t it. The Swisslogistics company was glad to find a proven, comprehensive, and flexible solutionin the SAP Business Objects Access Control application, efficiently customised bySAP Consulting exper ts.


Introducing a global authorisationconcept

The basic requirement of an internal control system is to help acompany detect risk and provide methods to help the companymanage it. Putting such a control system in place was the challengePanalpina was gearing up to take on. “At one time, there weren’tany standardised criteria for risk determination and evaluation inplace. We used to decide case by case if there were any risks relatedto a certain transaction or not. We were in need of an extensive,clearly defined, well-documented, and obligatory risk evaluation,”remembers Kaloian Soukmandjiev, Project Manager for CorporateFinance within Panalpina. The six SAP software applications in placelacked a unified, automated process for access and authorisation.

The result was that Panalpina struggled with an inconsistent mixtureof user profiles and roles, which made it impossible to monitor risksassociated with tasks that required monitoring for compliancereasons. External auditors pointed out in their annual report thatrisks related to access and authorisation couldn’t be determinedsufficiently. It was the signal for Panalpina to get active.

Enlisting industrial, technological andprocess expertise

The Swiss logistics firm came up with a strategy to introduceglobal, unifying authorisation processes, the core of which was thedefinition of the essential criteria for risk evaluation. The strategyconsisted of four phases, the results of each slated for eventual

TAKING CONTROLWITH SAP

B Y A I R


global rollout. It soon became clear that the strategy could only berealised through an IT implementation. Panalpina started to lookfor an experienced software partner with a proven IT solution thatcould fulfill its requirements.

“For the realisation of our global authorisation concept, we soondecided to go for SAP Business Objects Access Control. We likedthe comprehensiveness and flexibility of the application, as weknew we could customise it to the extent needed. Yet, it offered auseful set of predefined risk rules, which we could easily integrateby plug and play at the same time,” says Soukmandjiev. Theapplication would enable Panalpina to manage its processes forcompliant access and authorisation control efficiently. And just asimportant, SAP Business Objects Access Control would completelysupport the company’s internal control mechanisms, which was theultimate goal of Panalpina.

In order to adapt the application to the firm’s requirements,Panalpina chose to get the professional support from SAPConsulting. “So far, we have always had very good experiences

with the experts from SAP Consulting – and we needed them onthis mission-critical project. Their in-depth industrial, technology,and process expertise convinced us: they were able to relate to bothsides – IT and compliance – which was very valuable for ourproject,” states Soukmandjiev.

Getting help for self-help foradditional rollouts

Panalpina decided to initiate the implementation of its globalauthorisation concept in Switzerland and Germany with its 500 SAPsoftware users there. The strategy was simple yet compelling: lay thefoundation for compliant risk evaluation by cleaning up and thenstaying clean. Panalpina was thrilled that it could execute this strategysolely with SAP Business Objects Access Control. In the area of accessrisk analysis and remediation, the application offered Panalpina theopportunity to detect risks related to access and authorisations in realtime, analyse them precisely, and promptly correct them. This turnedout to be valuable in combination with thorough, compliant user




provisioning. As a result, Panalpinafound that it was indeed in a positionto manage and unify the underlyingprocesses, its overarching objective.

The implementation was performedon time and within budget – to thegreat satisfaction of Panalpina. “Theimplementation went well in termsof quality and speed. We receivedprofessional support from SAPConsulting, with timely responsesand valuable feedback on how toproceed with the project. We felt wewere in very good hands with theSAP experts,” says Soukmandjiev.Panalpina benefited as well from thephilosophy espoused by SAPConsulting: enabling customers torealise further rollouts on their own.This was key in enabling Panalpinato go on to establish globalauthorisation in France and Italyusing its own resources, with theeventual target of rolling out to some60 additional countries being a veryrealistic goal.

Dramaticallyreducing time spenton user maintenance

The implementation of the SAPBusiness Objects Access Controlapplication soon started to pay offfrom both a compliance andoperative point of view. “Theawareness for authorisation relatedrisks could be raised significantlywithin Panalpina. Our employeesare now sensitised to the amount ofpossible risks and how to deal with them. This can partly be putdown to the intuitive use of the application,” remarks

Soukmandjiev. “Thanks to thetransparent risk evaluation, whichcorresponds to an internal controlsystem, we expect to reach five to 10per cent savings for external auditsthis year.”

The process for access andauthorisation is now unified,resulting in a significant rise intransparency and a major relief forthe IT department. “Thanks to SAPBusiness Objects Access Control, wewere able to reduce the time spent onuser maintenance by 20 to 30 percent, and we firmly expect to reach a75 per cent reduction. Ourmanagement is now capable ofrunning real-time reports centrally,providing them with an up-todatedecision basis whenever needed,”says Soukmandjiev.

Looking forward tototally automatedprocesses

Panalpina has more plans for SAPBusiness Objects Access Controland SAP Consulting. In order toenhance the operative handling ofroles, the Swiss logistics company isthinking about implementingfunctionality for extensive enterpriserole management and dedicatedsuperuser privilege management.Both are already part of the SAPapplication. “We would like to havethe fully automated process as soonas possible. With furtherinvestments in SAP Business

Objects Access Control, we are expecting some significant timeand cost savings,” sums up Soukmandjiev. n

Company• Name: Panalpina Group• Location: Basel, Switzerland• Industry: Transportation and logistics • Products and services: Air freight, ocean freight, and

supply chain management• Revenue: SFr 8.88 billion ( 6.02 billion)• Employees: 13,500• Web site: www.panalpina.com• Implementation partners: SAP® Consulting and Keneos

AG

Challenges and opportunities• Comply with the legal requirements applicable to the

company’s maintenance of internal control• Standardise the access and authorisation processes

within the company’s six SAP applications• Establish consistent roles and profiles across multiple

instances of SAP software

Objectives• Implement a global authorisation concept with a single

IT solution• Execute precise, transparent, and real time

risk evaluation• Unify the access process, resulting in lower IT effort and

thus costs

SAP solutions and servicesSAP Business Objects Access Control application,specifically functionality supporting access risk analysis andremediation and compliant user provisioning

Implementation highlights• Implemented on time and within budget• Enabled by SAP Consulting to execute further rollouts

independently – no external support required

Why SAP• Long-term, trusted partnership with SAP• Completeness and flexibility of SAP Business Objects

Access Control• Unrivalled industrial, process, and technology expertise

of SAP Consulting

Benefits• Thorough risk evaluation based on common standards

and definitions• Significant rise in process transparency• Expected reduction of external auditing costs by five to

10 per cent• Expected time savings involved in user maintenance of

60 to 75 per cent

Existing environment6 SAP software applications

QUICK FACTS

B Y A I R




Almajdouie Logistics won “The Best 3PL Service Provider award” for two consecutive years

On April 24, 2013 Almajdouie Logistics has been awarded after a thorough evaluation process & meeting ofcriteria lay-down by the jury board of the Supply Chain and Transport Awards (SCATA) as “Best 3PL ServiceProvider of the Year” in Middle East region. “This is our second time winning in a row, so this is very exciting, it was great teamwork and we are very happyas a team” stated Mr. Mustafa. The awards ceremony took place at the prestigious Jumeirah Emirates Towers hotel in Dubai and was attendedby more than 200 senior figures from the regional logistics industry, where for the seventh time; companieswere recognized in 17 different categoriesThis event was organized by ITP, publisher of arabiansupplychain.com and Logistics Middle East as the ultimatecelebration of the Middle East logistics industryʼs achievements over the past 12 months. The SCATA recognizeand reward those regional and international players that have gone above and beyond in terms of their industrycontribution.“We are extremely honored to receive this award as one of the Best 3PL Service Provider of the year in MiddleEast” said Mr. S. I. Mustafa, CEO of Almajdouie Logistics. Such recognitions are earned through teammateʼscommitment to implement timely solutions to our valued customers through improving process and deliveringinitial and ongoing value that makes our and our partners success possible. I am receiving this award on behalfof all Almajdouie Logistics Employees as it is a great team work.”Almajdouie Logistics, from its humble beginning as a land transport and trucking company in 1965, is nowconsidered the largest logistics service provider in the region with its own assets, more than 6,000 employeesand a total area of 2 million square meters of terminal and storage facilities in Saudi Arabia. Al Majdouie, the leading Project Logistics and Supply Chain Company has been in limelight as first Saudi privatecompany to be in Guinness World Record Books for moving the Worldʼs Largest Evaporator and the heaviestload ever moved in the Middle East.In size, the evaporator was equivalent to a football field and with an assumed weight of 5000 cars, as itmeasures almost 124 meters long, 34 meters in width and 12 meters in height, with weight of 4891 tons.Almajdouie moved 8 units of similar weigh.

[From Left Mr. Khalid AlGhamdi – COO of Almajdouie,second Hamad Obaidalla -Chief Commercial Officer offlydubai giving the award andthird is Mr. S. I. Mustafa - CEOof Almajdouie Logistics. Alma-jdouie Logistics won the title“Best 3PL service Provider ofthe year”]


BY SEA



B Y S E A

FULL STEAMAHEAD


What is the outlook for the year 2013?

Operating conditions in each of our markets in the first two monthsof 2013 have been consistent with those experienced at the end oflast year and the economic environment continues to remainuncertain. We remain confident about the long term outlook of ourindustry and remain well positioned to deal with a changingeconomic environment as well as continue to focus on ourestablished high standards of service to customers.

What infrastructure investments are currentlyunderway / being planned for the year?

In addition to the expansion of Jebel Ali’s Terminal 2, which willadd one million TEU capacity to the existing 14 million TEU inthe second quarter of 2013, the new Container Terminal 3 is underconstruction at present and will be ready in 2014 with a capacityof four million TEU. This will take capacity at Jebel Ali Port to 19million TEU by 2014.

The developments in T2 and T3 will enable Jebel Ali Port tohandle 10 of the next generation 18,000 TEU mega vessels at thesame time – the only port in the region able to do so.

Plans of a landside intermodal link with Etihad Railhad been announced last year, how is thatprogressing?

In May 2012, Etihad Rail and DP World signed an MoU for thedevelopment of an intermodal rail terminal in Jebel Ali Port. Wehave earmarked a strategic potential plot for the intermodal railterminal, adjacent to Jebel Ali Maritime Terminal 1 and close toTerminal 2.

How do you plan to integrate Jebel Ali port tobecome a multi modal port?

Jebel Ali is already a multi-modal port with state-of-the-art facilitiesable to serve the largest vessels in the world, supported by the latest

DP World’s Mohammed Al Muallem, Senior Vice President and Managing Director,UAE Region talks to Munawar Shariff elaborating on how the container terminalplans to maintain its top position.




e-trade technology, and the Dubai Logistics Corridor whichlinks sea-land-air via the Dubai World Central airport. Withthe planned rail link, Jebel Ali will be fully multi-modal,connecting sea-road-rail-air. This will add enormously to theefficiency of the supply chain and reinforce Dubai’s status asboth a regional hub and a gateway for cargo for the UnitedArab Emirates and the wider Middle East, Subcontinent andEast Africa region.

What was the capacity handled by the Jebel AliContainer terminal last year and the first quarter of2013?

In 2012, DP World, UAE region continued to operate at very highlevels of capacity utilisation, increasing the number of containershanded to 13.3 million TEU for the year. Throughput of firstquarter of 2013 will be announced on 25 April.

What are current transshipment trends within theregion?

Transhipment continues to be driven by origin and destinationcargo – it makes sense for the shipping lines to tranship at the sameport they are loading and unloading cargo for that market. JebelAli therefore continues to be the preferred transhipment hub in the

region because of the high volumes destined for this market.

What challenges are you facing at the moment?

Sustainability and capacity will be an overriding theme of theindustry’s development in the coming years, as we see the nextgeneration of ultra large container ships (ULCS) coming on line.The industry also needs to invest in people, technology and theenvironment to keep pace with the changes.

How is capacity being remodelled at the port tohandle the bigger ships on the sea?

The new ULCSs need deeper berths and cranes with a significantlywider reach, and to realise the economies of scales these giantsbring to the shipping lines, they demand faster handling quay sidecrane moves, all of which is putting pressure on operations bothon quay and inside the terminal.

At Jebel Ali Port we are adding 400 metres to the quay of Terminal2 bringing it to 2,000 metres, and this will give us the ability tohandle five mega vessels of 18,000 TEU capacity at the same time.Also, and in preparation to handle more of the bigger ships at onetime, DP World has successfully completed the largest dredgingprogramme at Jebel Ali Port in 10 years, deepening the draft. n

B Y S E A


Investment at DP World’s home port in Jebel Ali is being steppedup. This will not only provide the additional capacity required ashealthy container trade growth returns to the region, but also willallow the company to better meet the operational requirements ofits liner shipping customers as they deploy ever larger containervessels onto Middle East trade routes.

Work is well underway on a 400 metre long quay extension atJebel Ali Terminal 2, increasing capacity at this facility by overone million TEU a year. The construction work was scheduledto be complete by the end of the first quarter of this year, allowingthe port to handle six 15,000 TEU class vessels simultaneously,thereby improving operational efficiency and reducing turnaroundtimes.

DP World is not planning any major equipment purchases inconnection with the T2 extension. Mohammed Al Muallem,Senior Vice President and Managing Director, UAE region,explains, “We are going to focus on improving efficiency at T2.The existing equipment on this site will be used more intensivelyto handle the extra volumes.”

In addition, DP World is now developing Terminal 3, investingaround US$ 850 million to create a four million TEU capacitycontainer facility, which is on track to commence operations in2014. The T3 facility, converted from an existing general cargoberth in the port, will comprise 1,860 metres of quay and 70hectares of yard space. With an alongside draft of 17 metres, thenew terminal will be able to handle the world’s largest containervessels, berthing four 15,000 TEU containerships at a time.

Al Muallem adds, “The investment in both these projects isneeded to meet the challenges we face as the containerships aregetting bigger. We have to be able to handle several of these largevessels at the same time without delay and the development ofthese facilities will allow us to handle a total of 10 mega ships

simultaneously. This will send an important message to the tradethat we are committed to getting ready to meet their needs.”

The T3 project will require substantial investment in equipmentas well as infrastructure. DP World is ordering 19 super-post-panamax quay cranes, amongst the largest of their type in theworld and 50 rail mounted gantries with a high degree ofautomation. Ten of the quayside gantry cranes will be built in AbuDhabi and the remainder in China. As Al Muallem points out,“By splitting the order we can support the local UAE economywhile also getting the delivery times we need.”

Container traffic levels at Jebel Ali have continued to recover afterthe effects of the global financial crisis in 2009. In 2011, Jebel Alihandles around 13 million TEU, 12 per cent higher than in 2010.

Throughput growth in the first nine months of 2012 was slowerat 4.6 per cent, but still robust enough to suggest that the port willhandle close to 14 million TEU in the full year. The T2 and T3investments will give Dubai a total annual capacity of 19 millionTEU, providing some breathing space as the economicdevelopment of the UAE and surrounding countries gathers paceonce again.

JEBEL ALI EXPANSIONON TARGETDP World is making good progress on two major development projects at itsflagship por t

DP World is now developing Terminal 3,investing around US$ 850 million tocreate a four million TEU capacitycontainer facility, which is on track tocommence operations in 2014. The T3facility, converted from an existinggeneral cargo berth in the port, willcomprise 1,860 metres of quay and 70hectares of yard space




Abu Dhabi Ports Company (ADPC) has been making tremendousstrides towards establishing its newly-built Khalifa Port as animportant new gateway for the region’s container trades. By theend of November 2012, all container handling operations had beensuccessfully transferred from Abu Dhabi’s Mina Zayed port,located close to the city centre, to the new, state-of-the-art Khalifaport at Taweelah 60 kilometres away.

The semi-automated container terminal at Khalifa had handled itsfirst commercial container vessel, the 14,000 TEU 366 metre longMSI Bari in September 2012.

The move to Khalifa is well-timed as container traffic growth, hadoutstripped capacity at the old port. In 2011 Abu Dhabi Terminals(ADT) a joint-venture between ADPC and the Mubadala grouphandled over 760 000 TEU at Mina Zayed and a further growthof arounf four per cent was achieved in the first 10 months of 2012.Consequently Abu Dhabi’s total container throughput for 2012,split between Mina Zayed and Khalifa port is expected to be wellover 800 000 TEU.

According the ADT’s CEo Martijn Van De Linde, “Internationalshipping lines are making use of the deep sea berths at Khalifa portto send larger container vessels to Abu Dhabi than we have everseen before. By enabling big ships to berth in Abu Dhabi the newport is eliminating the need for goods to travel by feeder ships fromother ports to reach the local market and this is driving down thecost of trade.”

A key feature of the Khalifa port container terminal is the fact thatlandside operations are undertaken by 20 automated stackinggantry cranes (ASCs), supplied by Konecranes of Finland.

These cranes, the only ones of their type in the region to date, aresupported by an advanced Terminal Operating System called N-4, delivered by the US firm Navis.

For ship-to-shore operations Khalifa port is equipped with sixsuper-post-panamax cranes manufactured by ZPMC. These havean outreach of 65 metres, allowing them to work the largestcontainer vessels in service. Movements between the quayside and

ABU DHABI CONTAINEROPERATIONS TRANSFERRED TONEW PORTKhalifa Por t is already serving latest generation containerships

B Y S E A

Al Muallem points out, “Our philosophy is to always be ahead ofthe game, and to make the right investments at the right time. Thespending we are doing now will make sure we can accommodatefuture demand for local imports and exports and also cater forwider regional trade growth.”

Looking to the future, one of the priorities for DP World is toenhance connections with its hinterland. In this context, it isworking closely with Etihad Rail, the Abu Dhabi-basedorganisation which has been tasked with developing a passengerand freight rail network in the UAE and which will also connect

more widely with other railway systems in the GCC countries. AlMuallem says, “Jebel Ali has been proactive to make sure we areonboard with this exciting initiative. we have done our homeworkso that Jebel Ali will be connected by rail, possibly by 2016.

We are currently exploring the best options for intermodal railservices, which will add another mode of transport for ourcustomers.”

Reprinted with permission from Seatrade UAE Special Report2012 www.seatrade-global.com n


container stacks are undertaken by a fleet of 20 Terex NoellSC624E diesel electric shuttle carriers.

“The port’s technology is proving to be a big draw for ourcustomers,” says Van De Linde. “World class operationalefficiency and automation means we can unload ships faster thanever before.”

ADPC plans to acquire a further six quayside cranes and 22 ASCsover the next few years. Once this investment has been made,Khalifa port’s annual capacity will be around 2.5 million TEU.

Further operational improvements are being made all the time.Automation of gate processes has been enhanced in recent monthsand preparations are being made for the launch of the new PortCommunity System which will provide a single portal lining allstakeholder services and clearing procedures.

Initially Khalifa port will primarily be a gateway port for the localAbu Dhabi market and a key customer in this context is theBourouge petrochemicals plant. Khalifa is now handlingcontainerised polyethelene and other products for Bourougeproduced at its Ruwais factory 250 kilometres from Abu Dhabi.

Right next to Khalifa port is the new KIZAD Industrial Zone, oneof the biggest of its type anywhere in the world. As investment inKizad picks up, the companies based there will generate additionallocal cargo flows for the port. Emirates Aluminium (EMAL) is abase tenant for Kizad and has its own dedicated berth in operationsince November 2010.

Abu Dhabi’s economy is relatively buoyant and this is reflected inpositive figures for non container cargoes, currently still beinghandled at Mina Zayed. Ro-ro volumes in the first 10 months of2012 were over 41 per cent higher year-on-year while bulk andgeneral cargo also grew by five per cent.

Commenting on the growth figures, Captain Mohamed Al Shamisi,EVP at ADPC says, “Port activity is often seen as the bellwetherof the general economic climate and these excellent figures reflectthe strength of the Abu Dhabi economy with its strong levels ofconsumer spending. It is great to see our customers placing morebusiness with ADPC following major investments in our newflagship Khalifa port and at Kizad.



KHORFAKKAN EXCEEDSEXPECTATIONSThe por t of Khorfakkan in Sharjah was the largest growing container terminal inthe Middle East last year.

Over the first 10 months of 2012 Khorfakkan Container Terminal(KCT), operated by Gulftainer under a long term lease fromSharjah Ports Authority (SPA) achieved a 26 per cent increase involume.

As a result KCT is expected to record an all-time high of nearlyfour million TEU for the whole year.

Peter Richards, Managing Director at Gulftainer says, “Shipping

lines have had to change to survive and this has led to greatercollaboration. Our biggest customers including Hanjin, UASC andCMA CGM, have entered into alliances with other lines and thishas generated a significant amount of transshipment growth atKCT.”

To some extent the level of increase caught Gulftainer ‘on the hop’.As Richards observes, “Nobody could have predicted the rate ofgrowth we have seen in 2012. This has put pressure on our facilities



and at times it has been difficult to keep up. We have however beenproactive in addressing this situation by ordering new equipmentand taking on more staff.”

As an ‘emergency’ measure Gulftainer has acquired two highcapacity Gottwald mobile harbour cranes, which are amongst the

largest of their type in the world. Gulftainer has also ordered fournew super-post-panamax ship-to-shore gantries, designed to handle18,000 TEU capacity container ships and 12 more rubber-tyredgantry (RTG) cranes. These cranes are expected to be in serviceby the end of this year.

With a further 20 per cent plus growth rate forecast at KCT thisyear as well, Gulftainer and the SPA are having to look atpossible quay extension work to provide the necessary longerterm capacity.

The leading marine engineering consultants Halcrow have beenengaged to evaluate a number of scenarios, which could see afurther 1500 metres of quay wall constructed at KCT withinthree years. This would boost capacity at Khorfakkan by aroundtwo million TEU a year. “I am hoping that one of the options,squaring off and building at the end of one of our existing quays,could be completed within a year, giving us much-neededadditional capacity in a reasonable time frame,” adds Richards.

As well as KCT, Gulftainer operates the Sharjah ContainerTerminal (SCT) close to the city centre which is primarily agateway terminal handling exports and imports for Sharjah and

neighbouring northern emirates. This facility which will handlearound 400 000 TEU this year, has been the subject of anupgrade in recent times, including dredging down to 12.5 metresalong the access channel and berths, a 300 metre extension tothe usable quay, and the creation of additional container stackingspace.

Alongside upgrading its terminal capabilities in Sharjah, Gulftainerhas been developing new logistics facilities within the emiratethrough its Momentum subsidiary.

The Sharjah Inland Container Depot (SICD) now comprises 45warehouse units, all of which are fully utilised, while work is nowunderway on the Al Saja’a Logistics City on a 700 000 sq metresite that will be home to a variety of logistics activities andwarehousing operations. According to Richards, “The UAE isincreasingly being used as a staging post for the Gulf area, includingIraq, and the Saja’a facility is ideal for that role.”

While Gulftainer has its base firmly in the UAE, the company isincreasingly becoming a global terminal operator. It is now thelargest terminal operator in Iraq, with two facilities in Umm Qasrport, including the Iraq Container Terminal which startedoperations in early 2012.

The company also has the concession to operate the Umm QasrLogistics Centre, the only bonded facility outside of the port.

Last year Gulftainer started operating at the Brazilian port of Recifeand Ust Luga in Russia. Moer recently the company has beenawarded a 25-year concession to develop and operate the port ofTripoli in northern Lebanon. The company says it plans to investaround US$75 million in upgrading this facility, buying three ship-to-shore cranes and nine RTGs which will be operational by theend of this year.

Further opportunities outside the UAE are being explored,Richards says, “We are well known as a high productivity terminaloperator at KCT. That makes us a popular partner and we arecurrently very much in demand.”


B Y S E A

With a further 20 per cent plusgrowth rate forecast at KCT thisyear as well, Gulftainer and theSPA are having to look atpossible quay extension work toprovide the necessary longerterm capacity


MANAGEMENT



M A N A G E M E N T


Much has been built and expanded, is being built and will be builtthroughout the region. Ports. Roads and causeways. Railroads.Airports. Each of these impacts the flow of products.

From a logistics and supply chain management view, three thingsthat stand out about all the projects● They are impressive. State of the art.● They are country centric. Each can be considered a standaloneproject. Each is meant to serve the businesses within its respectivecountry. ● Projects are not integrated among countries. There is not a GCCinterconnection. They are not meant to facilitate the smooth flowof cargo among and within the countries of the region.

As a result of the centricity and lack of integration, there areinvestment gaps, such as with roads and railways, and investment

redundancies, such as with regard to ports, with the logisticsinfrastructure from a GCC perspective. They can be viewedcollectively as over-engineered and under-customered.Logistics as an economic driver

Logistics can be and has been an economic cluster to drive growth.Despite their geographical size, Singapore, The Netherlands andHong Kong are significant examples of logistics economicsuccesses. They have proven what logistics (and maritime) canmean to a country.

There are benefits with being the logistics and maritime centre.Four key ones are:1 Economic growth. It would be in the important private sector.2 Employment creation. The potential is there for 100,000+ jobsfor GCC citizens. These would be at all levels. 3 Economic diversification. This expands opportunities in the non-oil economy.4 Attracting outside / direct foreign investment.In addition, other key value drivers of the logistics focus and whatit generates are:● Creating sustainable development● Supporting linkages and connectivity for international trade● Supporting linkages and connectivity for domestic flexibilityof labour and development● Attracting international inward investment for developmentof national primary clusters that require underlying logistics tosupport sustainable development

LOGISTICSINFRASTRUCTUREIN THE GCCasset rich and cargo poor?Are the right steps being followed to have the GCC region streamlined as a wholein providing a complete solution? Tom Craig asks the question.




● Attracting international inward investment for internationalpurposes - hub-based trade or as offshore centres● Supporting, and being a vital part of, the ease of doingbusiness in international trade

Clusters are viewed as key for improving the economicperformance of regions. They orient economic developmenttoward groups of companies for common issues, such as training.Clusters build on the unique strengths of an area rather than tryingto copy other areas. They enable a region to have different sets ofeconomic development opportunities.

Logistics is a critical element of any cluster activity, with itscombined physical goods, information, finance, and documentsflows and activities. It is both a supporting and necessary elementin all development. Given a multiple set of economic clusters,logistics is an economic activity and skill-set stimulant in its ownright. As has been proven, logistics can be the driver to createeconomic clusters, growth and jobs.

Competitiveness. There is not a united effort to establish a logisticscentre in and for the GCC that is supported with infrastructurelinking all the countries. Countries compete in varying ways withinthe GCC and the region with regards to logistics and trade. They


each compete for essentially the same business. How they areviewed can be seen from three indexes that evaluate countries ofthe world.

1. Logistics Performance Index (LPI). The World Bank hasdeveloped a benchmarking tool for international logistics.The Index for 2012 ranks and compares 155 countries.Singapore had the #1 ranking with a 4.13 score, followed byHong Kong at 4.12.

The World Bank surveys global freight forwarders and expresscarriers as to the logistics “friendliness” of countries in which thefirms operate and with which they trade. Scores reflect quantitativeand qualitative measures.

Scoring is based on six criteria: customs, infrastructure,international shipments, logistics competence, tracing and trackingand timeliness.

Scores for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UnitedArab Emirates reflect the assessments for the six categories, and are:

For comparison, #1 Singapore had scores of 4.10, 4.15, 3.99, 4.07,4.07, and 4.39.

2. Enabling Trade Index (ETI). The World Economic Forum(WEF) issued its ETI report for 2012, titled, “ReducingSupply Chain Barriers”. Per the WEF, ETI measures the

extent to which individual economies have developedinstitutions, policies, and services facilitating the free flow ofgoods over borders and to destination. The structure of theIndex reflects the main enablers of trade, breaking them intofour overall issue areas that are captured in sub indexes—market access, border administration, transport andcommunications infrastructure, and business environment.

The survey recognises the rise of international supply chains andthe effect on trade. One hundred and thirty two countries areranked. Singapore is ranked #1, followed by Hong Kong.Singapore’s score is 6.14.

3 Global Competitiveness Index. The WEF assessed thecompetitive landscape of 144 economies, providing insightinto the drivers of their productivity and prosperity.Switzerland is ranked #1, followed by Singapore. Switzerlandhad a score of 5.72.

Needed—Focus. The indices are about more than infrastructureand assets. They reflect what is required to be a logistics / supplychain leader in the global economy. That is what the GCCshould do—improve scores and focus on becoming a leader.Implicit to that is who will be the logistics centre and leader inthe GCC.




This requires a focus on what should be done—

● Develop structure to being a leader. The figure below showswhat is needed, namely, customers, various types of logistics assets,logistics service providers and technology. All of these elementsthat must be built and integrated into a cohesive programme andoperation.

LOGISTICS LEADER STRUCTURE

● Segment the logistics market. The logistics market is notmonolithic. There are multiple logistics markets—and opportunities.All industries and products do not have the same requirements.Segmentation is needed to determine which market is best for aparticular country or port. Analyse and slice it as to industries andto unique opportunities, such as supply chain complexity. Then

Logistics is a critical element of any cluster activity, with its combined physicalgoods, information, finance, and documents flows and activities. It is both asupporting and necessary element in all development. Given a multiple set ofeconomic clusters, logistics is an economic activity and skill-set stimulant inits own right

M A N A G E M E N T




the needed structure and other steps can be implemented.Segmenting is in contrast to much of what is happening in the GCCwith regards to duplication of assets in pursuit of the same market.The present approach means dividing up the same market amongcountries and missing out on economic growth and employmentpotential.

Here is an example of segmentation:

Market Size

Logistics Complexity● Attract two sets of customers. There are two underlying sets ofcustomers that the approach should target:

1 Logistics service providers—these are major ocean carriers, aircargo firms, 3PLs, warehouses, forwarders, and others that areimportant to provide needed supply chain services. 2 End-user customers—Multi-nationals located in Europe, Asia,North America and elsewhere that will actually position theirproducts in the GCC. They will choose which country and its

logistics as the hub for their supply chain and trade needs.

Both customer sets are critical to generating and to sustaininglogistics activities and to developing the economy.● Implement a strong value proposition. Why should a logisticsprovider or end-user customer use a certain port or country’s logisticspark? How do multi-national corporations view it? How do majorlogistics service providers view it? Why should they do business witha certain port, do more than shipping and transshipping containersof cargo directly from their warehouses or factories? Transshippingcontainers does not create all the employment and grow theeconomy that being the logistics leader does.

The value proposition is not about what the port or logistics parkdoes; it is not about assets. The value proposition is about whatcustomers want and how that location meets - and exceeds - thosewants. A strong value proposition separates an operation/facilityfrom the competition. It will draw customers and make them stay.

● Develop training programmes. There would be many differentjob opportunities for citizens of the GCC. Education and trainingwould be needed for all the different logistics needs and for allemployment levels. Strengthening the logistics talent training willaccelerate the development of the logistics industry in the GCC.This includes training for maritime, air cargo, warehousing,forwarding and customs (with the changed approach for thelogistics center). In addition, there should be education for supplychain management.

Conclusion

The economic benefits of significant development and job creationdriven by logistics are not being achieved. Each country in theGCC has advantages and disadvantages. The time is now to stopthe “shotgun” approach to investing in various logisticsinfrastructure. Instead, assess, identify, target and develop to meetspecific logistics opportunities. It is also important to recognise thatbeing the leader will be an ongoing effort. n

M A N A G E M E N T



Headquartered at Jebel Ali in the United Arab Emirates, Al-FuttaimLogistics is ISO 9001:2008 Certified Company, one of the regionʼsleading logistics firms offering a full range of advanced supply chainmanagement solutions.“AFL is a ʻone stop solutions providerʼ for all the logistics and supplychain needs of its clients. AFL ensures the customersʼ requirementsare well understood and provides customised services to suit thebusiness needs of the customer and ensures the solutions aredelivered,” says Tom Nauwelaerts, managing director of Al FuttaimLogistics.“We have the experience and know-how to achieve the fine balancebetween cost and service requirements. We strive to achieveexcellence in service by delivering on our customersʼ value propositiondriven through: dedication to continual improvement; professional andproactive business partnership; simple and efficient customerinteractions; and customer centric value added solutions.”

AFL has facilities in Jebel Ali, Dubai Festival City, Dubai Industrial City,Rashidiya, Ramool, Dubai Cargo Village, Al Ain and Mussafah (AbuDhabi).

Al-Futtaim Logistics has many yearsʼ specialised experience in severalkey sectors and our wide ranges of capabilities extend to the followingservices:Freight Forwarding & Customs Clearance Service

AFL is ideally placed to ensure seamless door -to- door deliveryanywhere in the world via a combination of its air, sea and roadtransportation solutions. Services include: managing air/shipping lines,sending pre alerts, documentation handling and customs clearance.Automotive Logistics

Al-Futtaim Logistics is the leading automotive logistics serviceprovider in the UAE, and offers a comprehensive range of high qualityservices for leading automotive distributors, which includesForwarding and Customs Clearance; Vehicle Storage; AccessoryFitting and Pre-Delivery Inspection; Vehicle Distribution and PartsDistribution.

Transport & Distribution

Comprehensive road transportation services offered include:Container Transportation, Distribution, Specialised Road TransportVehicles and People Transportation. With the full capability to meetevery customerʼs specific requirements, we operate car carriers,refrigerated trucks and side loaders.Warehousing and Contract Logistics

Al-Futtaim Logisticsʼ extensive warehouses comprise over 100,000m2of ambient and temperature controlled storage that caters to therequirements of large and small businesses alike. AFL currentlyhandles over a quarter of a million line items in multiple locations andcaters for a diverse range of goods. The latest technology of web-enabled inventory visibility providesreassurance for customers ensuring full visibility of stock at everyoperational stage. AFL provides customers with a complete one stop, costeffective logistics proposition through a comprehensive range of valueadded services, which includes packing, repackaging, bar-coding, productlabeling, tagging and promotional packaging for retail sales periodsPeople transportation

Al-Futtaim Logistics provides staff transport services to many businesssectors throughout the UAE including hotels, airlines, retail and servicecompanies and offices, at the desired frequency, on a daily, weekly ormonthly basis. Al-Futtaim Logisticsʼ dedicated Staff Transportationdivision operates out of a centrally located base in the UAE with itshead office at Jebel Ali, from which round the clock service coverageis provided every day of the week.Relocations and International moving

Al Futtaim Logisticsʼ commitment to customer care along with ourpersonalised service is driven by the understanding that each andevery relocation in, itself is unique. Providing world class supply chainsolutions since the 1980s, our advancement into the relocationindustry has perfectly complemented our expertise in freightforwarding and other customer focused services. We provide complete solutions from origin to destination for local andinternational relocation, pet relocation, vehicle transportation, storageand warehousing, and comprehensive insurance.

