Opening the Pandora Box to improve logistics in the Middle East

Stuart McCandlish, Supply Chain Director at Nestle Middle East, says that logistics will improve when customs, sea transport and road transport can be encouraged to improve. 

The challenge for any Supply Chain is to get the right products to the right place, at the right time and in the right quantity. As with many companies in the region, Nestlé is dealing with not one but many countries – making this a much more complex operation.

Unlike many companies in the region, Nestlé does not use the agent model to sell to the trade, preferring a local Nestlé operation. This may be 100% owned, or a joint venture with local experts, depending on the local legislation. Why is this important in such a context?

Success in having a dependable supply chain lies in having access to solid, experienced 3rd party logistics service providers (3PL) who can implement this ‘secondary’ logistics operation. Unfortunately this is easier said than done, because there’s a limited pool of high quality operators in this vital sector who offer regional operations. Even in the UAE, which is better placed than most countries, it’s difficult to find high quality warehousing and distribution services outside the Jebel Ali Free Zone.

There are many operators in the field of ‘primary’ logistics centered on the Free Zone in Jebel Ali in Dubai, but the quality of services that these operators provide varies substantially at other ports in the region. Their specialization also tends to be warehousing and port servicing, but at least there’s a choice of door-to-door service offerings. Whilst the availability of 3PLs in this sector is welcome, it’s important to understand the challenges posed by the complex nature of cross border operations in the Middle East.

These challenges can be considered from three viewpoints – customs, road transport and sea transport. In all cases there’s a significant gap between present and desired performance.

Looking at Customs first, it would be a huge step forward if the GCC (Gulf Cooperation Council) and the Arab League could speed up developments to enable free trade and movements of goods within the Region. It’s truly amazing to see the developments in Europe over the last 12 years. Key to this was how the Europeans set up their Customs Union in 2005. They established a single customs territory (a free trade area with no border controls between members) and set common external custom tariffs (following a common commercial policy). As a consequence, this led to the free movement of goods within the European Union (the basis for a single market).

While the GCC shares the same intentions, putting theory into practice has been far less successful. In 2003 the GCC declared a Customs Union and the implementation of the ‘Common Customs Law of the GCC States’. Sadly that plan has not yet been successfully applied and results are still minimal. For example, there’s no clear alignment between different countries in terms of tariffs and requirements.

On a brighter note, the Arab League has set a 2012 deadline for the completion of a unified customs table and has also presented its plan for establishing the Arab Customs Union in 2015. This step will not be easy to accomplish. But once done, it has the potential to become a catalyst and transform commercial operations in the whole region.

The second issue concerns road deliveries. Whether or not the Customs Union succeeds, cross-border transportation by land has tremendous potential within the region. But again, good intentions have fallen short. The current standards in the Middle East are far lower than those existing in many other markets. Major drawbacks include the lack of skilled/educated drivers, the presence of many obsolete vehicles on the road and the absence of a common law regulating the transportation sector. These obstacles, together with the challenges faced by Customs, serve to hold back the economic and logistics growth of the region.

Thirdly, the effectiveness of sea transportation varies drastically within the region. Some ports have great productivity while others don’t. Port infrastructures also create bottlenecks because there are no dedicated/green lanes for trucks shuttling containers to and from the Terminals. The result is congestion of trucks within the port and delays at the Municipality/Customs check points – a serious problem for time-sensitive shipments. One can imagine how a more unified policy on Customs together with improved efficiency can bring great benefits (as well as higher traffic) for sea shipments.

The Middle East region has seen healthy economic growth over the past decade. In order to support and sustain this, proper and effective logistics infrastructure and systems must be put in place. Once that is done, the potential that is evident everywhere can be captured and exploited, generating greater prosperity for everyone.