Heating up

posted on 10th February 2020
Heating up

Amid complex geopolitical tensions, competition for transhipment traffic – including among cargo handlers – is increasing in the Middle East as more capacity and state-of-the-art cargo facilities are built at airports around the region. Meanwhile, cargo handlers are seeking and introducing solutions to streamline operations on the ground and connect with the region’s often low-tech forwarding players, reports Yvonne Mulder

Both the 40th summit of the Gulf Cooperation Council (GCC) and the region’s most recent football tournament have raised hopes that the blockade of Qatar might be easing. And with the long-awaited market listing of Saudi Aramco finally taking place, there are indications that the need to stimulate economic growth is taking precedence over some political tensions in the Middle East.

Against expectations, the Qatari emir sent his Prime Minister to attend the GCC summit in Riyadh in December and the Saudi King responded by greeting him personally when he arrived. All GCC nations sent teams to participate in the Arabian Gulf Cup in Qatar’s capital Doha in November, despite threatening boycotts, with the Saudi national team crossing the border on a direct charter flight from Riyadh to Doha, effectively breaking the blockade.

Of course, there are still many areas of concern for potential investors in the region, including the recent and longer-term confrontations between the US and Iran, US sanctions on the Islamic Republic, suspected Iranian attacks on Saudi oil facilities last year, political unrest in Iraq, Lebanon and elsewhere, and the on-going crises in Syria and Yemen.

Nevertheless, many of those involved in business in the Middle East are positive about the future.

Gerold Tumulka, CEO at Swissport for KSA and Oman, says both the Kingdom of Saudi Arabia and Oman have big plans. “KSA has Vision 2030 and Oman has project 2040. Both figure heavily as tourism destinations and Saudi wants to become a logistics hub.  They realise that air transport is a key enabler so we have seen an upturn in infrastructure such as warehousing, airport renovations and taxiways.”

Saudi opening to competition

The cargo capacity at King Khalid International Airport is currently around 500,000 tonnes, but Riyadh Airports Company is planning to double this through “the construction of advanced buildings and the development of existing facilities”.

It is also seeking to “increase the efficiency of air freight transport through multiple air freight service providers, which will create a competitive environment that will contribute to developing and upgrading services and products provided to customers”.

Tumulka says the strategy is already underway. “The policy of the Saudi Government is very clearly to stimulate competition. All the activities were nationalised until three years ago, with Saudi Ground Services as the monopoly. Then SATS (from Singapore) won the contract in Damman for cargo, then it won in Riyadh – although this has not started yet – and the Jeddah contract is expected to be up for bids in 2020.”

Swissport has a cargo ramp licence for those three airports. “We arrived at the end of 2015 and operations started June 2016,” Tumulka says. “We handle bi-load cargo as well as full freighter and can handle up to a 747. We have a full range of handling capabilities on the ramp including special cargoes.”

Tumulka explains that when Swissport arrived in KSA, the first target was to establish a profitable operation. “We have done that, so we are now looking to have more stations in the region and to expand our product portfolio, as opportunities arise. We are not limiting ourselves.  We do lounges, aprons, cargo, security. We are looking to introduce ourselves to new markets and become an inclusive provider.”

Unlike in many regions, business has remained good over the past year. “There has been significant growth in the Middle East in 2019 and we expect further growth in 2020,” he notes. “We have not experienced a slump in demand as they have in Europe and other regions. The downturn here is never as dramatic as other continents.”

Transhipment markets

Tumulka attributes some of this to the fact that much of the volume though Saudi airports is transhipment cargo. “If we see one country or destination weaken then it will be replaced by another string,” Tumulka explains. “Our geographical position means it all balances out.”

But there is strong and growing competition in the region. “There is a transhipment battle between, for example, Dubai and Qatar,” he notes. “And the new airport in Istanbul is adding new capacity and others too are expanding. But we expect demand to continue to grow and greater competition might have more effect on yield than on volumes.”

Qatar Airways says the expansion of Hamad International Airport (HIA) is a vital part of the future success of the group – and a strong sign that Qatar’s economy is robust, as well as acting as a further economic stimulus providing opportunities for local and international contractors. Expansion plans include the construction of a new cargo terminal that will increase capacity to an estimated 3.2 million tonnes per year. The state-of-the-art terminal is due to be completed by 2023, and will be a multi-level facility with 85,000 sqm building footprint providing approximately 323,000 sqm of gross floor area.

Dubai plans revised

In Dubai, work continues on the Dubai World Central (DWC) airport, though the design has been altered after Emirates decided last year to cut its order for new double-deck A380s – opting instead for “flexible widebody aircraft”, ordering 40 A330-900 and 30 A350-900 aircraft.

For Dnata, the change means that the original forecast of 14 million tonnes through DWC by 2025 is “now likely to be reviewed, as there will be a little less [cargo] because of the smaller aircraft”, says Bernd Struck, senior vice president for UAE cargo and DWC airline services.

But the overall vision for DWC has not changed. “We will integrate our terminal into a landscape where everyone involved in logistics is all together: freight forwarders, integrators and others associated with logistics,” he says. “It will be Emirates handling their own cargo and us as the exclusive handler for all others.”

Dnata handled 727,000 tonnes of cargo at the two airports, Dubai International (DXB) and Dubai World Central (DWC), in 2018-19, although it is now facing a slight downturn.

“We have to deal with a weakening market – mainly on east-west routes and sea-air connectivity, but maybe not as much as you see in other places round the world,” says Struck. “The main reason is the situation between China and the US and the related fallout. We can feel a market weakness in Hong Kong which is also affecting us, and regional issues in the Middle East also affect us in terms of volumes. We are about 7% below last year.”