The one-stop solutions providerTom Nauwelaerts, Managing Director of Al Futtaim Logistics, talks about his companyʼs capabilities.



Tell us in detail the changes in the regional marketfrom 2011 till 2013.

We have seen a strong recovery of the markets over the last twoyears. Especially in the UAE, we have witnessed a growingdemand both for domestic or export oriented projects. The qualityof the inquiries and new projects have greatly improved and wesee a lot of long term, strategic investments into the local marketby major global players.

The political stability of the UAE and the continuously expandinginfrastructure for logistics services, be it by air, land or sea helpsthe regional market to keep up with global requirements.

Materials handling is all about continually findingways to improve processes ... was there a markedchange in companies' spending habits in the lastfew years? How has this changed (if it has)? Whatdo you attribute this change to?

The quality of services that we have to provide to our clients andalso what they have to provide to their end customers, saw animmense jump in terms of quality requirements throughout theentire range of our products. The focus on process optimisationhas changed the layouts of logistic facilities completely.

Areas for added value handling, specialised systems for case andpiece picking operations etc. Coming from a market that evaluatedthe efficiency of a warehouse by a “number of pallets per sq metre”ratio has now matured and sees the benefit of different subsystemswithin the same logistics facility.

What is the best way to get and maintain marketshare?

Constant review and improvement of our service levels to ourclients.

This is why we took the decision three years ago to build our ownfacility in Dubai World Central that operates as a hub for SSISchaefer in the Middle East and Africa or why we continuouslyinvest into research and development of new products. Whatseparates SSI Schaefer from other intra-logistic companies in theregion is that we manufacture 98 per cent of our products withinthe SSI Schaefer Group.

What are the latest products and trends in thematerials handling industry worldwide?

Globally we have seen a huge demand for case and piece pickoperations especially in the food retail sector. Within our group,

ROCKSTEADYSSI Schaefer is one of the biggest materials handlingcompanies in the region. A solid future strategy with apresence in all major markets is their mantra goingforward. Munawar Shariff spoke to Matthias Hoewer,MEA General Manager - SSI Schaefer

M A N A G E M E N T


the most advanced new technology that has been developed forthe global markets is the fully automated SCP – Schaefer CasePicking. The system allows our customers to build fully customisedpallets with mixed SKUs with the means of a robotic pickingsystem extending the traditional goods to men principal to now“goods to robot”.

How advanced, as compared to global supplychains, are supply chain and logistics companies inthe region in terms of embracing the latestMaterials Handling technology?

The local market is still one or two steps behind the requirementsthat we see in Europe or the American markets simply due to thefact that cost for workers is still relatively inexpensive in our region.

Nevertheless the growing demand from the consumers in theregion to provide better services in healthcare, delivery times forproducts of all kinds (order fulfillment for e-commerce) or simplyby not accepting empty shelves in your local supermarket havepushed up the requirements to all parties that are involved in thedistribution network. Mid-term these growing demands will forcethe domestic supply chain and logistics companies to go to the nextstep and use automation technologies.

How do new trends and technologies come about atSSI Schaefer globally and how are new productstested in order to make them more efficient andbetter value for money?

Within the SSI Schaefer Group, research and development of new




products and improvement of existing products is one of the keysto our global success. Analysis of market demands in over 50countries lead us to always new requirements and force us tosometimes even re-invent the wheel.

SSI Schaefer operates three technology and test centres world-widewhere new products are developed and tested before they arereleased into the market. For some of the products that have beenshowcased at exhibitions lately, like the SSI Schaefer Order Verifieror the SSI Schaefer Robopick this means that the systems havegone through thousands of hours of testing and differentdevelopment stages before they are shown to the public.

What is the size of the new office and warehousespace at SSI Schaefer at Dubai World Central?

The facility that we built in Dubai World Central is in total about3,000 sq metre in size and will provide us enough space to develop

the company in the next 10 to 15 years. We are absolutely happywith the decision to move into DWC. The service is excellent andwe are located in between many of our customers and right in thecenter of the UAE with just 45 minutes to Abu Dhabi.

What are SSI Schaefer's plans for the region?

When we are looking at “The Region” I would like to includeAfrica as well. We are following a clear long term strategy to bepresent with our own offices and employees in all the majormarkets. Therefore we opened a subsidiary in Johannesburg, SouthAfrica in 2011 and are now in the process of opening offices inSaudi Arabia.

The target within the next few years is to provide the samequality of services and consultancy from these local branches asour customers are used to get from us in Dubai or even fromEurope! n

The facility that we built in Dubai World Central is in total about 3,000 sq metrein size and will provide us enough space to develop the company in the next 10to 15 years. We are absolutely happy with the decision to move into DWC

M A N A G E M E N T


The Gulf Cooperation Council (GCC) constitutes six membercountries, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,and the United Arab Emirates (UAE), forming a political andeconomic union of the Arab states.

The GCC economies are energy powerhouses of the worldwitnessing robust growth momentum supported by high oil prices,strong government financial balances and a continued wave ofpublic spending on infrastructure projects. The six GCC countries

LOGISTICS- driving regional economic growth

The GCC region can safely attr ibute its economic growth to the logistics andsupply chain industr y. Subir Shah, Team Leader, Transpor tation and LogisticsPractice, Frost & Sullivan elaborates.




recorded a combined nominal GDP of US$ 1.12 trillion in 2011growing at a compound annual growth rate (CAGR) of 14 per centover the previous year. Post the economic crisis the GCC iscontinuing its economic reform programme, with a focus onattracting domestic, regional, and foreign private sector investmentsin the oil and gas, power generation, telecommunications and realestate sectors. The recent global economic recovery has resulted ina sharp rebound in the GCC’s economic activities.

The logistics industry has emerged as one of the key drivers ofeconomic activity in the GCC. Logistics in the GCC constitutes amajor sector rather than being just a support activity to otherindustries. The overall GCC logistics sector is estimated at aroundUS$ 35 billion dollars, of which three major economies – Oman,Saudi Arabia and the UAE together account for around 85 percent. Oil and gas, infrastructure and retail industry segments arethe leading contributors to the GCC logistics sector. The domesticservices segment (inland transportation and warehousing) isdominated by local players, while the international servicessegment (freight forwarding and international transportation byair/ocean) is dominated by multinational players.

Key trends impacting the expansionof the GCC’s logistics footprint

Infrastructure and railways

Occupying a strategic location on the global map and centredbetween the Persian Gulf, the GCC countries are blessed withworld-class port infrastructure. However, they face challengingsurface transportation issues due to unfavourable climaticconditions and harsh environments. To overcome these challenges,the GCC countries have started looking for alternative modes ofsurface transport and identified rail as a viable solution to counterpassenger and freight challenges.

Saudi Arabia has pioneered cargo transport rail projects SaudiArabia Rail Services provides freight services on two main linestotalling 1,018 kilometres. In the GCC, the UAE is the second-largest economy and has been a forerunner in rail revolution withthe Dubai Metro Project. Apart from completing the remainingphases of the Dubai Metro, it is building another ambitious railproject to link the seven Emirates by rail for the first time.

Christened the Union Railway, this network will later be integratedinto the GCC Railway Network. The Union Railway Networkpotentially offers a significantly cost-effective way to move largeamounts of aggregates, steel, iron ore, sulphur and other cargo, aswell as large numbers of passengers across the Emirates. Inaddition, it opens up a completely new industry for the countryand the wider region, apart from reducing congestion, pollution,and improving safety.

Exhibit 1: Saudi Arabia Rail Network and UnionRailway Network

Other GCC member states are also active in the rail transportarena. Oman’s national rail network is being developed in threephases. Oman also has plans to develop a metro system in thecapital city Muscat. Qatar’s railway network development islagging significantly behind its neighbours. The remaining twoGCC member states, Bahrain and Kuwait, are also busy planning

M A N A G E M E N T


their own railway networks, which will eventually link to the GCCRailway Network. However, these two states are laggingsignificantly behind the UAE and Saudi Arabia in terms ofprogress.

The key challenge in building a seamless GCC-wide regional railtransport network is to develop the six individual country networksaccording to uniform standards and specifications. Each memberstate is already progressing with the development of a national railnetwork based on its individual requirements. The integration ofthese different networks, each using a different set of engineeringand construction providers, could later be a challenge. This could

be mitigated if exactly the same or compatible standards areadhered to by each state.

Transportation practices in the GCC are likely to change withvarious on-going and planned railway transport projects that wouldbe executed by the governments. However, while Saudi Arabiaand the UAE are likely to witness significant changes within thenext two to three years due to advanced progress in projects, theother GCC member states are not likely to reap the benefits ofrailway networks for at least four to five years.

However, in the long term, rail transport is expected to play a




significant role in the development of every GCC member state,each of which has a prominent manufacturing and consumptionbase.

Development of cargo-specific sea ports (spearheaded by the UAEwith Jebel Ali port) has been another mega trend that has resultedin making the GCC a logistics hub for Europe-Asia trade activities.Focus on development of Free Trade Zones (or Free EconomicZones) by the GCC nations has been a major driver for their non-oil economic growth, which has had a profound impact on the

logistics sector. Due to promotional policies in this regard, asignificant number of multinational organisations are setting uptheir continent level distribution centres (for air and sea modes)here, which has been positively impacting the logistics servicesmarket. Operational free trade zones in the GCC include Jebel AliFree Zone in the UAE and Salalah Free Zone in Oman.

Industry

Focus on development of domestic manufacturing industries

M A N A G E M E N T


spearheaded by Saudi Arabia is another major trend, which is likelyto impact and drive the logistics sector. Development ofmanufacturing activities will lead to emergence of allied industrialactivities, which would further evolve into a complete supply chain

entity over the long term. Promoting the development of oil-related(petrochemicals) manufacturing clusters as well as non-oil clusters(such as electronics, food, pharmaceuticals, and automotive) wouldresult in creating significant demand and a sustainable market forlogistics services.

Saudi Arabia has emerged as a regional logistics hub in the GCC.Rising auto sales in Saudi Arabia and other emerging markets andlower energy costs in the region are drawing the attention of globalOEMs looking to tap into new growth opportunities. Thecontribution of industry to Saudi Arabia’s GDP stands to be 66.9per cent showing a dominance of manufacturing in the Kingdomand thereby a positive trend for logistics growth.

The industrial activities in the UAE are growing at a steady pacedriven by the construction and real-estate sectors. Other enablingsectors such as textiles, furniture and wood products, food andbeverages are on its growth momentum in the UAE with a rise inproduction and industries setting up production bases in theKingdom to address the regional and domestic demand.

Oman too has an immense potential in driving the logisticsindustry. The best performing industries in Oman excluding theoil and gas sectors are metals, engineering goods, chemicals andfood and beverage. The growth in industrial activities withincreasing production in the country and the propensity of end-user industries shifting to logistics outsourcing being acost-advantageous alternative are the drivers to the logisticsindustry in Oman.

Multinational Logistics Service Providers (LSPs) and local logisticscompanies are expanding their network and services locally and

within the GCC to address growth-driven industries across sixGCC countries and provide transportation, warehousing, andvalue-added logistics services. Potential for LSPs to tap are inboundand outbound logistics, in-plant logistics, warehousing and value-

added logistics services. LSPs should enhance their service offeringsaddressing the varied needs of end-users, designing industry-specific logistics solutions, best in class technology driven solutionsand world-class infrastructure to attract the potential end-userindustries. Collaboration with logistics end-users, building capacityof warehouses and logistics parks and a robust network designfacilitating transportation activities within the GCC and globalconnectivity are the key success factors for LSPs also being adeptin providing end-to-end logistics solutions.

Conclusion

Logistics services offer significant benefits and wider opportunitiesto the GCC economies. Overall, the sector is on a growth trajectoryand is witnessing the mega trends that would help establish it as aprominent logistics hub. GCC benefits from two uniqueopportunities; strong growth of volume in the trade lane betweenEurope and Asia and steady growth and development ofmanufacturing activities driven predominantly by Saudi Arabia.Capitalising on the availability of world-class port infrastructureand developing the GCC-wide rail and surface transport capabilityare essential factors for future economic development of the GCCcountries.

The important elements making a strong and efficienttransportation and logistics sector a strategic necessity in GCCare: enhancement of industry competitiveness, developing amultimodal logistics hub and supporting infrastructure like freezones around the port or airport, focussed investment ininfrastructure and adjusting policies and regulations to promotethe development of the logistics sector and synergy across allGCC countries. n

The industrial activities in the UAE are growing at a steady pace driven by theconstruction and real-estate sectors. Other enabling sectors such as textiles,furniture and wood products, food and beverages are on its growthmomentum in the UAE




Supply chain performance is ameasure of competitive advantage—both immediate and long term.

Not so long ago, the life of a supply chain executive seemed easy:The main objectives were to be cost effective and provide high-quality service. The tools and concepts to support these goals wererelatively uncomplicated—from just-in-time delivery and vendor-managed inventory to collaborative planning, forecasting and

replenishment. Back then, supply chain performance wascontinually improving, with most performance indicatorsregistering satisfactory or better levels of cost, service andinventory.

Then all sorts of innovative technologies, ideas and concepts wereintroduced to help improve performance. Companies centralisedtheir supply chain organisations, brought in expensive enterpriseresource planning (ERP) software and outsourced manufacturing

WINNING SUPPLYCHAINS INTEGRATETODAY'SCAPABILITIES WITHTOMORROW'S GOALSAs supply chains grow, incorporating changes is key to helping them remainsuccessful. A.T. Kearney tells us all about maintaining the momentum.

M A N A G E M E N T


and distribution to bigger and more capable third parties. Yetdespite these and other measures, supply chain performance froma cost and service perspective declined, stalled, or saw minimalimprovements (see figure 1).

Suggestions on how to improve supply chain performance aboundin industry magazines and journals, with most proposing solutionssuch as becoming more customer-centric, responsive and agile.Nice words, but few people seem to know exactly what they meanor how to turn them into actions. Even as supply chain processeschanged, the world around us changed even more rapidly.

Today, CEOs and supply chain executives continue to askimportant questions:n How do we control mounting complexity?n How can we balance size and efficiency with flexibility and

responsiveness?n Is it possible to plan for demand volatility?n Which of the many companies in our supply chains should beour closest and most trusted partners?

Answering these questions requires taking a closer look at thepressures on today's supply chains, the different improvementmeasures available, and the reasons why companies often fail totake the appropriate measures.

Responding to supply chain pressures

The world is changing. Ongoing consolidation has madecompetition and customers bigger and more powerful, emergingcountries have developed into attractive growth areas, technologyhas turned ordinary customers into informed and cost-consciousconsumers, and scarce commodities and natural resources are not onlydriving prices up but also raising environmental concerns (see sidebar:Managing Megatrends). Add to these the cadre of new channels, newproducts and services, shorter product life cycles and time-to-market,and pretty soon the impact on companies and industries worldwidebecomes significant. Almost all sectors are more volatile and complex,and their supply chains have to change accordingly.

An appropriate response to these trends usually means takingactions at three levels: fix the basics, transform the supply chain,and set the stage (see figure 2).Fixing the basics is for those who prefer continual improvements—

making incremental changes and building capabilities at a relativelymeasured pace. Typical initiatives focus on areas such as inventorymanagement, lean manufacturing, and sales and operationsplanning. Depending on the circumstances, the cost savings aregenerally in the range of five to 10 percent.

Transforming the supply chain becomes necessary when market




volatility and complexity begin playing havoc with business plansand market position. Here, next-generation tools often come intoplay, focused on segmentation and network optimisation,complexity management, and collaboration among suppliers andcustomers. Improvements in these areas often lead totransformative change that go deep into the corporate makeup andinclude developing forward-thinking strategies, designing neworganisation and governance structures, and pushing for culturalchange. The benefits are usually worth the additional effort, astransformations can result in anywhere from a 10 to 25 per centimprovement to either the top line or bottom line, or both.

Setting the stage is for industry frontrunners. These players aredriven either by the intrinsic volatility and complexity of a sector(fashion, for example) or by their own cultures, ambitions, oraspirations (Google). Frontrunners are all about preparing for thefuture — maintaining a strong vision and strategic mindset, developingdeep organisational capabilities, and understanding the risks andrewards associated with new techniques, processes, or structures.Some frontrunners work within the current market structure, whileothers attempt to reshape the market structure to their advantage.

Companies are generally most comfortable with a fix-the-basicsapproach to supply chain performance. But as volatility andcomplexity increase, so will the need to move beyond the basics.

Trouble in transformation

Executives know they need to improve their supply chainperformance and that simply cutting costs and improving serviceis no longer a viable option. Yet those who move beyond the basics

to take the larger leap of seeking transformative change often fallshort. There are several reasons why:

After picking the low-hanging fruit, what's next? Sayyou are the CEO of a company that is no longer growing, or atleast growth has slowed significantly, commodity prices are rising,and your customers are laying low. What do you do? Cut costs,and get lean. It is hard to find a company that hasn't applied S&OP,strategic sourcing, inventory management, lean principles, and SixSigma programmes, or rolled out improvement initiatives inmanufacturing and logistics. The trouble is these only address thelow-hanging fruit. Next steps and new opportunities are neitheridentified nor pursued.

Benchmarking is analogous to goal setting. It is fineto benchmark your supply chain setup and performance againstpeers, but it is not fine to consider this the end game whenambitious goals are needed. Performing slightly better than peersmay look good on paper, but it doesn't address the real issuesor provide the right solutions—especially when everyone in themarket is registering roughly the same performance levels.

Trouble getting past unfulfilled promises. Anyonewith a supply chain is likely heavily invested in ERP systems, longhailed as the panacea for most supply chain issues. But thepromised harmoniszed processes, robust data, and end-to-endtransparency never materialised. It becomes difficult first toadmit that such a huge investment has fallen short and then towork up the energy (and appetite) to pursue the next bigbreakthrough.

Measuring beyond cost and service. Measuring beyond

M A N A G E M E N T



Port of Salalah employs over 2200 people and is managed by APM

Terminals, one of the largest container terminal operators in the world.

Port of Salalah, Oman's largest port, is astride the primary east-west shipping lane linking Europe and Asia and

also holds a strategic position for shipping lines serving the upper Arabian Gulf, Indian sub-continent, Red Sea

and East African markets. Since the start of its container terminal operations in November 1998, throughput at

the Port of Salalah has grown over 600%, ranking this port among the top 30 globally.

Primarily a transshipment port at present, the Port of Salalah is enhancing cargo linkages through air, road and even draw-ing up its future GCC Rail network linkage, as the portʼs existing cargo is guaranteed to be a major source of rail tradetraffic. At the start of 2012 the port marked its 30 millionth container, and has averaged over 3 million TEU throughput forthe past 6 years, while handling over 7.2 million tonnes of general cargo by end-2012. The general cargo business hasbeen growing rapidly and the port is tripling its capacity to handle liquid and dry bulk cargo for a number of commodities.The Port of Salalah combined with the adjacent Salalah Free Zone and nearby Salalah Airport form an ideal location, to-gether called the Salalah Hub, which offers value-add and distribution services that can take advantage of the excellentliner connectivity (over 3000 vessel calls per year, with direct links to over 54 ports worldwide). The Salalah Free Zonehas seen major investments to the tune of US$3.5 billion in the past three years, due to the appeal of zero corporate taxfor 30 years and 100% foreign ownership possibilities, not to mention the unique benefit of the US-Oman Free TradeAgreement. Oman is creating exciting new opportunities as a high-growth market at a key crossroads of global trade. The Sultanate'snon-oil exports increased by over 16% in 2012, which are indications of value-added growth to the diversification of Omanʼseconomy driven by respective downstream investments. The level of vessel traffic between Salalah and east Africa hasincreased in 2012 and the port expects further trade between Salalah and the upper Arabian Gulf and Indian Subcontinentto grow this year. As part of its master plan the Port of Salalah also seeking to capture the number of cruise vessels and tourists enteringthe port, which last year crossed 28,000 visitors, to better serve the tourism industry and in support small to medium-sizeenterprises (SMEs) through an enhanced business incubator space. Commenting on the portʼs significance, Peter Ford, CEO at Port of Salalah, says, “Our current customers continue torealize the value that Salalah offers. They have also grown significantly with us. One of the customers grew by over 40per cent last year. We are working with one new customer in particular since we have identified $19 million savings totheir network by utilizing Salalah. Incentivized by the world class container port and expansion of the general cargo terminalin progress, the expectation is that there will be substantial growth in cargo volumes and local job creation with these topcompanies taking advantage of Oman's best hub infrastructure."



cost and service. Finally, transformative change requires measuringvalue. Companies know how to measure cost, service, and perhapsworking capital but have not found a way to truly measure aspectsof differentiation and competitive advantage derived from supplychains. Supply chain value must be measured and linked to theoverall business strategy. For every supply chain that fails to reachits full potential, others succeed. What do those with winningsupply chains know that the others do not? Winning supply chainsintegrate today's supply chain capabilities with tomorrow's goals.

Setting the stage

Supply chain objectives must be closely aligned to overall businessobjectives, especially if the goal is to gain competitive advantage.At this level, it is important that your supply chain capabilities cancarry you into the future.

An Assessment of Excellence in Supply Chains (AESC) analysisis designed for this purpose. Instead of benchmarking cost,service, and working capital performance or looking at the classicbuilding blocks of processes, systems, and organisationalstructure, an AESC analysis focuses on supply chain capabilities.It identifies 11 fundamental supply chain capabilities and providesa framework for assessing the strategic importance and the stageof excellence of the individual capabilities (see figure 3).

The analysis points to the key capabilities that must be explicitlydefined and actively managed. In addition, it provides a"language" to communicate the business value of the supply chainbeyond cost and service and helps to identify supply chainpriorities in light of future goals.

Figure 4 illustrates a typical output of our AESC analysis, in thiscase a consumer packaged goods company. The company's strongestperformance is in its lean capabilities and in the ability to adapt tochanging market conditions. The company is less effective in the areasof speed, reliability, accuracy, complexity, and collaboration and hasignored suggestions for building a green supply chain.

Immediate impact, growing advantage

Once you are looking beyond cost and service and including "new"capabilities among your strategic targets, the result is increased andgrowing competitive advantage. Consider the following caseexamples from our client work:

Green

A leading Brazilian cosmetics company took its environmental and

M A N A G E M E N T


social responsibilities so seriously that company executives includedthese as criteria in supplier selection, incorporating them into theirfinancial metric system and supplier selection process. We helped thecompany implement a "triple bottom line" framework in whicheconomic criteria (costs and flexibility, for example) are consideredalong with environmental effects (water usage, carbon footprint,waste) and social impact (percent of disabled employees). The newframework resulted in selecting numerous new suppliers andexcluding the larger incumbent suppliers. The result: a 17 per centeconomic benefit, a two per cent environmental benefit, and a nineper cent social impact. And the company's supplier base has becomeproactively green.

Collaboration

When two large companies—a food manufacturer and a retailer—decided to build a more collaborative supply chain, their primarygoal was to work together to create lasting value. They wanted togo beyond talking about collaboration to become trulycollaborative, exploiting each other's capabilities to differentiatetheir products and increase value for the consumer. Collaborationwould take place in all functions, from buying, manufacturing, andlogistics to finance, promotions, and the store shelf. Theychallenged each other with a few simple questions: How wouldwe behave if we were on the precipice of a merger? How closelywould we work? What information would we share? What goalswould we meet? The results of their true collaboration: 40 percent-plus profit improvement that has proven sustainable overtime.

Complexity

Achieving the right level of complexity requires going beyondsimply "cutting the tail" to asking the right questions: How doesreducing packaging types affect our sourcing and manufacturingcosts? What is the impact of excluding a customer? To this end, weintroduced a state-of-the-art multi-cube, an end-to-end decisionsupport system that links revenues to costs throughout the valuechain using a smart combination of database information. Whendeployed with linear programming, it can calculate the impact ofany complexity scenario. Results range from two to six per centincreased earnings.

Transparency

In volatile industries where demand is high, upstreammanufacturing capacity is scarce, and production cycles are long,the importance of supply chain visibility to forecast future demandcannot be overstated. Technology is helping to obtain this much-needed view. For example, a leading glass bottle manufacturer setsup its production planning processes based on the forecasts of itskey customers. Information is delivered directly to the productionline and to raw material suppliers. Its supply chain is consideredone of the most flexible and reliable in the industry.

Speed

Supply chains designed around speed are commonly found in fast-paced industries like fashion where the ability to respond quicklyto new trends can make or break a business. We have helpedseveral companies find creative and cost-effective ways to organisesupply flow. For example, a fashion retailer is now able to sourcethe same item from different regions, with different costs anddifferent supply lead times. Part of its forecasted volume is orderedfrom low-cost countries, such as Madagascar, and the remainderfrom Morocco, Turkey, or even Portugal. With "smart orders,"the retailer orders different sized bundles of the same items,sometimes even at the store level. Products are cross-dockedimmediately after arriving at the ports of entry.

The measure of a winning supply chain

Supply chains have changed dramatically in a matter of a few years.They have gone from uncomplicated to complex, and the tools toimprove their performance have changed almost as radically. Yetthe returns on supply chain performance have rarely lived up to thepromise. That's because supply chains continue to be measured bycosts and services rather than by the capabilities that lead to success.

By aligning supply chain objectives with overall business objectives,companies not only improve performance and competitiveadvantage, but also have a supply chain that can carry them intothe future. Winning supply chains integrate today's supply chaincapabilities with tomorrow's goals. n

Research and compilation by A T Kearney




LOGISTICSOUTSOURCINGTRENDS

- A strategic insight

M A N A G E M E N T


Overview

The Gulf Cooperation Council (GCC) is increasingly becomingan integrated economic entity with consistent positive initiativesfrom each member nation towards minimising political and

geographic boundaries. One of the key industry sectors set tobenefit is logistics. Frost & Sullivan’s recent research analysis foundthat the overall GCC’s logistics sector revenue was estimated ataround USD 38 billion dollars in 2012, of which three major

economies – Oman, Saudi Arabia and the UAE - account foraround 85 per cent. Oil and gas, infrastructure, and tradingindustry segments are the leading contributors to the GCC logisticssector.

The domestic services segment(inland transportation andwarehousing) of the GCC logisticsmarket is dominated by local players,while the international servicessegment (freight forwarding andinternational transportation byair/ocean) is dominated bymultinational players such as DHLExpress, TNT Express, and Agility.

Key developmentsimpacting the sector

Development of a rail transportnetwork (initially for public

transportation and later to be used for cargo transportation as well)can be considered the most important trend in the GCC logisticssector currently. Largely-traded commodities such as chemicals,petrochemicals, mineral ores and mining products, metals, and

Companies in the logistics industr y face a number of challenges when it comes tooutsourcing a par t of the supply chain. Here are a few of the user challenges facedin the region with recommendations for improvement from the Transpor tationand Logistics Practice at Frost & Sullivan.

The primary reason for outsourcing logistics functions as reportedby end users across the GCC is to reduce cost. Lack of requiredcapabilities and preference to let professionals handle logisticsactivities are the other two important reasons reported by end users




basic materials such as stone, concrete and cement used inconstruction need to be transported in bulk quantities, for which,rail is the best suitable form of transport. Hence realisation of thisnew transport mode in the GCC can turn out to be a landmark forthe logistics sector.

Focus on development of Free Trade Zones (or Free EconomicZones) by the GCC nations has been a major driver for their non-oil economic growth, which has had a profound impact on thelogistics sector, as well. Due to promotional policies in this regard,the GCC has seen numerous multinational organisations setting uptheir continent-level distribution centres (for air and sea modes),which has had a positive impact on the logistics services market.Focus on development of domestic manufacturing industries,spearheaded by Saudi Arabia, is another major trend, which is likelyto impact and drive this sector. Development of manufacturingactivities will lead to emergence of allied industrial activities, whichwould further evolve into complete supply chain entities over thelong term. Promoting the development of oil-related(petrochemicals) manufacturing clusters as well as non-oil clusters(such as electronics, food, pharma, and automotive) would resultin significant demand and a sustainable market for logistics services.

Outsourcing trends, reasons andpreferences

Frost & Sullivan’s 1st Logistics Industry Benchmarking Study inthe GCC revealed the key trends witnessed in outsourcing oflogistics functions, end-user preferences in selection of logisticsservice providers (LSPs), and the major challenges. Overall in theGCC, inbound freight forwarding (related to imports) and inboundtransportation (typically from ports) are reported to be the mostoutsourced logistics functions. Further, value added logisticsservices (VALS) such as packing, labelling, inventory management,etc. and reverse logistics are reported to be the least outsourcedlogistics functions.

The primary reason for outsourcing logistics functions as reportedby end users across the GCC is to reduce cost. Lack of requiredcapabilities and preference to let professionals handle logisticsactivities are the other two important reasons reported by endusers.

The study reveals that logistics end users in the GCC prefer dealingonly with reputed LSPs having proven capabilities. Their

M A N A G E M E N T


SICK Automation offers comprehensive sensor solutions for the logistics industry, which requires intelligenttechnology for efficiency and reliability in various processes.

As a technology partner andsupplier of sensor technology,sensor solutions and service tothe logistics segment, SICKoffers plant builders,integrators, logistics providersand operators our long-standing expertise in theautomation of logisticalprocesses. Automating theseprocesses is a challenging task

for manufacturers of logistics facilities and suppliers of warehousingand handling systems, especially in identification and classificationof logistical items, automation of plants in terms of instrumentationand control, as well as equipping them with certified safetytechnology for safe operation. SICK offers the appropriate portfolioof intelligent sensors and systems for nearly any logistics-related task,supporting their partners through industry-specific solutions andbenefiting them with optimised throughputs in conjunction withmaximum plant availability, a high level of process reliability andquality, as well as continuous and documentable ‘track and trace’sequences. SICK’s scalable solutions can be customised for today’sapplications and are also capable of migration to meet futuredemands. For instance, the contour and volume measurementsystems for spatial detection in combination with ID systems areunique because they permit both simple and complexmeasurement solutions, even beyond the boundaries of

transshipment hubs. Our ability to provide global service ensureshigh availability and productivity as well as minimal downtimes.

So, whether for parcel logistics or warehousing, for retail or mailorder distribution systems, and for airport or port efficiencyimprovements, reliable data capture and optical detection systemsare central requirements to ensure the stability of sortation,detection and transport processes. SICK provides laser and camerabased code reading, legal-for-trade dimensioning systems andsafety sensors that are the key in achieving the best performanceof modern material flow systems in the logistics supply chain.Through a long-standing relationship with global logistics serviceproviders and system integrators in material handling, SICK can offera high degree of value-added service and consultation to find thebest solution for your application requirements.

In the Middle East, SICK is represented by SICK AutomationInternational, based in the Jebel Ali Free Zone of Dubai, UAE, andwho have strong local technical and sales support competencies.We have a well-developed distributor and integrator networkacross the MENA region. This is SICK Sensor Intelligence.




reputation and capabilities for time-bound deliveries have beenreported as the leading parameters in selection of LSPs by end userson an overall GCC level. Ability to provide security and visibilityof consignments has been reported as the next important selectionparametre.

Exhibit 1 shows the percentage values of most-outsourced logisticsfunctions by end users in the GCC as of 2013.

Exhibit 1: Most Outsourced Logistics Functions by End Users inthe GCC, 2013

Key user challenges and opportunitiesfor LSPs

While capabilities for time-bound deliveries have been reported asone among the top parameters for selection of LSPs, end usersreported that the most important challenge they are facing isinefficiency of LSPs in adhering to timelines. Similarly, the secondmost important challenge as reported by end users is ensuringsafety of goods in transit and warehousing; whereas ability of LSPsto provide security of consignment has been reported as one amongthe top parameters for selection. Both these findings indicate highlevel of mismatch between end-user expectations and LSPperformance.

Growth opportunities for LSPs in the GCC are linked with thetypical nature of business operations here, which involves importand distribution for most industries. Accordingly, the greatestpotential growth opportunities for LSPs in overall GCC as reportedby end users include provision of freight forwarding and otherinternational logistics services and domestic transportation services.Other prevalent challenges faced by both LSPs and end usersacross the GCC include the harsh geographical environment andlack of alternate transport modes for roadways. The harsh (dry

desert) climate prevalent across necessitates extra efforts andequipment in handling logistics for several industries includingfood, pharma, FMCG and chemicals, among others. These extraefforts include employing temperature-controlled transportationand warehousing facilities resulting in higher logistics costs forcompanies. Further, lack of an alternative to the road transportmode for distributing goods within domestic markets of all GCCnations or across their borders means longer transportation time

in the harsh environment, which in turn increases the scope fordamage of goods. All of the above would ultimately result in higheroperational costs for LSPs and costlier logistics services for end-user companies.

Conclusions and recommendations forLSPs

The logistics sector in the GCC has a higher reliance oninternational logistics activities owing to the typical nature ofbusiness operations in the Middle East. However, the importanceof domestic logistics activity is growing due to the focus ondeveloping manufacturing bases by member nations such as SaudiArabia and Oman. Therefore, Frost & Sullivan recommends LSPsin the GCC to actively focus on improving their performance tomatch end-user expectations on key selection parameters such astimely deliveries and ensuring security of goods in transportationand warehousing. In addition, improving capabilities ininternational logistics and basic domestic transportation serviceswould prove to be beneficial for LSPs, as these two are reported tobe high growth areas by end users across the GCC. Further, LSPsshould actively tap potential opportunities emerging from each ofthe key developments such as customised services for Free TradeZone-based companies, providing end-to-end logistics services forgrowing manufacturing bases and active participation in gainingrail transport capabilities, among others. n

Growth opportunities for LSPs in the GCC are linked with the typical nature ofbusiness operations here, which involves import and distribution for mostindustries. Accordingly, the greatest potential growth opportunities for LSPsin overall GCC as reported by end users include provision of freight forwardingand other international logistics services

M A N A G E M E N T






This is my pleasure to present to you the SCLG Yearbook 2013 - a detailed lookat the regional industry today. We can see a surge in infrastructure projects GCC-wide, governments are continuously prepping for the future despite the recent globalfinancial crises as well as unrest in some of the countries in the wider MENA area.There is an expectation for the GCC countries’ GDP to reach growth levels of fiveper cent per year until 2020 and subsequent population increases of approximately50 per cent. So not only are national infrastructure needs being forecasted and met,but on a regional level preparations are going ahead for an integrated rail connectionfor freight and passengers. This is being actively planned and coordinated by allgovernments.

