The logic of logistics: Ranjeev Menon
If there is any litmus test for a country’s economy as a whole, it could be the logistics industry.
The fact is, just about anything that is imported or exported — from raw materials to electronics and clothing — usually requires logistics expertise and warehousing.
That need is growing exponentially in Qatar, where the economy has been booming at more than 6% since 2012, after years of double-digit gross domestic product (GDP) growth.
And with the gas-rich state’s diversification programme well and truly under way (non-hydrocarbon revenues currently account for 45% of the total) and a $2 trillion infrastructure programme outlined for between now and 2022, the demand for logistics and warehousing seems never-ending.
At the centre of this crucial industry is Gulf Warehousing Company (GWC).
It reported a 40% jump in first quarter net profit, with $11.8m, up from $7.9m in the first three months of 2014.
The improved performance reflected a 28% increase in revenues — $53.85m, up from $42m.
“We’ve had six years of continuous growth — double-digit growth — and… if you take out 2009, we’ve had consistent growth over [at least] 48 quarters,” GWC CEO Ranjeev Menon says.
The firm’s growth also can be measured by its geographical spread.
Starting in 2003 with one mere 4,000-square metre (sq m) warehouse, in a decade it has fast risen to become not only the largest logistics services provider in Qatar but one of the fastest-growing logistics firms in the world.
It now has warehouses in six locations and is expanding its mammoth Logistics Village Qatar (LVQ) and six months ago won the contract to develop a logistics hub dedicated to small- and medium-sized businesses (SMEs).
“We’ve been growing and winning new contracts in our core services — contract logistics, transport and freight,” Menon says.
“We are by far the largest player in terms of contract logistics, freight and transport. We’re able to offer one-stop shop, integrated logistics solutions for most of the industry verticals that we serve and we currently serve almost all the industry verticals, with oil and gas being our primary industry vertical.”
The fifth and final phase of what will be the country’s main warehouse destination, LVQ, is under way and due for completion by the first quarter of 2016. Built on a 1 million sq m area it will then have a warehousing footprint of 500,000 sq m.
In December, GWC was awarded a contract to build the $188m Bu Sulba logistics hub dedicated to SMEs in the south to central part of Doha, including Al Gharrafa and Al Wakrah.
Primarily aimed at the food and fast-moving consumer goods (FMCG) sector, the self-contained centre will cover an area of 517,000 sq m and include 194 warehousing units, a container yard and labour accommodation.
The new facility demonstrates the increasing significance and contribution of SMEs, which already make up about 40% of GWC’s current customers at LVQ, across the Qatari economy, not least in the logistics industry.
“In any economy, SMEs comprise a large portion of the GDP, but with the government strategy of diversification, SMEs play a large role in the development of the economy. This is why you see a lot of focus on bringing SMEs, encouraging entrepreneurs to set up their business and the three or four logistics hubs which are coming are primarily targeted to support the SMEs,” Menon says.
Qatar has relied heavily on liquefied natural gas (LNG), crude oil and petroleum exports — it is the largest exporter of LNG in the world — for the past 50 years but in recent times has actively worked towards diversifying. That push has become even more urgent during the past 12 months as the oil price has collapsed by more than 50%.
Industries such as technology, tourism and retail are emerging and evolving. At the same time, the government is building multiple mega-scale infrastructure projects towards both the FIFA World Cup in 2022 and the Qatar Vision 2030, while new hotels, shopping malls and residences are growing at one of the fastest paces in the world.
All the additional construction and expansion is expected to see the Qatari population rise from 2.3 million in 2014 to 2.5 million in 2018, according to government statistics. The additional people will require all sorts of consumer goods, from food and clothing to cars and kitchen sinks.
“The diversification strategy is really playing its role and we’ve got a lot of initiatives that are driving the economy,” Menon says.
“If you look at the port infrastructure that is being developed, there are plenty of economic zones… that will bring about a lot of industries, new industries which are non-existent in Qatar. They want to bring the hi-tech industry… into these economic zones, so you will see these will balance out whatever shortfalls that the economy is facing at this point in time.”
Menon says this vast diversification programme means despite the slowing down of state revenues in the short term, GWC is powering ahead with its expansion plans.
“It’s a bit too early to comment on it, but we have a huge pipeline of investment that we’re planning in Qatar,” he says.
“We [also] have plans to be a regional player very soon but we’re looking selectively at opportunities to enter into these markets.”
GWC has had a freight and transport office in Dubai for three years and launched in Bahrain this year. But its biggest plans outside Qatar are in Saudi Arabia.
