Ask the expert: Lincoln Behm
Question: How can logistics companies position themselves to capitalise on a high growth market?
Expert: Lincoln Behm, Senior consultant, Contax
Boom time in the Middle East
The Middle East is currently experiencing an unprecedented level of growth. In the United Arab Emirates, for example, the population is expected to increase from 4.1 million in 2007 to 6.7 million in 2012.
The local government has also green lighted an exciting array of developments to support this residential spurt, including housing projects, transport enhancements and industrial growth.
As a market intelligence company, Contax has closely followed this progress and tracked project investment for various different industries.
We estimate that announced capital projects in the United Arab Emirates will total around US$471 billion between 2007 and 2012. This remarkable figure is based on announced projects only and does not include unconfirmed ventures.
This regional growth has numerous implications on the logistics industry. For starters, efficient land transportation will play a critical role in supporting these developments and ensuring that construction costs are kept under control.
This is particularly relevant for the construction of commercial towers, for example, where contractors must consider the transportation of materials such as water, cement and steel, as well as waste and equipment off the site. Although the logistics industry will undoubtedly benefit from this situation, some challenges lie ahead.
Drivers often describe vivid traffic tales of being frozen on Emirates Road for hours due to the high volume of trucks, lane restrictions and hours of operation restrictions, which have a direct impact on logistics efficiency.
Research illustrates that much of the UAE's inland freight transportation is older, less maintained and often less compliant with global health and safety regulations, especially compared to mature logistics hubs such as Antwerp, Singapore or Sydney.
Anecdotal evidence written on freight vehicles would suggest that they are sourced second or third hand from Western and Eastern Europe or even the Indian subcontinent.
As such, the market provides little incentive to freight companies to pay large amounts importing state-of-the-art vehicles that far exceed current regulations on health, safety and environmental issues.
Indeed, any freight organisation that ventured to do this in the current environment would need to recover its investment through higher pricing to customers - immediately rendering it uncompetitive.
This presents something of a conundrum to progressive companies that want to offer a safer, faster and more reliable service to their clients by investing in a superior fleet.
Finding an answer
In markets such as Europe and North America, this dilemma has been answered by the regulatory authorities. Indeed, recognising that raising the bar on health, safety and environmental compliance can lead to a vastly more efficient logistics infrastructure; governments across the developed trading centres of the world have witnessed vastly improved efficiencies as a result of the regulation and enforcement of HSE issues.
At the national level, such a tightening in the regulatory environment could add significantly to the cost of road freight as a whole - minimising the attractiveness to the broader economy of such a move.
However, inevitably a point in time will come when the cost savings associated with a low budget road freight business environment will be offset by the inefficiencies that are generated by it.
Positioning for the future
With a growing population and increasingly complex environment, logistics and transport companies will need to have their finger firmly on the pulse of both the market and the government regulatory environment to forecast changes and act quickly.
The most successful firms will be those who have a strategy to position themselves for growth and adaptability.
Their strategy must revolve around setting up the right processes; leveraging the right resources and attracting the right talent to project manage these processes and resources.
In addition, an ability to understand future challenges and plan a response to them in advance will separate the weak from the strong and really allow the innovators to flourish.
A lack of long-term strategy and flexibility will leave many transport firms and third party logistics companies playing catch-up with their competitors, and result in increased investment to acquire resources to do so at a later stage.
Although many firms are well positioned for the now, the real success will be claimed by those who are positioned for the future.