LOGISTICS INFRASTRUCTURE IN THE GULF COOPERATION COUNCIL - ASSET RICH AND CARGO POOR?
Much has been built and expanded, is being built and will be built throughout 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 things that stand out about all the projects -
- They are impressive. State of the art.
- They are country centric. Each can be considered a standalone project. Each is meant to serve the businesses within its respective country.
- Projects are not integrated among countries. There is not a GCC interconnection. They are not meant to facilitate the smooth flow of cargo among and within the countries of the region.
As a result of the centricity and lack of integration, there are investment gaps, such as with roads and railways, and investment redundancies, such as with regard to ports, with the logistics infrastructure from a GCC perspective. They can be viewed collectively as over-engineered and under-customered.
Logistics as Economic Driver. Logistics can be and has been an economic cluster to drive growth. Despite their geographical size, Singapore, The Netherlands and Hong Kong are significant examples of logistics economic successes. They have proven what logistics (and maritime) can mean to a country.
There are benefits with being the logistics and maritime center. Four key ones are:
- Economic growth. It would be in the important private sector.
- Employment creation. The potential is there for 100,000+ jobs for GCC citizens. These would be at all levels.
- Economic diversification. This expands opportunities in the non-oil economy.
- Attracting outside / direct foreign investment.
In addition, other key value drivers of the logistics focus and what it generates are:
- Creating sustainable development
- Supporting linkages and connectivity for international trade
- Supporting linkages and connectivity for domestic flexibility of labor and development
- Attracting international inward investment for development of national primary clusters that require underlying logistics to support sustainable development
- Attracting international inward investment for international purposes - hub-based trade or as offshore centers.
- Supporting, and vital part of, the ease of doing business in international trade
Clusters are viewed as key for improving the economic performance of regions. They orient economic development toward groups of companies for common issues, such as training. Clusters build on the unique strengths of an area rather than trying to copy other areas. They enable a region to have different sets of economic development opportunities.
Logistics is a critical element of any cluster activity, with its combined physical goods, information, finance, and documents flows and activities. It is both a supporting and necessary element in all development. Given a multiple set of economic clusters, logistics is an economic activity and skill-set stimulant in its own right. As has been proven, logistics can be the driver to create economic clusters, growth and jobs.
Competitiveness. There is not a united effort to establish a logistics center in and for the GCC that is supported with infrastructure linking all the countries. Countries compete in varying ways within the GCC and the region with regards to logistics and trade. They each compete for essentially the same business. How they are viewed can be seen from three indexes that evaluate countries of the world.
1) Logistics Performance Index (LPI). The World Bank has developed 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 by Hong Kong at 4.12.
The World Bank surveys global freight forwarders and express carriers as to the logistics "friendliness" of countries in which the firms operate and with which they trade. Scores reflect quantitative and qualitative measures.
Scoring is based on six criteria---customs, infrastructure, international shipments, logistics competence, tracing and tracking, and timeliness.
Scores for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab 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, "Reducing Supply Chain Barriers". Per the WEF, ETI measures the extent to which individual economies have developed institutions, policies, and services facilitating the free flow of goods over borders and to destination. The structure of the Index reflects the main enablers of trade, breaking them into four overall issue areas that are captured in sub indexes-market access, border administration, transport and communications infrastructure, and business environment.
The survey recognizes rise of international supply chains and the effect on trade. 132 countries are ranked. Singapore is ranked #1, followed by Hong Kong. Singapore's score is 6.14.
3) Global Competitiveness Index. The WEF assessed the competitive landscape of 144 economies, providing insight into the drivers of their productivity and prosperity. Switzerland is ranked #1, followed by Singapore. Switzerland had a score of 5.72.
Needed-Focus. The indices are about more than infrastructure and assets. They reflect what is required to be a logistics / supply chain leader in the global economy. That is what the GCC should do-improve scores and focus on becoming a leader. Implicit to that is who will be the logistics center and leader in the GCC.
This requires a focus on what should be done-
- Develop structure to being a leader. The figure below shows what is
needed, namely, customers, various types of logistics assets, logistics service
providers and technology. All of these elements that must be built and
integrated into a cohesive program and operation.
- Segment the logistics market. The logistics market is not monolithic.
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 a particular country or port. Analyze and slice it as
to industries and to unique opportunities, such as supply chain complexity. Then
the needed structure and other steps can be implemented. Segmenting is in
contrast to much of what is happening in the GCC with regards to duplication of
assets in pursuit of the same market. The present approach means dividing up the
same market among countries and missing out on economic growth and employment
Here is an example of segmentation-
Attract two sets of customers. There are two underlying sets of
customers that the approach should target:
Both customer sets are critical to generating and to sustaining logistics
activities and to developing the economy.
- Logistics service providers-these are major ocean carriers, air cargo firms, 3PLs, warehouses, forwarders, and others--that are important to provide needed supply chain services.
- End-user customers-Multi-nationals located in Europe, Asia, North America and elsewhere that will actually position their products in the GCC. They will choose which country and its logistics as the hub for their supply chain and trade needs.
Implement a strong value proposition. Why should a logistics provider
or end-user customer use a certain port or country's logistics park? How do
multi-national corporations view it? How do major logistics service providers
view it? Why should they do business with a certain port, do more than shipping
and transshipping containers of cargo directly from their warehouses or
factories? Transshipping containers does not create all the employment and grow
the economy that being the logistics leader does.
The value proposition is not about what the port or logistics park does; it is not about assets. The value proposition is about what customers want and how that location meets-and exceeds-those wants. A strong value proposition separates an operation/facility from the competition. It will draw customers and make them stay.
- Develop training programs. There would be many different job opportunities for citizens of the GCC. Education and training would be needed for all the different logistics needs and for all employment levels. Strengthening the logistics talent training will accelerate 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 the logistics center). In addition, there should be education for supply chain management. Conclusion. The economic benefits of significant development and job creation driven by logistics are not being achieved. Each country in the GCC has advantages and disadvantages. The time is now to stop the "shotgun" approach to investing in various logistics infrastructure. Instead, assess, identify, target and develop to meet specific logistics opportunities. It is also important to recognize that being the leader will be an ongoing effort.