Delivery to Doha: Qatar’s logistics bounty
Logistics is the backbone of business and trade. In the supply chain, it is all about efficiently procuring the goods, storing them and moving them to the end user. Powered by investments in infrastructure and transport, Qatar’s logistics industry seems to be heading on the right path.
Logistics is the backbone of business and trade. In the supply chain, it is all about efficiently procuring the goods, storing them and moving them to the end user. Powered by investments in infrastructure and transport, Qatar’s logistics industry seems to be heading on the right path, writes Aparna Shivpuri
According to the Agility Logistics Emerging Markets Index 2014, Gulf countries are riding high in the table of international locations offering favourable conditions for business and trade. The Kingdom of Saudi Arabia (KSA) climbed one place to third spot, with the United Arab Emirates (UAE) at number six followed by Qatar, Oman, Kuwait and Bahrain at 12, 13, 18 and 22, respectively, out of 45 countries.
Understandably, Nael Attiyat, country manager, DHL Express Qatar, is optimistic about the future of the logistics in the country. “The future looks great,” he tells The Edge, “and we think the ongoing construction and development of infrastructure will definitely lead to highly-connected facilities that will positively impact our daily delivery time. At the moment, there is a lot of construction going on and that causes bottlenecks, but in our business, these are the kind of challenges that we face regularly and we have our plans on how to tackle them.”
There is also no denying that Qatar’s strategic location has contributed to the growth of the logistics industry. Elaborating on this, Srinath Manda, programme manager, transportation and logistics practice, Middle East, North Africa and South Asia, Frost & Sullivan, remarks, “Qatar’s geographic location has significant potential to tap the Gulf region’s trans-shipment trade flow and cargo from the established neighbouring trade hubs such as the UAE and KSA. While the country has been reasonably successful in this aspect with regards to air freight, as evident from the 25 percent compound annual growth rate (CAGR) of the market during the past five years, the marine freight segment has not achieved any notable growth.”
Nevertheless, Qatar has been highly focused on developing its transportation and economic infrastructure over the past few years, as a part of which a major new seaport is being built, and this may help in enhancing its marine freight volumes in the near future.
One development that has changed the logistics industry in Qatar is the Logistics Village Qatar (LVQ). The one million square metre, self-contained logistics hub allows related businesses to expand and provide world-class services in Qatar.
Of the village, Ranjeev Menon, group CEO, Gulf Warehousing Company, says,” “The LVQ provides its clients with readily available infrastructure, including customisable warehouses and distribution centres, multi-purpose warehouses, third-party logistics (3PL) warehouses, data centre, container yard, and transport service shop. The facility provides a full range of storage solutions, including ambient, dry, chilled, refrigerated, bulk, and open yard storage. In addition, clients have access to one of the largest transport fleets and networks in the country, as well as state-of-the-art IT infrastructure, providing IP telephony and a variety of operational and warehouse management systems.”
All clients at the LVQ also have access to a global network of more than 550 freight and logistics services offices in 130 countries. With a premium location no further than 18 kilometres from the city centre and 15 minutes away from the currently developing New Doha Port, the LVQ has been strategically positioned within easy reach of every transportation passage and port of call.
Ranjeev Menon, group CEO, Gulf Warehousing Company, says clients at the LVQ have access to a global network of more than 550 freight and logistics services offices in 130 countries.
The importance of 3PL
Qatar has witnessed a rise in the number of companies using 3PL providers, which is a function of the fact that many small and medium companies cannot afford to have in-house logistics services.
“While 90 percent of companies still run their logistics in-house, and due to their organic growth, they often spread to various warehouses,” explains Menon, “which makes for the inefficient operation that is one of the many drivers of why a good number have switched over to 3PL. Estimations have set the potential market share for 3PL at 15 percent of the overall logistics market by the year 2016. This is in line with trends in Europe and the UAE, which sees the outsourcing of logistics and supply chain needs at projected rates of 35-40 percent and 25 percent respectively,”
Menon adds that this is largely due to the long processing times to establish new warehousing projects, which can last from two to three years between obtaining approvals, constructing the warehouses, and establishing a system to manage the stock and streamline operations. A good 3PL provider can largely expedite this process for near immediate service, depending on the clients’ needs and size of the operation. 3PL is also more cost efficient, with labour, construction, and management costs defrayed and united by one service provider.
Paul Virgo, vice president, logistics, Milaha Maritime & Logistics, while agreeing on the benefits of 3PL, believed that the use of 3PL is still low due to a lack of awareness. “There is a need for all businesses to be more aware of the supply chain costs, to become more efficient and in turn be more competitive in the open market – this can only be feasible when corporations focus on their core business and outsource their logistics and supply chain requirements. This will provide a competitive advantage for the retailer and ensure that the cost savings get delivered to the end consumer through more efficient operations, resource pooling and economies of scale.”
