Living the dream
On the rapid rise of Logistica after its acquisition of Enkay Express.
It is every CEO's nightmare. You're looking to purchase an established freight forwarder in a market that has prospects for good organic growth. Yet you find that the company you thought was a good deal when you bought it suddenly appears to have balance sheet inconsistencies and a spiralling customer base.
In order to avoid this scenario, the newly appointed CEO of Logistica, Wajih Baroudi made some smart moves in acquiring a new freight forwarding arm to the business.
Indeed, the industry veteran had good reason to believe that regional provider Enkay Express was a good purchase - he had worked there for seven years.
"When you buy a business there are a normally some surprises," says Baroudi. "However in this case, I had worked at the company and I knew it inside out. I knew exactly what we were getting. I was the general manager of the Dubai offices for seven years, and left in 1997."
Established in 2004, Logistica had, up until the acquisition in June this year, been a niche provider of cold-chain storage solutions in Kuwait. Rising from the position of owning only one warehouse, the relatively young company purchased Enkay Express, a well-respected freight forwarder with 26 years of history in the region.
"We chose Enkay Express for many reasons," says Baroudi. "If we wanted to expand into freight forwarding we had two options - either we start our own freight forwarding business or we acquired a company that already exists.
"The second reason is that Enkay is based in three locations - Kuwait, Bahrain and Dubai - and these are markets that have good prospects for organic growth," Baroudi continues.
"Enkay is very well positioned here. It has a 26-year history and with that comes a great reputation in the market and an impressive customer base. The third reason is that Enkay Express' operations are strong enough to give us a lot of potential if we wanted to expand the business further."
The acquisition brings all the freight forwarding activities of Enkay Express and its Kuwaiti subsidiary Naqeeb & Khattar in Dubai, Bahrain and Syria under the Logistica umbrella.
"The company was effectively split up into three separate companies based in Kuwait, Bahrain and Dubai," explains Baroudi. "We therefore decided to integrate all three offices and appointed the general manager of Kuwait as freight manager for the whole business. He had been at the helm of the company for a period of 33 years."
However, the resultant company will retain the name of Enkay Express, due in part to the reputation the company has forged. "The reason we maintained the Enkay brand is that brand is well known and linked to quality," says Baroudi. "We want to build on that."
Baroudi's sleek new office at Dubai Cargo Village offers a panoramic view of the airport and it is clear that transport is very close to his heart. On the day Emirates landed its new A380 at the airport Baroudi was out of his office early to try and catch a glimpse.
The new office in Dubai has just been completed and the company logo has not yet been given pride of place in reception. However in a sign of the company's eagerness to dive into the new market an e-freight system was already being installed as a greater priority, which would enable at least 50% of the business to be automated. "This will make our life easier and provide a great service to the customer," says Baroudi proudly.
The office is a sign of a new phase of growth for the company and a tangible sense of excitement hangs in the air. Four years ago the company had relatively modest beginnings.
"At the beginning when the company started, there was a huge need for cold storage," explains Baroudi. "The shareholders decided to build a warehouse to serve this market. They built the warehouse and leased it as a property to a Kuwaiti company.
"In 2005 there were new managers of the shareholding company, who came with a different vision. They wanted to have a complete logistics and supply chain company."
Logistics is an expanding business worldwide and global freight is expected to reach US$14 trillion by 2020. The Middle East is expected to be at the forefront of this growth, especially given that major developments such as Dubai World Central will make the region a hub for Asia-Europe trade. It is clear that Baroudi intends to capitalise on this growth.
"It's our target to become a major player in the Gulf and Levant region," he says. "It's well known that business in logistics is growing at least 20% year-on-year in this region. There's a huge demand in logistics in the Middle East and there will be for the next 10-15 years. It's a great advantage to have a company based here.
"We are concentrating on building our presence in the Gulf region first before we move to other areas, namely the Levant and North Africa. We have just finished establishing offices in Oman and Qatar and have plans to expand into Saudi Arabia next. In the process, we are consolidating our business in freight forwarding and expanding into 3PL services."
The operator is also rapidly expanding the range of services it offers in each of the countries where it is based, gradually increasing its market share across the region.
"In Kuwait, we are offering 3PL cold chain and dry freight forwarding," says Baroudi. "In Bahrain we are offering freight fowarding only. We are moving into contract logistics as soon as circumstances will allow. We will have 17,000m² of land developed soon, although we won't be offering freight forwarding in Dubai until our project with Dubai Logistics City (DLC) has been finalised.
