Can you afford to take 20 to 25 days to deliver a critical parts shipment to an overseas customer? Of course you can't. Neither can Choice Logistics, but that's the situation the third-party logistics service provider (3PL) faced.
The problem began when Choice, which specializes in critical parts deliveries, started serving customers in Saudi Arabia from a regional DC in Rotterdam, the Netherlands. As it quickly discovered, shipping goods to that part of the world presents some special complications.
For example, Choice would have to clear a number of hurdles before the items could even be shipped from the Netherlands, explains Luisella Basso, the company's director of global trade compliance. Among other things, it had to provide a certificate of origin for each product as well as a certificate of conformity for each shipment, showing compliance with Saudi regulations. On top of that, it had to conduct a physical inspection of every shipment.
That added up to big delays. "The process was taking 21 to 25 days," Basso says. For Choice, this was unacceptable. "Our business is mission-critical shipping," says Michael Notarangeli, the company's vice president of field operations. "Every job is urgent. This went against everything we stand for."
Welcome to doing business in the Middle East and North Africa (MENA), a market that can be as frustrating for exporters as it is tantalizing. The frustrations, of course, come from the confusing array of local and national laws, customs, and regulations. But for companies with global ambitions, the fast-growing economies in the region still have a powerful allure.
Figures cited in a September 2009 study conducted by Adrian Gonzalez of ARC Advisory Services for Wared Logistics provide some indication of how quickly these economies are expanding. "According to the World Trade Organization, GDP growth in the Middle East and Africa in 2008 was 5.7 and 5.0 percent, respectively," he wrote in the study, On the Growing Edge: Logistics in the MENA Region. That was well ahead of GDP growth rates in many other parts of the world, noted Gonzalez, who is the director of ARC's Logistics Advisory Council. While growth cooled off during the global recession, a World Bank report issued late last year noted that the MENA region had nonetheless weathered the downturn better than many others.
Clearly, the market opportunity is there. But how does a company go about setting up operations in the MENA region? Those who've been through the experience warn that careful preparation is crucial. "We advise clients to do their homework, to understand the environment, rules, and restrictions," says Basso.
It also helps to find a partner on the ground who can open doors. "Select an agent or vendor you can work with to help navigate the intricacies and complexities," advises Basso. "It takes a lot of time, but it's important to do that exercise."
Choice Logistics did just that when it needed a way to expedite shipments to Saudi Arabia. "We turned to a vendor in Dubai [Aamro Freight & Shipping Services LLC] and looked at the requirements for using Dubai as a hub," Basso reports. Choice became interested in shipping via Dubai because of the potential to reduce both transit times and paperwork. Both Dubai and Saudi Arabia belong to the Gulf Cooperation Council (GCC), a political and economic organization that opened a common market in 2008. "Because Dubai is part of the GCC, it gets preferential treatment for shipments into Saudi Arabia," Basso explains. In the end, Choice established a strategic stocking location in Dubai, which it uses as a point of dispatch into the region. As a result, it was able to reduce the clearance time to two days.
As for what it was like to work with Dubai (which is part of the United Arab Emirates), Notarangeli of Choice has nothing but good things to say. Dubai has proved itself to be friendly to business, much like Rotterdam and Singapore, he says. "Their business practices lend themselves to getting products in and out of the region," he adds. "It is becoming a major player in our network."
Getting better all the time
Choice's experiences with Dubai bear out what MENA experts have been saying for some time: that the region's trade climate is improving. "Doing business is becoming easier in the region," the World Bank stated in its 2009 annual report on MENA.
That's partly the result of large-scale investments in infrastructure to support logistics activities in the region. One of the most notable developments is the massive Dubai World Central (DWC) project, which aims to enhance Dubai's status as a regional logistics hub. It includes the Dubai Logistics City free trade zone, which offers warehousing, transport, and logistics services. DWC is also developing what it claims will be the world's largest passenger and cargo airport, DWC-Al Maktoum International Airport, when construction is completed.
Evidence of infrastructure improvements can be seen elsewhere across the region. The Kingdom of Saudi Arabia is investing on the order of $80 billion in the King Abduallah Economic City, Gonzalez of ARC reports. The development, which is specifically geared to attract foreign investment and global trade, includes a seaport and what the developers call an industrial valley. In addition, last year, the World Bank approved major infrastructure projects for Egypt, Jordan, Lebanon, and Morocco.
Not surprisingly, all that infrastructure expansion has led to increased demand for third-party logistics services. Problem is, the 3PL market in the region is still in the early stages of development, according to Gonzalez. In the September 2009 study, he described the 3PL market as highly fragmented, dominated by small players that offer discrete services such as transportation, warehousing, or freight forwarding as opposed to integrated end-to-end solutions. "Few providers have nationwide capabilities, and even fewer have the people, assets, and IT sophistication to serve clients across the entire region," he wrote.
But Gonzalez believes that is changing. "Pan-regional service providers offering end-to-end logistics services are starting to emerge, which will further accelerate the growth of the logistics outsourcing industry in MENA," he wrote in his study.
One example is Wared Logistics, which offers import, transportation, distribution, and logistics management services in MENA and operates transportation hubs, warehouses, and DCs in Saudi Arabia, Egypt, Syria, Lebanon, and the UAE. Another is Damco, a $2 billion company that is part of the A.P. Moller - Maersk Group. Damco, which has operations in every country in the Middle East, offers an array of services in the region, including customs clearance, storage, deconsolidation, and distribution.
The right stuff
With the outsourcing market in a state of transition, Gonzalez advises shippers to proceed with caution when choosing a 3PL in the MENA region. As for what attributes they should look for in a potential partner, Gonzalez puts local expertise at the top of the list. Because each country has its own unique set of rules and requirements, he says, it's important to make sure the provider is up to speed on local laws regarding such things as land ownership, operating authority, and labor practices (including regulations governing hiring, training, and retention) as well as customs regulations.
Another consideration, he says, is the provider's physical assets, like its trucks and warehouses. Gonzalez urges shippers to find out what the 3PL currently has as well as its plans for investment. A key consideration with warehouses, he says, is the facilities' proximity to industrial zones. "If your manufacturing and trade operations are located in these zones, so should your 3PL partner's," he says.
Finally, he says, evaluate the potential partner's IT capabilities. Shippers should seek assurances that the 3PL's systems can be integrated with their own, and that the service provider is able to provide visibility to logistics events and performance metrics.
Knowledge is power
All this might sound daunting, but experts say the challenges should not dissuade companies from setting up shop in the Middle East and Africa. Wade Thompson, chief commercial officer for Damco in Dubai and an 11-year veteran of the region, disputes the idea that doing business in the MENA market is difficult.
"It is a very common myth that the Middle East is difficult to deal with," he says. "I think with knowledge, it is an easy place to do business. Once you know the process, it is very smooth and efficient to manage."