Kuwait-listed Agility Logistics managed to grow its net profit by 11 per cent in the first three quarters of 2016, despite a 6 per cent fall in revenue due to a combination of weak economic and trade growth in key regions and the increased political uncertainty in others.
Tarek Sultan, the firms CEO, tells MEED they are not changing their strategy of focusing and investing in emerging markets and in investing in new technologies to improve efficiency and keep shareholders happy.
The executive, who has led Agility for close to two decades, also sees important opportunities arising from the low oil price-led crisis in the Middle East and the potential benefits of a GCC railway network carrying freight across the region.
MEED: How is Agility coping with the increased uncertainty and volatility in the market today and in the foreseeable future?
Sultan: Our strategy is constant. Weve been focusing and investing in emerging markets, something that in the face of uncertainty continues to present opportunities since they are growing faster compared with the developed economies. This strategy is a good way to deal with the volatility of the markets.
We are also investing heavily in technologies to transform business both internally and externally. We are looking at disruption and embracing it and trying to leverage it to change our business and improve our business model going forward.
But we are seeing growth slowing down in emerging markets such as China as a result of global interconnectivity.
I think theres no doubt were living in an interconnected world, which affects the flow of trade. China, with all its problems, is still growing at a 5 per cent rate. This is still a very healthy rate of growth in one of the worlds largest economies. Of course this is lower compared with when expectations of growth were set at 7 to 8 per cent. Nonetheless, from a global financial perspective, this is still a very healthy growth. Well take Chinas 5 per cent and hopefully this will continue.
If you look across the Silk Road and the potential of trade growth between the Middle East and China, we see ourselves as enabling that growth in both directions.
So there is no change in terms of Agilitys expansion and investment plans?
We always review our expansion plans, but we havent really changed our view of opportunities in the markets we choose to compete in. Judging by the results, our company is going the right way.
Are there specific plans to raise additional financing in the future?
We dont have anything specific now. We expect business to grow and in line with that to make more investments, which means generally we will need different sources of funding, which we will approach on a project-by-project basis.
How are you managing the decline in revenue?
As a business, we would trade Ebitda [earnings before interest, tax, depreciation and amortisation] and profitability for revenue growth any day. It is important for our shareholders to continue to drive higher levels of profitability. Being more efficient is part of the way we do business and ensure we sustain profitability.
Most of the revenue variance is attributed to our projects logistics. The nature of projects is they have slumpy cash flows, where the business devolves and goes away. Most of those projects are the oil and gas type, like Gorgon [Australian natural gas scheme]. When that project went away, it was normal for the revenue to be affected. Other businesses such as contract logistics, air and freight are growing.
Agility initiated a discussion about acquiring contracting firm Kharafi National in Kuwait during the year. Is this part of your plan in terms of expanding your infrastructure business?
There were some discussions, but nothing materialised there.
Are you seeing privatisation of airports in the GCC as an opportunity, especially for your infrastructure business?
One of the important opportunities we are seeing from the low price of oil is engaging the private sector for the development of infrastructure projects including airports. This is a healthy development in the Middle East; the crisis of low oil prices has provided an opportunity to reform in a way that gives the private sector a bigger role in the future.
I hope we look back to this period five to 10 years from now and say that we really made the right decisions when we had to when the oil prices were low. Need is the mother of invention, given the need now, we all hope the GCC states will undertake all these reforms before the oil price recovers.
What specific technologies are you looking at adopting to improve operations going forward?
We are looking at technologies that help in transforming our business internally, leveraging new technologies to change the way our business works, improve productivity, and improve the way we can customise solutions to fit individual businesses.
We are also looking at partnering with companies that are disrupting the supply chains with their own solutions. We are forming our own ventures into the world of disruptive technologies.
We are looking at partnerships with companies like Hyliion, a US-based firm specialising in hybrid truck axles. The axle uses regenerative braking to capture power when a truck is slowing down and reuses the power when a truck goes uphill, resulting in fuel savings of up to 30 per cent. We are also looking at working with a technology start-up called Sontra in Brazil. They are like Uber [US online transport firm] for trucks where we can book trucks and drivers, and improve the utilisation of trailers and other assets. We want to leverage these new technologies to maximum effect.
So you prescribe to the new concept of asset utilisation over ownership?
Of course, there is no advantage for shareholders to own assets such as trucks unless there is a real reason for doing so. Planes, for instance, nearly half of them fly around empty.
What is your opinion about the benefits of a regional railway in the GCC?
I think theres definitely a role for a railway system, especially because it could offer a more efficient way of moving around containers. I think the focus needs to be on minimising red tape on the borders and making it easier for goods and services to move through the borders, because customs can impede trucks as well as potentially trains.
Having a viable rail option creates more flexibility for customers and basically lowers shipping prices, but in the end, it could be obviously disruptive to the way the current supply chain works. If you look at containers, they reach the Middles East primarily through Dubai. They are then distributed through feeder vessels such as trucks to the rest of the GCC. In the future, if there is a well-developed train network, those containers would not necessarily flow the same way; it could but it may not.
Do you think the region, the GCC states in particular, overbuilt port capacities in recent years?
They have adequate facilities; when you build a port, you want room for expansion. I dont think they overbuilt. But I do agree that throughput in those ports have been impeded by customs regulations and the way stakeholders work. There are too many stakeholders, including government agencies, that are responsible for the clearance of goods and containers.
As CEO of one of the largest logistics companies in the region, what is your top priority?
I think one is technology if we can go quick enough to be at the forefront of doing things as quickly as we want to do them. Technology is important for our business. It could be a risk, it could also be an opportunity depending on how it plays out.