Country Analysis: logistics in Iraq

We speak to four sector leaders who are keeping Iraq moving.
Logistics, ANALYSIS


It’s not news that Iraq can be a hard place to do business. But without an effective logistics industry, Iraq’s oil sector would not have seen oil output increase to over three million barrels a day, and Iraq could not have reaped the US$9 billion it did from oil export revenues in May. The logistics business drives Iraq, but what’s driving the logistics business? Logistics Middle East speaks to four sector leaders who are keeping Iraq moving.

Logistics Middle East (LME) - What services do you provide in Iraq?

Taher Kaissi, country manager – Iraq & Afghanistan, CEVA Logistics: We provide end-to-end supply chain solutions. We provide all 3PL services in and out of Iraq; namely, freight management (all modes of transport), customs brokerage including temporary import and duty exemption approvals for Oil &Gas (O&G) cargoes, contract logistics (warehousing and distribution), intra Iraq haulage, and all the added value services that complement the basic 3PL solutions such as renewal of temporary import documentation, registration of equipment, among others.

Ismayil Manzil, oil and gas logistics manager, GAC Group: We provide several services to operators and contractors, including rig-moving operations, yards and warehousing facilities, camp live support, customs brokerage, PO management, freight services, heavy lift and charters, vendor management, personnel transfers, mobilisation/demobilisation and more.

Sascha Kuehl, senior vice president oil & gas, Middle East, Turkey and Central Asia, Kuehne + Nagel: We offer airfreight via Basra, Baghdad and Erbil airport with warehousing capacities in Baghdad. Sea-freight solutions are offered via Um Qasr, Aqaba, Mersin and Iskenderun Seaports. We are handling overland freight from Europe via Turkey into Northern Iraq, customs clearance at border points ‒ including LEW processing for O&G related cargoes ‒ in addition to inland transportation to/from client facilities.

Hagop Gharnagharin, CEO and Managing director, Mag Container Lines (MCL): MCL specialises in logistical offerings to Iraq and provides a wide range of services [which can be found on the website:].

LME - How would you characterise the logistics offering to the upstream sector? Has the level of competition increased?

Ismayil Manzil: There is a considerable barrier to entry into the upstream logistics sector, for the simple reason that no service provider would be considered if they did not have the required experience and reputation. Expertise cannot come without experience. Upstream logistics is about creativity, innovation and the ability to think outside the box.

Taher Kaissi: In the past 12 months, we noticed that many 3PL MNCs (Multinational Corporations) are migrating from an “agent-based” setup to having their own entities. This has increased the level of competition slightly and almost levelled the playing field. That being said, it will take those newcomers some time to get through the teething problems we went through back in 2007.

Hagop Gharnagharin: The logistic facilities and the infrastructure in Iraq is still in the developmental stages and at present is being managed with the use of innovative thinking. Competition is on the increase and there have been many new developments.

LME - What are the unique challenges – and benefits – in Iraq?

Ismayil Manzil: Unlike other Middle Eastern countries, Iraq’s O&G industry is entirely land-based. The south of the country is the most challenging region, both in terms of customs formalities and ocean access. Iraq is still recovering from years of neglect and the aftermath of war. During the embargo imposed on the country, no parts/services were provided and as a result much of its O&G infrastructure fell into disarray, decay or complete destruction.

Taher Kaissi: There are a lot of benefits and challenges. A lack of professional, multi-national, FCPA compliant 3PLs has created a window of opportunity for CEVA in Iraq. Many O&G companies knock on our door simply because we are one of the few that are ready to do business without losing our Trade Compliance values. As a result, we gained market share and accelerated our revenues faster than anticipated. OMCs (Oil Marketing Companies) are willing to pay a bit more than other industries if they get a consistent, compliant delivery of their cargo. By consistently providing opperational excellence, we are doing what we do best, being successful at it, and enjoying the success of adding value to the Iraqi community, even if it is through designing supply chain solutions for OMCs.

As for challenges, there are several. Changes in the importation regulations of oil and gas products happen often, and Iraqi customs do not yet have the mature processes to control the amount of incoming cargo. They are still learning, and this means regulations change.

Despite the anti-corruption restrictions implemented by the Iraqi Government, there is still a relatively substantial amount of trade compliance breach within the different departments/stakeholders that handle importation of oil and gas products.
There is a scarcity of proper material handling equipment that can cater to the mega project cargoes required to rebuild Iraq’s oil and gas infrastructure. The migration from a “manual work environment” to a modern “system driven” process in all governmental departments handling oil and gas cargoes is virtually non-existent. The Iraqi Government is making hardly any effort to mitigate the risks involved in such a setup.

Although the security situation has improved dramatically, it remains a threat.

Hagop Gharnagharin: Iraq is still in its developmental stages and there is a great deal of investment pending/in the pipeline for the development of various sectors, including the energy sector, road, rail and air transport sector, shipping and ports sector, education, the development of the logistic infrastructure with ICDs in various inland locations, along with specialised warehousing facilities to cater for specialised cargoes. This requires definite temp and handling facilities along with many other innovative developments in the communication sector. This would mean huge investment which will be funneled into the system as the law and order situation improves. The forming of new rules and regulations, and the implementation of the constitutional provisions will certainly mean new opportunities for investment by both the public and private sector. The development of various ports upstream is another very important challenge along with the knitting of these ports to inland destinations through road and rail to facilitate and make the system more cost- effective.

