The upstream industry relies heavily on fast, efficient logistic operations in order to function properly. The contracts which are on offer to logistics firm working in this sector can be as lucrative as they are complicated. And for this reason competition can be fierce.
As with all competitive markets, the big names find it best to create a unique selling point or raise standards beyond that of the rest of the market. One firm operating successfully in this sector is Agility.
Essa Al-Saleh, President and CEO of Agility’s Global Integrated Logistics, speaks to Oil and Gas Middle East.
Carving a Niche
“How have we carved out a niche? There are a few key areas, one is the kind of company we are and where we operate. We operate in emerging markets and those markets where there are a lot of needs in terms of oil and gas requirements, especially around the upstream. Whether this is the Middle East, Russia, Asia, we are well positioned in terms of infrastructure capability,” Al-Saleh says.
“We have within our global network, centres of competencies or regional hubs that are focused on the oil and gas market,” he adds.
The scope of a company’s reach has an impact on its prosperity in the upstream logistics market. If a firm is able to operate in remote and dangerous areas, then it can stand out from the crowd.
“We have a tradition of working in some of the most challenging environments and regions in the world. Our experiences allow us to work alongside our clients wherever they go,” says Ismayil Manzil, GAC group oil and gas manager.
Logistics firms are put under great pressure by the upstream oil and gas companies, and the demands that the upstream jobs put on them can be quite challenging.
“Exploration and production of oil and gas is a very demanding and cost intensive business,” explains Zubin Saklatwalla, industry manager, energy sector for DHL Express Global & Multinational Customer MENA.
“Companies operating in this sector run in almost every geographical spot in the world and work under very difficult circumstances. Fuel prices globally are extremely volatile and any errors in the supply chain could result in huge losses for these companies.”
Time is one of the major factors in the job of any logistics firm, but for oil and gas customers with up to seven figures on the line every day, it is even more critical.
“Upstream customers are dealing with capital-intensive projects and we are well aware that time is of the essence for them,” says Manzil.
“Over the years, GAC has developed and abided by its corporate ethics and compliance polices that include stringent anti-bribery, anti-corruption, anti-money laundering and HSSE policies. We are very fortunate to have our pillars based on the compliance regulations of the international upstream industry, allowing us to adapt and provide fully compliant services in all regions that we operate in.”
“Health and safety records can also be a key differentiator in a crowded market. In addition to the operational capabilities, what it takes to move a rig and all the parts that come with it, that’s assumed – an understanding and a deep knowledge,” states Al-Saleh.
“On top of that you need to do it in a safe and compliant, efficient, effective way for them. So you assume you can do it, but are you doing it by taking a lot of risks? Or are you doing it in a safe and compliant way and protecting people, assets and environment?”
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Those working in the industry know that different challenges represent themselves every day, and overcoming these hurdles are part and parcel of the job.
One country where DHL faces a number of challenges is Iraq. The firm works extensively with IOCs and oilfield services companies in the country but faces problems such as security, infrastructure and regulatory constraints.
“DHL Express in Iraq faces up to these day to day challenges and ensures our customers receive a consistent and reliable level of service through our well trained and motivated team of Certified International Specialists,” reveals Saklatwalla.
“Our team are supported in their efforts by ongoing investments in technology and infrastructure in terms of our Gateway Operations in Basra, Erbil and Baghdad and a comprehensive network of Express Service Centers across Iraq which is complimented by our domestic road network.”
The firm also ensured it developed strong relationships with the local authorities, through adhering to local regulations and processes, especially related to temporary imports and duty exemptions.
Certain areas of the Middle East are more prosperous than others. Iraq represents just one of the emerging markets which are being targeted in the Middle East for increased business. According to Al-Saleh, aside from Iraq, Agility has seen strong performances in Saudi Arabia, a country where the firm is “continuing to invest”.
“Then there are the smaller markets. Kuwait does OK but not as robust. There is a lot on the plate but not in execution mode. Qatar also does well. We are seeing more and more now in North Africa – Algeria is an example of where we are hoping to continue to see growth,” Al-Saleh adds.
The Arab Spring unsurprisingly played a part in the amount of business done in some Middle East countries.As stability has returned to the majority of them, demand for logistics has increased.
