A number of conflicting reports have been published on the Middle East logistics industry in recent months, leading to a general sense of confusion about whether a bottom has been reached in the market downturn. Of course, each study has identified its own criteria for measuring the industry’s health, from the financial performance of storage and transportation providers to the amount of cargo being handled at shipping and airport facilities.
Surprisingly, little attention has been paid to indicators from the construction sector, despite its role in developing the infrastructure to support the logistics industry’s growth in this region.
One of the largest players in the market, Amana Contracting & Steel Buildings, has traditionally prided itself on winning the lion’s share of contracts for warehouse construction in the Middle East, with clients such as Agility Logistics, Transworld and Gulf Warehousing Company (GWC). However, the global recession has undoubtedly taken its toll on business, according to chief operating officer Riad Bsaibes.
“It’s possible for warehouse construction to be used as a barometer of logistics industry health in the Middle East. For example, demand was consistently strong in this region for a number of years, which correlates to the recent boom in logistics activities,” he states. “This situation has changed to a great extent in the past 12 months, with Dubai being hit the worst. At the same time, I believe this is only a temporary situation and we must remember that the Middle East’s position as a logistics hub is long-term, so a recovery will inevitably occur. Its unlikely we will return to the same level of activity as 2007 and 2008, but that’s a good thing, because the growth was unsustainable at that time, which was not healthy. The next phase of growth will be slightly different in nature.”
Regardless of the market downturn, Amana has handled over 200,000m2 of logistics projects across the region in the past year, including a regional office and warehouse for Agility in Jebel Ali Free Zone, a warehouse and offices for RSA Logistics in Dubai Logistics City, and storage facilities for Ras Al Khaimah Investment Authority (RAKIA) at Jazeera Industrial Zone. The future holds promise too, with two projects being scheduled for completion in Saudi Arabia over the next 12 months, namely a 42,000m2 inbound warehouse for Almarai in Al Kharj and a 43,000m2 fruit cold store for Del Monte in Khomra.
“All of these projects are challenging and have been designed to ensure the fast movement of goods into and out of the warehouses,” says Bsaibes. “In the logistics sector, the ability of the contractor to delivery a quality product is very important to the success of the client. It affects their time to market, not to mention their ability to meet pre-agreed logistics contracts.”
Warehouses are traditionally located in industrial and commercial areas, where the cost of land is lower than residential areas, and companies can benefit from direct access to a multi-modal transport infrastructure. Dubai is currently the most popular destination for storage facilities in the region, especially with ambitious free zones such as Dubai Logistics City and Jebel Ali Free Zone, where companies also benefit from various business incentives, including custom duty exemption. However, other countries in the Middle East are planning to increase their logistics activities by improving transport infrastructure and creating distribution hubs. The status of Saudi Arabia, Bahrain, Qatar, Jordan and Oman is expected to grow within the logistics industry over the next decade.
As such, the average time for construction in these countries is only 8-12 months, according to Bsaibes. However, the duration will inevitably depend on the level of cooperation between the client, consultant and contractor. “The better the communication within the group, the less time it takes to construct a warehouse,” he states. “We have been able to design and build warehousing facilities within 90 days, but such cases require an extreme level of cooperation and trust between the client and contractor.”
The warehouse specifications, such as size of facility and products being stored, will also affect the construction time. The main considerations normally centre on the cost and size of land, the access to good transportation infrastructure and the proximity of the warehouse to clients. “If a company is storing general building material, such as steel and wood, its requirements will be completely different to a company storing fresh food or medical devices,” continues Bsaibes.
“The differences are not limited to the structural aspects of the building, but also the electrical, mechanical and safety aspects too. This highlights the importance of communication between client and contractor. Detailed information should be supplied from the early stages.”
Customer involvement in the design-and-build of warehousing facilities is essential for various different reasons. The type of products being stored, for example, has a direct impact on the design, construction, timescale and cost of the facility. The contractor also needs to understand the differences between constructing a warehouse in the Middle East compared to the rest of the world. “Warehouses in this region are designed and constructed differently,” agrees Bsaibes. “For example, the low precipitation levels in countries such as Saudi Arabia will reduce the importance of waterproofing, compared to somewhere like Amsterdam. However, the high temperature we experience in the Middle East makes factors such as thermal insulation and air conditioning more important. As a result, this region is witnessing some of the most impressive storage facilities in the world, which remains an exciting prospect for our company.”
WAREHOUSE CONSRTUCTION CASE STUDY: RSA LOGISTICS
The logistics industry in the Middle East has reinvented itself with billion-dollar warehousing developments that match the highest of international standards and, in some cases, exceed them by a considerable distance. In particular, Dubai Logistics City (DLC) is expected to house a number of large-scale facilities from industry giants such as Kuehne + Nagel, Panalpina and Deutsche Post DHL, which were early bird investors in the project.
However, the Middle East has a habit of favouring the underdog and instead of a logistical powerhouse starting the first operations at DLC, it’s actually a relative unknown that commenced business ahead of its more-established counterparts.
A family-owned enterprise, RSA Logistics commemorated the launch of warehousing operations at Dubai Logistics City with a well-attended ceremony earlier this year. The news might have raised a couple of eyebrows, but for the company’s marketing director Kirit Mehta, a number of factors contributed to the milestone achievement, including a close working relationship with Dubai-based construction firm Amana Buildings, which managed to complete the 25,000m2 facility on a fast-track basis within a year.
“A handful of companies had started their warehouse construction around the same time, although we benefited from a solid relationship with Amana Buildings and faster decision-making because we’re privately-owned. Of course, some teething issues were encountered along the way, but the management of Dubai Logistics City and Amana Buildings were really professional and made the process as seamless as possible,” says Mehta.
“People are amazed at our progress in opening this warehouse. However, with a dedicated approach from each of the parties involved, we remained on target for the entire construction process, which has proven the merits of a united approach,” he concludes.