Subject to further discussions with the management we will have 235,000 m² there, of which 200,000 m² will be assigned for contract logistics and 35,000 m² for freight forwarding and management."
Logistica signed a contract with DLC last year to base a facility there. It is therefore unusual that Baroudi injects an element of doubt into whether this will go ahead. Customer confidence in the DLC project has in recent months been rocked by the departure of CEO Michael Proffitt.
And mention of the topic makes Baroudi fall into a quiet, brooding state. He chooses his words carefully though it is clear that he is deeply concerned about the issue.
"DLC is promoted as the regional hub for the Middle East and they've invested a great deal in the infrastructure - it is a crucial link to Jebel Ali Port and Dubai World Central - Al Maktoum International Airport," he says.
It has a great location and will help us centre all our services within one place." One suspects there is a "but" coming. "After the change in leadership, they don't seem sure about their vision anymore," he adds finally. "However, we are still in negotiations with them and we will see.
"Baroudi also resists speculation that there will be a crash in the contract logistics market in coming years after a glut of new warehouses approach completion. "There won't be a slump in contract logistics in the coming years, but there will likely be a correction," he says.
"There is a shortage of warehousing in the region, especially professional warehousing. Many projects that are being developed now will ready in three to five years and when they do become available, there will be a huge supply of warehousing. This will likely correct prices.
"We have taken that into consideration for our feasibility study for DLC," he adds. "We've looked at our prices for three to five years which will decrease a little bit." It is clear that with the question mark hanging over whether DLC will live up to its billing, as well as worries over the contract logistics market, Baroudi has got his work cut out.
But after 30 years in the industry and with the experience of starting his own business (and later selling it to BALtrans) the company is in good hands. So good, in fact, that he was brought out of early retirement to join Logistica. Baroudi admits that transport is his passion and that staying away would have been tough.
With his range of contacts, as well as the well-established reputation of Enkay, it is clear that the company is on solid enough ground to weather the inevitable storms in the market.
One of the issues currently hitting forwarders is fuel prices. It is an inevitable topic that will always come up when discussing business and Baroudi stresses that his company is not unique in the pressures it faces. It is however, able to leverage the reputation of the business to see off the worst kind of side-effect.
"I don't think there's a way around rising fuel costs," he says after a pause. "The cost is being passed to customer; there's is no alternative. The surcharges have doubled in the last year, but our customers do understand.
We communicate with them a lot and there's a trust between us. Some of our customers in Kuwait have been with us for 20 years. They aren't happy with the rising costs - that's for sure - but they do realise there's no way around it."
If fuel costs are one hurdle most companies in the region have had to deal with, unreliable subcontractors is another.
"There are no professional truckers in Dubai," says Baroudi frankly. "There are a couple of companies who you could consider to be semi-pro, but there are no professional outfits like you would see in Europe or the US.
"There will be a lot of road transportation in the GCC with the expansion of business and there is a huge need for professional trucking companies. We currently own small vehicles which we use for local deliveries but we use sub-contractors for international deliveries. We have no short-term plans to own our own vehicles but in long term, we will do so," he adds.
So what are the short-term plans for Logistica? Wajih Baroudi's eyes light up as he talks, obviously excited by the bright prospects for the company.
"We are now based in Bahrain, Kuwait, Dubai, Oman and Qatar," he says. "We are also looking to move into Lebanon, Jordan, Saudi Arabia and Egypt. In Egypt in particular there is a lack of professional service providers.
"There they are happy to do deliveries in 30 days, whereas if we do deliveries over here in three hours we are going to get criticised. The opportunities there are thus huge."
Al Rai Logistica Company was formed in 2004 and operated a cold storage warehouse in Kuwait on a 3PL basis. After a change in the management of the shareholding company, Logistica took the direction of becoming a total supply chains provider.
Earlier this year the company acquired freight forwarder Enkay Express. Enkay was established in 1981 in Kuwait under the name Naqeeb & Khattar (NK).
When the company launched subsequent branch offices in Dubai and Bahrain were named Enkay Express, although the original name was maintained in Kuwait.
The merger between Enkay and Logistica will bring all the freight forwarding activities under the name 'Enkay Express'.