We have compiled a comprehensive look at the status of all the modes of transportin the GCC with strong article updates on each level. The yearbook is publishedunder the banner of the SCLG - The Supply Chain and Logistics Group bySignature Media. Signature Media is a strong new player in the market with adedicated team of professionals catering to all media, events and consultationservices in the region.

The purpose of this yearbook is to bring together in one place an overview of themajor branches of the industry, to be able to provide an insight for all our membersas to what the status has been and where the industry is headed. There’s never toomuch of the right information to steer you businesses in the right direction.

Hence the 6th SCLG Summit and Yearbook is being held and launched at the righttime when the industry is turning around for growth and innovation and leavingbehind the period of global financial confusion.

I would wish to take this as an opportunity to extend thanks to all individuals andcorporates who supported in developing and delivering the book well on time. Aspecial mention to our colleagues at AT Kearney who have diligently supported useach time with their comprehensive and concise country reports.

I would also like to extend my sincere thanks and appreciation to Dubai Chambersfor providing direction, support and encouragement in advancing the supply chainand logistics industry in the UAE, the region and around the globe. It is my pleasureto add that since the Supply Chain and Logistics Group is based in Dubai - theinspiring and vibrant city of innovation, knowledge, economy and global tradeconnectivity - we shall continue our efforts in bringing excellence to the supply andlogistics industry globally.

SHASHI SHEKHARChairmanSupply Chain and Logistics Group, SCLG

FOREWORD





CONTENTS

08 What the future holdsExperts from SCLG’s distinguished members panel look at the industry’s present and future

COUNTRY REPORTS

13 Logistics in the GCCThe emergence of a transcontinental hub

16 BahrainResilient progress

22 KuwaitNew opportunities up ahead

28 OmanAn expansionary fiscal policy

36 QatarA continuing balance-of-payments surplus

42 Saudi ArabiaTempered growth

52 UAECore assets - trade, tourism, infrastructure - prove resilient



BY ROAD

60 GCC rail connectionRealising GCC unity

BY AIR

82 World air cargo forecastA round-up of the year

94 On a highEmirates sky cargo

96 Taking control with SAPSAP transforms Panalpina

BY SEA

102 Full steam aheadDP World remains confident about their long term vision

105 Jebel Ali expansion on targetDP World talks about new developments

106 Khalifa portAbu Dhabi container operations move to Khalifa port

107 Khorfakkan exceeds expectationsSharjah’s Khorfakkan port experienced most growth in the Middle East



Published for the Supply Chain and Logistics GroupDirectorKanchan R. Vora

Exclusive Sales AgentSignature Media LLCP.O. Box 49784. Dubai, UAE

Deepak ChandiramaniEmail: [email protected]

Jason VerhovenEmail: [email protected]

EditorMunawar ShariffEmail: [email protected]

Design and Layout byDesign BucketEmail: [email protected]

Printed by United Printing Press (UPP) – Abu Dhabi

MANAGEMENT

110 GCC’s logistics infrastructureAsset rich and cargo poor?

116 Rock steadySSI Schaefer has a solid future strategy

121 Logistics drives regional economic growthThe region’s supply chain and logistics industry is in the driving seat

126 Winning supply chains integrate today’scapabilities with tomorrow’s goalsA bullet proof supply chain is the way forward

132 Logistics outsourcing trends - a strategicinsightChallenges of outsourcing a part of the supply chain

Contributor’s opinions do not necessarily reflect those of the publisher or editor and while every precaution has been taken to ensurethat the information contained in this handbook is accurate and timely, no liability is accepted by them for errors or omissions, howevercaused. Articles and information contained in this publication are the copyright of SCLG and Signature Media LLC and cannot bereproduced in any form without written permission.

CONTENTS



Bob Collier, Owner and CEO of LydonConsultancy

How mature and steady is the region's supply chainindustry?The industry in the region is long established and is very steady.

Although volumesfluctuate with seasonaldemands there is ahistory of continuityand client focus helpingthe region maintain itsimportance in thesupply chain.

How have theequationschanged cominginto the present?With the constantdemand for lower pricedgoods and services,buyers in the region

have switched their sources of supply. This has been a gradualswitch from USA and European suppliers to South East Asian andFar East sources. This affects the supply chain transit times anddocumentary requirements and with lower prices this means a

reduction in customs revenue for the respective countries.Although this is marginally off-set by increased volumethroughput.

What do you see as the major challenges goingforward?I do not see any major challenges going forward as the region’smembers have the experience and capability to plan ahead forpositive growth.

From here where do you see the market going andhow does it compare internationally?We are in a vibrant, growing region with a growing purchasingpower, which places it ahead of most International regions toattract major investment.

Which is the most promising country in terms ofgrowth in the MENA region?Because of international sea lanes and the proximity to the RedSea route to Europe, then Oman must be considered as a majorcompetitor to further develop as a regional transhipment hub toserve both the Middle East and African markets.

Where is your area of concentration today and in thefuture?My main focus today is establishing a niche market for discerningcustomers where service and commitment are more importantthan a low price.

WHAT THEFUTURE HOLDSFour of SCLG’s exper ts share their vision about what’s in store for the supplychain and logistics industr y regionally and internationally. Munawar Shariff spoketo Bob Collier, Owner and CEO of Lydon Consultancy; Mark Millar, ManagingPar tner at M Power Associates, Dr Donald Tham, Professor at Ryerson University,Canada and Mishal Kanoo, Deputy Chairman of the Kanoo Group.



Mark Millar, Managing Partner at M Power Associates

Mark Millar provides value for clients withindependent, external and informed perspectives

on their supplychain strategies inAsia – includingChina and ASEAN.His presentations,seminars andcorporate briefingshelp companies toimprove businessoperations, planmore effectivelyand increase theefficiency of theirsupply chainecosystems. Markser ves as AsiaPacific Regional

Advisor for SCLG. His contact [email protected].

How do the two regions - the Asia Pacific and MENA- compare in terms of supply chain efficiency andmaturity in the logistics industry?There are many similarities between the Asia Pacific and MENAregions – both are complex and dynamic with plentifulopportunities and challenges in the context of logistics and supplychain management. Both regions comprise multiple differentemerging and developing markets, all at various stages ofdevelopment and maturity – and therefore cannot be serviced bya one-size-fits-all approach.

What excites you most considering the presentscenario of markets improving and businessesexperiencing more success than previous years?There are many exciting opportunities – particularly with therapidly emerging consumerism across the regions which is drivingexponential growth in FMCG, retail and electronics sectors. We

are also seeing an expanding proportion of intra regional tradeand the development of substantial E2E (emerging to emerging)business.

However, what would be your cautionary advice?In this exciting environment, there are many challenges within thesupply chain ecosystems, with the major ones typically relating toInfrastructure development, regulatory environment andavailability of human capital.

Different economies are at differing stages of investing in thetransportation infrastructure that is needed to empower and enableefficient logistics networks. Multi-modal hinterland connectivity isessential to effective supply chain ecosystems, but often getsneglected in the early stages of infrastructure expansion.Regulatory environments vary across the different economies,with some markets having cumbersome administrativeprocedures, restrictive licensing frameworks and inefficientcustoms processes that cause costly delays that inhibit successfulsupply chain execution.

Skills shortages across the white collar sectors of logistics andsupply chain often manifest themselves in environments ofrapidly developing economies, where the demand forexperienced logistics personnel easily outstrips theavailable demand, further compounded by the industrytalent pools frequently not expanding rapidly enough at theintake level.

How much are the emerging markets (India andChina) contributing towards propelling tradethrough the GCC? How have those figures changedin the last few years?The ‘Chindia’ trade will continue to expand apace, with south-south trade flows projected to grow faster than most. GCC willcontinue to play an essential pivotal role in many of theseexpanding trade routes and will also increasingly act as thefulcrum for sea-air supply chain options between Asia andEurope.

Where do you see the industry headed over the nextcouple of years?We will see further rapid growth of economic prosperity across

SGLG MEMBER INSIGHT



emerging and developing markets, as the centre of globaleconomic gravity continues to shift eastwards.E2E and intra-regional trade flows will expand.

Within the 3PL sector we will see further consolidation throughmerger and acquisition activity, whilst customers also reduce thenumber of service providers that they deal with. Persistentproliferation of mobile internet and e-commerce business willchallenge traditional logistics networks leading to last milefulfilment experiencing some interesting innovations during theyears ahead.

From your vast experience, what would be yourword of advice to logistics companies in the GCC?Focus on adding value for your customers and always adopt aflexible and responsive approach to the market. Ensure you areregularly accessing the independent informed insights that willempower your business to continuing profitable growth in therapidly changing environment.

Dr DonaldTham,Professor atRyersonUniversity,Canada

How have supplychain and logisticsacademicschanged over theyears?The reality is thatcorporations andgovernments from allover the world, more so

from North America and the Euro Zone, have organically becomeassociated with "long or extended supply chains" in their quest tosearch for low cost geographies for materials and labour inputsinto the products and services they provide. The physical logisticalentities and associated control procedures needed to maintain theintegrity, sustainability and legality of these extended supply

chains have become challenging tasks. It is this context orframework that should drive the changes in supply chain andlogistics academics over the years. Educational courses shouldstrive to provide the balanced content towards exposing studentsto appropriate theories, best practices, researched findings andtechnologies so that graduates of such courses may be able tooperate successfully within this reality framework.

What in your opinion is the industry specific courseor specialisation of the moment?In my opinion, it is very difficult, if not impossible for me toidentify the industry specific course or specialisation of themoment. However, based upon my academic and industryexperiences over three decades,

I feel confident that a well rounded post-secondary undergraduateprogramme in Industrial Engineering tends to produce highlysuccessful and productive employees for corporations andgovernments operating in the reality context or framework I putforth for your previous question.

How have the industry requirements led to andenhanced course contents?By virtue of the global or extended supply chains we live with orhave to live with, the traversing of physical borders of countriesover land, sea and air is given. This exposes the industry playersto encounter various types of terrains, waters, skies, supportinginfrastructures, governmental and financial laws, cultures, businesspractices, technologies, environmental laws, human behaviour,industrial relations, languages, foods and eating habits.Consequently, industry requirements have led to course contentsthat have been enhanced through case studies whereby studentsare being exposed, for example, to various governmental,environmental and finance related laws, coupled with sustainabilityand pollution issues.

More so, course contents complemented with case studies andcollaborative inputs from students of various countries are beingdelivered and discussed by various "visiting professors" therebybringing a global experience to the classrooms made seamlesslypossible today through varying communication and informationtechnologies. Further, exchange students may take courseelectives outside his/her country with supplemental workinternships in the visiting country, as all part of earning a course



credit. In short, the "internationalisation" aspect of coursecurriculums driven by industry requirements have enhanced the"course contents".

What can you identify as areas yet to be explored insupply chain and logistics knowledge?

The aspects of ensuring accountability, responsibility, traceability,sustainability, integrity, quality and the right performance metricsin real time throughout the supply chains are some areas yet to beexplored in the supply chain and logistics knowledge domain.Case in point - the mystery of horse meat on some supermarketshelves! I rest my case.

There's just so much to learn and adapt to ineveryday business, how quickly do you see newtechniques being implemented today?The agility towards the implementation of new techniques beingimplemented will always depend on various factors:- one, theoutlook perspective of senior management coupled with riskacceptance and the complacency factor - do not upset the apple-cart!Therefore, just keep the status quo. Two, the prospect of the generaleconomy impacting the company's market share. Though, it may besaid that many of my company clients are driven towardsimplementing new techniques quickly notwithstanding the generallypoor economy with the conviction that they can leverage from thenew technique/technologies to beat the competition and improveprofitability. Three, the abilities and skills of the company's workforce.In this respect, there are senior management players that promote andsubsidise costs to better train and educate their workforce.

In many ways, this is an enabler towards the agile implementationof new techniques. Four, the competition factor to the company’sproducts and services. If the company is in a niche market verticaland faces little or no competition, the company may tend topostpone the implementation. Though one must be cautioned thatsuch a situation may make the company overly complacent. Thismay sometimes prove to be detrimental to the company.

What's the future looking like for the industry fromyour wide academic vision?The supply chain and logistics knowledge domain will continueto gain in prominence, visibility and significance for enterprisesby the dynamic factors evolving around the world. For example,

low cost geographies for materials and labour are shifting fromChina and India to the African Continent. This demandsdirectional and operational changes to various extended supplychains. The crushing economic declines within the Euro countriessuch as Greece, Portugal, Spain and Cyprus, leading to theausterity measures imposed on those countries by the ECB andthe IMF. Now with the formation of the BRICS Bank, there willbe a shift in the trading zones thereby calling for a demand in theexpertise of the supply chain and logistics domain too. Hence,there is optimism in my outlook for the industry.

Mishal Kanoo,DeputyChairman ofthe KanooGroup

What is the currentlogistics scene inthe region?It is blooming. This isstill the most importanthub on the east/westcrossroads. Some citieswill do fine while otherswill do great.

Where is it headed?We are about to exit a financial crisis. It might not feel like it, butwe are. As the global economy grows, so will the industry.

What challenges are you facing in your freight andshipping businesses presently?The main problem that we are facing is getting the right talent atthe right price.

In your opinion, is the logistics industry lacking inany way in the GCC? How does it (the local logisticsindustry) compare with global supply chains?This is a growing market but not a mature one. It is covering

the commodities freight but not the niche markets … at least notyet.

SGLG MEMBER INSIGHT


COUNTRY REPORTS

Disclaimer: This document is presented exclusively for information and/or evaluation purposes and A.T. Kearney Limited accordingly makes norepresentations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the informationfor any particular purpose and confirms that it will, under no circumstances, be liable for any loss or damage including without limitation,indirect or consequential loss or damage, or any loss or damage whatsoever arising from-, out of-, or in connection with, the use of theinformation.

Sources: A.T. Kearney Analyses, Business Monitor International, CIA Factbook, Containerization International, Economist Intelligence Unit,Factiva, Frost & Sullivan, International Monetary Fund, MEED, National Governments, National Ministries of Transportation, NationalPort Authorities, World Bank, Zawya


13

Logistics and transportation infrastructure developments enable theregion to boost its local economies as it progresses towardsdiversification. With an estimated growth of the gross domesticproduct (GDP) around five percent per year until 2020 in the GCC,and a forecasted population growth of up to 50 percent by 2040,GCC governments are expected to continue to invest in theirexisting logistics infrastructure and build new facilities to cater togrowing population needs. The GCC is undertaking thesesignificant investments both at an integrated regional level, e.g. withthe GCC rail network development, as well as at a national level,e.g. with projects in airports, seaports and roads.

Coordinated investments integrating existing and new logisticsinfrastructure assets across the GCC as well as across multimodallogistics and transportation concepts remain crucial to strengtheningGCC’s overall economic development and global competitiveness.While mainly focused on meeting growing local demand, improvingoperational efficiency as well as developing the required servicesector to operate these logistics assets are essential for success. Interms of operational efficiency, the GCC countries continue toimprove customs, tracking and tracing processes as well astimeliness. Based on these investments and process improvements,airports, ports, roads and railroads are becoming key enablers tosustain GCC wealth and growth. To fully leverage theseinvestments and efforts, it is important to note that the “intelligent”connections – communications, logistics, scheduling, and IT systems– are every bit as significant as the physical connections of roads,railways, and pipelines.

Improved integration with ports and markets along the Indian

Ocean is likely to bring further prosperity to the GCC providingaccess to some of the world’s fastest-growing markets in CHIMEA(China, India, Middle East and Africa).

Trends and Challenges for Logistics inthe GCC Region

Overall, the GCC experienced substantial economic growth in theaftermath of the global recession. GCC’s 2012 GDP growth was4.8% and is expected to reach 4.1% in 2013 and pick up in the yearsto come.

Oil prices aside, GCC economies are increasingly implementingmeasures to become less vulnerable to fluctuations of oil prices whileimproving economic development and competitiveness. Forexample, three of the GCC countries have moved up in the WorldEconomic Forum Global Competitiveness ranking (Qatar, Bahrainand United Arab Emirates).

Regional logistical improvements were also revealed in the 2012World Bank Logistics Performance Index where the United ArabEmirates, Saudi Arabia and Qatar improved their logisticalperformance scores compared to last year.

The United Arab Emirates advanced across all dimensionsespecially in customs, logistical competence tracking and tracing andtimeliness. Saudi Arabia advanced international shipments andQatar improved customs, international shipments, logisticscompetence and tracking and tracing.

LOGISTICS IN THEGCC–THE EMERGENCE OF ATRANSCONTINENTAL HUB

OVERVIEW




Sector Analyses

Airports and aviation

The Middle East has become one of the fastest growing regions interms of aviation. Passenger traffic levels have been steadilyincreasing and are expected to continue to increase given the GCC’sstrategic location. The number of passengers is expected to growsubstantially in future years. In the coming years the GCC countriesare expected to invest an estimated total amount of $90 billion inairport infrastructure for passenger and cargo traffic. Numerousmajor airport projects are already underway to create sufficientcapacity to meet the anticipated demand.

Saudi Arabia and the United Arab Emirates account for the majorityof airport capacity in the region, becoming transcontinental hubslinking the East and the West. Together their airport capacity in2025 is expected to be 314 million passengers ( Saudi Arabia - 114million passengers and UAE - 200 million). Qatar is also very activeand is seeking to position itself as a transit zone, but also as both a

business destination and a “the tourism hub” especially for the“2022 World Cup. Qatar airport capacity is expected to reach 60million passengers in 2025. Oman, Bahrain and Kuwait arereinforcing themselves and upgrading their airport infrastructure inorder to strive with their GCC partners. Their goal is to promotetheir standing and anchor a well-deserved position on the aviationmap while diversifying their economies away from naturalresources. Bahrain intends to hit a capacity of around 14 millionpassengers by mid-decade while Kuwait has forecasted a capacityof 25 million in 2020. Oman’s master plan has set a target of around12 million by 2014 and a goal of 50 million by 2050.

Air Cargo also is expected to continue to grow, especially focused

on upgrading handled goods. The United Arab Emirates, Saudi,Qatar and Oman have invested extensive amounts in building andimproving their actual infrastructure to become the heart of theMiddle East in air cargo handling.

Ports and marine transportation

Ports continue to attract the interest of the GCC governments.Across the region, a number of seaport developments aim to adjustcontainer and solid as well as liquid bulk capacities due to increasinglocal export and import demands. In addition, the GCC has alwaysbeen the link between East and West, i.e. a significant share of worldcontainer traffic between Europe and Asia pass through the Gulf.This growing trade allows GCC ports to embrace the transshipmentbusiness. GCC governments are continuously investing in state-of-the art port infrastructure with some specialization taking place.In this perspective, Bahrain has designed its ports with an ability toexpand but most importantly focused Khalifa Bin Salman port on

transshipment and specialized Mina Salman Port on the export andimport of building material. Kuwait sets its goal towardtransshipment and focuses on serving its northern neighbors byexpanding its main port to handle up to 2.5 million TEU by 2016.Oman’s ports act as the main source of jobs and the backbone ofthe industrial sector. The Salalah port expansion emphasizes oncargo handling and transshipment capabilities with a cost of around $650million, while Sohar port targeted deep-water jetty and dry bulkterminals at a cost of around $250 million. Duqum port’s upgrade willinclude a liquid terminal to be completed by 2017 as part of a free zone.Qatar has plans to spend $5 billion for a new deep sea port focusing oncontainers and transshipments, its other ports have also been enhancedand specialized. Mesaieed is focused on handling bulk and oil and Ras


Laffan on handling liquid products (LNG). Last year Saudi Arabian portsgrew at around 13%, e.g. Jeddah Islamic Port and King Abdulaziz PortDammam expanded and upgraded their infrastructure and storages.Jubail and Yanbu are expanding towards positioning themselves as themain gateways for petrochemical exports. Ras Al-Khair is focusing ondry bulk, liquid bulk and general cargo while the port of King AbdullahEconomic City (KAEC) is expected to expand its transshipmentcapabilities in a free zone environment. Hence decreasing the customclearance and becoming more efficient. Khalifa Port in the United ArabEmirates became the main container terminal with an expansion allowingthe capacity to hit 15 million TEUs by 2030 while Jebel Ali port isexpected to handle around 55 million TEUs by 2030.

To create a long term sustainable network of ports in the region,there are three important dimensions to consider; cargospecialization, transshipment hub and free zone developments. Byacting along these lines, GCC governments will be able tosustainably manage port expansions, decrease potential competitionand increase the value creation potential of port investments.

Rail and road developments

Investments in rail, roads, causeways and bridges are flourishing acrossthe GCC. Bahrain is intending to connect itself to Qatar before the2022 games in Qatar while Qatar has set aside $30 billion to developand upgrade the national road network supporting industry, tourismand linking Doha to major industrial, oil and gas developments. Kuwaitplans to invest $14.2 billion in country road work to be completed overthe next five years connecting internal ports and towns and Omanallocated around $3.2 billion as the second priority budget area in the8th Five Year Plan for road building. Saudi Arabia is spending around$45 billion on its rail network adding 7,000-kilometres of track. Finally,the United Arab Emirates is planning numerous road and rail projectsconnecting airports and free trade zones.

Among the many projects it is worth mentioning the plans tointerconnect the GCC states by building an extensive railwaynetwork for both passenger and freight traffic. This will furtherregional trade and economic development.

The combined GCC railway projects being built cover around2.200-kilometres covering the coast of the Gulf and extending fromOman to Kuwait, passing through the UAE, Qatar and SaudiArabia. The network is expected to be completed within thisdecade. The combined GCC rail and road network connectingcountries, free zones and ports is expected to enhance cross countrycooperation, develop local economies, and balance intra-GCCtrade. Overall it will enable the increase in freight volumes to becovered by the available ports decreasing waiting times and turnovers, hence increasing efficiency and growth across all GCCmarkets.

The various investments in road and rail, especially the rail networkplan in coordination with the port developments will position theGCC as a transcontinental hub. This is important for the overalleconomic development of the region as well as especially forpetrochemical exporters to increase their outputs and volume flows.It will also open doors for potential new business opportunities andnew markets that could be reached by rail in the future.

Outlook

In the long term, continued investments in GCC logistics andtransportation infrastructure as well as related service sectordevelopments are expected to boost regional trade. The integrationof air, sea and land transportation modes will be vital in establishingthe GCC as a global transshipment and export hub allowingsustained and coordinated economic growth leveraging businessopportunities across the emerging markets of China, India, thegreater Middle East, and Africa. a world class

About A.T. Kearney:A.T. Kearney (www.atkearney.com) is a global management consulting firm that uses strategic insight, tailored solutions and a collaborativeworking style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’sleading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 39 countries. From ourMiddle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney supports both private and public sector clients as well asnations to excel and prosper by combining our regional expertise and global business insights to achieve results. For more information,visit www.middle-east.atkearney.com.

OVERVIEW





BAHRAIN



BAHRAIN

Trends and Challenges for Logistics in Bahrain

GDP and Federal Finances• Real GDP recorded at around 2.0% in 2012• The petroleum and minerals sector is expected to constitute 86% of total treasury income in 2013 and 2014 while it has accounted

for around 76% of budgetary sources in 2009 and 2010• Bahrain is projecting a budget deficit of $1.76 billion for 2013• In 2011, the GCC decided to give $10 billion of financial aid to Bahrain and Oman each over a span of 10 years to help them

overcome socio-economic and socio-political issues

FDI Confidence and Competitiveness• FDI inflows in Bahrain have rebounded in 2011 from relatively low values in 2010, rising to a level of $781 million with an

increase of around 400%• Bahrain is ranked 35thin the World Economic Forum’s 2012-2013 Global Competitiveness Index

Development Outlook• Bahrain’s GDP is expected to stabilizearound 3.7%between 2013-15 and then to increase to around 4.7% in 2016-17• However, port and other infrastructure capacity continue to make Bahrain an attractive logistics hub given its drive to diversify

its economy and the likeliness of Khalifa bin Salman Port becoming a transshipment hub in the near future• Bahrain has emerged from the crisis experienced in 2011, and the same has been reflected in improved ratings, yet the same is

constrained by fiscal dependency on sustained high oil prices and international donor support• Oil price volatility remains a source of risk as exports and services are vulnerable to changes in demand• Regional political instability has the potential to adversely impact foreign investments, development


• “Vision 2030” is an action plan to fast track development projects in the infrastructure sectorthroughout the country• Around ~$600 million has been allocated for infrastructure facilities in the 2013budget and the same was dedicated for 2014• Bahrain is seeking to reduce government financing in infrastructure projects through Public Private Partnership (PPP)





Overview• Forecasts predict that the country’s shipping sector will experience steady growth in the medium term due to

Khalifa bin Salman Port, which may become a major transshipment hubKhalifa bin Salman Port• APM Terminals Bahrainis slated to operate both Mina Salman and Khalifa bin Salman Port for 25 years• Khalifa bin Salman Port’s initial capacity is 1.1 million TEU per year with a possible expansion of up to 2.5

million TEU• The port wasopened in 2009, and has been designed to allow for future expansionMina Salman Port• In response to the growing demand for building materials in Bahrain, the former main container and general

cargo terminal, Mina Salman Port has been converted to a dedicated import and export building materials terminal. It has been re-commissioned and is in operation since January 2012

• In addition, the US Navy is also expanding the port.A $580 million project is scheduled to be completed in 2015, and will include utilities infrastructure, a consolidated port operations and harbor patrol facility, personnel barracks, administrative buildings, dining facility and a flyover bridge connecting Naval Support Activity (NSA) Bahrain to the new port facilities

SEA

Overview• The GCC is set to invest around $90 billion in the next few years in order to meet the growing need and

Bahrain is likely to receive some of these fundsBahrain International Airport• The expansion of Bahrain International Airport is expected tohit a passenger capacity of around 13.5 million

per year with an expected budget of ~$4.7 billion• The original timeline for the expansion project suggested completion of Terminal 1A by 2013, and demolition

of the existing terminal to commence construction of Terminal 1B in 2014. Formal launch of the Bahrain international Airport expansion project was made in June 2011

• The project also features nearly five additional contact gates, nine remote gates, 40 additional check-in counters, and a large transfer facility and other capacity enhancements and value added facilities

Bahrain’s Sakhir Air Base• A ~$15.4million project to upgrade the infrastructure at Bahrain’s Sakhir Air Base was completed on schedule

in early 2010

AIR

Overview• The GCC region is united in a push towards developing rail transportation in the region, Bahrain stands to

gain from GCC interconnectednessBahrain Rail Network• Bahrain envisions the construction of a ~110-kilometre network in three phases by 2030; and is awaiting

approvals to begin initial studies for the $8 billion rail plan• 90 km rail will link Bahrain and Saudi Arabia, which is estimated to cost $4.5billion

RAIL



BAHRAIN

Bahrain monorail• The project calls for the construction of the Bahrain Monorail that will link the various regions of Bahrain to

ease traffic (it is part of a whole public transport network project including Light Rail Transport (LRT), a monorail, trams and a Bus Rapid Transport (BRT))

• The first phase i.e. the Green Line is a 23-kilometre long section which will extend from Juffair through Manama to Seef district

• The entire project, measuring around103-kilometres, is planned to be completed by 2030• Phase 1 budget is ~$1 billion, complete project budget is ~$8 billionSaudi Arabia-Bahrain Rail Link• Discussions are taking place to develop a rail link between Bahrain and Saudi Arabia, linking Al-Khobar with Manama• The project will cost around $4.2 billion. The proposed construction will take place in parallel to the King Fahd Causeway• The feasibility report is expected to be available by the end of 2014 with the aim of the project being operational in 2017

Overview• Bahrain is well situated, only 40-kilometres from Saudi Arabia. In case theBahrain-Qatar Causeway is

constructed, Bahrain could further strengthen its regional economic and logistics positionBahrain-Qatar Causeway• The recently redesigned causeway is expected to connect the western costal region of Qatar with eastern

Bahrain (the so-called 40-kilometre ‘Friend-ship Bridge’)• It will carry four vehicle lanes and two railway tracks between the two countries• It is planned to be finished before the World Cup in 2022 with an expected budget of ~$2.9 billion

King Fahad Causeway• The 25km-long King Fahd causeway links the Kingdom of Bahrain with the Eastern region of the Kingdom

of Saudi Arabia• Expansion work on the King Fahad Causeway, connecting Bahrain with Saudi Arabia will be developed over

a period of 20 years and is supposed to cost around $5 million• Workshall include construction of additional lanes for incoming and outgoing traffic and a waiting yard on

each side of the causeway.King Fahd Causeway Authority received bids from firms for the Project Management contract for the first part of the expansion project in Feb 2013

North Manama causeway • The project includes building:- Anupgrade of the two junctions and the improvement of the at-grade movements of Al Fateh / King Faisal Highway, and Al Fateh / Shaikh Hamad Causeway- The construction of a new signalized traffic junction for entry / exit into the Manama Lagoon area halfway- The construction of new 2.42 km of roads along Al Fateh Highway and the eastern and northern sides of theBahrain Bay- The construction of a new 238 m long curved left turn flyover to provide a two-lane single carriageway access to the Bahrain Bay- The construction of a new 51.4 m long single span bridge to provide three-lane dual carriageway across an architectural canal along the northern side of the Bahrain Bay

• This~$265million contract is nearing completion, with major portions now open to the public (as of February 2013)Mina Salman Interchange• Ongoing tunnel project worth~$123 million and expected to be completed in November 2013

ROAD


Bahrain – Key Economic Drivers





BAHRAIN




KUWAIT



Trends and Challenges for Logistics in Kuwait

GDP and Federal Finances• Real GDP recorded an estimated increase of 5% in 2012and is expected to grow by ~4.6% in 2013 with the non-oil sectors

contributing around 5%• Kuwait’s economy is reliant on the petroleum sector which accounts for more than 90% of all exports• The Government reported an inflation slow-down from 4.8% in 2011 to 4.3% in 2012.Kuwait passed 2012-13 budget with a

deficit of around $26 billion mainly through calculating oil income at a conservative price• The budgeted revenue was posted at around $48 billion, an increase of 3.7% on last year’s estimated income

FDI Confidence and Competitiveness• According to the World Investment Report, Kuwait has attracted an FDI inflow of $399million during 2011• Kuwait is ranked 37thin the World Economic Forum’s 2012-2013Global Competitiveness Index

Development Outlook• Kuwait's fiscal system remains the most dependent on oil income. The petroleum sector at large, including sales of gas, will

account foraround 95% of government revenues (Kuwait non-oil revenue increased by 6.8% in the first 10 months of fiscal year 2012-13)• Diversifying the economy away from oil is the long-term development strategy of the country• Regional political instability has the potential to adversely impact foreign investments, development potential and waterway access

• Kuwait budgeted $111 billion to the development of new infrastructure projects as part of the Kuwait development plan• The Kuwait government announced plans to invest ~$12.6 billion in 320 projects covering roads, bridges and government

buildings to ease traffic congestion, provide improved access for more isolated regions and upgrade existing infrastructure• In line with GCC rail plans Kuwait is dedicated to pursuing a rail development initiative


KUWAIT





Overview• Kuwait is committed to diversifying its economy and becoming a regional hub with its northern neighbors.

Investment in ports is part of realizing that goalExisting Kuwait Ports• Mina Al-Ahmad handles most of Kuwait’s oil exports• Kuwait’s existing ports face capacity constraints:‒ Shuwaikh (next to Kuwait City, surrounded by a free-trade zone): ~800,000 TEU capacity‒ Shuaiba SeaportShuaiba Sea Port• ~200,000 TEU capacity• A new trailer driver, sailor building and a monitoring tower are to be added. The bid is expected be closed in

mid-2013Mubarak Al Kabeer (Bubiyan) Port• Kuwait plans to establish a new seaport at Bubiyan Island to serve as a trade hub with its northern neighbors.