“Saudi Arabia, Iraq and the GCC states in general continue to be the focus of attention for the major IOCs as well as EPC and oilfield service companies,” says Saklatwalla. “However, with the end of the Arab Spring and growing prospects for internal stability in some regional countries, there does seem to be a renewed interest in emerging states such as Libya, Algeria and Egypt.”
Saudi Arabia, like in most sectors, is a country which attracts the biggest players. “Saudi Arabia, Qatar and Abu Dhabi are seeing increased upstream activities both on and offshore. Saudi’s west coast is the new addition, which we feel, will play more important role in the coming years whilst Iraq’s importance continues to increase,” says GAC’s Manzil.
A competitive market can see prices forced down and margins squeezed, though with enough demand this has been mitigated.
New Competitors
“The pre-eminence of the oil and gas sector and its rapid expansion in the region has certainly enticed new players to the market. However, only a few logistic operators in the market have the reach, knowledge and experience to truly offer an integrated solution to this demanding sector,” says Saklatwalla.
“Although price is an important factor in the partner selection process; it is not the only consideration for the upstream customers who place a lot of value on experience, and the reputation of the logistics provider.
They prefer partnering with a company that understands their industry and has a proven track record in the sector. Moreover, not all new entrants have the systems and procedures in place to comply with the strict HSE standards and Business Ethics Policies that the sector demands,” he adds.
Other barriers can insulate companies from the affects of competition.
“In specialised service industries such as the upstream oil and gas logistics industry, the expertise and the ability to cater to the requirements of different types of clients creates a tacit knowledge barrier, as it would in any other industry,” says Manzil.
For the upstream logistics market in the Middle East, the future holds some potential game changers, though stiff competition between providers is set to stay.
One of the major developments which is set to deeply affect the sector is the construction of a GCC railway. If plans go ahead, future inter-GCC deliveries could be quicker and easier.
“We are certain that the entire logistics industry is looking forward to the GCC rail network in the hope that it will revolutionise inter-state traffic within the GCC,” exclaims Manzil.
Other changes in infrastructure changes have already occurred, and have made the jobs of those inside the upstream oil and gas logistics sector much easier.
“The transport infrastructure landscape is constantly evolving and that certainly does bring about change to the routes and services that we offer,” says Saklatwalla.
“One such example is the opening up of the Safwan land border from Kuwait into Iraq, which prompted DHL Express to offer a Day Definite Intra-ME Road Solution to its upstream customers in South Iraq,” he adds.
In lucrative markets such as this one, competition will also be fierce, but the challenging nature of the work means that there will always be companies standing ahead of the rest.
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GCC crossings
How do the big logistics firm approach the challenge of GCC border crossings?
DHL
“Bottlenecks and delays at border crossings caused due to constant regulatory changes and lack of clarity is certainly a challenge for logistics providers in the region.
However, there is no easy answer to this dilemma and hence DHL Express continuously strives to seek creative and innovative solutions such as finding alternative modes, routes, points of entry, as well as actively investing in infrastructure i.e. development of new hubs, gateways, etc.
The long awaited GCC customs union, now expected to be completed by 2015, is the light at the end of the tunnel which is likely to help alleviate this ongoing challenge.” Zubin Saklatwalla, industry manager, energy sector for DHL Express Global & Multinational Customer MENA.
GAC
“Shipping into Saudi Arabia (which is the largest market in the GCC), faces several challenges including delays, owing to large number of projects going on there. The main challenge thereof, lies in getting the shipments out of the ports – whether it is in Dammam (for the eastern region) or Jeddah (for Dubai).
In order to avert delays in Dammam, we are now looking at routing the shipments to Bahrain, from where deliveries can be made within four to five days.” Ismayil Manzil, GAC group oil and gas manager.
Agility
“Each country has its own border regulations and requirements and local rules and the reality is it’s not easy crossing those borders easily and efficiently. And that is why we have that network there and have that local understanding of the market.
It allows us to offer a solution to customers and deal with the local issues and understandings and regulations in a way that meets our customers’ needs.” Essa Al-Saleh, President and CEO of Agility’s Global Integrated Logistics.