He also mentioned that the penetration of 3PL in Qatar’s logistics market is low compared to the global average, even when compared to neighbouring countries such as KSA or the UAE. The challenge is to persuade the various businesses across sectors, that logistic service companies are more experienced, have scalable resources and can offer the same control (if not better) of the supply chain compared to if it was managed in-house.
Challenges and the future
The logistics sector in Qatar has been facing challenges, some of them sparked by the huge growth in the demand for warehouses. This increase in demand has resulted in the rent of warehouses going up, which is then reflected in the price of the goods. For instance, for the food sector, which relies heavily on proper storage of goods, there is a shortage of warehouses that offer temperature control, among other things.
Commenting on this, Virgo adds that the infrastructure sector is growing at a faster pace than can be sustained with current state or rate of growth of logistics infrastructure. The government has many initiatives in place to ease some of the bottlenecks; however, this may not be enough. There are shortages in warehousing and other issues across various stakeholders that may be limiting faster development of the logistics infrastructure.
There is also a lack of integrated multi-modal transportation. With investments being made by the government in road, rail and air infrastructure, hopefully this problem will be sorted soon. As far as road infrastructure is concerned, a number of projects, such as the Bahrain Causeway, Doha Expressway and Qatar North Highway are being initiated to not only connect Qatar internally but also with its neighbours.
There is an expected gap of six to eight million square metres of logistics facilities that must be filled by 2020, according to our estimates, in order for the state to fulfil its international obligations, says Menon of GWC. “This gap has been addressed head-on by a number of government initiatives, including the constructions of cargo and logistics facilities at the New Doha Port, Hamad International Airport, and the economic zones projects. A number of private parties, particularly GWC, have put themselves forward as good-faith partners to help design, construct, and manage these expanding facilities.”
The government is also working on a new port project, which is estimated to cost close to USD7.4 billion (QAR30 billion). The project, which was started in 2011, is expected to handle its first shipment by 2016 and could possibly cover an area of 26.5 square kilometres. The eventual purpose of this project is to integrate with rail and road links and a new economic zone.
The Hamad International Airport will also be fully functional by 2015 and will give a major boost to the logistics industry. It will have one of the largest cargo terminals in the world, with a capacity to handle about 2.5 million tonnes of cargo.
However, according to Menon, it is not just the lack of logistics infrastructure, but also the lack of strong management. “As mentioned,” he points out, “a number of companies rent out warehouses in various areas throughout the industrial area. While we are sure they do their best, there isn’t always forethought into the use and customisability of the warehouses they are taking, which may lead to poor value for money. Good 3PL and 4PL companies can bridge this knowledge gap, providing the expertise and the technology to consolidate these warehousing facilities and managing them to peak efficiency.”
Speaking on the same lines, Virgo remarked that, “One of the key areas that will hamper the development of the logistic sector is the ability of agencies, charged with enabling business, to communicate and understand the full effect of the proposed projects. In a time when inflation is rising at a faster pace than other Gulf countries, the supply chain should be studied holistically to ensure that all initiatives are aligned and complement each other.”
According to Manda of Frost & Sullivan, Qatar’s logistics market is expected to witness about 10 percent growth in 2014 over the previous year. The market is likely to witness around 10 to 11 percent of Compounded Annual Growth Rate for the next three to four years. The contribution of Qatar’s logistics sector is also expected to grow, comprising 8.4 percent of real gross domestic product (GDP) by 2018.
Giving his point of view on this, Attiyat of DHL Express Qatar says, “It should be noted that the country has to compete with the neighbouring large economies with a significantly high level of domestic and international trade cargo volumes and also the infrastructure capacity to handle them. Qatar can evolve itself as a complementary hub to support and benefit from these large markets and trade hubs. Furthermore, it can also build/expand its capacities in air freight transhipment so as to sustain the impressive growth being currently witnessed.”
Being an import-dependent economy, it is imperative for Qatar to build on its logistics industry and the Qatar National Vision 2030 has paved the way for that, by increasing the demand for connectivity and in turn for logistics.
Like his contemporaries, Menon is bullish about the future and is quick to add that the premium Qatar has placed on infrastructure spending is no secret, nor have been the public announcements of their aim to finish all current road infrastructure projects by 2016 to 2018, which should aid the transport and distribution industry immensely.
He believes that the logistics industry is on the cusp of a major boom in operations and revenue in the coming five years. Meanwhile, the healthy growth of Qatar’s non-oil sector has directly translated into demand for industrial and logistics facilities in Qatar, and the future certainly seems positive for this key market sector in the country.