The new port is expected to handle up to 2.5 million TEU, with the ability to receive 2 million TEUs by 2016• The port is scheduled to be completed in 4 phases, the construction of new roads and the railway scheme; the

dredging of the planned harbour site; the creation of nine new docks, followed by an additional seven; and theaddition of 33 new docks (bringing the total to 60) by 2033

• The commissioning date of the port’s first phase is 2016 while construction is scheduled for completion in 2014with an expected budgetof~$2 billion

Silk City Mega Container • It is part of the Silk City project, which aims to revive the ancient Silk Road trade route by becoming a major

free trade zone linking central Asia with Europe• Progress on the $77 billion Silk City project stalled after Kuwait called for a review of its master plan

Overview• The Middle East airfreight has had a very strong growth. Kuwait’s International Airport is likely to experience

year-on-year growth in traffic in the medium termFarwaniya Kuwait International Airport• Airport capacity will be increased in Phase 1 to 13 million passengers per year by 2016 and in Phase 2 up to 25

million passengers per year by 2020• The expansion includes the construction of runways, airplane hangars, roads, docking stations, substations and

related facilities• This includes a new terminal building, extensions to the two existing runways plus a new third runway, with

an expected budget of $3.3 billion• A third phase has been discussed, which would see the facility expanded to a capacity of 50 million passengers

per year

SEA

AIR



Overview• Kuwait plans to invest heavily in its rail sector in the short and medium termKuwait Metro• Kuwait plans to build a 171-kilometre four line metro system for up to ~70 million passengers annually. 60-

kilometres will be underground and will span across 60 stations• Expected budget: $7billion• The metro will be built in five phases until 2035• Up to 50% of the project was expected to be financed through an initial public offering (IPO)• Preparations of expressions of interest for the first package of the project were being undertaken, when the

same was put on hold in late-2012, after the Government ordered a review of the plans while it considers bringing them back under government ownership

• The first package covering the rolling stock is planned to be tendered in 2013Kuwait Rail Network• Plans are in place for the construction of a 550-kilometres railway in Kuwait, which will stretch from the east

to the west of the country and will link into the railway networks of neighboring Saudi Arabia and Iraq; withan expected budget ofaround $10 billion, and expected completion by 2017

• Feasibility studies for the project were being conducted when the same was put on hold in late-2012, after theGovernment ordered a review of the plans while it considers bringing them back under government ownership

Silk City Rail• A rail network between major Middle East cities and China –the route will travel through Kuwait, Damascus

and Baghdad, and will eventually link the Middle East with China• This is part of the Silk City project expected to be completed by 2030• Progress on the $77 billion Silk City project stalled after Kuwait called for a review of its master plan

RAIL

KUWAIT




Overview• Kuwait has one of the best road systems in the GCC with considerable coverage of the entire country. Plans

are in place to further improve the country’s roads• $14.2bn worth of road work to be completed over the next five yearsSubiya Causeway• Kuwait plans to construct an eight-lane bridge of 37.5-kilometrelength across the Bay of Kuwait connecting

Shuwaikh Port with Subiya New Town Development• The $2.6 billion contract for the designing and building of the causeway shall also include two man-made islands

of 30 hectares, one on each side of the bridge, for housing of maintenance and traffic emergency buildings, fuelling stations and boat docks

• The project is expected to be completed by Q1 2018Al Jahra Road Upgrade• The project involves upgrading Jahra Road to increase its capacity and improve road facilities and services• It includes a 7.2-kilometre long viaduct and construction of a 21-kilometre motorway, a 1-kilometre tunnel, an

elevated 7-kilometre motorway on the viaducts, which consists of approximately 8,500 precast segments to cover a total area of 38,000 cubic meters

• The Jahra Road Development project was formally launched in February 2011Sheikh Jaber al-Ahmed al-Sabah Bridge (Doha Link Bridge)• A16 km long bridge will connect Shuwaikh to the port villageof Doha in the Jahra region,it will connect to

Subiya Causeway project• The bridge will contain three traffic lanes and an emergency lane in each direction.• The project is expected to cost ~$1 billion

ROAD

Kuwait – Key Economic Drivers

ROAD



KUWAIT




OMAN



OMANTrends and Challenges for Logistics in Oman

GDP and Federal Finances• GDP recorded an estimated growth of 5% in 2012, driven by oil production increase. It is estimated that the economy will continue

to grow by 5.1% in 2013• Oman has the second most diversified economy after Bahrain in the GCC region, with the oil and gas sector contributing less

than 50 per cent of GDP (41% in 2009), and is expected to drop to 9% by 2020• The country will continue to invest in economic diversification, following its Economic Vision 2020 plan which aims to reduce

the contribution of oil and gas to roughly 20 per cent of GDP, while raising the manufacturing sector to 15 per cent of GDP• Following the diversification drive, the government’s 8thFive Year Plan (2011-15) allocated more than ~$3.9 billion towards

development of non-oil exports including the construction of basic infrastructure such as ports, airports and tourism development projects• Nevertheless the government continues to invest in oil and gas. It has plans to increase Oman’s crude oil production in the 8thFive

Year Plan (2011-15), setting aside ~$1 billion for that purpose

FDI Confidence and Competitiveness• Oman based its 2013 budget on a price estimate of $85/barrel, significantly below the Bloomberg forecast of $111/bbl(for Brent

Blend), therefore providing a buffer in case of a fall in oil prices• FDI inflows in Oman aggregated to $788 million in 2011, experiencing a decline from previous years on account of socio-economic

instability in the region, affecting investor confidence

Development OutlookThe government plans to invest ~$78billion between 2011-15 in the development of oil industries, hospitals, education and roads.This value represents a 113% increase over the last five year plan. Major tourism investments are also planned• Oman’smerchandise trade surplus is rose to ~$24billion in 2012• Exports are expected to grow by 6.5% in 2013, driven bystable oil prices and sea port developments• Imports are also expected to grow strongly by 10%, boosted by an increased domestic demand for consumer goods• Endeavors to increase the role of the private sector in large-scale projects are expected to continue• The transport sector is expected to continueoutpacing the economy, driven bynew and continued infrastructure projects in airports

and roads• Improved business environment will most likely attract more private investments for infrastructure projects• However regional political instability has the potential to adversely impact foreign investments, development potential and

waterway access


• The Oman government’s 8thFive Year Plan (2011-15) plans to invest~$31.2 billion ininfrastructure development. From that sum the planned spending for projects in airports is~$6 billion, for roads~$3.2billion, and for seaports ~$1.4 billion

• Airports and roads form the bulk of the spending between 2011-15





Overview• $1.4 billion has been allocated to develop the seaports of Oman as part of the 8th Five Year Plan (2011-15)• The Muscat port is being turned into a tourism and maritime heritage facility and the transfer of traffic is due

to be completed by the end of this year• Oman’s ports are playing a central role in supporting the country’s growing industrial base and providing more

employment opportunitiesSalalah Port• In 2012, Salalah port handled 3.6 million TEUs of container shipping, as well as 7 million tonnes of bulk cargo,

compared with 3.2 million TEUs in 2011. Volumesare forecasted to continue growing• The first phase has been initiated with the expansion of the General Cargo Terminal (GCT) which has 1.2-

kilometre of multipurpose berths with drafts up to 18m• Salalah Port Services Company, a joint venture between the Oman Government, AP Moller Maersk and other

Omani investors, is aiming to complete an expansion of its cargo terminal by Q1 2014• The expansion scheme will increase Salalah’s cargo handling capacity to 20 million tonnes a year (t/y) of dry

bulk commodities and more than 6 million t/y of liquid products, up from a total cargo handling capacity of 6.5 million t/y during 2011

• The construction award for the expansion of the general cargo terminal is valued at ~$143 million• The expansion of the general cargo terminal is part of the $645 million expansion of Salalah Port that will be

carried out over 20 years• There will also be several contracts floated during 2013 related to the rehabilitation of Salalah’s old port. There

are also plans to look at building new container terminal berths in 12-18 months’ time, which once completedcould add 3.5 million TEUs of capacity

Sohar Port• Sohar port plans to announce further expansions to its capacity as it is assuming an increased regional market

share• Expansion work on the Port of Sohar is in progress, with two main project developments: a $250million major

deep-water jetty and a dry bulk and aggregates terminal• The jetty and the dry bulk terminal are scheduled to be completed in 2013 and in mid-2014, respectively• In January 2013, Hong Kong – Hutchinson Whampoa won a $130 million contract to build and operate a new

terminal at Sohar Port. The terminal will double the port’s capacity to 1.5 million TEU from existing 800,000TEU

Duqm• Duqm port is part of a special economic zone authority, which includes an industrial zone, a fishing harbour,

and tourist and logistic areas. The port is due to be completed by 2015• The Duqm port was scheduled to have a soft opening in 2013, as a part of the gradual roll-out to be carried out

until the commercial quay is fully operational in 2015. The roll-out began in 2012 with the opening of the drydock

• The estimated value of the contract is~$75-$200 million• A new development is planned to be added for a major liquid terminal at the port. The terminal is set to be

completed by 2017• It will have a capacity of 230,000 barrels a day. The port will comprise a multi-purpose terminal with a capacity

SEA





of 0.8 million tonnes, a container terminal with a capacity of 3.5 million tonnes and a dry bulk terminal with acapacity of 5 million tonnes

Port at Al Halaniyat Islands• There is a plan to construct a fishing port at shuwimiah on Al-Halaniat Islands for around $16 million in 2013Hasik Port• The new construction at the Hasik port is expected to cost around $100 million including development of quays

enabling express ferries calling the port

Overview• The country has plans to establish a comprehensive national rail network of more than 1,000-kilometres,

including both freight and passenger rail. This rail network will connect with rail in neighboring countriesOman Rail Lines• Oman is planning a ~$15 billion and more than 1,000-kilometrescomprehensive national rail network, including

both freight and passenger rail, which will link major cities and rail projects in neighboring countries• The rail network is set to play an important role in connecting the industrial zone of Sohar, Duqm and Salalah• The project is divided into five sections initially (260-kilometresbetween Sohar and Muscat, 526-

kilometresbetween Muscat and Duqm, 140-kilometresbetween Sohar and Buraimi, 58-kilometresbetween Soharand KhatmatMelaha, and 646-kilometres between Duqm and Salalah)

• The rail network design stage is expected to be completed early next year and the construction of the first stageis due to begin by the third quarter of 2014 with expected completion in 2018


Overview• ~$6 billion has been allocated to develop Oman’s airports. It is one of the topbudget area in the 8th Five Year

Plan (2011-15)Muscat International Airport• The on-going expansion of Muscat International Airport is planned to increase annual passenger handling

capacity to 12 million by 2014 while the overall master plan is to accommodate 48 million passengers (more than 8 times its current capacity) by 2050

Salalah International Airport• The Salalah airport development plan will have capacity for 1 million passenger and 100,000 tonnes of cargo

annually by 2014• The expansion will enable the airport to host modern and large aircrafts such as the A380Adam Airport in Dahiliyah region• The airport will have a capacity to handle 250,000 passengers per year with a runway of 4km• The commercial operations is planned for 2014 with project costs of around $150 millionSohar Airport• The construction of an airport terminal atSoharis planned to accommodate 500,000 passengers and 50,000

tonnesair cargo per year• The project will include a runway, a fire station, fuel tanks, lighting and drainage system at total expected costs

of around $150 million

AIR

RAIL



OMAN

Overview• Road traffic has been increasing steadily in recent years and therefore requires infrastructure adjustments• $3.2 billion has been allocated to develop Oman’s roads. It is the second priority budget area in the 8th Five

Year Plan (2011-15)Al-Batinah Coastal Road • The contract for the first phase of the construction of a four-lane carriageway from Naseem Garden to

KhatmatMalaha in Wilyat Shinas was awarded in March 2012 at a cost of $360 million• The second phase of the contract, worth $328 million, was awarded to a Malaysian/local joint venture in August

2012 but was subsequently cancelled in 2013Nizwa-Thumrait Road• The first phase of the 758-kilometre Nizwa-Thumrait dual carriageway project started in 2010 with an estimated

budget of~$650 million• A $132 million tender to build a 48km stretch of the road between Izz and Adam in the Dakhilyah governorate

was awarded in 2012• The build and habilitation of the road will allow the link between Muscat and Salalah to be fully dualised along

its length of more than 1,000kmBidBid-Sur Road• The first phase is worth~$325 million for 115kmand the total budget for the dualization of the road is

approximately ~$623 million• Oman's transport ministry has decided to add a third lane to the Bidbid-Sur road dualisation project

Ibri-Jibrin road project• The dualisation of the road is budgeted at~$190 millionOther road project• The construction of lKhassab-Lima-Dibba road at around $700 million• The dualisation of Mahda Al Rawdah road at around $100 million• The Rehabilitation of SinawMohootDuqum road at around $200 million• Asphalting Wadi Al Mayh road at around $62 million

ROAD

• The project will be implemented with the funding support pledged by the members of the GCC bloc, and bidshave been invited for network design in February 2013

GCC Rail Network• Oman will be in charge of the Batinah railway, which will run parallel to the Batinah highway, and eventually

will connect to Kuwait through the GCC rail network• The link will run 260-kilometresfrom Muscat to the border with the United Arab Emirates, and earlier reports

cite the possibility of linking the railway to Al Duqm in the future• The first phase of the project involves the construction of 1,000-kilometre of track, linking Muscat with Sohar

and then extending to the UAE. This phase is expected to take four years to construct and will begin operationsaround 2017

• The second phase of the project may connect Muscat with Salalah in the south, and involves the constructionof 600-kilometresof track





OMAN

Oman– Key Economic Drivers





QATAR



QATAR

Trends and Challenges for Logistics in Qatar

GDP and Federal Finances• GDP growth in 2012 was highreaching5.8%. Government authorities expect 2013 growth to be ~4.8%• Qatar’s economy grew in 2012 thanks to a 9.3% rise in the non-oil and gas economy over the full year, as well as elevated LNG

prices• Total budgeted fiscal expenditure was ~$49 billion for 2012.The actual expenditure for H1 2012 was ~$19.3 billion• Despite the difficult global economic scenario, financing of infrastructure projects continued. The government sovereign wealth

fund, the Qatar Investment Authority, assisted with funding whenevercredit unavailability threatened the projects’ timely progress• Facilities are also being developed with a perspective of hosting the 2022 FIFA World Cup, the country is preparing itself for an

around $60 billion construction boom• Traditionally Qatar has used loans and bonds to finance economic development projects

FDI Confidence and Competitiveness• Qatar demonstrates solid growth, with plans to spend around $80 billion on construction of buildings and around $60 billion on

energy related projects• $60 billion-plus are to be invested for the 2022 World Cup and around $18 billion to develop petrochemical and industrial projects

and schemes• Qatar is ranked 11thin the World Economic Forum’s 2012-2013 Global Competitiveness Index, up from 14thin 2011-2012

Development Outlook• Expectations for annual GDP growth are around 6% in the coming years, putting Qatar within the top Middle East economic

growth performers.The operating environment remainedpositive for infrastructure developments with projects being executed across the country. The transport sector registered a growth of 15% in 2012

• The government continues to invest in the country’s transport infrastructure and in diversifying the economy mainly through thedevelopment of natural gas resources and gas-based industries

• The inter-modal balance has gradually adjusted to reflect the country’s development while strong investments in the transport infrastructure will persist. In addition, the government will continue to favor state and private sector partnerships in the freight transport business

• Qatar is working to develop infrastructure to absorb the huge influx of visitors for the 2022 FIFA World Cup event• Nearby regional political instability has the potential to adversely impact foreign investments, development potential and waterway

access


• Qatar plans to make large investments in improved infrastructure in order to host the FIFA world cup in 2022• Along major investments in ports, airport, rail and roads, the government allocated fundsfor the tourism development which will

include new stadiums and increased hotel capacity





Overview• There are around $5billionplanned spending on a new deep sea port development• Qatar has three portswith different purposes. The new port at RasLaffan has LNG berths, liquid-product berths,

container and solid cargo berths which serve the gas industry, the Massaieed port handles the bulk of industrialgoods and oil, and the Doha deep-water port serves as a container and transshipment point

RasLaffan Port• This project provides the expansion of berths and infrastructure to handle growth in liquefied natural gas

exports, dredging, land reclamation and new breakwaters• The port needs to follow the expected expansion of the RasLaffan Industrial City, which should nearly double

in size by 2015• The beginning of the expansion phase includedthe largest dredging operation in history, where 20 million cubic

metres of sand was reclaimed and 21 kilometers of breakwater was built• The expansion included alsobuilding five new LNG berths, four small tanker berths, navy/coastguard and tug

berths, container exports berths and onshore infrastructure, including electrical power distribution• Expected overall budget: ~$3.5 to $3.8 billionUmm Said / Mesaieed Port(New Doha Port)• Located at Masaieed, south of Doha, 5-kilometreeast of Doha International Airport, this new port is intended

to replace the Doha Port downtown while supporting the local industrial development• The port development is based on different phases. The first phase of the New Doha port will accommodate 2

million TEUs. It is also designed to accommodate larger ships• The project is set to completion in 2016, phases two and three will take place after 2022, to expand the port in

line with demand for capacity• The Gabbro terminal will also be expanded and a new jetty for export of liquefied petroleum gas will be

developed• The cost of the new port is expected to be $7bn covering 26.5 square kilometres and including the construction

of a naval base and an economic zone• The existing port in Doha’s city centre is capable of handling up to 300,000 containers a year and this new port

is intended to replace Doha Port

SEA

Overview• Qatar plans to spend about ~$17.5 billion on a new airport and ~$1 billion on a crossing between the airport

and northern Doha• The aviation sector is already thinking beyond 2022. The construction of New Doha International airport is as

much about supporting Qatar Airways’ expansion plans as it is about transporting World Cup-related traffic• Passenger traffic at the current Doha airport is increasing at roughly 14% a year, driven by Qatar Airways’

rapid growthDoha International Airport• The first phase of the Doha International Airport is expected to open by mid-2013• The project’s first phase will bring capacity to 24 million passengers a year and will create 42 contact gates, 6

of which will be dedicated to the Airbus A380

AIR



QATAR

Overview• Up to~$40 billion is expected to be spent on developing the country’s rail lines per Qatar rail and Qatar

Development Bank. In case the Bahrain-Qatar Causeway is constructed, Qatar could further strengthen its regional economic and logistics position

Qatar Integrated Rail Project• The ~$35 billion nationwide rail and metro network is expected to conclude in 2026, although the sections

necessary to host the world cup in 2022 should be ready by 2020• It will have 643-kilometres, 318-kilometres of metro lines within the greater Doha area and 325-kilometres of

ground rail network• The project will contain passenger and freight railway linking RasLaffan and Mesaieed via Doha, a high speed

link between the New Doha Airport, Doha City Center and Bahrain, the Doha Metro, and a light rail peoplemover in Lusail, Education City and Westbay

• The high speed link is expected to complete in 2017 and the first of the four lines of the metro network is dueto be operational in 2019

• Initially, Qatar Railway Development Company (QRDC) was the authority in charge. In 2011, the responsibilities of QRDC were transferred to a new entity, QRail

• Following the restructuring, QRail reordered the planned construction phases of the integrated rail plan, decidingto prioritize the 300km Doha metro project

• Doha metro green, red and golden line are expected to be awarded for tunneling in 2013 as well as the Msheirebstation's and the 30km Lusail light rail network's construction

Bahrain-Qatar Causeway• The recently redesigned causeway is expected to connect the western costal region of Qatar with eastern Bahrain

(the so-called 40-kilometre ‘Friend-ship Bridge’)• It will carry four vehicle lanes and two railway tracks between the two countries• It is planned to be finished before the World Cup in 2022 with an expected budget of ~$2.9 billion

RAIL

Overview• Qatar has a paved network of 1,160-kilometres, linking Doha to major industrial, gas and oil

developments• $30 billion is to be set aside to develop and upgrade the national road network to support industry and tourismBus Rapid Transit (BRT) System• The project includes special lanes for buses parallel to the Salwa Road and the Industrial AreaLocal Roads and Drainage Program (LRDP)• Qatar’s Public Works Authority will be overseeing the development of 136 kilometer of new roads by 2014,

and upgrading others• The complete program is valued at $14.6 billion, with the construction of roads expected to complete by

2014

ROAD

• The New Doha International airport will be able to assist to a certain extent in importing cargo into Qatar• When complete, the airport is expected to handle 50 million passengers a year, along with 2 million tonnes of

cargo and 320,000 aircraft landings and take-offs




Qatar – Key Economic Drivers



QATAR




SAUDI ARABIA



SAUDI ARABIA

Trends and Challenges for Logistics in Saudi Arabia

GDP and Federal Finances• As oil production stabilizes in Saudi Arabia, the real GDP growth is expected to be 4.1% in 2013• With the global economic environment still recovering, the public sector and state credit institutions become additionally important

to finance investment activities• Private investment is being encouraged in partnership with state owned companies (PPP) or in projects contracted out by the

public sector• The government continues to monitor its economic intereststhrough substantial stakes in state owned companies which are partially

privatized by IPOs

FDI Confidence and Competitiveness• Saudi Arabia continues to reform with the goal oflanding on the top tenof the World Bank’s annual doing business rankings• Saudi Arabia is ranked 18thin the World Economic Forum’s 2012-2013 Global Competitiveness Index• Tariffs for power and water have risen but the government is unlikely tolevy additional direct taxes unless revenues from oil

underperform• The corporation tax (capped at 20%) is likely to continue to apply to non-Saudi firms

Development Outlook• 2015 logistics sector revenues are forecasted to hit around $20.6 billion• Extensive growth opportunity exists for the freight forwarding market due to the high growth in exports of ~$381 billion in 2012

and imports ofaround $137 billion and a rise in domestic uptake of major manufacturing and consumer oriented industries suchas retail, fast-moving consumer goods, engineering, chemicals, food and electronics

• The government plans to invest on multimodal logistics networks that integrate air, sea and rail, thus saving costs, increasing performance, connectivity and supporting economic development

• Saudi Arabia’s logistics sector is attractive for Logistics Service Providers (LSPs) due to the large regional economy size, which accounts for nearly two-third of the GCC’s economy

• Saudi Arabia continues to grow its infrastructure in line with growing logistical demands, increasingthe quality of service and resolving capacity issues in the current road network in Saudi Arabia along international borders with the United Arab Emirates,Yemen, and Oman, which resulted in significant delays for load carriers in the past

• Nearby regional political instability has the potential to adversely impact foreign investments, development potential and waterway access


• The 9th Development Plan for the Kingdom of Saudi Arabia signaled its intention to continue with its infrastructure investment and diversification drive. Saudi Arabia plans to invest ~$385billionuntil 2014 in social and economic infrastructure

• In 2012, the Kingdom of Saudi Arabia had awarded construction contracts worth ~$16 billion• The government has also enhanced its transportation and communication projects budget to~$17billion for 2013• In addition, Saudi Arabia has major plans to improve its rail and metro network, investing an estimated ~$45 billion and adding

7,000-kilometre of track through many major railway projects• Plans to invest more than ~$50 billion in port projects over the coming 10 to 15 yearsalso exist





Overview• In 2012 Saudi Ports handled over 185 million tons, growing 13.8% compared to 2011• This growth was driven by both imports and exports, which grew respectivelyby 18% and 10.4% vs. 2011• General cargo handling and RORO vehicle handling grew respectively by 30.5% and 36.7% while container

handling grew by 17.6% from the previous yearJeddah Islamic Port• In 2012 till March 2013, around 20 maintenance and internal projects were undertaken at JIP at a cost ofaround

$186million including the modernization of the electricity network, garages, sanitation channels, rehabilitationof roads, the construction of administrative buildings, renewal of port docks, construction of new workshopsetc.

• Expansion of the northern container station by adding three piers, back yards, and by adding gantry cranes and rubber-tired gantry (RTG) cranes, in addition to supporting equipment. The operational and handling capacity of the terminal stands now at more than 2.5 standard containers per year

• Construction of a new container station on the north western side of the port. The terminal is made up of fourpiers, and is equipped with 10 gantry cranes and 30 RTG cranes. The operational and handling capacity of theterminal stands now at more than 2 million standard containers per year with plans to upgrade the southern container terminal to increase the operational and handling capacity to more than 2.5 million standard containersper year

• JIP administration is currently conducting a study for the upgrade of JIP's operational and handling capacity, through the construction of a new container terminal in the southwestern part of the port. JIP is also studyingthe possibility of expanding the three container terminals currently available at the port

Dammam King Abdul Aziz Port• The construction of the second container terminal at King Abdul Aziz in Dammam will raise the capacity of the

port to about 4million TEUs annually. The construction started in August 2012 and is set to end in 2014• The investments in the 2nd container terminal project is estimated at$533million with a capacity of up to 2

million TEUs after the completion of construction stages• Several large projects to connect Red Sea ports with Arab Gulf ports are being executed. In addition, the planned

railway network will link Ras Al-Khair Port to other ports at the Arab Gulf (e.g. King Abdul Aziz Port in Dammam and Jubail ports)

Jubail Commercial Port• The handling capacity has reached 9 million tons and 300,000 containers• Logistics projects backed by major petrochemicals exporters is intended to make JCP the main exporting gateway

for petrochemical products (mainly polymers) in the Kingdom• In addition, the port currently supervises the Jubail fishing harbor with prospects to develop a stronger fishing

sectorRas Al-Khair Port• The Kingdom is building a three-berth port to handle dry bulk, liquid bulk and general cargoto boost the dry

bulk export capacity in the Eastern Province,worth $600million• Ras Al-Khair port handled its first vessel in February 2011. The port is suitable for tonnage up to 70,000 dead

weight tonnes and can handle a range of industrial commodities including aluminum, bauxite, construction materials and chemicals

SEA



SAUDI ARABIA

King Abdullah Economic City Sea Port• KAEC Sea Port’s capacity is expected to commence operations in2013 with a gradual expansion to around

4million TEUs by 2016.The construction will cover a 14 million square-metre seaport at a cost of $6billion• The maximum potential capacity of the port is expected to be 20m TEUs• The port is expected to become the only port in the Kingdom to be located within a free zone hence decreasing

custom clearance efforts and becoming more efficient• KAEC Sea Port has the long-term potential to provide alternative/ additional capacity to Jeddah Islamic Port

for shipments between Saudi Arabia and Europe or Asia• The construction contract is stipulated to complete in 2019

Overview• There is a need to adjust airport infrastructure to accommodate the increasing passenger demands while GACA

plans to invest up to$53billion in the air transport industry over the next five years.GACA plans to spend around $10.66bn on building new airports until 2030. GACA is planning additional new airports at Al-Qasim and Abha

King Khalid International Airport (Riyadh)• Saudi Arabia’s General Authority for Civil Aviation (GACA) has selected the joint venture of Turkey’s TAV

and the localAl-Arrab ContractingCompany for the estimated $400million contract to build the new Terminal5 building at King Khalid International airport in Riyadh

• Terminal 5 is part of GACA’s significant expansion program for King Khalid International Airport, which willincrease the airport’s annual capacity to about 24 million passengers from the current 14 million

King Abdulaziz International Airport expansion (Jeddah)• This $8billion development of a new passenger terminal will increase the handling capacity in Jeddah in three

phases, taking capacity to 30 million, 45 million and 80 million in stages 1, 2 and 3 respectively. The project isexpected to complete at the end of 2025

• About 40 percent of work on King Abdulaziz International Airport expansion project has been completed withthe new Jeddah airport is expected to be operational in 2014

• The new Jeddah airport is designed to become one of the largest hubs in the world, covering an area of 670,000square meters. It will consist of 82 domestic, international and VIP lounges in addition to 96 air bridges

Muhammad Bin Abdulaziz Airport (Medina)• GACA is expanding the Prince Mohammed bin Abdulaziz airport in Medina while adding a second runway

with a new 256,000 square metres passenger lounge and commercial areas.Also the current runway is being upgraded as is the existing passenger terminal

• The airport will have a planned capacity of 8 million passengers a year after the completion of the expansion project

• The $1.5billion contract is expected to be completed by the end of 2014 covering passenger terminal, runways,apron and taxiway, new passenger lounge (670,000 sq m), air control tower (136 meter long), commercial areasand associated facilities

Jizan Airport• The airport will be located at a distance of 30 kilometres fromJizan Economic City(JEC) and will have an

estimated value in excess of $500 million

AIR




• The airport will have the capacity to handle up to 2.4 million passengers a year. The project will involve buildinga three-storey passenger terminal, a control tower, air cargo zones and other facilities. The terminal will have 10 gates and a VIP lounge

Hail Airport• The international airport is planned to be completed by 2025 and will focus on cargo linking in with the

development of the Hail economic city which will focus on logistics

Overview• Saudi Arabia is spending ~$45 billion on its rail network adding 7,000-kilometres of track through many projects• The first of which is the Saudi Landbridge project, a 950-kilometre railway which will connect Jeddah and

Dammam. Secondly the 450-kilometre Haramain high-speed which will connect Mecca and Medina via Jeddahand finally the North South Railway which joins the northern mineral belt with Riyadh and the industrial cityof Jubail

Saudi Landbridge• East-West connection between Riyadh and Jeddah (950 km), will upgrade the existing Riyadh-Dammam line

and then be extended from Dammam to Jubail (115 km)• The Landbridge will offer freight opportunities for the transport of containers between the country's main

container ports, Jeddah and Dammam, passing though the Kingdom's capital of Riyadh. It will connect the redsea to the Arabian gulf

• The Land bridge Project is one of the largest projects in the GCC for“Build, Operate and Transfer” (BOT) work. It allows freight of cargo imported from East Asia via the port of Dammam, and from the western countries via Jeddah Islamic Port

• It is forecasted that in 2015 the number of container handled will be more than 700,000 while over 8 million tons of freight cargo will be distributed in the Kingdom and neighboring countries

• For passenger transport, it is expected that the (Riyadh-Jeddah-Makkah), and the (Jeddah-Riyadh), and the (Jeddah-Dammam) lines will serve several million passengers per year

• The railway project linking Riyadh to Jeddah will alone cost around $7billion constructed over 7 years• The project is pivotal for the petrochemicals industry of the country and for interconnection with the GCCHaramain High-Speed Railway (Mecca to Medina)• The ~$13billion and 450-kilometre rail project will connect Mecca, Medina, Jeddah, and KAEC by high-speed

passenger rail (360 km/h). This project is intended to alleviate congestion on roads between Mecca and Medinamainly during the annual Hajj period

• The project has been divided into 2 phases:- Phase 1 covered 2 packages, the first package focused on the civil work construction with an implementation

plan that would cover 36 months. Package 1 was extended until end of 2014 at a cost of around $3billion. Package 2 covers the development of the stations. Its completion is planned for 2015 at a cost of around $2.5billion. The main stations at Mecca and Medina will include concourses, 5 platforms, mosques, civil defensestations, helipads, 10 terminals, parkings, lounges shops and cafes

- Phase 2, includes the construction of the tracks, the installation of signaling and telecommunication, electrification, operational control center, buying 35 trains and the operation and maintenance over 12 years. The contract value for this phase totaled around $8billion

RAIL





North-South Railway• It is a 2,400-kilometre passenger and freight rail line originating in the capital city Riyadh, in the north-west of

the country, to Al Haditha near the border with Jordan• The line is expected to transport four million tons of commodities (phosphate from Hazm Al-Jalamid and Bauxite

from Al-Zubayrah) and two million passengers every yearGCC Rail Network• Saudi Arabia is expected to provide a critical contribution to the proposed pan-GCC Rail Network, with direct

connections to Kuwait, Qatar, and UAE• The overall project will cover around 2117km with 663km within Saudi Arabia• The Saudi-Bahrain connection is estimated to exceed $5billion covering around 90kmYanbu-Jeddah Line• This project will be pivotal for the petrochemicals industry of the countryTaifKhamisMushayt – Abha Line• The length of this line is about 706km that will link Al-Taif with the land bridge on one side and Abha and

KhamisMushayt, on the other sideJeddah and Jizan Line• This line with 660km connects Jizan region with the city of Jeddah due to the rising economic growth promoting

the importance of this line for Jizan regionThe Mecca Mass Rail Transit (MMRT)• The project will include the construction of 4 rails, 88 stations and more than 180km of track to be completed

by 2017

RAIL

Overview• Saudi Arabia continues to enhance its road network and border crossings to support economic developments

ROAD


SAUDI ARABIA





Saudi Arabia – Key Economic Drivers






UAE



UAE

Trends and Challenges for Logistics in United Arab Emirates

GDP and Federal Finances• Real GDP of the United Arab Emirates (UAE) grew by 3.4% in 2012 (est.) and is expected to grow by 3.7% in 2013 due to higheroil prices and production

• Expenditure in the approved 2013 federal budget is projected to increase by around 7% compared to 2012’s budget

FDI Confidence and Competitiveness• UAE ranked 24th in the Global Competitiveness Report 2012-2013 published by the World Economic Forum (WEF)• A.T. Kearney’s 2012 Foreign Direct Investment Confidence Index ranked the UAE 15th

Development Outlook• 51% of the budget is allocated to the “social development”, with 22% allocated to education sector• The UAE is making a concerted effort to diversify its economy away from hydrocarbons. The government is spearheading numerous infrastructure projects, including housing, schools, roads and other infrastructure

• There are many infrastructure projects in the pipeline with an emphasis on rail and air logistics given the continued growth in airtransport and the regional potential for rail

• Nearby regional political instability has the potential to adversely impact foreign investments, development potential and waterwayaccess


• The UAE allocated~$1.4 billion, or approximately 12% of its 2013 budget, to infrastructure projects• Future rail projects include a high-speed link, the purple line, which will connect Dubai International Airport and the new

Al-Maktoum Airport at Dubai World Central in the Jebel Ali area• Dubai's transport department declared that it will spend ~$1.7 billion in 2013 on transportation infrastructure projects • Dubai’s ~$1.1 billion Al Sufouh tram line will link to the metro system and is expected to be completed by 2014• An estimated 340-kilometres of two-way tram tracks will service the Central Business District and the Capital District, parts of

Khalifa City A, Yas Island and the airport in Abu Dhabi





Overview• The UAE is focused on diversifying its economy, the government’sdesire is to accommodate all ship sizes,

including additional dry bulk shipping capabilities to accommodate heavy industryKhalifa Port (Abu Dhabi)• Khalifa Port is planned to grow to a capacity of 15 million TEUs and 35 million tons of general cargo through

phased development through 2030• Phase 1 infrastructure was completed inSeptember 2012 with initial capacity of2.5 million TEUs container

traffic. The port’s infrastructure has the potential to provide 5 million TEUs of capacity• Khalifa Port has replacedthe container terminal of Mina Zayedport allowing inland port traffic to bypass the

capacity constrained downtown Abu Dhabi city areaJebel Ali Port (Dubai)• Jebel Ali faces increased trans-shipment competition from Salalah port in Oman• The current capacity at Jebel Ali port is 15 million TEUs a year while the expansion of Terminal 2 will increase

the capacity by about 1 million TEUs and is due to be completed in 2013• A joint venture of Japan’s TOA and France’s SoletancheBachy has formally signed an agreement to build

Terminal 3 at Jebel Ali port, which is expected to expand capacity at Jebel Ali by 4 million TEUs and will openin 2014. The total handling capacity will then be of 19 million TEUs

• Bids have been invited for the design and build of Terminal 4 at Dubai’s Jebel Ali port. Terminal 4 has the potential to add a further 10 million TEUs to the overall long-term port capacity

• These expansions are part of a larger program covering 15 different phases to be completed by 2030 and makeit the largest port in the world with a handling capacity of 55 million TEU

• The estimated cost of the expansion of Terminal 2 is $1.5billion, while the construction of Terminal 3 is estimated to cost $850million

• The two expansion projects are expected to create more than 1,000 jobsKhorFakkan (Sharjah)• The need to expand is becoming imminent as the levels of throughput are rising. The throughput got to 3.3

million TEU in 2012, marking an increase of 28% on 2011• An evaluation study for the port expansion is expected to be released in 2013Mina Saqr Port Expansion (Ras Al Khaimah)• The capacity of the port is expected to increaseto 3 million TEUs by 2020

SEA

Overview• Air freight is expected to continue growing steadily in the medium term indicating the potential for additional

airport expansion projects• The Middle East aviation market is one of the key success stories for logisticsdevelopment especially due to

hubs in Dubai, Doha and Abu Dhabi that enjoy both a well-positioned location and the ability to handletransittraffic while regional airlines are strongly backed by their respective local governments

Al Maktoum International / Dubai World Central International Airport• Phase 1 of the Dubai World Central Al Maktoum International Airport is completed and is fully operational.The

AIR



UAE

Overview• Rail is an important transportation method for the UAE. The country is looking to utilize rail as a cheaper,

faster alternative means of transporting freight and offering convenient transportation for residents and touristsDubai Metro and Al Sufouh Tram• Three new Metro lines — Blue, Gold and Purple — and a Jumeirah tram route are planned to be operational by

2030, covering 421km with 197 stations• The land has been procured for widening the existing network and new rail routes and infrastructure are

expected to be completed in three phases• Dubai is constructing the Al Sufouh Tram worth ~$1.1 billion with a 14.5-kilometre trackfrom Dubai Marina

to Burj Al Arab expected to be completed by the end of 2014Abu Dhabi Metro and Tram• The original masterplan for the metro involved the construction of 131 kilometres of line, supported by tram

and bus feeder services. Earlier this year, plans were revised with the size of the network reduced to ~70 km• As part of the Abu Dhabi Surface Master Plan the entire transport system will include a network of underground

metro lines, trams and high-speed rail• The system could be operational by 2017National Rail Network• An~$11 billion UAE national Rail Network is planned and isexpected to complete the construction of its first

route in 2014/15. Plans are to extend it up to 1,200-kilometreby 2018• It will stretch from Ghweifat on the Saudi border, pass by the coast of Abu Dhabi then Dubai and extend up

to Ras Al-Khaimah and Fujairah. One more line will stretch to Al-Ain and Oman. Finally, it will connect withthe GCC-wide railway network

RAIL

international airport currently has the capacity to handle 600,000 tonnes per annum and5 million passengers per annum (expandable to 7 mppa)

• Phase 2 of the airport, which includes the construction of an additional two automated and one non-automatedcargo terminals, is currently under way. This is expected to increase the total cargo capacity at Al Maktoum International Airport to 1.4 million tonnes per annum

• Once completed (2020s), the airport will be able to fit up to 120 million passengers a yearDubai International Airport• The number of passengers at the Dubai International Airport is expected to increase with the Emirates-Qantas

agreement• The airport opened concourse A at the beginning of January, the first concourse in the world to cater exclusively

to large A380 aircraft• Dubai is set to start refurbishing Terminal 1 in 2013Abu Dhabi Airport• Abu Dhabi International hit around 13.4 million passengers in 2012, an increase of 12 per cent on 2011. To

meet demand, the airport is investing in its mid-field terminal, due to be completed in 2016 and due to open in2017. It will handle up to 20 million passengers annually

• The $2.9billion contract covers the construction of a 700,000-square-metre terminal.A second parallel runwayis also planned




• The first phase is the270-kilometre Shah HabshanRuwais section• In February 2013 the financingof around $1.3 billion was secured for the 166 km first stage of its railway project,

comprising the route from Shah and Habshan to Ruwais

Overview• Numerous road projects are underway connecting airports and free trade zonesConstruction• In the medium-term, ongoing construction of road and transportation infrastructure results in a constantly

changing road network and detours that must be factored into route planning for local shipmentsNew Projects • There are plans for future road and transport projects in Dubai’s central business district, from the Sharjah

border in the north, to Port Rashid in the south and inland as far as Ras Al-Khor• Road contracts in the Northern Emirates worth an estimated total value of $118.4 million were approved,

involving construction of the new Ras Al-Khaimah ring road and the first phase of the Khorfakkan western ring road

ROAD

United Arab Emirates – Key Economic Drivers



UAE



BY LAND



GCC continues to grow

Initially driven by expanding oil and gas and petrochemicalindustries, GCC countries maintained robust growth through newinvestments, supported by strong governmental economicdevelopment agendas, low energy and chemical feedstock costs.The growth agenda continues to advance toward developingdownstream industries, which leverages the broader range ofmolecules available to enhance the manufacturing and serviceoffering in the region.

