Although the recent press frenzy over the Aqaba Special Economic Zone generally focuses on real estate and tourism, Aqaba is also well on its way to becoming a major transport logistics hub for the region. While the Aqaba Development Corporation has made great strides in transforming Aqaba's logistics nightmare into a competitive, efficient sector, Jordanian logistics businesses have used Aqaba as a platform from which to launch operations in other parts of the Kingdom, as well as to organize among themselves. Patrick Wrigley of Oxford Business Group reports.
The Red Sea town of Aqaba, Jordan's only port, has grabbed a large share of national and regional media headlines over the past few years. The raft of mega projects and foreign investment pouring into the coastal town has indeed created a buzz about the place. Aqaba is now first and foremost associated with real estate and tourism development. However, ask Imad Fakhoury, chairman of Aqaba Development Corporation (ADC), about achievements in Aqaba thus far and he is in no doubt that the real story is elsewhere. The mega projects are a story for the future. In the here and now, it is all about logistics. "The first transformation to near completion in Aqaba is logistics transformation. Tourism is well on the way to place Aqaba on the world resort map, with major projects like Saraya and the Tala Bay hotels well under construction. Still, the biggest transformation to date has been logistics," he says.
Transforming Logistics
The logistics industry in Jordan is still in flux, but the prospects for the future seem bright. With the Jordan Logistics Association expected to be launched in the coming months, increased attention is being directed toward the potential of the industry in the Kingdom.
Much headway has already been made. Aqaba is positioning itself as a logistics gateway for the region. With the overhaul of transport infrastructure by the Red Sea, ADC and the Aqaba Special Economic Zone Authority (ASEZA) have managed to attract many leading freight forwarders to the country. Fakhoury recounts with a mixture of pride and mirth the difficulties that Aqaba has faced in reaching this stage, stating, "Before, you would actually see people trying to find their driver for a week. Companies were bringing their cargo in and the driver would be somewhere in the south at a wedding with his phone off and the company wouldn't know if the cargo was lost or not. This is a true testimony. People would call us and say, 'Do you know where my truck is? We can't find it.' It's a funny story, but that was the service level before. Now that doesn't happen anymore; containers can be tracked online and trucks are marshalled in five special yards connected to a port computer system that manages their movements."
To move from this rather informal and unreliable system to a competitive and attractive environment for transport logistics, the authorities have had to overhaul the whole system from A to Z. This has entailed tackling issues from container berthing to land and air services to warehousing to regulation. Over the past three years, there has been a substantial transformation in all of these areas.
Aqaba now has a new truck marshalling yard with an automated system that allows for the efficient loading and unloading of trucks. Perhaps more importantly, freight forwarding in Aqaba has been opened up to stiff competition so that importers can choose a logistics operator. This has replaced the old system in which companies were reliant on a queuing system, whereby cargo was automatically placed with the next available truck. This has driven down prices that were previously fixed. According to Fakhoury, prices have been reduced by 40% in the last 18 months. Moreover, tax and customs incentives to encourage new trucking fleets have attracted major players such as Agility Logistics and KGL Logistics. Agility alone has a fleet of 110 trucks in the country.
After tackling the trucking system, the authorities have turned their attention to warehousing. To this end, the ADC warehousing and industrial park as well as the Aqaba Logistics Village have been launched. The former consists of 1.5 million square meters of serviced land with pre-built warehousing units that can accommodate value-added services. The park is being developed by the National Real Estate Company of Kuwait on a build operate transfer (BOT) basis. 70,000-square meters of warehousing units have already been built and are now being marketed. The park is supported by the 500,000-square meter Aqaba Logistics Village, which will contain at least two 10,000-square meter container freight terminals and a minimum of seven distribution centers with material handling equipment and the infrastructure for value-added services, such as packaging and inventories. This will entail a $60 million investment over three phases spanning 9 years. The tender for the Logistics Village was awarded to a consortium of Agility and the Kawar Group, which will be operated by OPM of Singapore. These land infrastructure investments have been supported by an air cargo terminal that is operating sea-air linkages into Iraq.
The Industry Today
There has clearly been considerable investment in the logistics sector. However, some in the industry question whether this will be enough. With 50% of revenues in Aqaba going towards tourism, question marks have been raised over the commitment to logistics. Can Aqaba really have the best of both worlds? Moreover, despite this noticeable move towards a modernized, professional industry at the point of entry, the industry is still dominated by small-scale players. For example, 80% of the land trucking in Jordan is carried out byindividual truck owners rather than by companies. Yet things are beginning to change. Indeed, such developments in Aqaba are seen as a beginning rather than an end. There is widespread recognition that there is a long way to go. Ibrahim Naouri, chairman of the Naouri Group and the driving force behind plans for a new logistics association, is frank about the situation, claiming, "The logistics industry in Jordan is still very primitive. Logistics is still a new industry and manufacturers remain unsure about third-party warehousing. However, we need to educate people about this and the value of total transport solutions. We need to let people know that it is the most cost-effective way."
