Glimmer of hope for Middle East Logistics
There’s no escaping the truth: We are facing a deep global recession never before seen in our lifetime as nations struggle to fight the Coronavirus pandemic that has impacted the lives of billions across the world.
The International Monetary Fund said the cumulative output loss from the pandemic in 2020 and 2021 could reach $9 trillion. And for the first time since the Great Depression, the IMF said “both advanced economies, emerging markets and developing economies are in recession” with income per capita for more than 170 countries to dramatically shrink due to the “Great Lockdown” that put a stop to all activities, including global flights, for weeks and even months in some areas.
Experts warned it will be a slow and painful recovery for many countries that won’t be felt until 2021 or when the anti-Covid-19 vaccine has been developed.
The new normal, whereby people must practice social distancing in public places in addition to wearing masks, will prevail in the meantime. Governments are also likely to re-impose lockdowns if necessary to prevent the spread of the virus that has so far infected more than 4 million people worldwide and killed nearly 300,000 so far.
While many industries suffered unimaginable losses, aviation in particular, the pandemic also sustained some sectors like air cargo, logistics and growth for some such as e-commerce.
With people stuck at homes for weeks, the allure of buying online, especially essentials like food and medicines, surged within just a short period of time, inevitably making the e-commerce industry stronger.
The United States, Canada, and other developed economies in Asia and Europe, saw online buying activities and spending substantially increased, if not doubled, particularly on groceries. With malls, shops, restaurants and other retailers closed, consumers were pushed to buy their needs online.
The trend extends to affluent nations in the Middle East like the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia, where people, for safety and precautionary reasons, have turned to e-commerce platforms to keep a steady supply of their basic needs instead of going to supermarkets which remained open during the lockdown.
ITCAN, a leading e-commerce technology and digital marketing company focused on e-commerce performance marketing, said the changing dynamics in the way we live have turned most consumers to online shopping rather than doing bulk-buying in stores. For many, the practice is seen as more convenient with free deliveries offered by e-commerce platforms.
“The current global health situation is leading consumers worldwide to adapt to alternative ways of getting their goods, particularly through online shopping and they are likely to spike even more as cities raise the level of restrictions on people’s movement outside their homes. This shift in consumer behavior puts e-commerce platforms on the forefront to support people in the region who are still used to shopping their needs in malls and stores to move towards online marketplaces,” said Mansour Althani, CEO & Co-founder of ITCAN, adding, “online shopping will go beyond the current crisis and will serve as an impetus to further accelerating the growth of e-commerce in the region.
In a 2019 joint study by Dubai Economy and digital payment solutions leader, Visa, titled the “UAE eCommerce Landscape,” the UAE was identified a the most advanced e-commerce market in the Middle East and North Africa with transaction hitting $16 billion that year. It’s annual pro-Covid-19 pandemic growth was estimated at 23% annually through 2022.
The study underlines innovative initiatives, such as the Dubai Smart City, tech-eager consumers and a favorable ecosystem promoting start-up growth as the chief factors that have positioned Dubai and the UAE at the forefront of the e-commerce growth in the MENA region.
Saudi Arabia, which is already big on e-Commerce, also saw a sudden surge on online retail shopping following the Covid-19 lockdown and curfews.
Local online retailer BinDawood Holding disclosed its average sales on a 10-day basis jumped by 200% in March while its average order value rose by 50% and app installations by 400%. The company had since hired more packers and drivers to keep up with demand for online deliveries.
The company has two e-Commerce platforms – BinDawood and Danube – connected to their respective 72 supermarket and hypermarket chains, enabling customers to purchases groceries and other goods online.
Saudi grocery delivery app Nana has also benefitted from the recent turn towards online shopping, raising $18 million in a Series B funding round in late March to expand operations across the Middle East, with investors including venture capital funds Saudi Technology Ventures and Middle East Venture Partners. This follows a Series A funding round that raised $6 million last year.
The Saudi government hopes to increase the proportion of online payments to 70% by 2030, up from 2020 target of 28%. Last year, it enacted the E-commerce Law designed to regulate digital payments and improve transparency. On January 31, 2020, the Ministry of Commerce and Investment adopted the Implementing Regulations of the E-commerce Law, adding increased oversight to areas such as personal data protection, consumer rights and disclosure obligations.