As a result, the overall GCC Gross Domestic Product (GDP) is

expected to grow at a stable five per cent per year until 2020, withpopulation increases of 50 per cent until 2040, driven mainly bySaudi Arabian and UAE populations (Fig. 1).

Until now, GCC economic growth was primarily enabled byinfrastructure investments in ports, as the majority of growth wasdriven by export of oil and petrochemicals to European and Asianmarkets. As local populations and economies continue to grow, theneed for advanced national and regional infrastructure becomesincreasingly important to support economic growth.

Road-based infrastructure played the primary role in this support,

GULF RAILCONNECTION:

GPCA (Gulf Petrochemical and Chemicals Association) and AT Kearney presenta detailed study on the benefits of linking the GCC by rail for the regional logisticsand transpor tation industr y.

Realising GCC unity

B Y L A N D


yet with aggressive development targets, rail infrastructure willbecome a critical enabler and driver of sustainable growth for theGCC.

Transportation and intra-GCC trade

Continued economic and population growth in GCC memberstates will generate the need for new and expanded land, seaand air transport infrastructure and services for both freight andpassenger transport. Meeting this demand with the presentmeans of transport will require significant ongoing investmentin; roads, ports and airports, and further expansion of railway

networks and public mass transport services in GCC memberstates.

Rail is well positioned to absorb expected demand increases bypassenger transport, while air and road segments are expected toincrease significantly over the next five years, and beyond. Cross-border intra-GCC trade has traditionally demonstrated lesserimportance for GCC economies; the trade volume oscillatesaround three per cent of the overall GCC GDP, with the outlookratio stable over time (see figure 2).

This creates various opportunities as a result of the GCC rail




connection. Firstly, at a minimum, freight volume addressed byrail will grow at the same rate of real GDP growth, leading to atleast a five per cent per annum growth rate, until 2020. Secondly,an integrated GCC railway infrastructure can become an importantcatalyst in driving increased economic cooperation between GCCcountries, fostering the economic, regional and nationaldevelopment agenda, supporting growth and strengtheningnational capacity integration within the GCC. Thirdly, rail canraise the profile of the importance of intra-GCC trade in the overallbalance.

Role of the petrochemical industry asa GCC growth engine and volumedriver

GCC petrochemicals are leading the current wave of economicgrowth in the region, aggressively diversifying from commodity

products and supporting the development of advanceddownstream industries in the region. The planned petrochemicalproduct capacity is increasing along with this agenda (see figure 3).Growth is focused on specialised products, adding capacities forproducts never before produced in the GCC, presenting localmanufacturing (downstream) companies with a competitiveadvantage.

The current estimated intra-GCC trade volume of petrochemicalproducts, pertaining to production by GPCA companies(encompassing plastics, chemicals and fertilisers), is above 2.5million metric tonnes per annum (see figure 4). The majority ofproducts are transported by truck supported by marine logistics ifrequired and these volumes are expected to grow along with localtrade, GDP and petrochemical capacity additions.

Linking GCC national networks and key economic centres in the

B Y L A N D


Gulf, will immediately position the GCC integrated rail networkstrongly to take over a significant portion of these trade volumes.

Enabling future GCC growth

The integrated GCC Railway will provide the requiredinfrastructure to enable rail to absorb increasing freight volumes,efficiently and economically. The planned GCC railway will linkKuwait City, traversing along the Gulf, to Muscat in the Sultanateof Oman, serving the Kingdom of Saudi Arabia, the Kingdom of Bahrain, the State of Qatar andthe United Arab Emirates. The total length of the GCC Railwaymain line is approximately 2,177 km, including about 180 km ofconnecting lines to key traffic generators such as ports andindustrial zones (see side bar 1: The GCC Railway at a Glance).

Railway length: Totalling approximately 2,177 km, the GCCRailway includes about 180 km of connecting lines to traffic nodegenerating centres and transport facilities such as ports, airportsand industrial cities. These are broken down into geographicalsegments including Kuwait (145 km), Saudi Arabia (695 km),Bahrain (64 km), Qatar (283 km), UAE (684 km) and Oman (306km).

Corridor alignment: From Kuwait to the Kingdom of SaudiArabia via Dammam to the Kingdom of Bahrain via a proposed

causeway, in parallel to the King Fahd Causeway to Bahrain, thecorridor connects key GCC city transport nodes. Extending toQatar via the Qatar Bahrain bridge, from Dammam to Qatar viaSalwa and on to the United Arab Emirates via Al-Bat’ha to AbuDhabi, Dubai and Al-Ain, and then on to Oman via Sohar toMuscat, the network will reach all member state key cities.

Railway characteristics: The GCC Railway will servicemixed passenger and freight operation, based mainly on single linetracks to standard gauge (1,435 mm), with double tracks in certainareas, dependent on demand, with diesel traction. Tunnels requiredin the mountainous regions of UAE and Oman will featureclearances to allow double stack containers. Air conditionedpassenger trains operating at speeds of up to 200 kph, will operatemainly during the day and are planned to run in each directionevery two hours. Freight trains (including container and bulkfreight) operating at 80-120 kph, will operate mainly at night.

Stations and facilities: Passenger stations will total sevenlarge stations each located at Kuwait City, SRO (Saudi RailwaysOrganisation) Interchange (near Dammam), Doha, Manama, AbuDhabi, Dubai and Muscat, supported by three small stations atSalwa, Fujairah and Sohar and an SRO station at Jubail. Asproposed in each of the GCC member states’ national transportmaster plans, metro and light rail links will facilitate connectionsto downtown centres.

Train control system: In line with key objectives for a safeand efficient operation, critical signal systems will determine therail network’s maximum speed and capacity. A Level 2 EuropeanTrain Control System (ETCS), with no trackside signals, willunderpin control 1. It will achieve this because it is safe and alreadyin commercial use, it facilitates a competitive bidding process andavoids a monopoly, allows conventional lines and the train density

nodes to be increased—especially in mixed traffic with fast and slowtrains and is reliable during operation.

Environmental assessment: An environmental baselineassessment describes the existing environmental conditions and thepotential construction and operation impact to GCC memberstates, prepared according to the applicable rules and regulations

Rail is well positioned to absorb expected demand increases bypassenger transport, while air and road segments are expected toincrease significantly over the next five years, and beyond. Cross-border intra-GCC trade has traditionally demonstrated lesserimportance for GCC economies




in each member state. As in any construction project, there aresome adverse environmental effects, but in general, they are notmajor. By aligning the project to the relevant mitigation measuresand environmental management plans, environmental impact willbe minimised.

Capital investment: The estimated capital investment (basedon 2009 figures) for the initial construction of the railwayinfrastructure collectively represents over US$100 billion (AED367 billion). This includes formation, track, sidings and yards,signaling and telecommunications, stations, workshops and otherbuildings. This is based on using diesel trains and train speeds ofup to 200 km/hr for passenger transport, as well as the constructionof the proposed causeway between Saudi Arabia and the Kingdomof Bahrain.

Allocations of project’s costs: The proposed cost of therailway is expected to be distributed among GCC member statesbased on the planned route length in each member state. The costof procurement of the rolling stock, and hence the operation andmaintenance, is expected to be borne by the private sector.Another approach for consideration is the allocation of costs inrelation to the expected benefits of each GCC member state, anapproach that requires further study and analysis during thedetailed engineering design and onward phases of project’simplementation.

Project implementation: GCC governments are expectedto pay the capital investment cost for the construction of the GCCRailway.

Benchmarking: The GCC railway compares with the use ofbest practices relevant to regional and international railwaystandards. This includes axel loads, signalling, communicationsystems and transport technologies, ensuring efficient and effectiveintegration of the GCC railway within the GCC NationalRailways. This is key to achieving maximum compatibility andutilisation between GCC member states. It is expected the GCCRailway will set a number of new standards for the railwayindustry.

Railway feasibility: GCC Railway is economically andfinancially feasible and on the condition that Governments of theGCC member states pay the capital cost for the construction of the

infrastructure, which is common practice for capital intensivetransport projects aiming to provide public transport services.

Benefits of rail

Tracking safety, efficiency and environmental benefits: Providinga safe, efficient and sustainable transport alternative is at the coreof the GCC railway’s mission. It will change the face of transportand logistics, benefiting the entire region.

An alternative, safe import and export trade route: Railways arewidely recognised for decreasing the volume of road traffic, whichprotects infrastructures impacted by excessive use of roads withoverweight loads and contributes to minimising road relatedaccidents.* (Piracy & Hormuz Strait closure threats should beaddressed in a more strategically focused way).

An environmentally friendly transport alternative: The integratedGCC railway is also expected to positively impact the environmentwith its Reinforce Responsible Care and Sustainability conceptsthrough less CO2 emissions and rationalised usages of fuel. Putsimply, diverting traffic from roads to a more environmentallyfriendly mode of transport lowers air emissions, particularlygreenhouse gases. This will also enable higher energy efficiency(easy and fast access) and reduce noise pollution levels (resultingfrom road traffic).

Decreasing congestion at border gates: The addition of on-boardinspectors, supported by pre-clearance immigration proceduresbased at the point of journey origin will make railway transportmore efficient and competitive; decreasing current delaysexperienced at borders for both freight and passengers.

Less dependency on foreign labourers: The usage of rail willsubstantially rationalise the need for foreign drivers and theassociated challenges that result from heavy dependence on themespecially during abnormal situations.

Driving economic development for GCC member states: Theintegrated railway is a powerful symbol of unity, to which all GCCmembers are committed. Apart from creating a transportationbackbone connecting and integrating major urban centres, therailway will add diversified transport infrastructure development

B Y L A N D


and service provisions across the region. Collectively this improvescompetitiveness and the investment environment, which in turnsupports the development of export trading. On a regional level,this is critical to reaching key target GCC economic developmentgoals of sustaining growth at national and regional levels, andsupporting GCC national industries in neighboring economies.*An overweight load is a load that exceeds the standard or ordinarylegal size or weight limits for a specified portion of road, highwayor other transport infrastructure.

Linking GCC member states and national railways through anintegrated and efficient transport network, strengthensinstitutional capacity, generates employment for GCC nationalsand promotes the growth of specialised skills required for thedevelopment of sustainable railways. In addition, this willenhance regional trade.

Looking forward, the railway plans to integrate and connectbeyond the GCC, region linking into other countries in the MiddleEast. Following a detailed feasibility study, this includes specificplans for connecting to the Yemeni border. Other plannedconnections include reaching Jordan via the North-South Railwayin the Kingdom of Saudi Arabia and Iraq via State of Kuwait (see

figure 5). Syria and Turkey are also target destinations representingan important step toward a European connection.

In the long term, this will include exploring the possibility ofextending a link via Central Asia and China, as well as otherdynamic Asian economies. Similarly, linking with Turkey’s railthrough Jordan will give GCC member states access to theEuropean rail grid. The goal is to become an important strand ofa reconstituted ‘Silk Road’ to position GCC member states and thewider MENA region as significant players on the transportationand logistics world map.

To capture opportunities available from the GCC integratedrailway, demand drivers and key success factors need to beprioritised to maximise the benefits to the community and theeconomy.

This includes safety measures for people on passengers, assessmentof passenger demand to improve mobility and productivity, andoptimisation of the environmental footprint of construction andoperations. Growth in commercial and business activities as wellas economic development and diversification depends on severalother enablers. For example layout and coverage of the rail




B Y L A N D





network, intermodal connectivity with hubs to stimulate regionsand industries, design capacity of railway tracks and rolling stock,investment attraction and promotion as well as rail industryestablishment and services support.

An alternative, safe import andexport trade route

With repeated threats of closure of the Strait of Hormuz, the GCC

Rail connection will provide member states with alternative exportand import options. Rail will enable connections from and to portssouth of the Strait of Hormuz, as well as other ports on the ArabianSea. The Land Bridge in Saudi Arabia will give member statesaccess to the Red Sea ports of Jeddah, Yanbu and Rabegh.

Equally important from a strategic point of view is the fact that railwill provide an important alternative to sea trading routes,currently under threat by piracy. Piracy impacts supply chains ofthe Arabian Gulf through additional cost, risks and deceased

B Y L A N D


customer confidence. Apart from the obvious negative impact onany one vessel, there is also an economic domino effect throughoutthe entire vertical value chain within the maritime sector. With onlylimited possibilities to bypass the dangerous waters zone, piracy iscurrently a direct threat to any industry using the Arabian Gulf asa transport route for imports and exports. Providing an alternative,safe transport route, interconnected with export points throughoutthe South of the Arabian Gulf, the Arabian Sea and the Red Sea,is a potent weapon against potential future instability at strategicsupply chain maritime transport routes, affected by the threat ofpiracy.

GCC rail progress full steam ahead

Each of the GCC Governments has launched various rail projects,currently worth over US$100 billion. Saudi Arabia and the UAEhave taken the furthest strides to date.

Saudi Arabia: Well under way is the North-South Railway(NSR) project in Saudi Arabia, the world’s largest railway

construction and the longest route to adopt the European traincontrol system (ETCS) to date. Trial operation began on the 2,400km passenger and freight line, which runs from Riyadh to AlHaditha near the border with Jordan, in May 2011. Today the linetransports phosphates from Jalamid to Ras-Al-Khair.

The East West Land Bridge Project will be interoperable with theNorth-South railway linking the Kingdom coast to coast; facilitatingoil, agricultural and industrial product transportation. This willpresent a coast-to-coast journey time of around 18 hours, comparedto a five to seven day journey by sea. Although the main traffic isexpected to be freight, the line will also provide passenger trainservices cutting the current Riyadh - Jeddah journey time almost

by half. When completed, it will represent a quantum leap in theKingdom’s transport sector and usher in a new era of highspeedtrains for passenger transport (see figure 6).

UAE: The UAE rail network will link all of the country’s majorpopulation hubs and connect to Saudi Arabia via Ghweifat in thewest and Oman via Al Ain in the east. The railway network willbe built in phases linking principal population centres to industryhubs in the UAE and will form a vital part of the plannedintegrated GCC Railway. The network will extend up to 1,200 kmand will initially operate on diesel, but will be designed andconstructed to accommodate electrification in the future (see figure7). It will accommodate passenger and heavy freight such as rocks,aluminum, cement, iron, steel and will cater for all other tradecommodities, as well as hydrocarbons.

Rail challenges and Greenfield railprojects

Building an integrated GCC rail network clearly offers many

benefits, but it will also present many challenges. To leveragemaximum benefit, and create sustainable value for regionalindustry stakeholders, these need to be taken into considerationwithin the implementation programme.

Geographic characteristics andtechnical standards

Challenging geographic conditions and geographic sizes of nationsand distances: Building rail infrastructure over long distances indesert terrain demands consideration of very specific climaticconditions. These include shifting sand dunes and volatile ground

The UAE rail network will link all of the country’s major population hubsand connect to Saudi Arabia via Ghweifat in the west and Oman via Al Ainin the east. The railway network will be built in phases linking principalpopulation centres to industry hubs in the UAE and will form a vital partof the planned integrated GCC Railway.



B Y L A N D

surfaces. Many of the GCC countries, with the exception of SaudiArabia and Oman, are small in terms of geographic size. Due to itsnature, rail will create the highest value for all parties when allGCC countries as well as neighboring countries, are connected.

Compatible technical standards: Linking individual railways acrosscountries to form a coherent GCC network will require closecollaboration and continuous alignment by various stakeholders.In order to overcome this challenge, common specifications andstandards should be agreed to in advance. This includes projectscheduling; line, network and stations layout, access andconnections design, rolling stock selection and, signaling systemand type, number and frequency of trains, as well as environmentalimpact. The European Union is still struggling to overcome thechallenges faced by independently developed national rail

standards across Europe. For example, most of Europe is using thestandard gauge. However, Spain and former member states of theSoviet Union have widespread gauge tracks. In addition,electrification systems of lines vary from country to country(adding another barrier to true interoperability) demonstratingmultiple incompatible signaling systems.

Commercial aspects, funding andbusiness case

Lessons learned from implementing greenfield rail networksglobally show that commercial common sense needs to prevail inearly stages of any rail project to ensure successful projectcompletion. This extends to engineering and “political excitement”.Common reasons for project failure include:

l Scope creep due to overemphasis of technical and engineeringrequirements and de-emphasis of business model requirements andimpact

l Overestimated passenger ridership forecasts without consideringmode competition and overall passenger travel experiencerequirements (for example seamless interconnectivity of overall‘door-to-door’ experience)l Pure academic freight forecasts without fully consideringshippers’ decision levers and mode competitionl Unrealistically short financial planning horizons and disparitybetween expansive service offerings and viable low fares

Rail implementation requires significant investment ininfrastructure equipment and material as well as on-goingoperations and maintenance. In order to ensure long-term valuegeneration the business model for the rail project should includedemand analyses (captured and induced), scenarios for intendedoperating and management models as well as an economic model

to assess the overall economic impact. A financing plan (includingsources and schedule) is as critical as project funding and financingin meeting on time delivery of large-scale infrastructure investments.

Rail management and operatingmodel, legal requirements andcommunication

In addition to technical and commercial aspects, success or failurerelies heavily on rail management, the operating model and theimpact on regional economic development and diversification. The chosen management and operating modelwill impact all major stages of the rail value chain includinginfrastructure ownership and maintenance, rolling stock ownership,and operations and sales. Along this rail value chain, global bestmanagement practices and operating models vary from fullyintegrated to highly fragmented examples. For example, UnitedStates’ freight railroads are fully integrated along the complete

Lessons learned from implementing greenfield rail networks globally showthat commercial common sense needs to prevail in early stages of any railproject to ensure successful project completion.Rail implementation requires significant investment in infrastructureequipment and material as well as on-going operations and maintenance.





B Y L A N D


value chain and are privately owned. Examples of privatecompanies include Union Pacific, Burlington Northern Sante FeRailway and Canadian National Railway. The UK rail industryhas a public owned rail network (infrastructure ownership) withprivate operators for the rest of the value chain. France andGermany focus entirely on public ownership and operations alongthe entire rail value chain.

New high-speed rail systems in Spain and Portugal as well as inBelgium and the Netherlands are partly based on public privatepartnerships (PPP) with public and private infrastructureownership and maintenance, as well as concessions for operationsincluding leasing of rolling stock. All options have specificadvantages and disadvantages that need to be considered andcarefully evaluated in defining the best overall management andoperating model for the GCC Railway. Furthermore, legal aspectsincluding land restrictions, utilisation protection and acquisitions,bid design and launch, as well as management model relatedcontracts, need to be considered when implementing new raildevelopments. All these activities should be supported by aneffective communication and stakeholder engagement plan to buildthe required image and brand for long-term success.

Competition with other transportation modes and reflection ofshippers’ needs

Successful rail developments should consider positioning versusother transportation modes and shippers’ needs. Usually, railcompetes with road and marine transportation on multipledimensions. These include:l Differential line haul costs which can be relatively fixed and lowfor rail for long haul transportation and largely versatile and highfor road transportationl Road transfer at either or both ends leading to additionalhandling and haulage costs. In addition, favourable fuel and labourcosts for truck drivers can increase the competitiveness of truckversus rail for short haul transportationl There is usually only limited backhaul cargo for bulk transports.However, container based intermodal transportation usually offersbackhaul opportunities, even if it only constitutes empty containerrepositioning. Availability of backhaul cargo depends on overalltrade flows and segment specificsl Railcar wagon versus truck loading availability, weightrestrictions and loading times: The conversion of one railcar wagon

load to truck loads varies and depends on cargo and correspondingpackaging types and requirements. Additionally, due to the typicalhigh volume of cargo, rail transport might require relatively higherloading and unloading timesl Subsidised diesel and gasoline prices in some member states iscreating a competitive challenge for rail to compete with trucks forfreight and to compete with cars and buses for passengers

Rail projections must reflect shippers’ needs and offer priceattractiveness. This means the sizing of the “rail eligible” marketshould be based on potential markets given distances, types ofcommodities and shipments sizes. Not all cargo flows can beconsidered for rail. In addition, cost of alternatives need to beassessed on competitive service levels for the shippers, for examplecost of haulage by road, rail or ship should be compared to therequired transit time and delivery reliability on a door-to-doorbasis. Potential future changes, such as growing or changing tradeand cargo flows, additional infrastructure developments or otheroutlooks impacting shippers’ competitiveness, should also beconsidered when developing and quantifying realistic pricevolumes scenarios.

Untapped opportunities for GCCpetrochemical companies

There are additional opportunities, yet to be tapped, beyond theexpected benefits surrounding freight rail discussed so far. Theseinclude multiple benefits for passenger networks, for exampleincreased mobility and reduced costs for passengers. While railoffers higher speed together with increased reliability, based onstatistics on accidents and casualties, it is also widely considered upto nine times safer than road.

Specifically for freight transportation, rail can become thetransportation mode of choice due to its flexibility in terms of typesof goods. Rail is capable of carrying almost any packaging type,including break bulk, solid dry bulk, liquid bulk as well ascontainers and even over-sized cargo. Specifically for long haultransportation rail can open access to markets and materials acrossthe Middle East and beyond, at competitive costs. Depending onthe load and distance, rail based cargo transportation can beconsiderably more cost effective than road transportation asaverage freight trains can carry up to 1,000 tonnes of cargoreplacing around 50 truck movements.




B Y L A N D


General freight companies as well as petrochemicals companies canbenefit from using rail transportation when integrating rail intotheir existing supply chains. As already experienced in Europe orthe USA, using rail transportation can add value to shippers bysupporting existing transportation networks and creating newintermodal transportation opportunities. The benefits includeincreased choice and delivery flexibility, broader competition in thetransport sector, and optimisation of head haul and back haul bypartnering with additional players. Rail also positively impacts theability of petrochemical companies to manage their supply chainmore effectively. This means meeting customer requirements andbecoming more competitive - using rail can increase supply chainreliability, reduce supply chain volatility and risk, as well as shortenlead and delivery times. Rail transport is also reasonably resilientto disruptions due to changes in seasons or climatic conditions.

In addition, rail can support the growing sustainability efforts ofGulf petrochemical companies. Rail compares positively to truck

transportation in all categories concerned with minimising theenvironmental footprint of surface freight transportation-fuelefficiency, greenhouse gas emissions, accident and casualty rates aswell as potential spills of hazardous material. Rail transportation ismore fuel-efficient than road transportation. On an average, trucksuse more than double the energy per ton km than trains - the higherthe volume (mass) and the longer the distance, the bigger thedifference (due to the high-energy consumption of the locomotiveduring the acceleration phase).

Rail transportation with diesel engines leads to about half thegreenhouse gas emissions compared to road transportation withtrucks. Statistically, rail transportation is significantly safer thanroad transportation. Rail cargo accidents are second only to marinetransportation in terms of the ratio of fatalities to injuries peraccident. About half of the accidents associated with trains are

caused by rail crossings. Furthermore, rail transportation is saferthan road transportation in terms of potential spills of hazardousmaterials. In the United States reports of spills and hazardousmaterials are tracked in a standardised way. The number offatalities and total damage compared to the modal split aresignificantly higher for road transportation than for railtransportation.

Given the future economic development of the GCC petrochemicalsector, additional benefits can be gained from rail when consideringthe possibility of container transport. The GCC petrochemicalsector has already taken significant steps towards movingdownstream, expanding manufacturing capabilities of commoditymaterials. Expanding these local manufacturing capacities to meetboth local and international demand (for example for automotivecomponents, paints and coatings as well as healthcare products)will lead to a demand for more volumes to be transported withsmaller lot sizes and different packaging types (for example liquid

ISO containers). These additional volumes can also be transportedvia rail.

From a strategic perspective, a fully connected GCC rail networkcould become invaluable to GCC petrochemicals companies in thelong term; it could enable unrestricted access to alternative portsfor global marine exports outside the Arabian Gulf. Gulfpetrochemicals companies can position themselves strongly todayto capture the future value of these untapped opportunitiesbenefiting their customers, industry stakeholders, and the broadercommunity at large.

Getting ready to capture the futurevalue of the GCC railway

In light of the GCC rail network development, GCC

From a strategic perspective, a fully connected GCC rail network could becomeinvaluable to GCC petrochemicals companies in the long term; it could enableunrestricted access to alternative ports for global marine exports outside theArabian Gulf. Gulf petrochemicals companies can position themselvesstrongly today to capture the future value of these untapped opportunities




petrochemicals companies should determine the best overalltransportation, logistics and supply chain concept, taking intoaccount existing operations and new opportunities.Developing rail strategies requires a multi-phased approach.This includes significant effort and time to determine railrequirements as well as driving corresponding design andimplementation of required changes to integrate rail intoexisting supply chain operations.

Shippers activating greenfield rail operations or connecting toexisting rail networks usually plan the following phases indeveloping rail strategies, assessing the general feasibility ofrail and determining specific rail requirements.

Understand existing and forecastedfuture cargo flows

The first step for any petrochemicals company considering rail as afuture mode of transportation is to analyse the status quo includingrelevant business units, production plants and productrequirements. This includes understanding the relevant rail masterplan for the overall GCC, as well as planned connections to its localproduction facilities such as planned developments and schedules,status of railway projects, proposed rail connections and sidings, aswell as connections to inland hubs and seaports for marine exports.

An understanding of target markets, customer demands,destinations and requirements, as well as existing supply chainnetworks, current logistics operations and transportation modes,are just as important to determine current flows and simulate futurevolume flows. In addition, potential new business opportunities (forexample potential new markets that could be reached by rail in thefuture) should also be considered.

Petrochemicals companies should also verify their estimates offuture developments (such as cargo flows) based on sensitivityanalyses. Potential drivers and metrics include GDP forecasts,demand and trade projections, and plans to develop new industries(for example downstream manufacturing).

The intelligence gathered based on these analyses is critical todeveloping a sound understanding of approximate future freightflows (by business unit, products, packaging types anddestinations).

Assess operational cost anddetermine modal split

Knowing the operational costs of the current supply chain, as wellas estimates for the potential future supply chain including rail, iscrucial to derive the ideal modal split by product and route and todetermine potential financial support requirements to activate newrail infrastructure and operations. The assessment of cost structureand operational mode characteristics should include key costpositions (for example handling, shunting, labour, depreciation ofrolling stock, inspection and maintenance, fuel and energy costs,potential rail network access fees and rail track utilisation fees). Itshould also include operational assumptions (for example loadingtimes and cycles, transportation times, maintenance frequency).Furthermore, the role of multiple stakeholders such as investors,operators and maintenance service providers also needs to beconsidered. In order to determine the best future transportationmodel mix, such as how much road, rail and sea transportation tobe used, shippers need to evaluate different transportation concepts(for example feeder, hub, ring road) as well as traffic types (forexample wagon load freight, block train, combined traffic).Different combinations and scenarios of these concepts should beassessed in terms of operational feasibility, overall economics,safety, and emissions.

Define infrastructure and investmentrequirements

To integrate rail as a new transportation mode into existing supplychain operations, petrochemical companies need to recognise theinfrastructure and investment requirements for rail integration atproduction plants, loading facilities, rolling stock, inland hubs, andcustomer unloading stations. This requires reviewing currentlogistics and product handling infrastructure (for exampledetermining product handling requirements including; safety,operations, quality, costs, legal and customs requirements, andidentifying available space for rail sidings and loading facilities).

Based on the understanding of current facilities and available space,requirements for new infrastructure (for logistics and producthandling, road capacities, railway sidings and port connections) canbe identified. The operational feasibility of the new integratedtransportation concept, such as addressing how road and railcrossings will be used in parallel to nearby rail shunting facilities,

B Y L A N D




78

B Y L A N D




needs to be assessed. In addition, rolling stock requirements (forexample number and size of locomotives, railcars, and wagons)need to be determined. Based on these requirements, the necessaryinvestments for typical rail infrastructure can be estimated.

Petrochemicals companies are advised to share their service andoperation requirements with national and GCC rail authorities asearly as possible to ensure operational feasibility and alignment tothe rail network across the GCC. Petrochemicals companies andrail authorities will need to work hand in hand.

Developing a business case andprioritising rail integration projects

Based on the investment requirements, business case assessmentsincluding net present value calculations can be developed toprioritise key rail integration projects. When recommending viable

implementation options, short- and long-term perspectives shouldbe considered to evaluate the expected feasibility and valuegeneration potential. Rail implementation projects are usuallyphased over time.

Conduct EPC and ramp-up newoperations

In order to implement prioritised rail projects, infrastructure andoperational upgrades at chemical production plants need to bedesigned and executed.

This includes the development of detailed duty specifications aswell as the management of FEED and EPC phases to ensure thesuccessful integration of rail into existing supply chains. After

mechanical completion and commissioning, the new infrastructureshould be activated and ramped-up, based on a phased approach.During operations, intermodal logistics facilities and operations canbe improved and optimised on a continuous basis to maximiseoverall supply chain performance and customer satisfaction.

The benefits and opportunities from integrated railway networksare manifold and extensive. Community contributions extend tosafety, by contributing to reducing the number of road accidents,reduced air and noise pollution and improved quality of life.

Rail brings with it direct and indirect benefits to GCC economiesthrough increased investments in rail infrastructure and newindustries, facilitating domestic and international trade andreducing the cost of business operation. Furthermore, it enableseconomic development and diversification along and beyond therail value chain while promoting the build-up of local specialisedtalent, creating more jobs for the region. Rail will connect the GCC

region and when it is completed will position the GCC favorablyfor the development of a strategic long-term railway hub betweenEurope and Asia. Once fully operational it will be one of the bestmitigations against any abnormality due to piracy or closure of theStrait of Hormuz. GPCA members are in the unique position toleverage the benefits of these developments as they controlsignificant volumes traded between the countries and are alreadyevaluating the feasibility of the GCC Railway for selected freightmovements.

The potential benefits are mutually attractive to both chemicalproducers and rail operators, as GPCA companies can provide thecritical mass required to initiate successful rail operations.

Produced jointly by The Gulf Petrochemicals and ChemicalsAssociation (GPCA) and A.T. Kearney.

The benefits and opportunities from integrated railway networks aremanifold and extensive. Community contributions extend to safety, bycontributing to reducing the number of road accidents, reduced air andnoise pollution and improved quality of life. Rail brings with it direct andindirect benefits to GCC economies

B Y L A N D


BY AIR



An overview

Air cargo traffic contracted slightly in2011 and 2012

After rebounding sharply in 2010 from the depressed levels of2009, demand for air cargo transport began to weaken in early2011, sliding into contraction by May of that year. The slidecontinued into the first eight months of 2012, with year-to-datetraffic down two per cent. Despite the near-term slowdown, worldair cargo traffic will more than double over the next 20 years,compared to 2011 levels, with an average 5.2 per cent annualgrowth rate. The number of airplanes in the freighter fleet willincrease by more than 80 per cent over the next two decades.

In 2011, world air cargo traffic declined about one per cent, afterexpanding 18.5 per cent in 2010. This exaggerated expansion

reflects a normal recovery from the precipitous drop in cargo trafficduring 2008 and 2009, when traffic fell 3.2 per cent and 9.6 percent, respectively — the first time that air cargo traffic contracted intwo consecutive years. World air cargo traffic has expanded only3.7 per cent per year on average since 2001. Of greater concern,traffic has grown only 2.0 per cent per year since 2004 — muchslower than the 6.7 per cent historical growth trend maintainedfor the 23 years between 1981 and 2004. The slowing of worldair cargo traffic since 2004 can largely be attributed to theglobal economic downturn of 2008 – 2009 and the rising priceof fuel.

The global economic downturn of 2008 and 2009, the worsteconomic contraction since the Great Depression, dragged downall modes of transport. Statistics for world seaports show thatcontainer handling fell 9.7 per cent in 2009, promptingcontainership lines to cut services, reduce frequencies, and idle

WORLD AIRCARGO

Forecast 2012-2013The Boeing Company issues the biennial World Air CargoForecast (WACF) to provide a comprehensive, up-to-dateover view of the air cargo industr y. The forecastsummarises the world's major air trade markets, identifiesmajor trends, and presents forecasts for the futureperformance and development of markets, as well as forthe world freighter airplane fleet. Here we re-produce apar t of the summary relevant to the region.

