Slowdown challenges for logistics sector |
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The economic slowdown in the US and other parts of the world is creating new opportunities and challenges for logistic companies, says a leading industry figure.
Major manufacturers that intended to shift their operations from the US to low-cost locations are now reconsidering their plans particularly as costs in some of these areas are beginning to increase due to high prices for land and rising inflation.
"The economic crisis in the US will give companies there a competitive advantage," Gianfranco Sgro, President, South Europe, Middle East and Africa, of CEVA Logistics told Emirates Business.
"The slowdown has caused a decline in operating costs in the US and many companies, specially in the automobile industry, are rethinking their plans to relocate to cheaper destinations," he said.
"Many automobile companies which were planning to relocate to China or other cheaper locations may now rethink their plans. US companies want to be closer to the customer and production costs in the US will become competitive.
"As a logistics provider the company has been participating in many debates about the relocation plans of US companies."
Sgro said there had been a slowdown in cargo movements in the US and other countries including Turkey, Spain and Brazil. "But the growth rate in the Middle East is double-digit and some markets in the region are yet to mature," he added.
"The US financial problems have started to affect the real economy but our capital structure is strong enough to withstand any crisis. There is a consumer and volume crisis in all the areas where we operate - industrial products, automobiles, oil and gas and aerospace. There is an economic slowdown in the US and other countries. However, we maintain a flexible cost structure."
Dutch-based CEVA, formerly known as TNT Logistics, is one of the leading integrated supply chain logistics operators. It is the world's largest logistics provider for car companies and its major clients include Fiat, General Motors, Ford and Renault.
The company is the world leader in serving the logistics needs of all major automotive original equipment manufacturers (OEMs) and suppliers. Nine out of 10 leading OEMs rely on its logistics solutions and many tier-one suppliers around the world use its services.
Sgro said the automobile sector accounted for 30 per cent of CEVA's total revenues of €6.3bn (Dh31.4bn) last year and the domestic car markets in India, China and Russia were still growing.
"There is a worldwide slowdown in the movement of automobile units and in Europe alone this is down by between five and 10 per cent in 2008 compared to the corresponding figure last year.
"However, there is growth in East Europe, Russia, South America, India and China. The South American car market, especially in Brazil, is growing by double digits and the introduction of hybrid cars will boost car sales again. The US economy will revive after the presidential election."
CEVA recently launched a new car division in Thailand.
"CEVA Vehicle Logistics (Thailand) is targeting car dealers, automotive manufacturers, auction houses and finance companies," said Sgro. "The new division can move up to 880 cars at one time and has a storage capability of up to 20,000 cars. And the company is looking at the Middle East vehicle market.
"We have a positive outlook about the Middle East region. As a market leader we see new business opportunities in the UAE. There are lots of hub business opportunities from Dubai, which is close to both Europe and Asia Pacific region.
"The integration of the world's largest airport, which is being built in Jabel Ali, and Jebel Ali Port will open new business opportunities for us. We are here to see our business grow.
"Jebel Ali is an ambitious project and all the ambitious projects in Dubai in the past have been successful. We are keen to expand our operations in the UAE. The integration of the airport and the sea port will create a lot of hub business opportunities."
However, he said, the escalating cost of operating in Dubai, in particular high land prices and rents, might affect the emirate's competitiveness in regional and global markets. This could help other regional players to enter market as the high price of land could force cost-conscious companies to look for cheaper options.
"CEVA is currently focusing on three strategic regions - Eastern Europe, the Middle East and China. These are growth areas to be developed and we have already decided to invest Dh3bn in the Middle East over the next two years.
"We will focus on oil and gas, industrial products, electronics and telecoms. The company has signed an agreement with the United Holding Group in Jordan."
The logistics business has been affected by fluctuating oil prices, growing operating costs and a number of natural calamities.
"There has been a dramatic drop in the volume of trans-ocean 20ft container traffic due to the economic slowdown. High oil prices in the summer increased the bunker fuel surcharge and other operational costs."
Fact file
Gianfranco Sgro started his career with express and mail service provider TNT in 1992. In 1994 he joined the team that set up Fiat's spare parts unit in Italy and Europe and subsequently established TNT Automotive Logistics in Italy, France, Spain and UK.
In 1995, as Operational Manager, he set up TNT Logistics Brazil. In 1999 he was appointed President and Managing Director of TNT Logistics South America. He led the growth of the company through the acquisition of important contracts with General Motors, Ford, Fiat, Philips and Bosch.
In 2003 he led TNT's logistics and consumer businesses in Italy and in 2004 became the MD of TNT Logistics Italy. In 2005 he was given responsibility for the entire Italian and South American business unit.
CEVA
CEVA Logistics competes with other major companies such as DHL and Agility for a major share of the global outsourced supply chain market. The sector is estimated to be worth between €260bn (Dh1.29 trillion) and €270bn per year.
Contract logistics represents about €180bn per year and freight forwarding between €80bn and €90bn.
Before the economic slowdown analysts estimated the world market would increase at up to 10 per cent a year to reach between €360bn and €390bn by 2010. The impact of the financial crisis on these predictions is yet to be assessed.
By VM Satish
© Emirates Business 24/7 2008
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