The global logistics market was valued at $10.68 billion in 2018. By 2027, it’s projected to reach $15.88 billion, growing at a CAGR of 4.5%, and pushed by the rise in the use of multimodal transport and innovation in mobile technologies.
Retail and consumer goods companies are likely to benefit more prompting them to reshare their operating models with connected logistics, to keep pace with the ever-evolving industry and consumer demand, according to Agility, a leading global logistics company.
According to the Agility Emerging Markets Logistics 2020, the Middle East will see significant growth in domestic logistics largely fueled by e-Commerce market. Leading this is are the UAE and Saudi Arabia.
“UAE’s rise has been driven by a boost to its e-Commerce market, forecast to expand at a CAGR of 19.1% in the five years to 2023, while in Saudi Arabia, benefits of the Kingdom’s Vision 2030 strategy are improving prospects and performance. Growth in the construction and tourism sectors as a result of projects established by the Vision 2030 strategy increased demand for domestic logistics services,” Agility pointed out.
In its latest e-Commerce analysis, the Dubai Chamber of Commerce said the UAE has advanced its position globally in this industry thanks to its large storage capacity, extensive logistical networks and the government’s support.
“The country’s position further advanced after the outbreak of the epidemic, as unified exceptional measures taken by the government, logistical support companies and commercial companies helped to ensure the continuous flow of necessary materials during the emerging pandemic…The benefits of the UAE’s strong logistics and warehousing sector extend beyond the domestic market to neighboring markets, for example, Saudi Arabia,” the Chamber said.
Logistics growth is projected even in some of the most challenging zones like Afghanistan and Iraq to sustain communities and businesses.
Airglow Aviation, which established its operations in Afghanistan eight years ago, relies on highly qualified staff to accomplish its mission.
“Providing services in conflict zones can always be challenging due to the unpredictable security situation in the country. We need to ensure that our personnel, the cargo we handle and our facilities are secure, with multiple layers of security in order to run a successful and incident free operations,” shared Rohit Thakwani, Managing Partner at
Airglow Aviation Services FZC, which represents airlines as Cargo GSSA.
“Our main focus has been safety and security, and we rely on our highly qualified staff to ensure that our standards are maintained. In order to mitigate risk in Afghanistan, we have a due diligence checklist in place that helps us know our clients better. In addition, we also carry out cargo supervision throughout the logistics supply chain. These are just the first few steps put in place that helps us ensure the cargo is safe for transport,” he added.
Liana Coyne, Chief Operating Officer of the family-owned Coyne Airways which pioneered in delivering cargo to conflict zones, said the company relies on their wealth of experience, highly-trained staff and reliable network to mitigate and recover from surprises in conducting their operations.
“It can be very challenging to deliver air cargo services to conflict zones, particularly when there are broader geopolitical issues at play. For better or worse, it has become routine for us and we strive to provide the same level of service to our customers that they would expect on less eventful routes. However, sometimes there are forces simply beyond our control,” said Coyne.
She cited an incident a few years ago when their slots will be cancelled at the last minute changing their entire plans for deliveries.
“For example, a few years ago, Kandahar was the busiest single runway airport in the world and because of that, they were understandably very unforgiving if you missed your slot, regardless of why. And if you missed your slot, you would go to the bottom of the queue and it could take days to get another one. I remember always holding my breath a little for our Kandahar flights, hoping that nothing would go wrong. I also remember feeling somehow cheated on the occasions when we had everything ready to go, but our slots were cancelled at the last minute because of an unannounced visit by a foreign dignitary,” she recalled.
“Unfortunately, there are some things that you cannot plan for; fortunately, we have a wealth of experience and a network of reliable and trustworthy partners to help us anticipate, mitigate and recover from any surprises.”
Future of logistics industry
The Covid-19 pandemic has created so many challenges but also highlighted the importance of the air cargo industry’s ability to deliver fast and efficiently medical and other vital supplies across continents. Equally important is the role that logistics played out during this time of crisis.
Coyne who is in-charge of Coyne Airways’ five new market-focused divisions including Iraq, the Caspian and Central Asia, Afghanistan, Africa, and Contract Logistics, said the pandemic crisis highlighted the importance of the logistics industry in keeping the world moving.