B Y A I R


ships on a global scale for the first time on record. Air cargo trafficfell 12.5 per cent between mid-2008 and year-end 2009, the worstdecline since the beginning of the jet transport age. By mid-2009,however, worldwide industrial production began to perk up,nudging air cargo traffic toward recovery. Air cargo surged in 2010as world industry moved to restock depleted inventories.

Growth continued during the first quarter of 2011, expanding anestimated 4.5 per cent compared to first quarter 2010, after peakingat a level not seen since 2007. But starting in June 2010, jet fuelprices were on the rise, climbing 42 per cent by December 2011.This contributed significantly to an air cargo traffic slowdown that

was aggravated by the civil unrest of the Arab Spring uprisings,the Japan (“Tohoku”) earthquake, and flooding in Thailand. Thelatter two exogenous shocks disrupted manufacture of automobilecomponents and information technology (IT) goods, both of whichare key commodity groups for air cargo.

Rising fuel prices have been a factor in air cargo traffic slowdownssince late 2004, diverting air cargo to road transport and maritimemodes, which are less sensitive to fuel costs. The price of jet fuelhas tripled over the past eight years, and prices are likely to remainvolatile as the threat of supply disruptions persists. In the near term,high unemployment in developed economies, tight fiscal policy in




Europe and the United States, and overall restrained consumerspending will also dampen air cargo growth.

On a positive note, however, oil and jet fuel prices are forecast toremain around mid-2012 levels or, in some scenarios, even declineover the next three to five years. Economic activity, as measuredby world GDP, remains the primary driver of air cargo trafficgrowth. World economic growth averaging 3.2 per cent over thenext 20 years, coupled with the forecasted stable fuel prices, willhelp air cargo traffic grow.

Yield trends

Freight yields have declined at an average rate of 4.2 per cent peryear over the past 20 years. Continuing profit challenges atpassenger airlines have focused airline attention on opportunitiesto earn lower-hold cargo revenue. On average, cargo revenuerepresents approximately 15 per cent of total air transport revenue,with some airlines earning nearly 40 per cent of their revenue fromcargo. Declines in yield for cargo and passenger services reflectproductivity gains, technical improvements, and intensecompetition. While declining yield creates pricing pressure on allindustry segments, it also helps stimulate growth for the industryby enabling lower shipping costs for the consumer.

Averaged over the past two decades, freight yield has declined 4.2per cent per year. The most recent decade saw a slight yieldincrease of 0.9 per cent per year, compared to the 9 per centaverage annual decline recorded in the preceding decade.

Freight yield diverged from the 20-year downward trend between2002 and 2008, increasing approximately 4.1 per cent per yearduring that six-year period. Much of the increase is due to fuel andsecurity surcharges that began to rise in 2003. In 2008, significant

fuel surcharges imposed in response to the fuel crisis helped pushyields up 15.4 per cent compared to 2007. Although the globaleconomic downturn drove freight yields down 22.1 per cent in2009, yields rose steeply by 11.9 per cent when cargo trafficrebounded in 2010. In 2011, total cargo capacity increased whiledemand stayed nearly flat, holding yield growth to slightly morethan one per cent.

The higher cost of shipping by air held world air cargo trafficgrowth to only 3.7 per cent averaged over the past 10 years — wellbelow the historical trend. Industry-wide freight yields are expectedto return to the historical downward trend as more efficientairplanes enter the market, helping to stimulate market growth.

World air cargo traffic growth detail

International air freight will driveoverall world air cargo growth through2031.

Over the next 20 years, world air cargo traffic will grow 5.2 percent per year. Air freight, including express traffic, will average 5.3per cent annual growth, measured in revenue tonne kilometres(RTKs). Air mail traffic will grow much more slowly, averagingonly 0.9 per cent annual growth through 2031. Overall, world aircargo traffic will increase from 202.4 billion RTKs in 2011 (downfrom its 2010 record of 204.2 billion RTKs) to more than 558.3billion RTKs in 2031.

Asia will continue to lead the world air cargo industry in averageannual growth rates, with domestic China and intra-Asia marketsexpanding eight per cent and 6.9 per cent per year, respectively.

Latin America markets with North America and with Europe will

On a positive note, however, oil and jet fuel prices are forecast toremain around mid-2012 levels or, in some scenarios, even declineover the next three to five years. Economic activity, as measured byworld GDP, remains the primary driver of air cargo traffic growth

B Y A I R


grow at approximately the world average growth rate, as willMiddle East markets with Europe. The more mature NorthAmerica and Europe markets reflect slower and thus lower-than-average traffic growth rates.

Freighter fleet

The number of airplanes in the worldwide freighter fleet willincrease by more than 80 per cent during the next 20 years, asdemand for air cargo services more than doubles.

Freighter airplanes are crucial to the overall health of the air cargoindustry. Dedicated freighters provide reliable capacity to shippersof general cargo, mail and express packages, and cargo that cannotbe accommodated in passenger airplane lower holds. Since 2001,freighter airplanes have carried on average just over 60 per cent ofthe world’s total air cargo traffic each year.

The role of large freighters will increase as the large freighter shareof the fleet rises to 36 per cent by 2031, compared to 31 per centtoday and 22 per cent a decade ago. The significant efficiency andcapability advantages of large freighters will enable carriers tomanage projected traffic growth without increasing the number ofairplanes proportionately.

About two-thirds of fleet additions for airplane replacement andfleet growth will come from modified passenger and combiairplanes. Yet, production freighters will continue to play animportant role because their superior reliability, operating cost, andcapability can outweigh the significant on-ramp acquisition costadvantages enjoyed by conversions.

About 1,300 of the 2,754 projected freighter deliveries will replaceretiring airplanes, with the remainder expanding the fleet to meetthe requirements of projected traffic growth. Two-thirds ofdeliveries will be freighter conversions, 60 per cent of which willbe from standard-body passenger airplanes. Of the projected 935new production airplane deliveries (valued at $250 billion 2011US dollars), about three-fourths will be in the large freightercategory.

Continuing a trend of many years in the Asia Pacific region, all-cargo and combination carriers will take the greatest number oflarge freighters, which are uniquely suited to long-haul,intercontinental markets.

Express carrier networks will take the majority of mediumwidebody freighters, ideally sized to support high-yield, time-criticaloperations. Standard-body freighters will serve emerging regionaland niche markets, as well as express markets.




Despite near-term challenges, theworld economy will return to its long-term historic growth trend

World economic activity, as measured by gross domestic product(GDP), is forecast to grow an average 3.2 per cent per year through2031. GDP growth is a major driver of international trade and aircargo traffic. The current deceleration in world trade dating backto 2011 is expected to end sometime this year as the pace of globalgrowth strengthens. GDP growth is forecast to expand at a rate ofnearly four per cent by 2018, before reverting to a rate closer tothe long-term trend for the remainder of the forecast period.

After a strong rebound in 2010, global economic activity began toslow in 2011, due in part to rising oil prices and the disruptiveeffects of the Arab Spring uprisings and the Japan (“Tohoku”)earthquake. Global economic growth continued to cool in 2012.High debt levels and sluggish growth resulting from decreasedconsumer confidence and austerity measures have temperedgrowth in some of Europe’s economies. Some European nationshave already slipped into recession. High unemployment andrestrained business investment curbed growth in North America.China, along with other rapidly expanding emerging marketnations like India and Brazil, showed some signs of slower growthas 2012 progressed.

Prospects are encouraging for strengthened economies over thecourse of this year and 2014. Measured steps by Europeanpolicymakers will encourage business investment and consumerconfidence, spurring the region’s slowly recovering economy toregain modest growth by 2014. The US economy remains on amodest growth track, with continuing improvement in housingindicators and consumer spending. China’s government willcontinue to invest in infrastructure to stimulate their economy.Overall global economic expansion is expected to accelerate, fuelledby deferred demand and renewed industrial investment. Worldindustrial production, a component of world GDP, is a measure ofchange in manufacturing, mining, and utilities output. It is a keymeasure of economic performance and a significant indicator oflong-term air cargo trends. Industrial activity tends to correlate wellwith air cargo growth because freighter aircraft are often used tomove in-progress manufacturing items between productionfacilities. The strong decline in industrial production in 2009 andits subsequent rebound in 2010 helps to explain the severity of the

corresponding downturn and the vigour of the resurgence in worldair cargo traffic. Global manufacturing slowed over the course of2011 and remained muted in 2012. Growth is expected tomoderately strengthen in 2013, then expand further in 2014 to arate of more than four per cent, which will be sustained through2017, supporting the positive outlook for continued long-termworld air cargo traffic growth.

World air cargo components

The US share of air cargo RTKs fell below 25 per cent of the worldtotal for the first time in history.World air cargo comprises freight (scheduled, charter, and express)and mail, with scheduled freight and express being the largestcomponents. For most of the past four decades, world air cargotraffic carried by non-US airlines has grown faster than trafficcarried by US-domiciled carriers, reflecting both faster internationalair trade growth and slower US domestic growth. Scheduled aircargo traffic accounts for 90 per cent to 93 per cent of all world aircargo. Most shippers try to use regularly scheduled cargo capacityto meet their transport requirements. The remaining seven to 10per cent of world air freight transport is provided either by chartersor through ad hoc requests for cargo capacity, usually to meeturgent or special needs. Generally, charter freight share rises duringtimes of strong world air cargo growth and, conversely, falls duringtimes of slow or negative traffic growth. But contrary to this generaltrend, world charter air freight remained nearly flat in 2011 whileworld scheduled air freight declined 1.1 per cent.

World air cargo and maritime traffic

Containership traffic had a strong recovery, but is struggling withfinancial losses in the current economic environment.

Air cargo is only one part of the global goods distribution network.Shippers demand that shipments arrive at their destination on time,undamaged, and at a reasonable price, regardless of transportationmode. Different transport modes — road, rail, maritime, and air —can often move the same commodities. But shippers usually haveonly two choices for intercontinental freight: air and maritime.Maritime transport offers the primary benefit of low cost; airtransport offers the benefits of speed and reliability.




Comparison of maritime and air cargotransport in tonnes

The maritime transportation industry is much larger than the aircargo industry, measured in tonnes of goods transported. In 2011,the world maritime industry carried an estimated total of 8.8 billiontonnes compared to 43 million tonnes for the air cargo industry.However, this maritime traffic includes the movement of bulkcommodities such as oil, metal ores, and grains, most of whichcannot be directly compared to the high-value dry commoditiesassociated with transport by air. A more useful measure is tocompare the maritime dry cargo that remains after subtracting the5.3 billon tonnes of bulk commodities carried by maritimetransport in 2011.

Containerised cargo, a segment of maritime dry cargo, is one ofthe fastest growing forms of freight transport. Since the late 1980s,globalisation and regional specialisation of industry, particularly inAsia, have driven containership freight flows to grow rapidly.Worldwide containership tonnage in 2011 is estimated to be 1.38billion tonnes, representing about 40 per cent of the world maritimedry cargo.

Comparison of maritime and air cargotransport in RTKs

Containership cargo traffic is estimated at 10.5 trillion RTKs in2011, while world air cargo traffic is 202 billion RTKs. The largestcontainership markets mirror the largest air cargo markets. In 2011,Europe–Asia was the largest containership market, with 2.8 trillionRTKs, followed by Asia–North America with 1.9 trillion RTKsand Europe–North America with 0.3 trillion RTKs. Until theglobal economic downturn of 2009, the containership industry hadgrown steadily every year since its inception. Between 1980 and2011, containership tonnage averaged 8.9 per cent growth per year.

Both air and maritime cargo had major declines during the globaleconomic downturn of 2008 and 2009. World air cargo traffic fellby 9.6 per cent and containership freight dropped 7.2 per cent in2009. In response to deteriorating economic conditions and thedrop in demand for shipping services, the container shippingindustry reduced capacity. Measures taken include operationalchanges such as “slow steaming,” decreasing ports of call, reducing

frequencies, and taking ships out of service. At the beginning of2010, 11.6 per cent of the world containership fleet was idle.

As the global economy recovered, idled containerships werereturned to service, and by mid-2010, only two per cent of theworld containership fleet remained out of service. Global tradeincreased and containership traffic grew 12.3 per cent in 2010 andseven per cent in 2011 in terms of tonne-kilometers. In addition toreturning idled ships to service, available containership capacitywas further increased by the delivery of new ships that had beenordered before the downturn. When the economic recovery slowedin 2011, the containership industry had a severe excess of capacity,as the demand for shipping services failed to keep up with availablecapacity. As a result, containership yields dropped to very lowlevels to maintain loads. Concurrently, rising fuel prices led toincreased operating costs.

These factors were major contributors to industry losses, estimatedat US$5 billion in 2011. To minimise continued losses,containership companies are currently trying to stabilise andincrease yields. As the economy improves, it is expected thatcontainership rates will rise and return to sustainable levels.

Forecasting methods

Several approaches can be used to handle the range and complexityof forecasting challenges. Each approach is carefully matched tothe specific issue and application. Four approaches — econometricmodelling, judgmental evaluation, trend analysis, and potentialanalysis — provide useful forecasts. Econometric modelling helpsdetermine the overall importance of underlying economic factors(e.g., GDP) and provides forecasts that are linked to expectationsof those factors. This method is useful for medium - and long-rangeforecasts in regional markets.

The demand for air freight depends on the economic activity inthe importing region or country, conditioned by transportationcosts, exchange rates, and relative prices. Econometric modellingmay be used to predict demand, assuming that adequate capacitywill be in place to meet the demand and that factors not includedin the model will exert the same influence as in the past. Judgmentalmodifications often account for expected changes in non-econometric growth factors. For example, estimating the effect of

B Y A I R



Demand for the electronic services offered by Dubai Trade, the

leading facilitator of trade across borders under Dubai World,

has considerably surged in the past 12 months. More than

10,500 new trading and logistics companies joined the Dubai

Trade Portal since the end of Q1/2012, raising the total number

of companies registered for e-services to around 74,300 by end

of Q1/2013. This constitutes an increase of almost 17 per cent

– one of the highest year-on-year growth rates Dubai Trade

witnessed since it was established to serve the future needs

of the supply-chain community and spearhead the next

generation of e-services that have contributed to making the

UAE a strategic hub for global shipping traffic.

Commenting on the annual and quarterly results, Eng.

Mahmood Al Bastaki, CEO of Dubai Trade, said:

“Performance figures have almost exceeded our expectations.Thanks to strategic growth planning, implementation of bestpractices and continuous upgrade of customer-focusedsolutions, we succeeded in winning customersʼ confidence andbuilding an excellent reputation, which is creating a ripple effectin bringing on-board bigger numbers of companies.“The high demand for Dubai Trade services also supports theview that Dubai and the UAE in general are already way aheadin recovering from the pitfalls of the global financial crisis andeconomic downturn that still grip some of the most developedeconomies in the world. This buoyant businesses environment,along with enhanced solutions from Dubai Trade, has started toattract bigger numbers of companies of all sizes to our portal,not only big players,” he added.Impressive growth in the number of registered users alsoaffected the number of transactions carried out over the DubaiTrade Portal. Transactions grew by 10 per cent during only thefirst quarter of 2013 when compared with the same period of lastyear. Total number of e-transactions increased from 3.51 millionin Q1/2012 to 3.86 million in Q1/2013. Total transactioncompleted throughout 2012 approached 15 million – more thandoubling over a three-year period, when they counted 7.3 millionin 2009.Al Bastaki gave much credit to his team for the roles it played invarious projects undertaken by Dubai Trade in the past 12months, especially in putting together innovative, user-friendlyand scalable, solutions in place, which contributed significantlyto overall growth.

The team, along with strategic partners, was honoured last weekfor successfully completing 10 key projects in 2012, during theannual Employee Appreciation Ceremony 2013, which wasattended by senior executives from DP World, Dubai Customs,Jafza, ITC, Dubai World and Dubai Trade, including HE JamalMajid Bin Thaniah – Chairman, Dubai Trade, who gave theopening speech and awarded high achievers.In his speech, H.E. Al Thaniah, said: “Dedication,resourcefulness, team spirit and taking the initiative areimportant characteristics we value in our employees. It is theirhard work that is behind Dubai Tradeʼs success, completing itsprojects, ensuring customer satisfaction and meeting the overallgoal of keeping the competitiveness of the UAE as a global tradehub and the regionʼs leading business centre.”The completed projects covered several areas. Dubai TradeʼsIT infrastructure has been entirely revamped and rebuilt fromground up to sustain the overwhelming growth in business andreplace the existing platform with cutting edge, reliable, andmost scalable technologies. Enhancement of existing services and the introduction of newones continued to fuel growth in Dubai Trade. These includedthe 800-JAFZA hotline project, which migrated and integratedtwo call centres to provide a single, more efficient, end-to-endcontact service.The facilitation of trade across borders over the past 12 monthsthrough these services and many others, such as real-timeonline vessel schedule, brought Dubai Trade internationalrecognition from the World Bank and World Economic Forum,for contributing to the UAEʼs global rankings in the DoingBusiness Report 2013 and the Global Competitiveness Survey,which placed the UAE fifth worldwide in the “trading acrossborders” Category. Dubai Trade received several other accolades for itsachievements in the past 12 months including the “EditorʼsChoice Award” at the Trade and Export Excellence AwardCeremony, and the selection of Dubai Trade CEO Mahmood AlBastaki as winner of "Accomplished Leaders" at the FeigenbaumLeadership Excellence Award 2013. Al Bastaki was alsoselected to the high-profile judging panel of the Dubai regionalfinal of the 4th Annual Hult Prize held earlier this year. In turn, Dubai Trade recognised top performers among its clientsfor their support to Dubai Trade in the 5th E-Services ExcellenceAward held in January.

Dubai Trade posts impressivegrowth in numbers of users andtransactions The UAE trading community responds to Dubai Tradeʼs increased efficiency andinnovation by raising the level of its service adoption



air service agreements, trade quotas, restrictions on nightoperations, and changes in trade patterns could be vital to anairline’s strategic plan. Incorporation of anticipated increases incapacity, route restructuring, and market programs can contributeto more reasonable forecasts.

A simple trend analysis often is used to evaluate changes ineconomic factors. This approach is useful in evaluating generalchanges in the marketplace that can be attributed to the combinedeffects of a number of factors. Such trends can be extrapolated intothe future. However, extrapolation from a small base with largegrowth can produce unrealistic results.

Potential analysis is particularly useful for forecasting markets intheir early stages of development. For example, commoditiestransported by air tend to be valued at more than US$16 perkilogramme. It is therefore possible to project a potential air cargomarket based on the percentage of traded goods (regardless oftransport mode) that are valued above US$16 per kilogramme.

Market environment

Although economic activity is the primary influence on world aircargo development, other factors must be considered.

The acquisition of aircraft and expansion of services have had

particularly favourable effects on the express and small-packagemarket. Factors beyond the control of airlines include inventorymanagement techniques, modal competition, environmentalregulations, globalisation, market liberalisation, nationaldevelopment programmes, and the introduction of new air-eligiblecommodities. All these factors play significant roles in air cargogrowth. Constraints to economic growth, primarily thoseoriginating outside the airline industry, can hinder air transportindustry growth dramatically. A variety of air transport industryconstituencies and policymakers address these interrelated growthissues.

Air cargo growth has slowed over thepast decade

World air cargo growth has slowed markedly since 2004. Theglobal economic downturn and rising fuel prices are key factors inthe slowing of air cargo growth, but other macro trends may be atwork as well.

Fuel prices have been a persistent problem for air cargo. As fuelprices roughly tripled between 2004 and 2012, freight forwardersand the greater shipping community diverted a larger portion ofgeneral cargo to less expensive modes of transport. As of thirdquarter 2012, jet fuel prices were near historic highs (even afterremoving the effect of inflation). One consequence has been the

B Y A I R


contraction of world air cargo traffic by two per cent for the year2012 through July.

Changes in the containership industry have also enticed shippersto move their freight away from air cargo. Containership pricingis generally 10 times less expensive than air cargo, per unit weight.The average containership size has more than doubled since 1990,resulting in lower average unit cost per container transported. Atthe same time, the number of ships in the world containership fleethas quadrupled, allowing containership lines to expand theirnetworks to give shippers better geographic coverage and moreservice options. The rise in air cargo pricing caused by fuelsurcharges only exacerbated the problem.

Changes in the behavior of shippers have also weighed in favourof containerships. Improved telecommunication and informationaccess have had wide-reaching consequences. For example, e-mailand the electronic transmission of documents have reduced theneed to ship many types of small parcels and documents that arethe life blood of express and courier companies. In addition, “trackand trace” tools, once the sole provenance of the air expressindustry, are now commonplace at containership transportproviders. Better information and improved supply chain visibilityallow shippers to plan and manage their supply chains with ahigher degree of confidence, eroding one of the primary advantagesof air cargo. Air cargo has traditionally served as a unique tool thatenables shippers to recover from unforeseen events andemergencies. Anecdotal evidence suggests that improved supplychain visibility has reduced the occurrence of situations thatdemand the speed and reliability of air transport.

World economic growth outlook

The world’s economy is forecast to grow at an average annual rateof 3.2 per cent. The global economy is expected to outperformhistoric averages over the next five years and return to a long-termaverage of 3.2 per cent by 2031. The long-term growth rate forNorth America is expected to average 2.5 per cent per year overthe forecast period. Europe is projected to grow about 1.6 per centper year during those 20 years. In general, emerging marketeconomies, with an aggregate long term growth trend of nearly fiveper cent, continue to grow much faster than established economies.Asia will continue to lead the world’s major economies with

projected growth of 4.1 per cent per year between 2011 and 2031.China leads the other Asian economies in long term growth witha 6.7 per cent average annual increase. In contrast, Japan’seconomy will grow less than one per cent per year. Asia’s share ofworld GDP is projected to rise from 27 per cent in 2009 to morethan 35 per cent by 2031. The world GDP share held by NorthAmerica and Europe, which together currently account for morethan half of economic activity, will drop to less than 45 per cent by2031.

World air cargo traffic forecast

World air cargo is the sum of freight and mail. World air freighttraffic is strongly related to GDP and average yield. The worldairmail component, however, depends less on yield and thereforecorrelates most strongly with GDP.

Low, baseline, and high annual growth of 4.6 per cent, 5.3 per cent,and 5.8 per cent, respectively, are forecast for world air freighttraffic. High and low scenarios correspond to GDP growth of 0.5per cent above long-term projections and 0.5 per cent below,respectively. Worldwide air freight is expected to more than doubleover the next 20 years, increasing from 195.4 billion RTKs in 2011to 550.0 billion RTKs by 2031. World airmail is forecast to growat a consistent 0.9 per cent per year. Risks that could affect futureairmail growth include inroads by express operators into packagemail, increasing reliance on internet communication, entry oftraditional postal services into express air freight operations, andmore stringent security requirements. The baseline forecast for totalworld air cargo predicts that traffic will more than double between2011 and 2031.

Worldwide traffic will grow from 202.4 billion RTKs in 2011 tomore than 558.3 billion RTKs by the end of the forecast period.Sustained economic growth, along with decreasing yields,contributes significantly to the growth of the air cargo industry.

Regional air cargo markets

Air cargo markets linked to Asia, especially the Pacific Rimcountries, will lead all other international markets in averageannual growth between 2011 and 2031. Intra-Asia traffic will growfaster than any other international world market, averaging 6.9 percent growth per year. The North America–Asia and Europe–Asia




markets will expand at average annual rates of 5.8 per cent and 5.7per cent, respectively. Domestic China will be the fastest growingcontiguous market in the world, averaging eight per cent growthper year for the forecast period.

The mature markets of North America and intra-Europe will growslowly, with 20-year annual growth rates of 2.3 per cent and 2.4per cent, respectively. Also projected to lag behind the world

average growth rate are the markets of North America—Europe at3.5 per cent growth and Europe–Africa at 4.8 per cent growth.The Europe–South Asia market is forecast to exceed the worldaverage at 5.8 per cent annual growth per year. The Europe–Middle East market will grow at an annual average of 5.7 per cent.Europe– Latin America will grow 5.3 per cent, and North America–Latin America 5.6 per cent. Market shares will continue to changeas a result of varying regional growth rates. Although it will groweight per cent per year over the next 20 years, domestic China willstill possess a relatively small market share, given its current sizeand the market’s relatively short average trip distance. The shareof world air trade connected to all of Asia’s markets, including thedomestic markets of China and Japan and all international markets,will increase from 51.5 per cent in 2011 to 59.9 per cent in 2031.

Middle East

Air cargo traffic expands strongly oneconomic growth

Air cargo moving into, within, and out of the Middle East isestimated to have accounted for 8.2 per cent of the world’s tonnageand for seven per cent of the world’s RTKs during 2011.

Political instability related to the Arab Spring affected a number of

countries within the Middle East in 2011 and 2012. Despite politicaltensions, the region continued to perform well economically, withGDP growth of 5.6 per cent in 2011. High oil prices and increasedoil and gas production gave the region’s economy a strong boost,sustaining the past decade’s robust GDP growth trend, whichaveraged 4.8 per cent per year between 2001 and 2011. Over thenext 20 years, the annual growth rate is projected to average 3.9per cent. The largest economies in the region — those of Iran, Saudi

Arabia, and the United Arab Emirates — commanded more than60 per cent of the region’s GDP in 2011.

The large volume of air cargo that flows through Middle East cargohubs reflects the region’s history as the crossroad between Africa,Asia, and Europe. Dubai, in the United Arab Emirates, is thelargest air cargo centre in the region and one of the largest re-exporthubs in the world, handling more than 35 per cent of the region’sair cargo traffic in 2011. Doha (Qatar) and Abu Dhabi (UnitedArab Emirates) follow Dubai in traffic volume.

New infrastructure will reinforce the region’s role as a hub. Dubai’snew Al Maktoum International Airport received its first cargo flightin the summer of 2010 and is planned to be the world’s largestcargo hub. The airport will be home to an integrated operation,combining different transportation modes, logistics, manufacturing,and assembly in a single free-trade zone.

The region also has a significant sea-air market in which goodsfrom South Asia arrive in the Middle East on ships and continueto Europe by air. Information systems in place today are notcapable of disaggregating this component from the total air freightmoving through the region.

The Middle East is starting to diversify beyond the oil industry toindustrial and business development. A long-term effort in Dubai,

There also has been movement toward economic liberalisation andcooperation between countries. These changes should improve theinvestment climate and economic competitiveness of the region. Newroads and trade agreements will facilitate increased cargo flowswithin the region

B Y A I R


for example, has resulted in an economy that is strong in logistics,tourism, banking, and construction. This expansion will lead togrowing air cargo flows.

There also has been movement toward economic liberalisation andcooperation between countries. These changes should improve theinvestment climate and economic competitiveness of the region. Newroads and trade agreements will facilitate increased cargo flows withinthe region. Middle East nations should benefit from combining theirstrength as trading hubs as well as from the growth of their own markets.

Middle East–Europe traffic

Air cargo growth between the Middle East and Europe has beenstrong since 2001, with the smaller export market growing 12.2 percent per year to outpace the import market, which grew at a rateof 7.8 per cent.

Accounting for 1,424,000 tonnes of air cargo in 2011, trade withEurope represented 42 per cent of the Middle East’s internationalair cargo market. The primary products shipped to Europe aregarments and perishables. Leading commodities shipped fromEurope include telecommunication equipment, machinery, andfinished goods.

The Middle East exports market has grown faster than the largerimports market since 2001, averaging 12.2 per cent growth per yearwhile imports averaged 7.8 per cent. Overall air cargo traffic inboth directions has averaged an impressive 9.5 per cent growthannually between 2001 and 2011.

Middle East–North America traffic

In 2011, North America accounted for approximately 8.4 per centof the air cargo market in the Middle East at 283,000 tonnes. Aircargo shipments arriving from North America consistedpredominantly of fruits and vegetables, machinery, small packages,chemicals, and scientific equipment. Shipments to North Americaconsisted mainly of telecommunication equipment, textiles, medicalsupplies, and scientific equipment. Growth in the Middle Eastimports market from North America has been robust, with anannual growth rate of 9.8 per cent.

This flow is still small, however, compared to others in the MiddleEast region. Middle East air cargo exported to North America hasremained essentially flat for the past decade, contracting 1.6 percent annually. Total Middle East–North America traffic is down13.2 per cent from its 2008 peak. The main Middle East countriesinvolved in air trade with North America are the United ArabEmirates, Saudi Arabia, and Kuwait.

Middle East–Asia traffic

In 2011, air cargo between the Middle East and Asia represented35.4 per cent of the total Middle East traffic at 1,193,000 tonnes.The most significant products exported to Asia are personal items,machinery, chemicals, flowers, and perishable foods. Imports fromAsia include apparel, luxury goods, electronics, finished goods, andperishables.

A total of 1,193,000 tonnes of air cargo were shipped between AsiaPacific and the Middle East in 2011. Liberalising markets, economicgrowth, increasing numbers of direct flights, and lower costs willcontribute to further expansion in this market, possibly divertinghigh-value shipments from surface transportation.

Middle East forecast

Overall air cargo between the Middle East and Europe is forecastto grow at an average annual rate of 5.7 per cent between 2011 and2031.

Direct flights connecting production centres in Asia and Europepose some risk to air cargo traffic between the Middle East andEurope. Nevertheless, increasing local exports, coupled with thecontinued European market for goods transshipped from Asia andAfrica, should keep growth in the Middle East air cargo markethealthy.

The price of oil will have a significant effect on Middle Eastdemand for products from Europe, as will the ability of the region’seconomies to diversify and become more competitive. In particular,the competitiveness of local products, including perishables, fish,and textiles, together with the products of emerging light industries,will affect long-term growth prospects.




Give us a brief overview of the state of the air cargoindustry in the region currently.

The Middle East cargo market is buoyant with on-goinginvestment in expansion by regional players supporting thecontinued flow of cargo volumes both into and through the keymarkets in the Middle East. In the GCC, the infrastructuredevelopments continue to drive the need for materials andsupporting logistics, this is particularly noticeable in the UAE,Saudi Arabia and Qatar. The continued expansion anddevelopment of airport facilities across the region is also drivinggrowth, once again particularly in those countries mentioned and

we then add Oman and Jordan as well as the long termopportunities that will be seen in Iraq. A thriving and growingconsumer society with spare capital to invest and spend on luxuryitems as well as more standard consumable items, a growing tourist

industry whose expenditure on perishable goods when staying atthe growing number of hotels will continue to drive demand forfood items being moved into the region by air. All signs point toon-going positive momentum for growth.

What were expectations for the first quarter interms of cargo volumes?

The cargo market is experiencing a sustained period of flatconditions and with consumer spending at a low point, productionin the traditional manufacturing centres has dropped. As a result,the global cargo industry is experiencing a challenging period:

exports from Europe have risen and are performing better thanimports, the market in China remains soft, while trade in India,Africa and the Middle East is steady. We expect the first quarter’sglobal cargo volumes to remain relatively flat. This is due to the

Despite high oil prices being the biggest challengeto the air cargo industr y, Emirates Sky Cargo hasbeen creative in finding solutions. Ram Menen,Divisional Senior Vice President, Cargo, speaks toMunawar Shariff about managing costs andimproving their load factor.

ON A HIGH

B Y A I R


slow recovery of the world’s economy and the current high oilprices.

Which is your most profitable route in terms of yieldperformance and volumes? Which region is themost promising one to look out for?

Due to commercial sensitivities we would prefer not to answer firstpart of question.Africa, the Middle East and the Indian subcontinent have allsustained the global economic downturn better than most parts ofthe world. These regions are also growth regions and we have greatconfidence in the future of these markets. The Middle East isstrategically located between East and West, and as companies seekto expand their supply chains, Emirates SkyCargo with its hub inDubai, is able to move cargo from the manufacturing hubs in Asiaand the Far East to our extensive network in Europe, the Americasand Africa. The Middle East is therefore perfectly positioned forgrowth, and like Africa, is developing fast with an expandingconsumer base, which leads a greater demand for goods. Ourgeographical positioning, along with growth in the region and ourdistribution capability, has been a key contributor to the success ofEmirates SkyCargo and growth over the years. In recent timesthere have been widespread discoveries of oil, gas and otherminerals across Africa, which has attracted large investment intothe continent, both in terms of infrastructure and in business. Thisbodes well for the future of Africa as the shift for demand for goodsmoves from the traditional markets of Europe and the US to thesedeveloping markets.

How is demand increasing / decreasing in the abovementioned region? Any possible reasons for thisincrease / decrease in demand?

As the economies of these regions grow, the consumer base growsand therefore there is greater demand for goods.

How do times of the year affect demand fromdifferent markets?

There a number of factors that impact on demand throughout year.For example, the demand for perishables, especially fresh produce,is determined by the growing seasons of the year in different partsof the world.

What are the current challenges impactingrevenues?

The high oil price is the biggest challenge impacting on revenues.The priority for us is to be creative in finding ways to improve loadfactor and yields along with managing our costs. High oil priceshas an effect throughout the value chain and affects everyone,including consumers who have to spend more on fuel and as aconsequence they spend less on consumer goods, which reducesdemand.

How are growth markets coping with the currentfuel issue?

The growth markets are also impacted by the fuel price and itrequires on-going planning, both long term and short term inmanaging cost as efficiently as possible. For Emirates, our networkis a key strength - we connect all continents and multipledestinations. We have the capacity to help markets grow and it’sabout ensuring we have the right capacity, in the right place at theright time.

Finally what's new at Emirates Sky Cargo in termsof innovative products, services for its customers?

Emirates SkyCargo continues to expand its route network.Emirates now flies to 132 destinations in 77 countries, 12 of whichare freighter only destinations. We also recently acquired our eighthBoeing 777F, bringing SkyCargo’s freighter fleet to 11. Followingthe recent formalisation of the partnership between Emirates andQantas, Emirates SkyCargo’s customers from around the world cannow also access the large Australian market, creating further tradeand business opportunities. This also enables us to offer ourcustomers greater connectivity, seamless connections and scheduleoptions. We continue to promote and implement “e-freight” whichallows for most cargo processes to be done electronically, therebysimplifying the business and eliminating costs of paper printing,handling and processing. E-freight also reduces time by decreasingthe waiting time to process freight and increases productivity. It aimsto reduce the carbon footprint and contribute to a greener world.Emirates SkyCargo continues to prove that we have the capability,capacity and expertise to move nearly all kinds of cargo around theworld, from temperature sensitive goods to large items through ourfreighter and charter operations.