“We are [already] operating [in Saudi Arabia] but we have plans for Saudi Arabia, big plans,” Menon says. “We’re looking at investing in assets; we’re in discussion with a few partners in Saudi Arabia to replicate what we’ve done in Logistics Village for housing infrastructure. This is too early in the discussion, so I don’t want to elaborate on it.
“[Saudi Arabia] is a larger economy, larger market, it’s the biggest economy in the Middle East with a lot of growth potential there [and there’s] a lot of manufacturing industries in Saudi Arabia. I think it’s a good new market for every industry.”
When asked whether there were plans for Kuwait or Oman, Menon simply replies: “We want to set up our offices in every GCC state so we capture some part of their business”.
While many segments of the economy have been affected by the downturn in the oil price, GWC’s growth strategy has not been hampered. It was a similar situation in 2008-09 during the global financial crisis.
“The economy was contracting everywhere in 2008 due to the financial crisis, I think we’re one of the companies who went ahead and invested — that’s when we started Logistics Village,” Menon says. “So we have not contracted in any way, we’ve got very aggressive plans in Doha and we continue to march forward with our investments.
“No we are going ahead very, very aggressively with our plans.”
The growth in logistics also is expected to be aided by the new $7bn Doha Port. Located in the south of the city, the port will be one of the deepest in the world, covering 26.5sq km, including three container terminals with a capacity for 2 million 20-foot equivalent units (TEUs), a new base for the Emiri Naval Forces and aneconomic free zone.
Aswell as catering to the natural and encouraged growth in container traffic, the port will offer offshore support, coast guard vessels and a marine support unit, plus the ability to import vehicles, livestock and bulk grain.
The impact on GWC is inevitable.
“Absolutely,” Menon says. “Qatar will position itself eventually into a regional hub or an alternate regional hub for the Middle East and Africa so this will bring about a lot of industries that will grow along with it.
“There’s [also] an economic zone planned around the port which would be semi-to-heavy industries coming in and operating out of there; it would see a lot of exports and imports happening out of the new sea port facility.
“The volume of the new port is going up about four times, obviously in that proportion there would be growth for us.”
Qatar, too, will be hoping the port allows it to attract some business — ideally, from Dubai and other regional shipping hubs.
Dubai’s Jebel Ali Port — the ninth-largest container port in the world — has been the undisputed regional leader in imports and exports for years. But Qatar, other ports in the UAE and Oman’s ports in Salalah and Sohar are soon expected to tighten the competition.
Menon says business will be inevitably re-distributed, but it will come down to simple logistics rather than aggressively stealing market share.
“Eventually when the new port comes I’m sure there would be a little bit of competition that Qatar wants to take away and I think there is plenty for everyone to share a piece of the cake,” he says.
“The regional hub for the Middle East is Dubai.
“[Any redistribution of business] will depend on the client and where the cargo is moving. Maybe from here to Saudi Arabia is closer in terms of proximity, so they would use somewhere closer [such as] Dammam, so it makes sense to operate out of here. Or vice versa from Dammam into Qatar. It will all depend on the scope that is making this network work. [For example], if Qatar Airways has more connections to a certain destination then those hubs are going to flourish, and likewise Emirates is going to compete from operating out of Dubai. So it’s the distribution channel which has to make these hubs efficient.”
Qatar’s competitive edge also has been boosted by the opening of Hamad International Airport in April last year. The 77,000 sq m cargo terminal hosts up to 11 wide-body aircraft at a time, processing nearly 6,000 shipments simultaneously, or almost 1.5 million tonnes of cargo annually.
“The volume of air traffic that comes in in terms of both passengers and cargo has [increased] so the new Hamad International Airport has contributed to us having more cargo coming in, in terms of both transit or imports into Doha,” Menon says. “Both the airport and the sea port have been enablers to the logistics business.”
As a public company listed on the Qatar Stock Exchange, Menon will not comment on GWC’s specific growth targets but history shows they are likely to be generous.
“We have been growing at a pace of 35% for the last five years [per annum average]. We want to continue around the same lines that we’ve had but I’m not able to give you any numbers,” he says.
The challenge? Amusingly, Menon says it will be to keep pace with the rest of the Qatari economy.
“The challenges would be to grow the company in the same momentum, keep in pace with the growth of Qatar and be able to provide, because Qatar is going through a surge,” he says.
“We have been able to do it so far, I’m sure we will be able [to continue].”