Sascha Kuehl: Since Iraq is under construction, infrastructure such as roads, bridges, railway, telecommunication, as well as the ever-changing rules and regulations are posing regular challenges. The banking system is still being developed, which is presenting its own challenge. The security situation in the South and Central Region is a market factor that has to be accounted for and has a cost impact. The ongoing discussions between the Central Government and KRG concerning the agreement over the oil are slowing down potential developments and possible foreign direct investments.

Nevertheless, outside the huge investment in upgrading the oil production facilities, the Iraqi Government is investing, and will continue to invest in many other sectors of its economy. This will require considerable infrastructure developments in areas such as power, road, railway, health, education, housing, etc.

As a consequence, the demand for logistics providers will grow and will open opportunities, particularly for companies that are positioned well in the market and on all of the various transit routes.

LME - What are the obstacles to your business expanding in Iraq? What arrangements do you make for security and how is the security situation?

Ismayil Manzil: Some of the major obstacles are unreliable local vendors, sub-standard equipment, the fear factor within the expatriate work force and erratic local laws. Security is a major concern, particularly in the south of the country, and we tackle it with regular risk management assessment programmes and by working with reputable security firms. While we don’t expect things to change overnight, we anticipate that change will come as the industry gets back its steam, with the inflow of FDI and foreign know-how.

Taher Kaissi: A few obstacles are: the bureaucratic ever-changing regulations implemented by the customs and ministries, the issuance of visas for expatriates, the lack of in-country talent specifically in the O&G logistics industry, and the fluid security situation. Nevertheless, we have noticed that in the past 18 months, the security situation has improved dramatically in the southern and northern regions. Most of the security breaches are occurring in the central district of Iraq (in and around Baghdad) where the O&G exploration is still immature. The oilfields of Zubair, Rumailah, West Qurna and Halfaya are all considered to be in the safe region of Iraq. CEVA offers security escort free of charge with all deliveries within Iraq.

Sascha Kuehl: We lessen the obstacles by utilising our in-country resources and services and we will continue to invest in qualified staff. Security is looked at through our risk management programmes and on a tailored basis for projects.

Hagop Gharnagharin: The main obstacles in Iraq mainly pertain to the evolving system which will inevitably take time to implement. It is very important to attract long term investment in order to be able to sustain development. The making of new laws and their implementation without disrupting the pace of trade is a challenge. The sudden issuing of rules and regulations without the necessary process of consultation with the stake holders and other professional bodies delays progress. Development is a continuous process and one cannot afford to slow the rate of development. This and many other issues are under scrutiny and will most certainly be resolved with time. The security situation is improving, and progress in this area will ensure that there will be many new opportunities for employment for the people of Iraq, in particular the youth.

LME - What is your assessment of the state of logistics infrastructure in Iraq? Where are the key weaknesses? Is there anything distorting the market? Are things improving?

Taher Kaissi: Iraq is still behind its neighbouring countries in terms of logistics infrastructure. The ports still lack the proper systems for recording the inbounds; Umm Qasr, Khor Al Zubair, and Abu Floos ports still cannot cater to the ever-increasing amount of cargoes heading to Iraq; there are shortages in on-shore cranes specifically for the break bulk cargo, and very little MHE (material-handling equipment) to digest the amount of cargo. That being said, we have noticed in the past 18 months that the Port authorities have privatised a few berths, both in Umm Qasr and Khor Al Zubair ports. This has lead to a relatively more efficient clearance process. 24 months ago, you would pay a “guy on a bicycle” to find your container in the port yard. Nowadays, private berth operators have adopted Port Management Systems to ease the delivery of containers. Although basic, and not up to par, these systems have added value to a segment of the supply chain and made the operation more efficient. Moreover, we have seen that many Iraqi truck owners have invested in the heavyweight trucks needed to carry the oversized heavy cargoes.

Ismayil Manzil: If you compare Iraq’s logistics infrastructure with that of other countries in the region, it still has a long way to go. The country needs to establish a system to ensure that HSE and Ethical Compliance are given utmost importance. Furthermore, some fields do not have proper road infrastructure and places like Akkas do not even have airport access for emergency material or personnel transfers.

While it would be wrong to say that things are not improving, the pace of change is still much slower than we would hope.

Hagop Gharnagharin: The logistic infrastructure in Iraq, as we know, is still in the development stages with requirements all over Iraq which will be developed as the situation improves with new statutes and laws being implemented and enforced.
The main weakness is the law and order situation, and the sudden announcement of rules without the consultation of the stake holders. Progress comes with time; distortion is a part of the process and will be eliminated as we move ahead. However, things are certainly improving

Sascha Kuehl: Even though the infrastructure in Iraq is still shaky, continued government investments have already resulted in significant improvements.

This is particularly noticeable in the ports, which now function relatively well and as a result has brought rate levels more comparable to other gulf ports.