The Panalpina Group, based in Basel, Switzer land, is one of the wor ld leaders inintercontinental air freight and ocean freight shipments as well as global supply chainmanagement. Its 13,500 employees in over 80 countries are living proof of the firm’smotto “door-to-door services in six continents.”

As a result of extensive external growth, Panalpina had six SAP software applicationsin place. As each of these had its own access and authorisation processes, it wasimpossible for Panalpina to determine the related r isks. In order to establish anefficient, central r isk evaluation that would provide the security and validationexpected from a company’s internal controls, Panalpina sought to introduce a globalauthorisation concept and was looking for an IT application to suppor t it. The Swisslogistics company was glad to find a proven, comprehensive, and flexible solutionin the SAP Business Objects Access Control application, efficiently customised bySAP Consulting exper ts.


Introducing a global authorisationconcept

The basic requirement of an internal control system is to help acompany detect risk and provide methods to help the companymanage it. Putting such a control system in place was the challengePanalpina was gearing up to take on. “At one time, there weren’tany standardised criteria for risk determination and evaluation inplace. We used to decide case by case if there were any risks relatedto a certain transaction or not. We were in need of an extensive,clearly defined, well-documented, and obligatory risk evaluation,”remembers Kaloian Soukmandjiev, Project Manager for CorporateFinance within Panalpina. The six SAP software applications in placelacked a unified, automated process for access and authorisation.

The result was that Panalpina struggled with an inconsistent mixtureof user profiles and roles, which made it impossible to monitor risksassociated with tasks that required monitoring for compliancereasons. External auditors pointed out in their annual report thatrisks related to access and authorisation couldn’t be determinedsufficiently. It was the signal for Panalpina to get active.

Enlisting industrial, technological andprocess expertise

The Swiss logistics firm came up with a strategy to introduceglobal, unifying authorisation processes, the core of which was thedefinition of the essential criteria for risk evaluation. The strategyconsisted of four phases, the results of each slated for eventual

TAKING CONTROLWITH SAP

B Y A I R


global rollout. It soon became clear that the strategy could only berealised through an IT implementation. Panalpina started to lookfor an experienced software partner with a proven IT solution thatcould fulfill its requirements.

“For the realisation of our global authorisation concept, we soondecided to go for SAP Business Objects Access Control. We likedthe comprehensiveness and flexibility of the application, as weknew we could customise it to the extent needed. Yet, it offered auseful set of predefined risk rules, which we could easily integrateby plug and play at the same time,” says Soukmandjiev. Theapplication would enable Panalpina to manage its processes forcompliant access and authorisation control efficiently. And just asimportant, SAP Business Objects Access Control would completelysupport the company’s internal control mechanisms, which was theultimate goal of Panalpina.

In order to adapt the application to the firm’s requirements,Panalpina chose to get the professional support from SAPConsulting. “So far, we have always had very good experiences

with the experts from SAP Consulting – and we needed them onthis mission-critical project. Their in-depth industrial, technology,and process expertise convinced us: they were able to relate to bothsides – IT and compliance – which was very valuable for ourproject,” states Soukmandjiev.

Getting help for self-help foradditional rollouts

Panalpina decided to initiate the implementation of its globalauthorisation concept in Switzerland and Germany with its 500 SAPsoftware users there. The strategy was simple yet compelling: lay thefoundation for compliant risk evaluation by cleaning up and thenstaying clean. Panalpina was thrilled that it could execute this strategysolely with SAP Business Objects Access Control. In the area of accessrisk analysis and remediation, the application offered Panalpina theopportunity to detect risks related to access and authorisations in realtime, analyse them precisely, and promptly correct them. This turnedout to be valuable in combination with thorough, compliant user




provisioning. As a result, Panalpinafound that it was indeed in a positionto manage and unify the underlyingprocesses, its overarching objective.

The implementation was performedon time and within budget – to thegreat satisfaction of Panalpina. “Theimplementation went well in termsof quality and speed. We receivedprofessional support from SAPConsulting, with timely responsesand valuable feedback on how toproceed with the project. We felt wewere in very good hands with theSAP experts,” says Soukmandjiev.Panalpina benefited as well from thephilosophy espoused by SAPConsulting: enabling customers torealise further rollouts on their own.This was key in enabling Panalpinato go on to establish globalauthorisation in France and Italyusing its own resources, with theeventual target of rolling out to some60 additional countries being a veryrealistic goal.

Dramaticallyreducing time spenton user maintenance

The implementation of the SAPBusiness Objects Access Controlapplication soon started to pay offfrom both a compliance andoperative point of view. “Theawareness for authorisation relatedrisks could be raised significantlywithin Panalpina. Our employeesare now sensitised to the amount ofpossible risks and how to deal with them. This can partly be putdown to the intuitive use of the application,” remarks

Soukmandjiev. “Thanks to thetransparent risk evaluation, whichcorresponds to an internal controlsystem, we expect to reach five to 10per cent savings for external auditsthis year.”

The process for access andauthorisation is now unified,resulting in a significant rise intransparency and a major relief forthe IT department. “Thanks to SAPBusiness Objects Access Control, wewere able to reduce the time spent onuser maintenance by 20 to 30 percent, and we firmly expect to reach a75 per cent reduction. Ourmanagement is now capable ofrunning real-time reports centrally,providing them with an up-todatedecision basis whenever needed,”says Soukmandjiev.

Looking forward tototally automatedprocesses

Panalpina has more plans for SAPBusiness Objects Access Controland SAP Consulting. In order toenhance the operative handling ofroles, the Swiss logistics company isthinking about implementingfunctionality for extensive enterpriserole management and dedicatedsuperuser privilege management.Both are already part of the SAPapplication. “We would like to havethe fully automated process as soonas possible. With furtherinvestments in SAP Business

Objects Access Control, we are expecting some significant timeand cost savings,” sums up Soukmandjiev. n

Company• Name: Panalpina Group• Location: Basel, Switzerland• Industry: Transportation and logistics • Products and services: Air freight, ocean freight, and

supply chain management• Revenue: SFr 8.88 billion ( 6.02 billion)• Employees: 13,500• Web site: www.panalpina.com• Implementation partners: SAP® Consulting and Keneos

AG

Challenges and opportunities• Comply with the legal requirements applicable to the

company’s maintenance of internal control• Standardise the access and authorisation processes

within the company’s six SAP applications• Establish consistent roles and profiles across multiple

instances of SAP software

Objectives• Implement a global authorisation concept with a single

IT solution• Execute precise, transparent, and real time

risk evaluation• Unify the access process, resulting in lower IT effort and

thus costs

SAP solutions and servicesSAP Business Objects Access Control application,specifically functionality supporting access risk analysis andremediation and compliant user provisioning

Implementation highlights• Implemented on time and within budget• Enabled by SAP Consulting to execute further rollouts

independently – no external support required

Why SAP• Long-term, trusted partnership with SAP• Completeness and flexibility of SAP Business Objects

Access Control• Unrivalled industrial, process, and technology expertise

of SAP Consulting

Benefits• Thorough risk evaluation based on common standards

and definitions• Significant rise in process transparency• Expected reduction of external auditing costs by five to

10 per cent• Expected time savings involved in user maintenance of

60 to 75 per cent

Existing environment6 SAP software applications

QUICK FACTS

B Y A I R




Almajdouie Logistics won “The Best 3PL Service Provider award” for two consecutive years

On April 24, 2013 Almajdouie Logistics has been awarded after a thorough evaluation process & meeting ofcriteria lay-down by the jury board of the Supply Chain and Transport Awards (SCATA) as “Best 3PL ServiceProvider of the Year” in Middle East region. “This is our second time winning in a row, so this is very exciting, it was great teamwork and we are very happyas a team” stated Mr. Mustafa. The awards ceremony took place at the prestigious Jumeirah Emirates Towers hotel in Dubai and was attendedby more than 200 senior figures from the regional logistics industry, where for the seventh time; companieswere recognized in 17 different categoriesThis event was organized by ITP, publisher of arabiansupplychain.com and Logistics Middle East as the ultimatecelebration of the Middle East logistics industryʼs achievements over the past 12 months. The SCATA recognizeand reward those regional and international players that have gone above and beyond in terms of their industrycontribution.“We are extremely honored to receive this award as one of the Best 3PL Service Provider of the year in MiddleEast” said Mr. S. I. Mustafa, CEO of Almajdouie Logistics. Such recognitions are earned through teammateʼscommitment to implement timely solutions to our valued customers through improving process and deliveringinitial and ongoing value that makes our and our partners success possible. I am receiving this award on behalfof all Almajdouie Logistics Employees as it is a great team work.”Almajdouie Logistics, from its humble beginning as a land transport and trucking company in 1965, is nowconsidered the largest logistics service provider in the region with its own assets, more than 6,000 employeesand a total area of 2 million square meters of terminal and storage facilities in Saudi Arabia. Al Majdouie, the leading Project Logistics and Supply Chain Company has been in limelight as first Saudi privatecompany to be in Guinness World Record Books for moving the Worldʼs Largest Evaporator and the heaviestload ever moved in the Middle East.In size, the evaporator was equivalent to a football field and with an assumed weight of 5000 cars, as itmeasures almost 124 meters long, 34 meters in width and 12 meters in height, with weight of 4891 tons.Almajdouie moved 8 units of similar weigh.

[From Left Mr. Khalid AlGhamdi – COO of Almajdouie,second Hamad Obaidalla -Chief Commercial Officer offlydubai giving the award andthird is Mr. S. I. Mustafa - CEOof Almajdouie Logistics. Alma-jdouie Logistics won the title“Best 3PL service Provider ofthe year”]


BY SEA



B Y S E A

FULL STEAMAHEAD


What is the outlook for the year 2013?

Operating conditions in each of our markets in the first two monthsof 2013 have been consistent with those experienced at the end oflast year and the economic environment continues to remainuncertain. We remain confident about the long term outlook of ourindustry and remain well positioned to deal with a changingeconomic environment as well as continue to focus on ourestablished high standards of service to customers.

What infrastructure investments are currentlyunderway / being planned for the year?

In addition to the expansion of Jebel Ali’s Terminal 2, which willadd one million TEU capacity to the existing 14 million TEU inthe second quarter of 2013, the new Container Terminal 3 is underconstruction at present and will be ready in 2014 with a capacityof four million TEU. This will take capacity at Jebel Ali Port to 19million TEU by 2014.

The developments in T2 and T3 will enable Jebel Ali Port tohandle 10 of the next generation 18,000 TEU mega vessels at thesame time – the only port in the region able to do so.

Plans of a landside intermodal link with Etihad Railhad been announced last year, how is thatprogressing?

In May 2012, Etihad Rail and DP World signed an MoU for thedevelopment of an intermodal rail terminal in Jebel Ali Port. Wehave earmarked a strategic potential plot for the intermodal railterminal, adjacent to Jebel Ali Maritime Terminal 1 and close toTerminal 2.

How do you plan to integrate Jebel Ali port tobecome a multi modal port?

Jebel Ali is already a multi-modal port with state-of-the-art facilitiesable to serve the largest vessels in the world, supported by the latest

DP World’s Mohammed Al Muallem, Senior Vice President and Managing Director,UAE Region talks to Munawar Shariff elaborating on how the container terminalplans to maintain its top position.




e-trade technology, and the Dubai Logistics Corridor whichlinks sea-land-air via the Dubai World Central airport. Withthe planned rail link, Jebel Ali will be fully multi-modal,connecting sea-road-rail-air. This will add enormously to theefficiency of the supply chain and reinforce Dubai’s status asboth a regional hub and a gateway for cargo for the UnitedArab Emirates and the wider Middle East, Subcontinent andEast Africa region.

What was the capacity handled by the Jebel AliContainer terminal last year and the first quarter of2013?

In 2012, DP World, UAE region continued to operate at very highlevels of capacity utilisation, increasing the number of containershanded to 13.3 million TEU for the year. Throughput of firstquarter of 2013 will be announced on 25 April.

What are current transshipment trends within theregion?

Transhipment continues to be driven by origin and destinationcargo – it makes sense for the shipping lines to tranship at the sameport they are loading and unloading cargo for that market. JebelAli therefore continues to be the preferred transhipment hub in the

region because of the high volumes destined for this market.

What challenges are you facing at the moment?

Sustainability and capacity will be an overriding theme of theindustry’s development in the coming years, as we see the nextgeneration of ultra large container ships (ULCS) coming on line.The industry also needs to invest in people, technology and theenvironment to keep pace with the changes.

How is capacity being remodelled at the port tohandle the bigger ships on the sea?

The new ULCSs need deeper berths and cranes with a significantlywider reach, and to realise the economies of scales these giantsbring to the shipping lines, they demand faster handling quay sidecrane moves, all of which is putting pressure on operations bothon quay and inside the terminal.

At Jebel Ali Port we are adding 400 metres to the quay of Terminal2 bringing it to 2,000 metres, and this will give us the ability tohandle five mega vessels of 18,000 TEU capacity at the same time.Also, and in preparation to handle more of the bigger ships at onetime, DP World has successfully completed the largest dredgingprogramme at Jebel Ali Port in 10 years, deepening the draft. n

B Y S E A


Investment at DP World’s home port in Jebel Ali is being steppedup. This will not only provide the additional capacity required ashealthy container trade growth returns to the region, but also willallow the company to better meet the operational requirements ofits liner shipping customers as they deploy ever larger containervessels onto Middle East trade routes.

Work is well underway on a 400 metre long quay extension atJebel Ali Terminal 2, increasing capacity at this facility by overone million TEU a year. The construction work was scheduledto be complete by the end of the first quarter of this year, allowingthe port to handle six 15,000 TEU class vessels simultaneously,thereby improving operational efficiency and reducing turnaroundtimes.

DP World is not planning any major equipment purchases inconnection with the T2 extension. Mohammed Al Muallem,Senior Vice President and Managing Director, UAE region,explains, “We are going to focus on improving efficiency at T2.The existing equipment on this site will be used more intensivelyto handle the extra volumes.”

In addition, DP World is now developing Terminal 3, investingaround US$ 850 million to create a four million TEU capacitycontainer facility, which is on track to commence operations in2014. The T3 facility, converted from an existing general cargoberth in the port, will comprise 1,860 metres of quay and 70hectares of yard space. With an alongside draft of 17 metres, thenew terminal will be able to handle the world’s largest containervessels, berthing four 15,000 TEU containerships at a time.

Al Muallem adds, “The investment in both these projects isneeded to meet the challenges we face as the containerships aregetting bigger. We have to be able to handle several of these largevessels at the same time without delay and the development ofthese facilities will allow us to handle a total of 10 mega ships

simultaneously. This will send an important message to the tradethat we are committed to getting ready to meet their needs.”

The T3 project will require substantial investment in equipmentas well as infrastructure. DP World is ordering 19 super-post-panamax quay cranes, amongst the largest of their type in theworld and 50 rail mounted gantries with a high degree ofautomation. Ten of the quayside gantry cranes will be built in AbuDhabi and the remainder in China. As Al Muallem points out,“By splitting the order we can support the local UAE economywhile also getting the delivery times we need.”

Container traffic levels at Jebel Ali have continued to recover afterthe effects of the global financial crisis in 2009. In 2011, Jebel Alihandles around 13 million TEU, 12 per cent higher than in 2010.

Throughput growth in the first nine months of 2012 was slowerat 4.6 per cent, but still robust enough to suggest that the port willhandle close to 14 million TEU in the full year. The T2 and T3investments will give Dubai a total annual capacity of 19 millionTEU, providing some breathing space as the economicdevelopment of the UAE and surrounding countries gathers paceonce again.

JEBEL ALI EXPANSIONON TARGETDP World is making good progress on two major development projects at itsflagship por t

DP World is now developing Terminal 3,investing around US$ 850 million tocreate a four million TEU capacitycontainer facility, which is on track tocommence operations in 2014. The T3facility, converted from an existinggeneral cargo berth in the port, willcomprise 1,860 metres of quay and 70hectares of yard space




Abu Dhabi Ports Company (ADPC) has been making tremendousstrides towards establishing its newly-built Khalifa Port as animportant new gateway for the region’s container trades. By theend of November 2012, all container handling operations had beensuccessfully transferred from Abu Dhabi’s Mina Zayed port,located close to the city centre, to the new, state-of-the-art Khalifaport at Taweelah 60 kilometres away.

The semi-automated container terminal at Khalifa had handled itsfirst commercial container vessel, the 14,000 TEU 366 metre longMSI Bari in September 2012.

The move to Khalifa is well-timed as container traffic growth, hadoutstripped capacity at the old port. In 2011 Abu Dhabi Terminals(ADT) a joint-venture between ADPC and the Mubadala grouphandled over 760 000 TEU at Mina Zayed and a further growthof arounf four per cent was achieved in the first 10 months of 2012.Consequently Abu Dhabi’s total container throughput for 2012,split between Mina Zayed and Khalifa port is expected to be wellover 800 000 TEU.

According the ADT’s CEo Martijn Van De Linde, “Internationalshipping lines are making use of the deep sea berths at Khalifa portto send larger container vessels to Abu Dhabi than we have everseen before. By enabling big ships to berth in Abu Dhabi the newport is eliminating the need for goods to travel by feeder ships fromother ports to reach the local market and this is driving down thecost of trade.”

A key feature of the Khalifa port container terminal is the fact thatlandside operations are undertaken by 20 automated stackinggantry cranes (ASCs), supplied by Konecranes of Finland.

These cranes, the only ones of their type in the region to date, aresupported by an advanced Terminal Operating System called N-4, delivered by the US firm Navis.

For ship-to-shore operations Khalifa port is equipped with sixsuper-post-panamax cranes manufactured by ZPMC. These havean outreach of 65 metres, allowing them to work the largestcontainer vessels in service. Movements between the quayside and

ABU DHABI CONTAINEROPERATIONS TRANSFERRED TONEW PORTKhalifa Por t is already serving latest generation containerships

B Y S E A

Al Muallem points out, “Our philosophy is to always be ahead ofthe game, and to make the right investments at the right time. Thespending we are doing now will make sure we can accommodatefuture demand for local imports and exports and also cater forwider regional trade growth.”

Looking to the future, one of the priorities for DP World is toenhance connections with its hinterland. In this context, it isworking closely with Etihad Rail, the Abu Dhabi-basedorganisation which has been tasked with developing a passengerand freight rail network in the UAE and which will also connect

more widely with other railway systems in the GCC countries. AlMuallem says, “Jebel Ali has been proactive to make sure we areonboard with this exciting initiative. we have done our homeworkso that Jebel Ali will be connected by rail, possibly by 2016.

We are currently exploring the best options for intermodal railservices, which will add another mode of transport for ourcustomers.”



container stacks are undertaken by a fleet of 20 Terex NoellSC624E diesel electric shuttle carriers.

“The port’s technology is proving to be a big draw for ourcustomers,” says Van De Linde. “World class operationalefficiency and automation means we can unload ships faster thanever before.”

ADPC plans to acquire a further six quayside cranes and 22 ASCsover the next few years. Once this investment has been made,Khalifa port’s annual capacity will be around 2.5 million TEU.

Further operational improvements are being made all the time.Automation of gate processes has been enhanced in recent monthsand preparations are being made for the launch of the new PortCommunity System which will provide a single portal lining allstakeholder services and clearing procedures.

Initially Khalifa port will primarily be a gateway port for the localAbu Dhabi market and a key customer in this context is theBourouge petrochemicals plant. Khalifa is now handlingcontainerised polyethelene and other products for Bourougeproduced at its Ruwais factory 250 kilometres from Abu Dhabi.

Right next to Khalifa port is the new KIZAD Industrial Zone, oneof the biggest of its type anywhere in the world. As investment inKizad picks up, the companies based there will generate additionallocal cargo flows for the port. Emirates Aluminium (EMAL) is abase tenant for Kizad and has its own dedicated berth in operationsince November 2010.

Abu Dhabi’s economy is relatively buoyant and this is reflected inpositive figures for non container cargoes, currently still beinghandled at Mina Zayed. Ro-ro volumes in the first 10 months of2012 were over 41 per cent higher year-on-year while bulk andgeneral cargo also grew by five per cent.

Commenting on the growth figures, Captain Mohamed Al Shamisi,EVP at ADPC says, “Port activity is often seen as the bellwetherof the general economic climate and these excellent figures reflectthe strength of the Abu Dhabi economy with its strong levels ofconsumer spending. It is great to see our customers placing morebusiness with ADPC following major investments in our newflagship Khalifa port and at Kizad.



KHORFAKKAN EXCEEDSEXPECTATIONSThe por t of Khorfakkan in Sharjah was the largest growing container terminal inthe Middle East last year.

Over the first 10 months of 2012 Khorfakkan Container Terminal(KCT), operated by Gulftainer under a long term lease fromSharjah Ports Authority (SPA) achieved a 26 per cent increase involume.

As a result KCT is expected to record an all-time high of nearlyfour million TEU for the whole year.

Peter Richards, Managing Director at Gulftainer says, “Shipping

lines have had to change to survive and this has led to greatercollaboration. Our biggest customers including Hanjin, UASC andCMA CGM, have entered into alliances with other lines and thishas generated a significant amount of transshipment growth atKCT.”

To some extent the level of increase caught Gulftainer ‘on the hop’.As Richards observes, “Nobody could have predicted the rate ofgrowth we have seen in 2012. This has put pressure on our facilities



and at times it has been difficult to keep up. We have however beenproactive in addressing this situation by ordering new equipmentand taking on more staff.”

As an ‘emergency’ measure Gulftainer has acquired two highcapacity Gottwald mobile harbour cranes, which are amongst the

largest of their type in the world. Gulftainer has also ordered fournew super-post-panamax ship-to-shore gantries, designed to handle18,000 TEU capacity container ships and 12 more rubber-tyredgantry (RTG) cranes. These cranes are expected to be in serviceby the end of this year.

With a further 20 per cent plus growth rate forecast at KCT thisyear as well, Gulftainer and the SPA are having to look atpossible quay extension work to provide the necessary longerterm capacity.

The leading marine engineering consultants Halcrow have beenengaged to evaluate a number of scenarios, which could see afurther 1500 metres of quay wall constructed at KCT withinthree years. This would boost capacity at Khorfakkan by aroundtwo million TEU a year. “I am hoping that one of the options,squaring off and building at the end of one of our existing quays,could be completed within a year, giving us much-neededadditional capacity in a reasonable time frame,” adds Richards.

As well as KCT, Gulftainer operates the Sharjah ContainerTerminal (SCT) close to the city centre which is primarily agateway terminal handling exports and imports for Sharjah and

neighbouring northern emirates. This facility which will handlearound 400 000 TEU this year, has been the subject of anupgrade in recent times, including dredging down to 12.5 metresalong the access channel and berths, a 300 metre extension tothe usable quay, and the creation of additional container stackingspace.

Alongside upgrading its terminal capabilities in Sharjah, Gulftainerhas been developing new logistics facilities within the emiratethrough its Momentum subsidiary.

The Sharjah Inland Container Depot (SICD) now comprises 45warehouse units, all of which are fully utilised, while work is nowunderway on the Al Saja’a Logistics City on a 700 000 sq metresite that will be home to a variety of logistics activities andwarehousing operations. According to Richards, “The UAE isincreasingly being used as a staging post for the Gulf area, includingIraq, and the Saja’a facility is ideal for that role.”

While Gulftainer has its base firmly in the UAE, the company isincreasingly becoming a global terminal operator. It is now thelargest terminal operator in Iraq, with two facilities in Umm Qasrport, including the Iraq Container Terminal which startedoperations in early 2012.

The company also has the concession to operate the Umm QasrLogistics Centre, the only bonded facility outside of the port.

Last year Gulftainer started operating at the Brazilian port of Recifeand Ust Luga in Russia. Moer recently the company has beenawarded a 25-year concession to develop and operate the port ofTripoli in northern Lebanon. The company says it plans to investaround US$75 million in upgrading this facility, buying three ship-to-shore cranes and nine RTGs which will be operational by theend of this year.

Further opportunities outside the UAE are being explored,Richards says, “We are well known as a high productivity terminaloperator at KCT. That makes us a popular partner and we arecurrently very much in demand.”


B Y S E A

With a further 20 per cent plusgrowth rate forecast at KCT thisyear as well, Gulftainer and theSPA are having to look atpossible quay extension work toprovide the necessary longerterm capacity


MANAGEMENT



M A N A G E M E N T


Much has been built and expanded, is being built and will be builtthroughout the region. Ports. Roads and causeways. Railroads.Airports. Each of these impacts the flow of products.

From a logistics and supply chain management view, three thingsthat stand out about all the projects● They are impressive. State of the art.● They are country centric. Each can be considered a standaloneproject. Each is meant to serve the businesses within its respectivecountry. ● Projects are not integrated among countries. There is not a GCCinterconnection. They are not meant to facilitate the smooth flowof cargo among and within the countries of the region.

As a result of the centricity and lack of integration, there areinvestment gaps, such as with roads and railways, and investment

redundancies, such as with regard to ports, with the logisticsinfrastructure from a GCC perspective. They can be viewedcollectively as over-engineered and under-customered.Logistics as an economic driver

Logistics can be and has been an economic cluster to drive growth.Despite their geographical size, Singapore, The Netherlands andHong Kong are significant examples of logistics economicsuccesses. They have proven what logistics (and maritime) canmean to a country.

There are benefits with being the logistics and maritime centre.Four key ones are:1 Economic growth. It would be in the important private sector.2 Employment creation. The potential is there for 100,000+ jobsfor GCC citizens. These would be at all levels. 3 Economic diversification. This expands opportunities in the non-oil economy.4 Attracting outside / direct foreign investment.In addition, other key value drivers of the logistics focus and whatit generates are:● Creating sustainable development● Supporting linkages and connectivity for international trade● Supporting linkages and connectivity for domestic flexibilityof labour and development● Attracting international inward investment for developmentof national primary clusters that require underlying logistics tosupport sustainable development

LOGISTICSINFRASTRUCTUREIN THE GCCasset rich and cargo poor?Are the right steps being followed to have the GCC region streamlined as a wholein providing a complete solution? Tom Craig asks the question.




● Attracting international inward investment for internationalpurposes - hub-based trade or as offshore centres● Supporting, and being a vital part of, the ease of doingbusiness in international trade

Clusters are viewed as key for improving the economicperformance of regions. They orient economic developmenttoward groups of companies for common issues, such as training.Clusters build on the unique strengths of an area rather than tryingto copy other areas. They enable a region to have different sets ofeconomic development opportunities.

Logistics is a critical element of any cluster activity, with itscombined physical goods, information, finance, and documentsflows and activities. It is both a supporting and necessary elementin all development. Given a multiple set of economic clusters,logistics is an economic activity and skill-set stimulant in its ownright. As has been proven, logistics can be the driver to createeconomic clusters, growth and jobs.

Competitiveness. There is not a united effort to establish a logisticscentre in and for the GCC that is supported with infrastructurelinking all the countries. Countries compete in varying ways withinthe GCC and the region with regards to logistics and trade. They


each compete for essentially the same business. How they areviewed can be seen from three indexes that evaluate countries ofthe world.

1. Logistics Performance Index (LPI). The World Bank hasdeveloped a benchmarking tool for international logistics.The Index for 2012 ranks and compares 155 countries.Singapore had the #1 ranking with a 4.13 score, followed byHong Kong at 4.12.

The World Bank surveys global freight forwarders and expresscarriers as to the logistics “friendliness” of countries in which thefirms operate and with which they trade. Scores reflect quantitativeand qualitative measures.

Scoring is based on six criteria: customs, infrastructure,international shipments, logistics competence, tracing and trackingand timeliness.

Scores for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UnitedArab Emirates reflect the assessments for the six categories, and are:

For comparison, #1 Singapore had scores of 4.10, 4.15, 3.99, 4.07,4.07, and 4.39.

2. Enabling Trade Index (ETI). The World Economic Forum(WEF) issued its ETI report for 2012, titled, “ReducingSupply Chain Barriers”. Per the WEF, ETI measures the

extent to which individual economies have developedinstitutions, policies, and services facilitating the free flow ofgoods over borders and to destination. The structure of theIndex reflects the main enablers of trade, breaking them intofour overall issue areas that are captured in sub indexes—market access, border administration, transport andcommunications infrastructure, and business environment.

The survey recognises the rise of international supply chains andthe effect on trade. One hundred and thirty two countries areranked. Singapore is ranked #1, followed by Hong Kong.Singapore’s score is 6.14.

3 Global Competitiveness Index. The WEF assessed thecompetitive landscape of 144 economies, providing insightinto the drivers of their productivity and prosperity.Switzerland is ranked #1, followed by Singapore. Switzerlandhad a score of 5.72.

Needed—Focus. The indices are about more than infrastructureand assets. They reflect what is required to be a logistics / supplychain leader in the global economy. That is what the GCCshould do—improve scores and focus on becoming a leader.Implicit to that is who will be the logistics centre and leader inthe GCC.




This requires a focus on what should be done—

● Develop structure to being a leader. The figure below showswhat is needed, namely, customers, various types of logistics assets,logistics service providers and technology. All of these elementsthat must be built and integrated into a cohesive programme andoperation.

LOGISTICS LEADER STRUCTURE

● Segment the logistics market. The logistics market is notmonolithic. There are multiple logistics markets—and opportunities.All industries and products do not have the same requirements.Segmentation is needed to determine which market is best for aparticular country or port. Analyse and slice it as to industries andto unique opportunities, such as supply chain complexity. Then

Logistics is a critical element of any cluster activity, with its combined physicalgoods, information, finance, and documents flows and activities. It is both asupporting and necessary element in all development. Given a multiple set ofeconomic clusters, logistics is an economic activity and skill-set stimulant inits own right

M A N A G E M E N T




the needed structure and other steps can be implemented.Segmenting is in contrast to much of what is happening in the GCCwith regards to duplication of assets in pursuit of the same market.The present approach means dividing up the same market amongcountries and missing out on economic growth and employmentpotential.

Here is an example of segmentation:

Market Size

Logistics Complexity● Attract two sets of customers. There are two underlying sets ofcustomers that the approach should target:

1 Logistics service providers—these are major ocean carriers, aircargo firms, 3PLs, warehouses, forwarders, and others that areimportant to provide needed supply chain services. 2 End-user customers—Multi-nationals located in Europe, Asia,North America and elsewhere that will actually position theirproducts in the GCC. They will choose which country and its

logistics as the hub for their supply chain and trade needs.

Both customer sets are critical to generating and to sustaininglogistics activities and to developing the economy.● Implement a strong value proposition. Why should a logisticsprovider or end-user customer use a certain port or country’s logisticspark? How do multi-national corporations view it? How do majorlogistics service providers view it? Why should they do business witha certain port, do more than shipping and transshipping containersof cargo directly from their warehouses or factories? Transshippingcontainers does not create all the employment and grow theeconomy that being the logistics leader does.

The value proposition is not about what the port or logistics parkdoes; it is not about assets. The value proposition is about whatcustomers want and how that location meets - and exceeds - thosewants. A strong value proposition separates an operation/facilityfrom the competition. It will draw customers and make them stay.

● Develop training programmes. There would be many differentjob opportunities for citizens of the GCC. Education and trainingwould be needed for all the different logistics needs and for allemployment levels. Strengthening the logistics talent training willaccelerate the development of the logistics industry in the GCC.This includes training for maritime, air cargo, warehousing,forwarding and customs (with the changed approach for thelogistics center). In addition, there should be education for supplychain management.

Conclusion

The economic benefits of significant development and job creationdriven by logistics are not being achieved. Each country in theGCC has advantages and disadvantages. The time is now to stopthe “shotgun” approach to investing in various logisticsinfrastructure. Instead, assess, identify, target and develop to meetspecific logistics opportunities. It is also important to recognise thatbeing the leader will be an ongoing effort. n

M A N A G E M E N T



Headquartered at Jebel Ali in the United Arab Emirates, Al-FuttaimLogistics is ISO 9001:2008 Certified Company, one of the regionʼsleading logistics firms offering a full range of advanced supply chainmanagement solutions.“AFL is a ʻone stop solutions providerʼ for all the logistics and supplychain needs of its clients. AFL ensures the customersʼ requirementsare well understood and provides customised services to suit thebusiness needs of the customer and ensures the solutions aredelivered,” says Tom Nauwelaerts, managing director of Al FuttaimLogistics.“We have the experience and know-how to achieve the fine balancebetween cost and service requirements. We strive to achieveexcellence in service by delivering on our customersʼ value propositiondriven through: dedication to continual improvement; professional andproactive business partnership; simple and efficient customerinteractions; and customer centric value added solutions.”

AFL has facilities in Jebel Ali, Dubai Festival City, Dubai Industrial City,Rashidiya, Ramool, Dubai Cargo Village, Al Ain and Mussafah (AbuDhabi).

Al-Futtaim Logistics has many yearsʼ specialised experience in severalkey sectors and our wide ranges of capabilities extend to the followingservices:Freight Forwarding & Customs Clearance Service

AFL is ideally placed to ensure seamless door -to- door deliveryanywhere in the world via a combination of its air, sea and roadtransportation solutions. Services include: managing air/shipping lines,sending pre alerts, documentation handling and customs clearance.Automotive Logistics

Al-Futtaim Logistics is the leading automotive logistics serviceprovider in the UAE, and offers a comprehensive range of high qualityservices for leading automotive distributors, which includesForwarding and Customs Clearance; Vehicle Storage; AccessoryFitting and Pre-Delivery Inspection; Vehicle Distribution and PartsDistribution.

Transport & Distribution

Comprehensive road transportation services offered include:Container Transportation, Distribution, Specialised Road TransportVehicles and People Transportation. With the full capability to meetevery customerʼs specific requirements, we operate car carriers,refrigerated trucks and side loaders.Warehousing and Contract Logistics

Al-Futtaim Logisticsʼ extensive warehouses comprise over 100,000m2of ambient and temperature controlled storage that caters to therequirements of large and small businesses alike. AFL currentlyhandles over a quarter of a million line items in multiple locations andcaters for a diverse range of goods. The latest technology of web-enabled inventory visibility providesreassurance for customers ensuring full visibility of stock at everyoperational stage. AFL provides customers with a complete one stop, costeffective logistics proposition through a comprehensive range of valueadded services, which includes packing, repackaging, bar-coding, productlabeling, tagging and promotional packaging for retail sales periodsPeople transportation

Al-Futtaim Logistics provides staff transport services to many businesssectors throughout the UAE including hotels, airlines, retail and servicecompanies and offices, at the desired frequency, on a daily, weekly ormonthly basis. Al-Futtaim Logisticsʼ dedicated Staff Transportationdivision operates out of a centrally located base in the UAE with itshead office at Jebel Ali, from which round the clock service coverageis provided every day of the week.Relocations and International moving

Al Futtaim Logisticsʼ commitment to customer care along with ourpersonalised service is driven by the understanding that each andevery relocation in, itself is unique. Providing world class supply chainsolutions since the 1980s, our advancement into the relocationindustry has perfectly complemented our expertise in freightforwarding and other customer focused services. We provide complete solutions from origin to destination for local andinternational relocation, pet relocation, vehicle transportation, storageand warehousing, and comprehensive insurance.

