Being constructive

A number of conflicting reports have been published on the Middle East logistics industry in recent months, leading to a general sense of confusion about whether a bottom has been reached in the market downturn. Of course, each study has identified its own criteria for measuring the industry’s health, from the financial performance of storage and transportation providers to the amount of cargo being handled at shipping and airport facilities.

Surprisingly, little attention has been paid to indicators from the construction sector, despite its role in developing the infrastructure to support the logistics industry’s growth in this region.

One of the largest players in the market, Amana Contracting & Steel Buildings, has traditionally prided itself on winning the lion’s share of contracts for warehouse construction in the Middle East, with clients such as Agility Logistics, Transworld and Gulf Warehousing Company (GWC). However, the global recession has undoubtedly taken its toll on business, according to chief operating officer Riad Bsaibes.

“It’s possible for warehouse construction to be used as a barometer of logistics industry health in the Middle East. For example, demand was consistently strong in this region for a number of years, which correlates to the recent boom in logistics activities,” he states. “This situation has changed to a great extent in the past 12 months, with Dubai being hit the worst. At the same time, I believe this is only a temporary situation and we must remember that the Middle East’s position as a logistics hub is long-term, so a recovery will inevitably occur. Its unlikely we will return to the same level of activity as 2007 and 2008, but that’s a good thing, because the growth was unsustainable at that time, which was not healthy. The next phase of growth will be slightly different in nature.”

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Regardless of the market downturn, Amana has handled over 200,000m2 of logistics projects across the region in the past year, including a regional office and warehouse for Agility in Jebel Ali Free Zone, a warehouse and offices for RSA Logistics in Dubai Logistics City, and storage facilities for Ras Al Khaimah Investment Authority (RAKIA) at Jazeera Industrial Zone. The future holds promise too, with two projects being scheduled for completion in Saudi Arabia over the next 12 months, namely a 42,000m2 inbound warehouse for Almarai in Al Kharj and a 43,000m2 fruit cold store for Del Monte in Khomra.

“All of these projects are challenging and have been designed to ensure the fast movement of goods into and out of the warehouses,” says Bsaibes. “In the logistics sector, the ability of the contractor to delivery a quality product is very important to the success of the client. It affects their time to market, not to mention their ability to meet pre-agreed logistics contracts.”

Warehouses are traditionally located in industrial and commercial areas, where the cost of land is lower than residential areas, and companies can benefit from direct access to a multi-modal transport infrastructure. Dubai is currently the most popular destination for storage facilities in the region, especially with ambitious free zones such as Dubai Logistics City and Jebel Ali Free Zone, where companies also benefit from various business incentives, including custom duty exemption. However, other countries in the Middle East are planning to increase their logistics activities by improving transport infrastructure and creating distribution hubs. The status of Saudi Arabia, Bahrain, Qatar, Jordan and Oman is expected to grow within the logistics industry over the next decade.

As such, the average time for construction in these countries is only 8-12 months, according to Bsaibes. However, the duration will inevitably depend on the level of cooperation between the client, consultant and contractor. “The better the communication within the group, the less time it takes to construct a warehouse,” he states. “We have been able to design and build warehousing facilities within 90 days, but such cases require an extreme level of cooperation and trust between the client and contractor.”

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