REPORT: UAE Automotive Logistics
This year has not been a good one for the auto sector. Car sales have slumped in the UAE and wider Middle East, putting pressure on car dealers who rely on re-exports to the wider region for extra sales. Inventory has piled up and prices have been slashed to try and attract buyers.
“It’s a two-tier market that we are seeing out there — dealerships concentrating purely on the local market and those who want a mix of local and re-export sales,” said Ajith Kumar, CEO of Swaidan Trading, the local Peugeot dealership. “Some dealers had become too reliant on going after re-exports. Those who are focused just on selling local are still doing pretty fine despite an intensely competitive market.”
But it’s those shipments that were meant for the re-export markets that are piling up at dealer’ stockyards and warehouses. The various conflicts raking the rest of the Middle East have meant few orders coming through in the year-to-date. Even Iranian off-take has not shot up much beyond the average. It is a buyer’s market then, and according to Azfar Khan, managing director, APL Logistics Middle East, this makes one of the foremost challenges of automotive logistics even more important.
“Zero damages is one of the greatest challenges, ultimately, all of us want to buy our brand new car without a single scratch,” he says. “I was talking to a distributor in the region a few months back and they specifically referred to how the quality of their product and on time delivery has become even more important in the current slow economic environment. Customers who have more to choose from in a competitive market are becoming more conscious of the options available to them, and would use this opportunity to challenge the price levels if there is even a small scratch on the car.”
As such, APL Logistics follows a strict quality management procedure in the handling of the vehicles. “As service providers for major OEM’s, we have realized that no attention to detail is ever a waste,” he says. “We have gone through hundreds of pages of standard operating procedures on how to handle a particular model in case there is an issue with the battery, or tyre pressure etc.
“Even car’s storage requirements are quite hefty. Just to give one simple example, in our yards we have a strict ‘no jewellery’ policy, even for authorised visitors. All visitors have to remove all jewellery, even their watch. All of our yard staff wear uniforms without any metallic parts, even their shoes have no metal pieces. As example, on one of our current contracts in moving CBU’s (completely built-up) across the region from plant, we are consistently managing vehicles damage at less than 0.02%. These are units moving in our AutoDirect International product (Cars in containers).”
GEFCO, which in November had its US $8.5-billion global supply chain contract with Peugeot renewed, handles automotive logistics on a neutral basis in the Middle East market. Stefano Pollotti, managing director, GEFCO Middle East, explaining that one of the ways they ensure the product integrity is through visibility.
“GEFCO’s operations in Dubai are unique compared to our global activities because we are not handling the supply chain for Peugeot in the UAE, its managed by the dealer itself. Our major clients are Hyundai and Kia and we work very closely with the local importers. We also work with Toyota and Chevrolet,” he says.
“A major challenge is maintaining visibility throughout the entire supply chain from Japan or South Korea to the dealer in Iraq or wherever else in the region. Our target in terms of vehicle integrity is to have less than 0.3% of vehicle damages during transport and storage and we are currently meeting that target with room to spare.” Pollotti says they’re meeting this target through the use of telematics, showing exactly what has happened to each vehicle throughout the journey from factory to dealer. Azfar Khan tells Logistics Middle East that these IT systems are becoming an integral part of their automotive logistics operation.
“IT systems for better management of supply chain are one of the major trends in this sector,” he says. “We are using a product internally called visual technology that provides visibility in certain key aspects of the supply chain to our customers. For example, they can review the supply chain for their after-market parts and see how each SKU from their thousands of suppliers have been delivered, duration stored and delivery status.
The access to visibility on different stages of the supply chain enables customers to make calculated decisions and plan as required. In addition, the same visual technology solution can be used to forecast future scenarios that can enable the customer to see how changing the sourcing location, international hub or other variables would have impacted the performance of the supply chain.”
Both GEFCO and APL Logistics have their main Middle East automotive logistics hubs in Jebel Ali, and despite a challenging year, they’re bullish on the year ahead, with good reason. According to Frost & Sullivan, total light vehicle sales in the Middle East are estimated to reach 4.4 million by 2020 compared to 3.2 million in 2015.
The number of vehicles on the roads in the Middle East and North Africa is forecast to rise to 44.5 million during the same period. This growth is expected to drive demand for parts and accessories with sales in 2020 projected to reach US$17.2 billion compared to $12.98 billion in 2015.
“We believe that in the current environment, a lot of companies are looking inwards trying to find innovative ways to do things,” says Khan. “The fastest way to be nimble is to have an extraordinary supply chain. More of our customers are working towards that goal and as such, are looking for solutions. This falls right down our alley.” Pollotti agrees, pointing out that opportunities lie ahead for 3PLs that specialise in automotive logistics.
“In this market the dealers tend to handle their logistics in-house, while in Europe it’s mostly outsourced. So we’re seeing a trend of dealers out sourcing their supply chain more and more, while increasingly 3PLs like GEFCO are positioning themselves as a neutral brand,” he says.
“It’s a natural progression of the market in all sectors. In the beginning you do almost everything yourself and then as you reach a position where you’re able to optimise, you start focusing on your core activity, which in this case is the selling of cars, and you outsource aspects like logistics and supply chain to 3PLs.”
GEFCO reached a peak of 2,500 cars per month before the slowdown in 2016 and its aim next year is to help clients grow in other areas. “Iraq, Saudi and East Africa are bright spot for us in the coming months. We consider Dubai to be the perfect staging hub for these areas,” says Pollotti. APL Logistics is also expanding regionally.
“In this part of the world, we have been bringing our innovative solutions and product offering over more than a decade as we have expanded to the entire region,” says Khan. “From hubs for finished vehicles in Jebel Ali or Sohar to warehousing of after-market parts in Dammam. We continue to have the privilege to serve customers across a spectrum of activities within the region.”