Logistics Focus: Getting Iraq moving

Without an effective logistics industry, Iraq’s oil sector would not have seen oil output increase to current levels of over 3 million barrels a day, and could not have reaped the $9 billion it did from oil export revenues in May.

The logistics business drives Iraq, but what’s driving the logistics business? Oil & Gas Middle East speaks to three sector leaders who are keeping Iraq’s oil sector moving.

How would you characterise the logistics offering to the upstream sector? Has the level of competition increased?
Phil Armatage, Vice President Government, DHL Express: The logistics offering to the upstream sector is strategically important for us.

We therefore continue to fortify our existing operations to ensure our customers in Iraq continue to benefit from improved transit times and greater convenience.

Due to fast oil and gas expansion, mainly in south and north regions, more logistics providers are entering the Iraqi market. As a result we’ve been facing increased competition, mainly in the air freight sector.

Ismayil Manzil, Oil and Gas Logistics Manager, GAC Group: There is a reasonable barrier to entry into upstream logistics sector in Iraq, for the simple reason that no service provider would be considered by oil and gas companies if they do not have the required experience and reputation.

Expertise cannot come without experience. Upstream logistics is about creativity, innovation and the ability to think outside the box.

Taher Kaissi, Country Manager – Iraq & Afghanistan, CEVA Logistics: In the past 12 months, we noticed that many 3PL MNCs are migrating from an “agent-based” setup to having their own entities.

This has slightly increased the level of competition and almost leveled up the playing field in the Iraqi logistics sector. That being said, it will take those newcomers some time to go through the teething problems we went through back in 2007.

What are the unique challenges – and benefits – of servicing the upstream oil and gas industry, specifically in Iraq?
Ismayil Manzil: Unlike other Middle Eastern countries, Iraq’s oil & gas industry is entirely land-based. The south of the country is the most challenging region, both in terms of customs formalities and ocean access.

Phil Armatage: With proven reserves of 143 billion barrels and the country’s ambition to increase its oil production from current 2.5 million to 5 million barrels per day in 2015, Iraq will become the world’s oil superpower with the ability to influence markets on a global scale.

These ambitious plans are fully dependent on political stability and further improvement of Iraq’s system of rules and regulations.

Taher Kaissi: A lack of professional, multi-national, FCPA compliant 3PLs has created a window of opportunity for CEVA in Iraq. Many oil and gas companies knock on our door simply because we are one of the few that are ready to do business without losing our trade compliance values. As a result, we have gained market share and accelerated our revenues faster than anticipated.

Oil companies are willing to pay a bit more than other industries if they get a consistent, compliant delivery of their cargo. This has given us some leverage on our selling rates.

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What do oil and gas clients look for and what do you offer that wins you work?
Taher Kaissi: Oil and gas clients look for consistent, compliant, safe, efficient and effective door to door solutions.

With three offices conveniently distributed in strategic locations within Iraq, solid temporary import and duty exemption processes, and a talented team of well trained on-ground Iraqis, we can cater to any requirement specifically for the oil and gas clients.

Phil Armatage: Like all companies, oil and gas clients look for quality time-definite express and logistics services. Our Day Definite service ensures our oil and gas customers can benefit from unprecedented logistical solutions in Iraq and across the globe.

DHL Express Iraq has recently opened the first international road network into Basra via the Kuwait/Iraq road border, which will significantly support oil and gas customers in their logistics needs.

Ismayil Manzil: Upstream clients want logistics providers who understand how the industry works, and who have a proven track record in similar work elsewhere. As long as you speak the same language and are ready to go the extra mile, winning work becomes less of a challenge.

Perhaps the greater challenge is constantly raising the bar in terms of surpassing upstream client expectations – your last achieved service excellence is your next expected service delivery standard.

What are the obstacles to your business expanding in Iraq? What arrangements do you make for security and how is the security situation?
Phil Armatage: Political uncertainty and unstable security conditions in Iraq still restrict many multinational companies from entering the market directly and instead go through a local agent or distributor. Another element, a constant changing of the rules & regulations and a lack of clarity, makes things challenging.

Security is something that we take very seriously in Iraq – as it is in all the markets in which we operate. All security situations have been fully assessed by our internal security teams to ensure 100% efficiency and safety when shipping goods. Our DHL Economy Select service into Iraq will complement our existing Time Definite service to Baghdad, which is a well established trade lane with little serious security implications.

Ismayil Manzil: Some of the major obstacles are unreliable local vendors, sub-standard equipment, fear factor within the expatriate work force and erratic local laws.

Security is a major concern, particularly in the south of the country and we tackle it with regular risk management assessment programs and by working with reputable security firms. While we don’t expect things to change overnight, we anticipate that change will come as the industry gets back its steam, with the inflow of foreign direct investment and foreign know-how.

Taher Kaissi: Obstacles include bureaucratic ever-changing regulations implemented by the customs and ministries in regard to the importation and re-export of O&G products, the issuance of visas for expatriates, the lack of in-country talent specifically in the O&G logistics industry, and the fluid security situation in Iraq.

Nevertheless, we have noticed that in the past 18 months, the security situation has improved dramatically in the southern and northern regions. Most of the security breaches are occurring in the central district of Iraq (in and around Baghdad) where the O&G exploration is still immature.

The oilfields of Zubair, Rumailah, West Qurna and Halfaya are all considered in the safe region of Iraq.

What is your assessment of the state of logistics infrastructure in Iraq?
Ismayil Manzil: If you compare Iraq’s logistics infrastructure with that of other countries in the region, it still has a long way to go.

The country needs to establish a system to ensure that HSE and Ethical compliance is given utmost importance. Further, some fields do not have proper road infrastructure and places like Akkas do not even have airport access for emergency material or personnel transfers. While it would be wrong to say that things are not improving, the pace of change is still much slower than we would hope.

Phil Armatage: Over last six months we’ve seen an increased number of logistics providers entering the market as well as further investment of the existing logistics providers which signals improvements in many areas.

Nevertheless, political uncertainty and unstable security conditions in Iraq still restricts many multinational companies from entering the market directly and instead go through a local agent or distributor. Another element, a constant changing of the rules & regulations and a lack of clarity, makes things challenging.

Taher Kaissi: Iraq is still behind its neighboring countries in terms of logistics infrastructure. The ports still lack the proper systems to record inbounds. Umm Qasr, Khor Al Zubair, and Abu Floos ports still cannot cater to the ever increasing amount of cargos heading to Iraq, there are shortages in on-shore cranes, specifically for the break bulk cargo, and little material handling equipment to digest the amount of cargo being handled at the port.

That being said, we have noticed in the past 18 months that the Port authorities have privatized a few berths, both in Umm Qasr and Khor Al Zubair ports. This has lead to a relatively more efficient clearance process. 24 months ago, you would pay a “guy on a bicycle” to find your container in the port yard. Nowadays, private berth operators have adopted Port Management System to ease the delivery of containers.

Although basic, and not up to par, these systems have added value to a segment of the supply chain and made operations more efficient. Moreover, we have seen that many Iraqi truck owners have invested in multi-axel heavy weight trucks needed to carry the oversized heavy cargos.

This increased our confidence in importing large turbines and refinery parts needed to build the infrastructure in Iraq.