REPORT: UAE 3PLs pursuing strategic investment opportunities
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Every single company in the world has a logistics requirement, a supply chain that must be managed and run as efficiently as possible. The only difference is the complexity. The supply chain for a one-man app development company, for example, will be incomparable with the logistics operation being run by a chain of grocery stores, or a FMCG trading company. In the Middle East, an added complexity is the import-heavy nature of the economy, 90% of food is imported, for example, while 40% of all food imported into the UAE is actually intended for re-export to other GCC markets. It’s no wonder then that the logistics industry is one of the greatest contributors to the country’s GDP, and within the logistics industry, 3PLs are one of the most common business models.
Because every business has a logistics need, and because the complexity of those needs increase exponentially relative to the size of the company, it makes sense for a 3PL to be brought in to manage the supply chain on the company’s behalf. It is for this reason that, as the GCC economy has grown in recent years, there has been an explosion in the number of 3PL companies.
This growth has continued through the instability of 2016. According to Chandrakala, director, CFS & LCL, Consolidated Shipping Group, this is because, even in the current market, there is opportunity for 3PLs. “With the current market conditions, a lot of people are trying to outsource whatever they can. They want to outsource to reduce their overhead costs.” It is for this reason that CSS has expanded into the 3PL sector as part of an aggressive 11-point plan to grow the business globally.
CSS started out as a freight forwarder offering LCL consolidation in India, before expanding into FCL ocean and air freight and project logistics. It’s 5,400 pallet position distribution facility in Jebel Ali was opened three years ago to support its 3PL activities, with additional DCs at Dubai Airport and in Sharjah, Abu Dhabi, Oman and Bahrain. It will soon break ground on a 3PL facility in Saudi Arabia as well. This expansion has been led by Ajay Krishnan, vice president, freight forwarding, Consolidated Shipping Group.
“Establishing these facilities has given us a consistent network across the region,” he says. “This gives us an advantage because we have more control over the process, which is necessary in 3PL operations. Anyone can do port to port or a CFS to CFS. Anyone can do a clearance and delivery before this but the ability to break it get down to the individual SKUs and have them delivered to individual locations, that requires a specialised facility.” CSS has also recently upgraded its WMS with new MC 32 portable data terminals and has gone live with three of its largest customers. “3PL can be very label intensive, if you have a box with 100 power banks within it and you have to take each one out and scan it individually, it’s going to require at least two people and take a long time. These MC 32s allow us to finish up a box like that in six minutes.”
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“This is linked to our own in-house system that we’ve been developing for more than ten years now,” Chandrakala adds. “That system is used by everyone across all our facilities, so you can pull up information about any product at any time.” This linking of the systems has boosted productivity considerably. The evolution of CSS follows a model that Frédéric Zielinski, general manager Swisslog Middle East says is gaining ground in the Middle East market.
“3PLs understand they have to become less labour dependent to remain profitable and compete with increasingly sophisticated in-house fulfilment operations,” he says. “But they have been slow to adopt new technologies for obvious reasons. They work on relatively short-term contracts, so multi-million dollar investments in traditional ‘bolted-down’ technology can be difficult to justify. Instead, they need flexible approaches to automation that support different sizes and weights of products, provide the ability to add racks quickly as storage volume increases and enable them to easily move equipment from one warehouse to another.” Zielinski says automation of system is the key, but not necessarily the kind of multi-million dollar contract it recently signed with Mai Dubai. The UAE-based mineral water producer has the capital and the volume to justify such an expense.
“3PLs shouldn’t have to decide between capital-intense, inflexible automation systems that are optimised for a specific volume and continued dependence on scarce human resources,” he says. “Now they can make investments in mobile robots, such as Swisslog’s CarryPick technology, and pick stations that support highly efficient and customizable goods-to-person fulfilment without incurring the flexibility challenges of conventional solutions.” Zielinski says that because these systems have attractive ROIs they can help the 3PL sector move from being a laggard in automation to becoming a leader.
Integrated National Logistics (INL) invested in a fully automated distribution centre last year, with a system that can handle 300 pallets per hour and store more than 40,000. Because INL is very active in the FMCG sector, particularly food, the system has been customised for its needs. “The beauty about this operation is that out of the 40,000 pallets we can either offer complete frozen at -18 to -30 or we can offer 20,000 pallets frozen, 20,000 pallet positions chilled between 2 and 5 degrees, or ambient at 10 to 14 degrees, therefore the flexibility of the automation is great,” says Ignatius Scholtz, head of operations at Integrated National Logistics (INL). Many logistics professionals see automation as an inhibitor to flexibility, but INL has actually found its system to be the opposite.
“If the volume increases or decreases based on the market cycle the crane can adapt to the fluctuations in volumes. It reduces costs and we don’t have excess staff when the market decreases, or a shortage of staff when it bounces back,” explains Scholtz. “Automation further increases security, as once the product goes on the conveyer and into the chamber there is no access to it, except by authorized staff. This is a bonus for clients as well as INL have individual chambers with no access into it other than the authorized personnel and 24-hour CCTV monitoring. To keep the system running we do a lot of preventive maintenance, on a monthly basis to ensure there is no downtime.”
When it comes to investment in facilities, Momentum Logistics has been leading the pack over the last few years, having developed an inland container depot in Sharjah and grown its overland fleet to 300 tractor heads, and 450 trailers.
“We are an asset-based company, with 50,000sqm of warehousing in Dubai and Sharjah and we traditionally make a long-term investment in our client relationships,” explains Tom Nauwelaerts, CEO, Momentum Logistics. Momentum is able to make these investments as it is part of Gulftainer, the second-largest port operator in the UAE and one of the largest privately owned logistics companies in the world.
“We started out handling logistics for Gulftainer clients as a value-add, before expanding into general 3PL,” says Nauwelaerts. “As a result, we offer a fully integrated service from the moment the cargo reaches the port to final delivery to the client’s customer.”
“We’re also technology driven,” he adds. “We have made heavy investments in the last two years in SAP, Cargowise for freight and transportation, fleet management / GPS tracking, and MACH as our Terminal Operating system.” In addition, Momentum has opened inland container depots in Umm Qasr in Iraq and Jubaila and Jeddah in Saudi Arabia. Nauwelaerts believes that Momentum’s strategy of investing now, during an uncertain market, will pay off as clients will realise that the company is about long-term partnerships and not short-term payoffs. “Long-term relations are the future, and trust and commitment is key,” he says.