Emergence of latest technologies and new business models a game changer for the industry
Frost & Sullivan hosted the ‘2018 Middle East Best Practices Awards’, the fourth in the continuing series, at a sparkling ceremony and gala dinner reception held at The Atlantis, The Palm, Dubai.
Official media partner and LogisticsGulf.com (LG) engaged in a prolonged, one-on-one conversation with Gopal R, Global Vice President of the Transportation & Logistics Practice, Frost & Sullivan, on the sidelines of the glitzy, scintillating event where top performers were recognized and feted for their performance and accomplishments. The following are excerpts from that interview.
LG: Specifically with regard to the Transportation & Logistics sectors, how does the Middle East stack up vis-à-vis the rest of the world in terms of infrastructure, efficiencies and performance?
Gopal R (GR): The Middle East and specifically the GCC fares well in terms of transportation and logistical efficiencies, infrastructure and performance on the global scale, it is relatively high up on the index. The UAE peaks the scale with highly developed transportation networks and processes. Other countries such as Saudi Arabia and Oman, among the largest in the GCC, also rank high on the pecking order.
To begin with, let me put the industry in perspective on the economy canvas. In general, internationally, the cost of transportation and logistics accounts for around 15% of the aggregate trade costs. This can soar up to 25% and even possibly 30% for some developing and under-developed countries given the tough geographical terrain and poor transportation infrastructure.
Furthermore, it is our observation that across the globe, in value terms, the composite organized logistics and supply chain industry typically constitutes around approximately 5-8% of a country’s GDP. For logistics hubs such as Dubai and Singapore for example, this percentage is upwards of 8% possibly even 10%.
Naturally, this percentage will be relatively higher for countries with a big manufacturing base or movement of commodities, given the extent of logistics and transportation required to move raw materials and finished goods.
It must be remembered that the cost of logistics usually is the sum of the costs of transportation, warehousing, forwarding and other related value-added services. To keep costs low, the model currently being successfully followed involves the institution of a fulfillment centre where consolidation occurs and then routed to customers through logistics services providers and last-mile deliverers.
LG: How is the region adapting and adopting new trends and technologies increasingly being bandied around such as blockchain, self-driving vehicles, telematics, prognostics and hyperloop, in the automotive, transportation & logistics arena?
GR: This indeed is a loaded question and but let me break it down to three broad categories,, namely trends, technologies and the much-talked about hyperloop.
Let me take the subject of hyperloop first since it is the easiest to tackle. Hyperloop in essence is the high-speed transportation of passengers and freight using electro-magnetic levitation engineering to carry pods at 1,200kph. Today this is not just a concept but a reality and well on track to be successfully implemented. Abu Dhabi has an agreement with California-based Hyperloop Transportation Technologies (HyperlooopTT), while DP World recently announced its partnership with Virgin Hyperloop One to build ultra high-speed transportation system for cargo delivery. This is a revolutionary development set to change the logistics industry and landscape in the region.
The blockchain phenomenon is also well and truly upon us and here to stay. An increasing number of companies are joining the blockchain fold. Some Government departments have also joined the fray. Blockchain for now has proven to be safe, secure, almost foolproof and virtually immune to errors, amendments and manipulation.
The big breakthrough and take-off for blockchain will come when governments fully embrace and adopt this emerging technology. Blockchain is then expected to grow exponentially. It is also of great importance to government stakeholders including regulators, customs and the security regimen.
Specifically, blockchain involves a single document operation where all constituent partners and authorities have equal access simultaneously and can only work on those parameters and parts of the document that directly affect the stakeholder concerned.
The technology ensures that all aspects of the process works in harmony and unity without the need for multiple documentation and supervision.
With regard to trends, logistics is being increasingly impacted by e-commerce is becoming increasingly ubiquitous and gaining rapid momentum. The geographical axis for trade is also moving to Asia where 60% of the population accounts for 40% of the total e-commerce trade.
In the Middle East, 70% of products consumed are attributable to cross border trades within the GCC or outside of it. A notable feature of e-commerce, as I have said previously is the consolidation of the business to centralized depots or hubs thereby lowering transportation costs particularly for last-mile-deliveries. In this context it is pertinent to note that rail services will receive a fillip. Rail transportation is relatively ‘green’ and eco-friendly in addition to being very economical too.
It is also interesting to know that as a fallout of digital disruption, 60-70% investment in (new) technological startups is happening in the transport aggregation space. Delivery by drones may go well in suburban, rural areas but last-mile-deliveries are a challenge in densely populated urban centres.
Another extraordinary development is delivery that can be attributable to ‘crowd sourcing’. In some countries particularly in the Far East for example, the drivers of one of the ride-hailing companies have also been harnessed to make deliveries of packages at comparatively lower costs in addition to transporting passengers. Drivers thus make additional income on the side.
LG: Is the Transportation & Logistics segment in the region in growth mode? If so by how much is it growing?
RG: This region has traditionally benefitted from regional and international trade but given the global economic slowdown and recession, growth has been relatively slow. There is also the inclination to produce and manufacture locally and promote ‘indigenization’ rather than import. This has also taken the shine off international trade.
Imports of traditional industries specifically automotive and electronics are in marginal decline for multiple reasons. However, this has been offset by a surge in e-commerce and as a case in point—the healthcare industry which has spawned the ‘cold-chain’ genre of logistics.
LG: Several Governments in the region have announced grand futuristic, imaginative plans—Saudi Vision 2030; the US$ 500bn Neom Sci-Fi City; Abu Dhabi Economic Vision 2030 and many more. What will be the bearing on the logistics segment for the region both short and long-term?
RG: It is imperative that Governments continue to invest in developing infrastructure because it is essentially this aspect that will drive energy and momentum into the logistics industry. These well enunciated National Vision plans provide tremendous resource and impetus to development plans as are evident in the UAE and Saudi Arabia. Developments of new industrial cities, ports, airports, rail and road infrastructure is indispensable to the growth of any economy and certainly a boon to the logistics sector.
LG: What opportunities / potential await and what challenges confront the region in this industry segment?
RG: Lack of seamless connectivity and poor infrastructure are the top primary challenges for the generic logistics industry in the region. Other challenges include compliance, rigid bureaucracy and a strict regulatory regime. Inadequate storage and lack of warehousing facilities or improper transportation arrangements will stifle trade and choke the logistics industry. Adoption of new technologies and digitalisation is also important to facilitate smooth operations and thereby the growth of the logistics sector.
On the other hand, the economies of the region are surely bouncing back and that signals confidence and growth. Prudent policies are also in place for industrial and overall growth and that bodes well for the logistics sector.
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About Gopal R.
Gopal R. heads Frost & Sullivan’s Transportation & Logistics practice globally. Responsible for developing the transportation and logistics consulting capabilities across regions as well as managing the business unit, he is actively involved in the execution of client defined engagements and syndicated research studies.
Gopal has worked on several strategic market consulting assignments for local, regional and global clients. He also works with industry associations and event producing companies to plan and implement value added business programs in industry events.
His expertise in the regional markets has helped in developing relationships with local and regional companies, augmenting networks, capabilities and research focus. His regional expertise is backed well with his knowledge and experience of working with global third party logistics companies.
Gopal has also been instrumental in conceptualizing and developing new research products for Frost & Sullivan that focus on the economic implications affecting industry segments.
Prior to joining Frost & Sullivan, Gopal was the Commercial Director with an international third party logistics company, responsible for business development in the region. He has also worked with a leading financial institution and handled the responsibility of market assessment and company analysis in project financing.
