REGIONAL LOGISTICS: The missing link

05 November 2004
Effective logistics and supply chain management are key to any business' success. For the primarily export-led regional petrochemicals sector, this is especially the case. As production capacity expands - the region's global share of ethylene production is set to more than double to 18.2 per cent by 2010 - so, invariably, does the logistical cost of delivering the product to the customer.

Traditionally, producers have paid scant heed to the transportation side, choosing to outsource the supply of their products. But as average logistics costs have steadily risen in recent years - often approaching 30 per cent of an operation's outlay - it is an area of their business that few producers can afford to ignore.

'Without effective delivery, our products simply wouldn't have an impact,' says Moayyed al-Qurtas, vice-chairman and deputy chief executive officer of Saudi Arabia's National Petrochemical Industrialisation Company, speaking at the Terrapinn Chemical Logistics & Supply Chain Management Middle East conference in Dubai in early October. 'The availability of transport facilities is crucial. Petrochemical producers are now looking for more efficient suppliers who can deliver products in a timely manner and in a competitive way.'

The importance of efficient supply chain management is more than simply getting the product to the customer on time and in the right place. Effective logistics providers can help producers control their costs by reducing their inventories. At the same time, implementing the provider's IT solution can assist the producer in tracking and assessing the transportation of its products.

The Middle East logistics sector enjoys several advantages over other parts of the world. Highly integrated production facilities, combined with a range of ports, make an efficient supply chain possible. Moreover, as more container-based goods are imported into the Gulf than exported, shipping rates to most parts of the world are reduced. On land, roads are wide and modern, allowing for rapid distribution.

Yet the supply chain could be improved. Years of under-investment by producers in their ancillary sectors have resulted in problems that could well hinder the region's petrochemicals development. Just as the sector is set to benefit from the fruits of its investment, logistics providers run the risk of being unable to meet their clients' needs.

Indeed, there has already been a stark warning to producers on the dangers of ignoring the negative effect that inadequate logistics can have. The industry is currently facing a global shortfall of about 3.5 million tonnes a year of container shipping tonnage. Four years ago, shipbuilders failed to recognise the growth in demand for large tonnage shipping - partly because producers did not share data with them. The shortage will not be made up for at least three years. In the meantime, producers face the likelihood of delays in the delivery of their product and increased charter costs as supply is squeezed.


At the same time, there has been a trend to build larger, more general-purpose vessels, requiring alongside draught depths of up to 18 metres. Few ports in the region can receive such large vessels, and many are having to upgrade their facilities accordingly.

The lack of communication between producers and logistics providers is the root cause of the issue. 'There is no real dialogue between some petrochemical producers and logistics suppliers,' Hafed Ali Hamshari, head of distribution at Abu Dhabi Polymers Company (Borouge), told the conference. 'Many petrochemical firms consider the supplier as the only thing and forget the rest. That's the limit of the relationship. It does not reflect the spirit of the relationship, but this attitude is there. Conversely, some less sophisticated service suppliers don't want to know about the client, and a hig

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