FEATURE: Making a Mark - the new CEO of SOHAR
For Mark Geilenkirchen, globalisation is a double-edged sword. On the one hand, it is what allows the impressive growth of Sohar Port & Freezone, and on the other, it is the enabler of major market knocks that have the potential to disrupt that growth. “It's certainly the general level of financial uncertainty and volatility in the world today. On one side, it is globalisation that is the main driving force behind many of our port-related and logistics businesses at Sohar, but on the other hand, it's a big challenge,” he says when asked what his greatest concern is as the new CEO. “Uncertainty in one part of the world can quickly affect another part. For example, just look at the recent turmoil in the Asian financial markets after the UK's decision to leave the European Union.”
During 2016, however, Sohar Port has fared very well against these headwinds. As this issue of Logistics Middle East went to print, the port announced defiant growth in container cargo and general cargo tonnage. Container volumes at Sohar Port increased by 11% in the third quarter, compared to the same period in 2015, while overall tonnage at the port was up by more than 6%, reaching 13.4 million metric tonnes; or an average of over one million tonnes of cargo throughput each week. This news came just a few weeks after DP World announced that container volumes at its flagship Jebel Ali Port had taken a hit. In the United Arab Emirates, DP World handled 3.6 million TEU, down 5.9 percent from a year earlier.
“Sohar is one of the world’s fastest growing port and free zone developments and is really establishing itself as the region’s challenger brand,” says Geilenkirchen. “We’re well-located outside the Strait of Hormuz with an adjacent freezone, which is the biggest key to our success.” At the time of writing, Sohar Port had just opened its new container terminal. Terminal C features remote-controlled quayside cranes equipped to handle the next generation of 20,000 TEU container vessels, Geilenkirchen says that this expansion is in large part driven by the fact that, despite container vessels growing in size, the port is seeing more port calls. There has been concern among port operators that larger ships and more alliances might lead to fewer ships bringing in larger consignments of cargo, putting port equipment under pressure spikes.
“From our perspective as a port authority, mergers like this make a lot of sense. They help to consolidate volumes, so ships are sailing with bigger loads. In an industry that’s always been very price sensitive, that helps to reduce costs and increase competitiveness,” says Geilenkirchen. “Today, it can cost less than $400 to move a 40-foot container from Shenzhen to Europe, barely enough to cover the cost of fuel, handling and Suez Canal fees.” It is for this reason that Sohar Port is focused on growing its position as a food and logistics hub, not just a shipping hub. In an interview with Logistics Middle East last year, then-CEO of Sohar Port & Freezone, Andre Toet, remarked that transhipment has never been a focus of Sohar because of its volatility in the face of shifting shipping alliances and economic downturns in production markets like China and consumer markets such as Europe or North America.
“The port was originally based around three industrial clusters: logistics, metals and petrochemicals,” explains Geilenkirchen. “We recently added food as our fourth pillar with the launch of Sohar Food Zone.” This zone is the region’s first dedicated agro terminal. It will have facilities on hand for sugar, rice and grain processing and space for downstream food manufacturing and logistics industries. The UAE’s Essa Al Ghurair has invested heavily and will be facilitating infrastructure for food producing companies to start their businesses, creating opportunities for FMCG 3PLs. Very recently, Sohar Flour Mills also announced that they would be moving ahead with a 500 tons a day milling facility in the Food Zone, due for completion at the end of 2017.
As a country, Oman is focusing on developing itself as a global logistics hub, but a large part of this is also to do with food security. Sohar Flour Mill is a partnership between Atyab Investments, wholly-owned by Oman Flour Mills, and Essa Al Ghurair Investments based in UAE. Oman Flour Mills is itself a branch of the Oman Food Investment Company, a state-owned organisation tasked with ensuring Oman’s food security. During 2016, Oman has managed to reduce its food imports by 3% according to data released by the National Centre for Statistics and Information (NCSI), but reducing imports is not what Oman and other GCC nations are aiming to do. Indeed it would be unfeasible, when 90% of all food consumed in the GCC is imported and 1.8% of land in the GCC is used for farming and it contributes just 1.4% to GDP.