The one-stop solutions providerTom Nauwelaerts, Managing Director of Al Futtaim Logistics, talks about his companyʼs capabilities.



Tell us in detail the changes in the regional marketfrom 2011 till 2013.

We have seen a strong recovery of the markets over the last twoyears. Especially in the UAE, we have witnessed a growingdemand both for domestic or export oriented projects. The qualityof the inquiries and new projects have greatly improved and wesee a lot of long term, strategic investments into the local marketby major global players.

The political stability of the UAE and the continuously expandinginfrastructure for logistics services, be it by air, land or sea helpsthe regional market to keep up with global requirements.

Materials handling is all about continually findingways to improve processes ... was there a markedchange in companies' spending habits in the lastfew years? How has this changed (if it has)? Whatdo you attribute this change to?

The quality of services that we have to provide to our clients andalso what they have to provide to their end customers, saw animmense jump in terms of quality requirements throughout theentire range of our products. The focus on process optimisationhas changed the layouts of logistic facilities completely.

Areas for added value handling, specialised systems for case andpiece picking operations etc. Coming from a market that evaluatedthe efficiency of a warehouse by a “number of pallets per sq metre”ratio has now matured and sees the benefit of different subsystemswithin the same logistics facility.

What is the best way to get and maintain marketshare?

Constant review and improvement of our service levels to ourclients.

This is why we took the decision three years ago to build our ownfacility in Dubai World Central that operates as a hub for SSISchaefer in the Middle East and Africa or why we continuouslyinvest into research and development of new products. Whatseparates SSI Schaefer from other intra-logistic companies in theregion is that we manufacture 98 per cent of our products withinthe SSI Schaefer Group.

What are the latest products and trends in thematerials handling industry worldwide?

Globally we have seen a huge demand for case and piece pickoperations especially in the food retail sector. Within our group,

ROCKSTEADYSSI Schaefer is one of the biggest materials handlingcompanies in the region. A solid future strategy with apresence in all major markets is their mantra goingforward. Munawar Shariff spoke to Matthias Hoewer,MEA General Manager - SSI Schaefer

M A N A G E M E N T


the most advanced new technology that has been developed forthe global markets is the fully automated SCP – Schaefer CasePicking. The system allows our customers to build fully customisedpallets with mixed SKUs with the means of a robotic pickingsystem extending the traditional goods to men principal to now“goods to robot”.

How advanced, as compared to global supplychains, are supply chain and logistics companies inthe region in terms of embracing the latestMaterials Handling technology?

The local market is still one or two steps behind the requirementsthat we see in Europe or the American markets simply due to thefact that cost for workers is still relatively inexpensive in our region.

Nevertheless the growing demand from the consumers in theregion to provide better services in healthcare, delivery times forproducts of all kinds (order fulfillment for e-commerce) or simplyby not accepting empty shelves in your local supermarket havepushed up the requirements to all parties that are involved in thedistribution network. Mid-term these growing demands will forcethe domestic supply chain and logistics companies to go to the nextstep and use automation technologies.

How do new trends and technologies come about atSSI Schaefer globally and how are new productstested in order to make them more efficient andbetter value for money?

Within the SSI Schaefer Group, research and development of new




products and improvement of existing products is one of the keysto our global success. Analysis of market demands in over 50countries lead us to always new requirements and force us tosometimes even re-invent the wheel.

SSI Schaefer operates three technology and test centres world-widewhere new products are developed and tested before they arereleased into the market. For some of the products that have beenshowcased at exhibitions lately, like the SSI Schaefer Order Verifieror the SSI Schaefer Robopick this means that the systems havegone through thousands of hours of testing and differentdevelopment stages before they are shown to the public.

What is the size of the new office and warehousespace at SSI Schaefer at Dubai World Central?

The facility that we built in Dubai World Central is in total about3,000 sq metre in size and will provide us enough space to develop

the company in the next 10 to 15 years. We are absolutely happywith the decision to move into DWC. The service is excellent andwe are located in between many of our customers and right in thecenter of the UAE with just 45 minutes to Abu Dhabi.

What are SSI Schaefer's plans for the region?

When we are looking at “The Region” I would like to includeAfrica as well. We are following a clear long term strategy to bepresent with our own offices and employees in all the majormarkets. Therefore we opened a subsidiary in Johannesburg, SouthAfrica in 2011 and are now in the process of opening offices inSaudi Arabia.

The target within the next few years is to provide the samequality of services and consultancy from these local branches asour customers are used to get from us in Dubai or even fromEurope! n

The facility that we built in Dubai World Central is in total about 3,000 sq metrein size and will provide us enough space to develop the company in the next 10to 15 years. We are absolutely happy with the decision to move into DWC

M A N A G E M E N T


The Gulf Cooperation Council (GCC) constitutes six membercountries, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,and the United Arab Emirates (UAE), forming a political andeconomic union of the Arab states.

The GCC economies are energy powerhouses of the worldwitnessing robust growth momentum supported by high oil prices,strong government financial balances and a continued wave ofpublic spending on infrastructure projects. The six GCC countries

LOGISTICS- driving regional economic growth

The GCC region can safely attr ibute its economic growth to the logistics andsupply chain industr y. Subir Shah, Team Leader, Transpor tation and LogisticsPractice, Frost & Sullivan elaborates.




recorded a combined nominal GDP of US$ 1.12 trillion in 2011growing at a compound annual growth rate (CAGR) of 14 per centover the previous year. Post the economic crisis the GCC iscontinuing its economic reform programme, with a focus onattracting domestic, regional, and foreign private sector investmentsin the oil and gas, power generation, telecommunications and realestate sectors. The recent global economic recovery has resulted ina sharp rebound in the GCC’s economic activities.

The logistics industry has emerged as one of the key drivers ofeconomic activity in the GCC. Logistics in the GCC constitutes amajor sector rather than being just a support activity to otherindustries. The overall GCC logistics sector is estimated at aroundUS$ 35 billion dollars, of which three major economies – Oman,Saudi Arabia and the UAE together account for around 85 percent. Oil and gas, infrastructure and retail industry segments arethe leading contributors to the GCC logistics sector. The domesticservices segment (inland transportation and warehousing) isdominated by local players, while the international servicessegment (freight forwarding and international transportation byair/ocean) is dominated by multinational players.

Key trends impacting the expansionof the GCC’s logistics footprint

Infrastructure and railways

Occupying a strategic location on the global map and centredbetween the Persian Gulf, the GCC countries are blessed withworld-class port infrastructure. However, they face challengingsurface transportation issues due to unfavourable climaticconditions and harsh environments. To overcome these challenges,the GCC countries have started looking for alternative modes ofsurface transport and identified rail as a viable solution to counterpassenger and freight challenges.

Saudi Arabia has pioneered cargo transport rail projects SaudiArabia Rail Services provides freight services on two main linestotalling 1,018 kilometres. In the GCC, the UAE is the second-largest economy and has been a forerunner in rail revolution withthe Dubai Metro Project. Apart from completing the remainingphases of the Dubai Metro, it is building another ambitious railproject to link the seven Emirates by rail for the first time.

Christened the Union Railway, this network will later be integratedinto the GCC Railway Network. The Union Railway Networkpotentially offers a significantly cost-effective way to move largeamounts of aggregates, steel, iron ore, sulphur and other cargo, aswell as large numbers of passengers across the Emirates. Inaddition, it opens up a completely new industry for the countryand the wider region, apart from reducing congestion, pollution,and improving safety.

Exhibit 1: Saudi Arabia Rail Network and UnionRailway Network

Other GCC member states are also active in the rail transportarena. Oman’s national rail network is being developed in threephases. Oman also has plans to develop a metro system in thecapital city Muscat. Qatar’s railway network development islagging significantly behind its neighbours. The remaining twoGCC member states, Bahrain and Kuwait, are also busy planning

M A N A G E M E N T


their own railway networks, which will eventually link to the GCCRailway Network. However, these two states are laggingsignificantly behind the UAE and Saudi Arabia in terms ofprogress.

The key challenge in building a seamless GCC-wide regional railtransport network is to develop the six individual country networksaccording to uniform standards and specifications. Each memberstate is already progressing with the development of a national railnetwork based on its individual requirements. The integration ofthese different networks, each using a different set of engineeringand construction providers, could later be a challenge. This could

be mitigated if exactly the same or compatible standards areadhered to by each state.

Transportation practices in the GCC are likely to change withvarious on-going and planned railway transport projects that wouldbe executed by the governments. However, while Saudi Arabiaand the UAE are likely to witness significant changes within thenext two to three years due to advanced progress in projects, theother GCC member states are not likely to reap the benefits ofrailway networks for at least four to five years.

However, in the long term, rail transport is expected to play a




significant role in the development of every GCC member state,each of which has a prominent manufacturing and consumptionbase.

Development of cargo-specific sea ports (spearheaded by the UAEwith Jebel Ali port) has been another mega trend that has resultedin making the GCC a logistics hub for Europe-Asia trade activities.Focus on development of Free Trade Zones (or Free EconomicZones) by the GCC nations has been a major driver for their non-oil economic growth, which has had a profound impact on the

logistics sector. Due to promotional policies in this regard, asignificant number of multinational organisations are setting uptheir continent level distribution centres (for air and sea modes)here, which has been positively impacting the logistics servicesmarket. Operational free trade zones in the GCC include Jebel AliFree Zone in the UAE and Salalah Free Zone in Oman.

Industry

Focus on development of domestic manufacturing industries

M A N A G E M E N T


spearheaded by Saudi Arabia is another major trend, which is likelyto impact and drive the logistics sector. Development ofmanufacturing activities will lead to emergence of allied industrialactivities, which would further evolve into a complete supply chain

entity over the long term. Promoting the development of oil-related(petrochemicals) manufacturing clusters as well as non-oil clusters(such as electronics, food, pharmaceuticals, and automotive) wouldresult in creating significant demand and a sustainable market forlogistics services.

Saudi Arabia has emerged as a regional logistics hub in the GCC.Rising auto sales in Saudi Arabia and other emerging markets andlower energy costs in the region are drawing the attention of globalOEMs looking to tap into new growth opportunities. Thecontribution of industry to Saudi Arabia’s GDP stands to be 66.9per cent showing a dominance of manufacturing in the Kingdomand thereby a positive trend for logistics growth.

The industrial activities in the UAE are growing at a steady pacedriven by the construction and real-estate sectors. Other enablingsectors such as textiles, furniture and wood products, food andbeverages are on its growth momentum in the UAE with a rise inproduction and industries setting up production bases in theKingdom to address the regional and domestic demand.

Oman too has an immense potential in driving the logisticsindustry. The best performing industries in Oman excluding theoil and gas sectors are metals, engineering goods, chemicals andfood and beverage. The growth in industrial activities withincreasing production in the country and the propensity of end-user industries shifting to logistics outsourcing being acost-advantageous alternative are the drivers to the logisticsindustry in Oman.

Multinational Logistics Service Providers (LSPs) and local logisticscompanies are expanding their network and services locally and

within the GCC to address growth-driven industries across sixGCC countries and provide transportation, warehousing, andvalue-added logistics services. Potential for LSPs to tap are inboundand outbound logistics, in-plant logistics, warehousing and value-

added logistics services. LSPs should enhance their service offeringsaddressing the varied needs of end-users, designing industry-specific logistics solutions, best in class technology driven solutionsand world-class infrastructure to attract the potential end-userindustries. Collaboration with logistics end-users, building capacityof warehouses and logistics parks and a robust network designfacilitating transportation activities within the GCC and globalconnectivity are the key success factors for LSPs also being adeptin providing end-to-end logistics solutions.

Conclusion

Logistics services offer significant benefits and wider opportunitiesto the GCC economies. Overall, the sector is on a growth trajectoryand is witnessing the mega trends that would help establish it as aprominent logistics hub. GCC benefits from two uniqueopportunities; strong growth of volume in the trade lane betweenEurope and Asia and steady growth and development ofmanufacturing activities driven predominantly by Saudi Arabia.Capitalising on the availability of world-class port infrastructureand developing the GCC-wide rail and surface transport capabilityare essential factors for future economic development of the GCCcountries.

The important elements making a strong and efficienttransportation and logistics sector a strategic necessity in GCCare: enhancement of industry competitiveness, developing amultimodal logistics hub and supporting infrastructure like freezones around the port or airport, focussed investment ininfrastructure and adjusting policies and regulations to promotethe development of the logistics sector and synergy across allGCC countries. n

The industrial activities in the UAE are growing at a steady pace driven by theconstruction and real-estate sectors. Other enabling sectors such as textiles,furniture and wood products, food and beverages are on its growthmomentum in the UAE




Supply chain performance is ameasure of competitive advantage—both immediate and long term.

Not so long ago, the life of a supply chain executive seemed easy:The main objectives were to be cost effective and provide high-quality service. The tools and concepts to support these goals wererelatively uncomplicated—from just-in-time delivery and vendor-managed inventory to collaborative planning, forecasting and

replenishment. Back then, supply chain performance wascontinually improving, with most performance indicatorsregistering satisfactory or better levels of cost, service andinventory.

Then all sorts of innovative technologies, ideas and concepts wereintroduced to help improve performance. Companies centralisedtheir supply chain organisations, brought in expensive enterpriseresource planning (ERP) software and outsourced manufacturing

WINNING SUPPLYCHAINS INTEGRATETODAY'SCAPABILITIES WITHTOMORROW'S GOALSAs supply chains grow, incorporating changes is key to helping them remainsuccessful. A.T. Kearney tells us all about maintaining the momentum.

M A N A G E M E N T


and distribution to bigger and more capable third parties. Yetdespite these and other measures, supply chain performance froma cost and service perspective declined, stalled, or saw minimalimprovements (see figure 1).

Suggestions on how to improve supply chain performance aboundin industry magazines and journals, with most proposing solutionssuch as becoming more customer-centric, responsive and agile.Nice words, but few people seem to know exactly what they meanor how to turn them into actions. Even as supply chain processeschanged, the world around us changed even more rapidly.

Today, CEOs and supply chain executives continue to askimportant questions:n How do we control mounting complexity?n How can we balance size and efficiency with flexibility and

responsiveness?n Is it possible to plan for demand volatility?n Which of the many companies in our supply chains should beour closest and most trusted partners?

Answering these questions requires taking a closer look at thepressures on today's supply chains, the different improvementmeasures available, and the reasons why companies often fail totake the appropriate measures.

Responding to supply chain pressures

The world is changing. Ongoing consolidation has madecompetition and customers bigger and more powerful, emergingcountries have developed into attractive growth areas, technologyhas turned ordinary customers into informed and cost-consciousconsumers, and scarce commodities and natural resources are not onlydriving prices up but also raising environmental concerns (see sidebar:Managing Megatrends). Add to these the cadre of new channels, newproducts and services, shorter product life cycles and time-to-market,and pretty soon the impact on companies and industries worldwidebecomes significant. Almost all sectors are more volatile and complex,and their supply chains have to change accordingly.

An appropriate response to these trends usually means takingactions at three levels: fix the basics, transform the supply chain,and set the stage (see figure 2).Fixing the basics is for those who prefer continual improvements—

making incremental changes and building capabilities at a relativelymeasured pace. Typical initiatives focus on areas such as inventorymanagement, lean manufacturing, and sales and operationsplanning. Depending on the circumstances, the cost savings aregenerally in the range of five to 10 percent.

Transforming the supply chain becomes necessary when market




volatility and complexity begin playing havoc with business plansand market position. Here, next-generation tools often come intoplay, focused on segmentation and network optimisation,complexity management, and collaboration among suppliers andcustomers. Improvements in these areas often lead totransformative change that go deep into the corporate makeup andinclude developing forward-thinking strategies, designing neworganisation and governance structures, and pushing for culturalchange. The benefits are usually worth the additional effort, astransformations can result in anywhere from a 10 to 25 per centimprovement to either the top line or bottom line, or both.

Setting the stage is for industry frontrunners. These players aredriven either by the intrinsic volatility and complexity of a sector(fashion, for example) or by their own cultures, ambitions, oraspirations (Google). Frontrunners are all about preparing for thefuture — maintaining a strong vision and strategic mindset, developingdeep organisational capabilities, and understanding the risks andrewards associated with new techniques, processes, or structures.Some frontrunners work within the current market structure, whileothers attempt to reshape the market structure to their advantage.

Companies are generally most comfortable with a fix-the-basicsapproach to supply chain performance. But as volatility andcomplexity increase, so will the need to move beyond the basics.

Trouble in transformation

Executives know they need to improve their supply chainperformance and that simply cutting costs and improving serviceis no longer a viable option. Yet those who move beyond the basics

to take the larger leap of seeking transformative change often fallshort. There are several reasons why:

After picking the low-hanging fruit, what's next? Sayyou are the CEO of a company that is no longer growing, or atleast growth has slowed significantly, commodity prices are rising,and your customers are laying low. What do you do? Cut costs,and get lean. It is hard to find a company that hasn't applied S&OP,strategic sourcing, inventory management, lean principles, and SixSigma programmes, or rolled out improvement initiatives inmanufacturing and logistics. The trouble is these only address thelow-hanging fruit. Next steps and new opportunities are neitheridentified nor pursued.

Benchmarking is analogous to goal setting. It is fineto benchmark your supply chain setup and performance againstpeers, but it is not fine to consider this the end game whenambitious goals are needed. Performing slightly better than peersmay look good on paper, but it doesn't address the real issuesor provide the right solutions—especially when everyone in themarket is registering roughly the same performance levels.

Trouble getting past unfulfilled promises. Anyonewith a supply chain is likely heavily invested in ERP systems, longhailed as the panacea for most supply chain issues. But thepromised harmoniszed processes, robust data, and end-to-endtransparency never materialised. It becomes difficult first toadmit that such a huge investment has fallen short and then towork up the energy (and appetite) to pursue the next bigbreakthrough.

Measuring beyond cost and service. Measuring beyond

M A N A G E M E N T



Port of Salalah employs over 2200 people and is managed by APM

Terminals, one of the largest container terminal operators in the world.

Port of Salalah, Oman's largest port, is astride the primary east-west shipping lane linking Europe and Asia and

also holds a strategic position for shipping lines serving the upper Arabian Gulf, Indian sub-continent, Red Sea

and East African markets. Since the start of its container terminal operations in November 1998, throughput at

the Port of Salalah has grown over 600%, ranking this port among the top 30 globally.

Primarily a transshipment port at present, the Port of Salalah is enhancing cargo linkages through air, road and even draw-ing up its future GCC Rail network linkage, as the portʼs existing cargo is guaranteed to be a major source of rail tradetraffic. At the start of 2012 the port marked its 30 millionth container, and has averaged over 3 million TEU throughput forthe past 6 years, while handling over 7.2 million tonnes of general cargo by end-2012. The general cargo business hasbeen growing rapidly and the port is tripling its capacity to handle liquid and dry bulk cargo for a number of commodities.The Port of Salalah combined with the adjacent Salalah Free Zone and nearby Salalah Airport form an ideal location, to-gether called the Salalah Hub, which offers value-add and distribution services that can take advantage of the excellentliner connectivity (over 3000 vessel calls per year, with direct links to over 54 ports worldwide). The Salalah Free Zonehas seen major investments to the tune of US$3.5 billion in the past three years, due to the appeal of zero corporate taxfor 30 years and 100% foreign ownership possibilities, not to mention the unique benefit of the US-Oman Free TradeAgreement. Oman is creating exciting new opportunities as a high-growth market at a key crossroads of global trade. The Sultanate'snon-oil exports increased by over 16% in 2012, which are indications of value-added growth to the diversification of Omanʼseconomy driven by respective downstream investments. The level of vessel traffic between Salalah and east Africa hasincreased in 2012 and the port expects further trade between Salalah and the upper Arabian Gulf and Indian Subcontinentto grow this year. As part of its master plan the Port of Salalah also seeking to capture the number of cruise vessels and tourists enteringthe port, which last year crossed 28,000 visitors, to better serve the tourism industry and in support small to medium-sizeenterprises (SMEs) through an enhanced business incubator space. Commenting on the portʼs significance, Peter Ford, CEO at Port of Salalah, says, “Our current customers continue torealize the value that Salalah offers. They have also grown significantly with us. One of the customers grew by over 40per cent last year. We are working with one new customer in particular since we have identified $19 million savings totheir network by utilizing Salalah. Incentivized by the world class container port and expansion of the general cargo terminalin progress, the expectation is that there will be substantial growth in cargo volumes and local job creation with these topcompanies taking advantage of Oman's best hub infrastructure."



cost and service. Finally, transformative change requires measuringvalue. Companies know how to measure cost, service, and perhapsworking capital but have not found a way to truly measure aspectsof differentiation and competitive advantage derived from supplychains. Supply chain value must be measured and linked to theoverall business strategy. For every supply chain that fails to reachits full potential, others succeed. What do those with winningsupply chains know that the others do not? Winning supply chainsintegrate today's supply chain capabilities with tomorrow's goals.

Setting the stage

Supply chain objectives must be closely aligned to overall businessobjectives, especially if the goal is to gain competitive advantage.At this level, it is important that your supply chain capabilities cancarry you into the future.

An Assessment of Excellence in Supply Chains (AESC) analysisis designed for this purpose. Instead of benchmarking cost,service, and working capital performance or looking at the classicbuilding blocks of processes, systems, and organisationalstructure, an AESC analysis focuses on supply chain capabilities.It identifies 11 fundamental supply chain capabilities and providesa framework for assessing the strategic importance and the stageof excellence of the individual capabilities (see figure 3).

The analysis points to the key capabilities that must be explicitlydefined and actively managed. In addition, it provides a"language" to communicate the business value of the supply chainbeyond cost and service and helps to identify supply chainpriorities in light of future goals.

Figure 4 illustrates a typical output of our AESC analysis, in thiscase a consumer packaged goods company. The company's strongestperformance is in its lean capabilities and in the ability to adapt tochanging market conditions. The company is less effective in the areasof speed, reliability, accuracy, complexity, and collaboration and hasignored suggestions for building a green supply chain.

Immediate impact, growing advantage

Once you are looking beyond cost and service and including "new"capabilities among your strategic targets, the result is increased andgrowing competitive advantage. Consider the following caseexamples from our client work:

Green

A leading Brazilian cosmetics company took its environmental and

M A N A G E M E N T


social responsibilities so seriously that company executives includedthese as criteria in supplier selection, incorporating them into theirfinancial metric system and supplier selection process. We helped thecompany implement a "triple bottom line" framework in whicheconomic criteria (costs and flexibility, for example) are consideredalong with environmental effects (water usage, carbon footprint,waste) and social impact (percent of disabled employees). The newframework resulted in selecting numerous new suppliers andexcluding the larger incumbent suppliers. The result: a 17 per centeconomic benefit, a two per cent environmental benefit, and a nineper cent social impact. And the company's supplier base has becomeproactively green.

Collaboration

When two large companies—a food manufacturer and a retailer—decided to build a more collaborative supply chain, their primarygoal was to work together to create lasting value. They wanted togo beyond talking about collaboration to become trulycollaborative, exploiting each other's capabilities to differentiatetheir products and increase value for the consumer. Collaborationwould take place in all functions, from buying, manufacturing, andlogistics to finance, promotions, and the store shelf. Theychallenged each other with a few simple questions: How wouldwe behave if we were on the precipice of a merger? How closelywould we work? What information would we share? What goalswould we meet? The results of their true collaboration: 40 percent-plus profit improvement that has proven sustainable overtime.

Complexity

Achieving the right level of complexity requires going beyondsimply "cutting the tail" to asking the right questions: How doesreducing packaging types affect our sourcing and manufacturingcosts? What is the impact of excluding a customer? To this end, weintroduced a state-of-the-art multi-cube, an end-to-end decisionsupport system that links revenues to costs throughout the valuechain using a smart combination of database information. Whendeployed with linear programming, it can calculate the impact ofany complexity scenario. Results range from two to six per centincreased earnings.

Transparency

In volatile industries where demand is high, upstreammanufacturing capacity is scarce, and production cycles are long,the importance of supply chain visibility to forecast future demandcannot be overstated. Technology is helping to obtain this much-needed view. For example, a leading glass bottle manufacturer setsup its production planning processes based on the forecasts of itskey customers. Information is delivered directly to the productionline and to raw material suppliers. Its supply chain is consideredone of the most flexible and reliable in the industry.

Speed

Supply chains designed around speed are commonly found in fast-paced industries like fashion where the ability to respond quicklyto new trends can make or break a business. We have helpedseveral companies find creative and cost-effective ways to organisesupply flow. For example, a fashion retailer is now able to sourcethe same item from different regions, with different costs anddifferent supply lead times. Part of its forecasted volume is orderedfrom low-cost countries, such as Madagascar, and the remainderfrom Morocco, Turkey, or even Portugal. With "smart orders,"the retailer orders different sized bundles of the same items,sometimes even at the store level. Products are cross-dockedimmediately after arriving at the ports of entry.

The measure of a winning supply chain

Supply chains have changed dramatically in a matter of a few years.They have gone from uncomplicated to complex, and the tools toimprove their performance have changed almost as radically. Yetthe returns on supply chain performance have rarely lived up to thepromise. That's because supply chains continue to be measured bycosts and services rather than by the capabilities that lead to success.

By aligning supply chain objectives with overall business objectives,companies not only improve performance and competitiveadvantage, but also have a supply chain that can carry them intothe future. Winning supply chains integrate today's supply chaincapabilities with tomorrow's goals. n

Research and compilation by A T Kearney




LOGISTICSOUTSOURCINGTRENDS

- A strategic insight

M A N A G E M E N T


Overview

The Gulf Cooperation Council (GCC) is increasingly becomingan integrated economic entity with consistent positive initiativesfrom each member nation towards minimising political and

geographic boundaries. One of the key industry sectors set tobenefit is logistics. Frost & Sullivan’s recent research analysis foundthat the overall GCC’s logistics sector revenue was estimated ataround USD 38 billion dollars in 2012, of which three major

economies – Oman, Saudi Arabia and the UAE - account foraround 85 per cent. Oil and gas, infrastructure, and tradingindustry segments are the leading contributors to the GCC logisticssector.

The domestic services segment(inland transportation andwarehousing) of the GCC logisticsmarket is dominated by local players,while the international servicessegment (freight forwarding andinternational transportation byair/ocean) is dominated bymultinational players such as DHLExpress, TNT Express, and Agility.

Key developmentsimpacting the sector

Development of a rail transportnetwork (initially for public

transportation and later to be used for cargo transportation as well)can be considered the most important trend in the GCC logisticssector currently. Largely-traded commodities such as chemicals,petrochemicals, mineral ores and mining products, metals, and

Companies in the logistics industr y face a number of challenges when it comes tooutsourcing a par t of the supply chain. Here are a few of the user challenges facedin the region with recommendations for improvement from the Transpor tationand Logistics Practice at Frost & Sullivan.

The primary reason for outsourcing logistics functions as reportedby end users across the GCC is to reduce cost. Lack of requiredcapabilities and preference to let professionals handle logisticsactivities are the other two important reasons reported by end users




basic materials such as stone, concrete and cement used inconstruction need to be transported in bulk quantities, for which,rail is the best suitable form of transport. Hence realisation of thisnew transport mode in the GCC can turn out to be a landmark forthe logistics sector.

Focus on development of Free Trade Zones (or Free EconomicZones) by the GCC nations has been a major driver for their non-oil economic growth, which has had a profound impact on thelogistics sector, as well. Due to promotional policies in this regard,the GCC has seen numerous multinational organisations setting uptheir continent-level distribution centres (for air and sea modes),which has had a positive impact on the logistics services market.Focus on development of domestic manufacturing industries,spearheaded by Saudi Arabia, is another major trend, which is likelyto impact and drive this sector. Development of manufacturingactivities will lead to emergence of allied industrial activities, whichwould further evolve into complete supply chain entities over thelong term. Promoting the development of oil-related(petrochemicals) manufacturing clusters as well as non-oil clusters(such as electronics, food, pharma, and automotive) would resultin significant demand and a sustainable market for logistics services.

Outsourcing trends, reasons andpreferences

Frost & Sullivan’s 1st Logistics Industry Benchmarking Study inthe GCC revealed the key trends witnessed in outsourcing oflogistics functions, end-user preferences in selection of logisticsservice providers (LSPs), and the major challenges. Overall in theGCC, inbound freight forwarding (related to imports) and inboundtransportation (typically from ports) are reported to be the mostoutsourced logistics functions. Further, value added logisticsservices (VALS) such as packing, labelling, inventory management,etc. and reverse logistics are reported to be the least outsourcedlogistics functions.

The primary reason for outsourcing logistics functions as reportedby end users across the GCC is to reduce cost. Lack of requiredcapabilities and preference to let professionals handle logisticsactivities are the other two important reasons reported by endusers.

The study reveals that logistics end users in the GCC prefer dealingonly with reputed LSPs having proven capabilities. Their

M A N A G E M E N T


SICK Automation offers comprehensive sensor solutions for the logistics industry, which requires intelligenttechnology for efficiency and reliability in various processes.

As a technology partner andsupplier of sensor technology,sensor solutions and service tothe logistics segment, SICKoffers plant builders,integrators, logistics providersand operators our long-standing expertise in theautomation of logisticalprocesses. Automating theseprocesses is a challenging task

for manufacturers of logistics facilities and suppliers of warehousingand handling systems, especially in identification and classificationof logistical items, automation of plants in terms of instrumentationand control, as well as equipping them with certified safetytechnology for safe operation. SICK offers the appropriate portfolioof intelligent sensors and systems for nearly any logistics-related task,supporting their partners through industry-specific solutions andbenefiting them with optimised throughputs in conjunction withmaximum plant availability, a high level of process reliability andquality, as well as continuous and documentable ‘track and trace’sequences. SICK’s scalable solutions can be customised for today’sapplications and are also capable of migration to meet futuredemands. For instance, the contour and volume measurementsystems for spatial detection in combination with ID systems areunique because they permit both simple and complexmeasurement solutions, even beyond the boundaries of

transshipment hubs. Our ability to provide global service ensureshigh availability and productivity as well as minimal downtimes.

So, whether for parcel logistics or warehousing, for retail or mailorder distribution systems, and for airport or port efficiencyimprovements, reliable data capture and optical detection systemsare central requirements to ensure the stability of sortation,detection and transport processes. SICK provides laser and camerabased code reading, legal-for-trade dimensioning systems andsafety sensors that are the key in achieving the best performanceof modern material flow systems in the logistics supply chain.Through a long-standing relationship with global logistics serviceproviders and system integrators in material handling, SICK can offera high degree of value-added service and consultation to find thebest solution for your application requirements.

In the Middle East, SICK is represented by SICK AutomationInternational, based in the Jebel Ali Free Zone of Dubai, UAE, andwho have strong local technical and sales support competencies.We have a well-developed distributor and integrator networkacross the MENA region. This is SICK Sensor Intelligence.




reputation and capabilities for time-bound deliveries have beenreported as the leading parameters in selection of LSPs by end userson an overall GCC level. Ability to provide security and visibilityof consignments has been reported as the next important selectionparametre.

Exhibit 1 shows the percentage values of most-outsourced logisticsfunctions by end users in the GCC as of 2013.

Exhibit 1: Most Outsourced Logistics Functions by End Users inthe GCC, 2013

Key user challenges and opportunitiesfor LSPs

While capabilities for time-bound deliveries have been reported asone among the top parameters for selection of LSPs, end usersreported that the most important challenge they are facing isinefficiency of LSPs in adhering to timelines. Similarly, the secondmost important challenge as reported by end users is ensuringsafety of goods in transit and warehousing; whereas ability of LSPsto provide security of consignment has been reported as one amongthe top parameters for selection. Both these findings indicate highlevel of mismatch between end-user expectations and LSPperformance.

Growth opportunities for LSPs in the GCC are linked with thetypical nature of business operations here, which involves importand distribution for most industries. Accordingly, the greatestpotential growth opportunities for LSPs in overall GCC as reportedby end users include provision of freight forwarding and otherinternational logistics services and domestic transportation services.Other prevalent challenges faced by both LSPs and end usersacross the GCC include the harsh geographical environment andlack of alternate transport modes for roadways. The harsh (dry

desert) climate prevalent across necessitates extra efforts andequipment in handling logistics for several industries includingfood, pharma, FMCG and chemicals, among others. These extraefforts include employing temperature-controlled transportationand warehousing facilities resulting in higher logistics costs forcompanies. Further, lack of an alternative to the road transportmode for distributing goods within domestic markets of all GCCnations or across their borders means longer transportation time

in the harsh environment, which in turn increases the scope fordamage of goods. All of the above would ultimately result in higheroperational costs for LSPs and costlier logistics services for end-user companies.

Conclusions and recommendations forLSPs

The logistics sector in the GCC has a higher reliance oninternational logistics activities owing to the typical nature ofbusiness operations in the Middle East. However, the importanceof domestic logistics activity is growing due to the focus ondeveloping manufacturing bases by member nations such as SaudiArabia and Oman. Therefore, Frost & Sullivan recommends LSPsin the GCC to actively focus on improving their performance tomatch end-user expectations on key selection parameters such astimely deliveries and ensuring security of goods in transportationand warehousing. In addition, improving capabilities ininternational logistics and basic domestic transportation serviceswould prove to be beneficial for LSPs, as these two are reported tobe high growth areas by end users across the GCC. Further, LSPsshould actively tap potential opportunities emerging from each ofthe key developments such as customised services for Free TradeZone-based companies, providing end-to-end logistics services forgrowing manufacturing bases and active participation in gainingrail transport capabilities, among others. n

Growth opportunities for LSPs in the GCC are linked with the typical nature ofbusiness operations here, which involves import and distribution for mostindustries. Accordingly, the greatest potential growth opportunities for LSPsin overall GCC as reported by end users include provision of freight forwardingand other international logistics services

M A N A G E M E N T




Documents

SCLG YEARBOOK 2013/2014