“It is clear that the coronavirus crisis will have a lasting impact on the world economy for the foreseeable future; that will necessarily affect the logistics industry in a variety of ways,” said Coyne, an Oxford graduate lawyer. “Coronavirus has really exposed how reliant supply chains are on flows from East to West.”
“On the airline side, we have seen a huge reduction in capacity in frequencies to and from mainland China on both the cargo and passenger side. For the freighters that are still flying, some are trying to honor their commitments while making the trade imbalances work, while others are charging premiums for capacity. Overall, however, I think that there will be few long-term winners: in February, IATA estimated that coronavirus would cost airlines $30bn in revenue,” she pointed out.
In a globalized world, connectivity is very important and logistics make it happen seamlessly and so are the people behind it.
“If there is any silver lining from this misery, I think that the crisis has highlighted the importance of logistics and more attention may be focused on the industry in the future. I would mention two things in particular: First, we live in a connected world, but contingency planning is key, particularly for pharmaceutical goods. I hope that the response will to diversify and spread the risk rather than to isolate and on-shore. Secondly, I think there has been a renewed appreciation for those people who make the final mile happen: the delivery drivers who provide food and medicine to people under quarantine. I very much hope that the rise in respect and courtesy that ‘hero’ drivers have reported in Wuhan will be replicated around the world,” said Coyne.
Stuart Milligan, Course Leader, MSc International Logistics and Supply Chain Management at the University of South Wales Dubai, said supply chains may become more resilient as a result of the COVID-19 disruptions.
“The reason why the Lean approach is so successful is that it forces organizations to face aspects of their operation that aren’t efficient. COVID-19 has really pushed supply chains to the limit, exposing areas of weakness that day-to-day operations don’t highlight. Smart organizations will reflect on these issues and address them, making them more efficient and resilient in the future,” he explained.
Describing the supply chain as a “people’s job” Milligan noted while some technologies may be integrated in the sector that will shape its future, people will always be behind its success.
“I always maintain that supply chain is a people job. Now, more than ever, the power of people is vital to success. This is a key opportunity to exploit value beyond the transactional. The prize now isn’t price, it is about real social value—health, well-being and care for the most vulnerable. I am engaged in social media feeds of supply chain professionals in the UAE, and the care and compassion that is evident in the profession is humbling,” he said.
Thakwani, Managing Partner at Airglow Aviation Services FZC, said with new technology combined with increasing demand for movement of goods, the region’s logistics industry is up for more growth.
“With the advancement of technology which enables aircraft to fly further whilst being more fuel-efficient, we are going to see more cargo move across the globe, from point to point, as opposed to transiting in hubs such as the UAE,” said Thakwani.
“Moreover, with the growth of the aviation sector in the world and especially in the region, we will continue to witness supply outpacing demand, and overall industry wide load-factor continuing to decline. On the other hand, we are getting access to new markets, and with the rapid growth of e-commerce sales in the region, we expect the year-on-year revenue and over all yields would continue to grow,” he added.
6 trends that will impact the Transportation & Logistics industry over the next decade
1. Global uncertainty: Disruption in the global supply chain cost US$56 billion in 2015 in Europe alone. Economic turbulence, protectionism, and geopolitical instability are forcing transportation and logistics providers to adopt new business models and new alliances.
2. Urbanization: With the rise of megacities, T&L providers need to cope with the challenges of urban logistics, including congestion, difficulties in loading and unloading, and last-mile delivery.
3. Digitalization: Digital technologies will transform the industry, with new efficiencies and new visibility. However, technology is a double-edged sword that also creates rising customer expectations and security challenges.
4. Technology innovation: Business model disruption is coming from established companies and a host of new entrants who are harnessing the latest technology innovations. This will lead to horizontal and vertical integration across the value chain, and networks that are real-time optimized.
5. Need for new talent: New technologies require new skill sets — including design thinking, data sciences and robotics. Hiring costs will rise, and innovation will be a key competitive factor.
6. Sustainability and transparency: Stakeholders, government agencies, and consumers are keenly interested in the practices that guide T&L companies, including sustainability, labor conditions, and environmental compliance.