What the Oman Vision 2030 includes is the creation of a national reserve of staple foodstuffs, such as grain. Since Saudi Arabia began reducing its domestic wheat production in 2008, the issue of food security has been high on the agenda for GCC governments. The kingdom, which was once self-sufficient in the grain and even exported to the wider region, recognised a fact that is true across the whole of the Arabian Peninsula. It is running out of water and local production of many agricultural products is unsustainable. As the preservation of dwindling water supplies trumps a secure domestic source of food, Gulf countries now have to wrestle with the challenge of ensuring a stable and cost-effective supply of food from overseas.
The answer is strategic reserves. According to the Oxford Business Group, Oman’s US $170m agro-terminal handling and storage facility at Sohar Port, which is expected to be able to handle 700,000 tonnes of grain and 1.5m tonnes of raw sugar every year upon completion, is intended to guard against fluctuations in raw material supply and prevent price hikes. Oman and other GCC governments are also attempting to gain some control of the food supply chain all the way to the point of origin. GCC countries have during the past several years purchased a third of the almost 20-million hectares of farmland that was sold globally, according to the International Food Policy Research Institute.
These factors mean that Sohar Port and 3PLs located within its free zone are well-placed to benefit. “We have a great deal of experience from Rotterdam when it comes to food, especially frozen and chilled foodstuffs, and we’ve been helping to ensure that all the necessary inspection requirements are in place and that our new food inspectors are thoroughly trained,” says Geilenkirchen, referring to the Port of Rotterdam Authority, which owns a joint stake in Sohar, along with the state of Oman. “I see huge potential in the business. We are sitting in the middle of a region that is very dependent on food imports, and because of the climate across most of the Arabian Peninsula that is not about to change anytime soon,” he adds. “We have the best location and infrastructure in place to service the major regional markets of Saudi Arabia, the UAE and Iran when it comes to food manufacturing and distribution.”
But with plans for the GCC Rail Network stagnating and uncertainty regarding its eventual rollout, how feasible are Sohar Port & Freezones future growth plans? A food production hub needs hinterland connections to keep it efficient. “At no time was the GCC railway part of the decision making process for the location of the Port, or our other plans. So the answer is yes, we have already seen phenomenal growth in SOHAR and we will see plenty more, with or without a cargo railway,” says Geilenkirchen. He also points out that with the development of a direct road link between Oman and Saudi Arabia, the largest consumer market in the region, logistics companies in Sohar will benefit.
“The new highway will be a huge upside for the port and freezone businesses. We already have WPL on board in the freezone as one of the leading Saudi 3PL providers, and we are currently in talks with other logistics companies who plan to setup operations here,” he says. “The new highway will cut 500 kilometres off the journey from Sohar to Riyadh. Furthermore, it avoids the congested UAE-Saudi border crossings, so it can easily reduce the actual journey time for a truck by 3-4 days.” Efficiency is what matters in logistics and this is what Sohar Port & Freezone is focused on as well.
“The focus of our business as major Port operators is changing across the globe. So instead of being really good at doing just one particular thing, today it’s more important that we’re really good at learning how to do new things - and doing that faster and better than ever before,” says Geilenkirchen. “Ports don’t look very smart seen from outside the fence, but over the past ten years there has been a revolution in the way that they work. Behind the scenes, there has been huge investment in automation.”
At Sohar Port the new Terminal C container terminal is not automated, but features advanced remote control operation like Jebel Ali’s T3, with quay cranes controlled by operators sitting in a central control room. “Much of the loading and unloading process of our ships in Sohar is now automated and with that comes increased speed, reduced turnaround times and resultantly lower costs for our clients. Our six million TEU terminal D, that is currently in its final planning stages will be almost completely automated.” All these factors are being brought into play as Sohar continues its effort be the primary challenger port in the region. “We have recorded double-digit growth every year for over a decade at Sohar,” Geilenkirchen said at the start of our conversation and it’s clear that he plans to maintain that.