Naouri is therefore leading the process of establishing a Jordan Logistics Association (JLA) as a means of both promoting and marketing logistics and also regulating the industry. According to Naouri, "The association will aim to promote Jordan as a transit point for the region. It will also act as a professional trade body for the industry, formalizing regulations and establishing a legal framework. As it stands, there is no third-party legal cover in the industry." Naouri and his cohorts are well on their way; the articles of association have been established and talks are ongoing with the Ministry of Transport for final approvals. The JLA will also legally be considered part of the international logistics association based out of Switzerland, FIATA. Naouri has said that interest is greater than he expected, with at least 50 companies ready to sign up.
Many in the industry agree upon the need for an association. However, the question of whether this will truly transform the sector or simply reinforce the position of small-scale operators remains. Hani Rabie, general manager of Agility, remains guarded about the idea of an association, explaining, "The idea is very good and it is needed. It will make sure things are happening and improving in this vital sector. However, I don't know the intricacies of the plan but how do you define a logistics company? Jordan has the infrastructure in terms of the roads, the rails and the airport, but at the same time you have these individual players who provide logistics from the same pool of truckers using under-qualified drivers and older trucks."
Rabie is concerned that an association must address the issues of providing sophisticated world class services. He argues, "If someone wants to do an association based on the old school of thinking, we are doing nothing but adding another entity that possibly could be another obstacle. The rules and regulations need to be defined, as well as the definition of a logistics company and thus the members, who should improve this sector and facilitate trade. Not every Tom, Dick and Harry can come with a title saying 'logistics' and instantly be a logistics provider. You cannot provide logistics with one van and brokers who represent truckers that never show up. A logistics company is a company that provides multiple solutions, whether directly or indirectly, with somebody reliable and has the basic assets: reliable hardware, advanced software and trained 'humanware.'"
It is creating this professional culture that remains the major challenge to the industry. Fakhoury recalls the resistance and difficulties of overhauling the logistics methods in Aqaba. "It's been a massive uphill battle for three years. We have had some massive resistance from some stakeholders because they do not want a transparent system and value-added services; they are worried about the big boys coming in, or simply afraid of change. You now see bigger freight forwarders, trucking companies and regional logistics companies moving into the zone and investing in the unique opportunity that is Aqaba."
Beyond Aqaba
This is a challenge that faces the industry, not only in Aqaba but in the country at large. As Mafraq also seeks to establish itself as a logistics hub, the same issues of infrastructure and services will arise. To this end, the Ministry of Labour signed an agreement with Aramex and the German-Jordanian University for a logistics vocational training centre in the Mafraq governate, which will receive its first 30 students in August. The Naouri Group has also purchased 300,000 square metres in the Mafraq Development Zone, endorsing the plans to create a logistics centre there. According to Ibrahim Naouri, "Mafraq will be a crucial logistics center because of its location. In the coming years as the political situation in the region calms down, it will be a key regional transit point. It is at the crossroads for the region and would be at the centre of any future rail project."
However, Mafraq is slightly removed from the current commercial and industrial centres. Rabie has some reservations about its immediate success, pointing out, "Usually logistics services are based at the point of entry or the point of distribution. Mafraq's location is slightly off the main location of Amman, the centre of gravity, and could lead to double handling at this time. However, there are ways to go about it, such as developing the regulations, improving procedures and standards and clarifying incentives, to name a few, in parallel to attracting anchor clients and putting the location on the map. It is a good location but it could take more time and effort to make it successful. Every location could be termed a 'crossroad,' and it is also important to identify the regional competition and offer better advantages."
The country does need another multimodal hub to complement Aqaba. Whether Mafraq succeeds in this role is yet to be seen. However, the major challenges for the industry at the moment, despite the major transformations witnessed in Aqaba, are bringing professionalism to all players and facets of the sector.
Many within the industry are nevertheless optimistic about its future in the country. Naouri believes that Jordan is in a prime location to position itself as a leading regional logistics player, "Throughout history Jordan has been a central location on the trading routes. Look at the Nabateans. What we are trying to do now is follow in that tradition." However, to resurrect history, the Kingdom needs to look beyond simple tradition and set its sights on the modern services required to compete at an international level.
© Jordan Business 2007
