Explainer: Factors disrupting the GCC’s logistics industry
Technology and economic headwinds are having a major impact on the logistics sector
How has the GCC’s logistics industry fared in 2019?
Looking at the year-to-date economic growth across Middle East, there has been a slowdown in terms of GDP trajectory from the level of 1.2 per cent in the previous year to 0.6 per cent YTD 2019 due to various factors. Logistics, as an industry that has a direct correlation with economic growth at large, has obviously suffered dramatically. However, subsectors like international ‘courier express parcel’ have diverged positively from the others such as freight forwarding (air and land and sea) as well as the inventory and supply chain management section. With the rise in global online shopping, lightweight, express international package deliveries with cash on delivery (COD) functionality are seeing strong growth.
What are the main factors that have disrupted operations?
Trying to analyse the factors contributing to poor performance of logistics industry in our region, the core of the problem is business conversion. This lies in the fact that despite heavy investments , the performance of the overall logistics industry has always remained lacklustre when compared to international benchmarks.
There are two main causes for this – one is external
THE PERFORMANCE OF THE LOGISTICS INDUSTRY HAS REMAINED LACKLUSTRE COMPARED TO GLOBAL BENCHMARKS
and the other is internal. External factors include the region’s over-dependence on oil and gas metrics and its sensitivity to global trade and finance (commodity prices in specific). Internal factors include inadequate warehouse space, scarcity in regional distribution centres, lack of postal codes, high custom duties and taxation, limitations in the payment infrastructures and – to some extent – concerns over data security.
With e-commerce booming in the region, several new players are entering the market. Is it now saturated or is there space for more players?
Saturation is a subjective term. From a distance, segments such as international courier express parcel would offer an impression of offering strong growth for new entrants. However, in my opinion, this is quite misleading. Looking at the barriers for
market entry, this industry is one of the most difficult if you consider the depth and width of investments required in areas like international network build-up, fleet management, IT technologies and business harmonisation. That’s not even counting the human element.
The growing mismatch between the capital required to set up the business, and the managerial skill and vision required to keep it going, is one of the main reasons that some new entrants go out of business very early on.
On the other hand, while the domestic courier express parcel industry offers low barriers for market entry, it comes at the cost of low operational margins and higher customer churn rates.
How is technology impacting the logistics business?
Technology is an enabler with which you can prepare your company to be competitively aligned with new market dynamics and this is something you should take into consideration if you do not want to be disrupted and become obsolete. I believe that our industry owes a lot to the innovative advances in internet technologies and mobile devices.
Quite frankly, no company in the entire logistics industry has the luxury of overlooking the impact of artificial intelligence (AI) on its customer interface or (virtual reality (VR) in facility design and management. The same holds true for big data and drones.
The future of logistics, from this technological perspective, is very exiciting, but also very dangerous if you are reckless with – or ignorant of – the pace and scope of change.