He echoes Tumulka’s thoughts about increasing competition in the region. “We are not just accepting this reduction in cargo in Dubai. We have to fight for our business, so our sales guys are out there trying to win business from other markets in the region. We are improving our offering and have, for instance, gained CEIV Pharma for both airports.”

He says the biggest markets are Europe, Asia and regional, though Dubai is focusing on new markets as well. “We are targeting traffic from Africa and looking for more business from there,” says Struck. “The market is actually quite likely to grow. We have increased our holding in Bolloré Logistics UAE, which is very active in Africa, so that is helping us quite a bit.”

Struck says four years ago, Dnata developed a strategic plan and “we are now getting closer to the delivery of those projects”.

One Cargo tool

This includes the new One Cargo tool, a first for ground handlers, which digitalises customers’ booking process and service, with the aim of ensuring a seamless experience at delivery bays.

“Freight forwarders can book through an appointment system so that when they drop their freight off there is no delay – but real-time acceptance, and it immediately goes into build-up and onto the plane in a very well-communicated way, where every action is monitored.

“For imports, they interface with the materials handling system so that they really do not have to queue anymore. They go straight to the dock and load cargo when the truck gets there. It went live for imports in December 2019 and for exports it will be 2020.”

He explains it works “a bit like an integrator where everything interfaces, though ours is much more complicated as we have 125 airlines in Dubai. We have developed software and systems that allows them to talk to us.

“The system gives us all the opportunity to allocate resources better. We can use our storage facility much more efficiently – we have improved by 25% the capacity usage of the warehouses because we do not have to store so much.”

Etihad upgrade

Abu Dhabi Airports and Etihad Cargo have also announced plans for a major upgrade to Etihad’s air cargo terminal facilities on the Southside airport perimeter, due for completion in the third quarter of 2020.

The scope includes the enhancement of road feeder service loading docks with levellers, insulation and floor works for faster and more efficient loading, with stricter temperature controls. There will also be increased storage space and additional build-up and breakdown zones to improve production workflow, and upgraded cool chain facilities for both its fresh and pharma handling and storage operations.

A more ambitious project is planned for the East Midfield section of the airport – “the creation of one the world’s most advanced and automated air cargo terminals,” Etihad says. The facility will be designed to handle incremental UAE import and export demand, boost Etihad’s growing cargo network flows, as well as cater for the “significant rise” in e-commerce and express mail and cargo operations.

Bryan Thompson, chief executive of Abu Dhabi Airports, says: “Geographically, Abu Dhabi is situated at the heart of the east to west trade routes. We are putting in place the right foundations and frameworks for our future cargo activity, which in a few years will re-shape this industry for the Emirate of Abu Dhabi. Abu Dhabi is the future’s cargo hub for the region and the world.”

Turkish alternative

The airport community in Turkey also sees itself in the role of main cargo hub in the Middle East and has ambitious plans to make the 175,000sqm facility at the new Istanbul Airport “the smartest cargo terminal in the world”.

Nevertheless, Turhan Özen, chief cargo officer at Turkish Airlines, believes the installation of automated systems can be difficult to justify because of the complex requirements of the air freight industry, noting: “We are handing millions of different SKUs. We have our safety and security and quality standards and regulations. We have a huge need for flexibility, in terms of speed and flexing the volume.”

But he points out that other developments, such as wearable technology, smart gloves and glasses, as well as artificial intelligence, can also make a huge difference in increasing efficiency and speed in a cargo hub.

Struck says Dnata sees the future as about “recognising various products to make them streamlined and more effective. We are working with customers on their requirements.”

He gives as an example Dnata’s Cargoflex offering, a pickup and delivery service it operates between Dubai Airport Free Zone, Dubai Cargo Village and Dubai World Central cargo terminals – consolidating loads and offering freight forwarders a one-stop shop for the transport of shipments to and from the terminals. “We pick up cargo and bring it to the terminal – which reduces traffic there and makes it easier for shippers,” he notes. “Customers do not need to come to us – we go to them. They like it.”

He says this works well because the forwarding market in Dubai is rather fragmented, with a relatively low level of digitisation. “We have 450 ‘Mom and Pop’ shops with just a telephone line and a computer,” he explains. “They have no storage, so we provide that and do the processes to forward or receive freight. We are closer to our final customers though the community system.”

This Dubai community system, Calogi, launched in 2008, has more than 2,000 users, making it by far the largest in the world, according to Struck.

Slow digitisation

Swissport’s Tumulka admits that “right now, the level of digitisation and automation [in the region] is not on a par with main airports round the world – partly because ‘blue-collar’ labour is rather cheap, so the incentive to automate is not so high. But obviously we expect it to expand its reach in the new cargo village.”

He says Swissport would like to bring its range of systems and tools to bear in all areas, as has already been done in ramp services and safety. “We are looking at operating cargo facilities or even working as owner operator. We operate at 307 airports in 48 countries on six continents so we have a lot of expertise and experience.”

With all this investment, it seems competition among Middle Eastern airports to be the region’s mega transhipment hub will continue. No doubt political tensions in the region will also continue but, for at least some of the time, the focus will be on commercial and economic links with the rest of the world, with the Expo in Dubai – which opens in October – and the G20 summit taking place in Riyadh in November.

Whether the Qatar blockade is actually lifted and how other political situations develop remain to be seen; but the ambitions of the airports in the region, especially in terms of attracting transhipment traffic, continue to grow.