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Gulf Cooperation Council Rail Logistics Opportunities

Gulf Cooperation Council Rail Logistics Opportunities

The Gulf Cooperation Council rail logistics opportunities will come from a network that is intended to enhance connectivity.  The network would effectively bring businesses closer together, facilitating more efficient trade and extending geographic markets. A Gulf Petrochemical & Chemicals Association (GPCA) report, ‘Gulf Rail Connection: Realizing GCC Unity’ underscores the hopes that a GCC railway network will become an important catalyst for driving increased economic cooperation between GCC countries, fostering economic regional and national development agendas, supporting growth and strengthening national capacity integration within the GCC.

The Infrastructure

The proposed 2,177-km-long GCC rail network will link all six Gulf states by rail for the first time, providing an alternative to air or sea travel for both goods and passengers in the region The goal is for the rail network to be fully operational in 2018.

Dr. Ramiz Al Assar, World Bank resident adviser of the GCC Secretariat General in Riyadh stated in a April 5, 2015 press release, “The designs of the nearly $200 billion (Dh734.490 billion) network, which will run down the Gulf coast from Kuwait, through Saudi Arabia, to the UAE and Oman, with branches linking Bahrain and Qatar, will be completed by the end of this year or in the first quarter of next year. Construction on the network already in progress will be fully operational in 2018”.

The Challenge

For the rail infrastructure to become a critical enabler and driver of sustainable growth in the GCC a number of challenges in addition to infrastructure build out should be addressed. A most pressing problem is taking steps to overcome the poor performance of the railway freight logistic sector.

The World Bank’s ‘Connecting To Compete 2014 Trade Logistics In The Global Economy’noted that rail freight offers several advantages over road transport, including a smaller environmental footprint and potentially lower costs for shippers, at least over long or very long distances. But the nature of rail operations makes rail less flexible and potentially less reliable than trucking. In many countries, lower reliability offsets the cost benefits of rail freight, except for high-volume bulk traffic. In their Logistic Performance Index, the quality of rail freight services was rated poorer than other transport modes, and even more so in low and middle-income countries such as some of the GCC nations.

An exception to this dismal performance is in the high-income countries. Railways and shippers in North America have managed to establish reliable scheduled container services that represent a viable alternative to road freight. Consistent high-quality bulk rail service is essential for nations such as Canada to reach the level of export sales volume they have achieved.

Railway logistic excellence is possible and significant for helping increase freight capacity across the network and within each GCC country. Signs of progress will appear when innovations emerge in the marketplace that serve the needs of shippers so they can adjust their supply chain strategies and capital investment decisions to reflect the build out of the railway. The section below looks at the opportunities available for firms that want to innovate and leverage the strengths that a GCC rail network will bring.

Gulg Cooperation Council Rail Based Logistics Opportunities

Partnering with railways to meet the last mile transportation needs of customers

Once freight consignments or containers arrive at an inland terminal there is a need to transport the goods (or the container) the last mile to the final place of delivery by truck.  At the most basic level trucking companies could partner with the railway to arrange for the goods to be delivered to the cargo owner’s desired location. The combination of rail and trucking logistics services will appeal to shippers with small or a medium volume of traffic and may not be in the strongest position to secure the most competitive freight rates or terms of service.

Partnership with railways to meet the long haul transportation needs of customers

Larger shippers or those trying to reach a market into a neighboring GGC country will be looking for rail based logistic service providers who have partnered with the railway for their long haul transportation needs. There is some evidence that the firms active in the GCC may be responding to this market opportunity. For example, Agility, a leading global logistics provider, signed a Memorandum of Understanding (MOU) with Etihad Rail, the developer and operator of the UAE’s national railway network on September 24, 2014. The agreement will enable Agility to use Etihad Rail’s services for distribution in the UAE and the Gulf Cooperation Council (GCC). Under the MOU, Etihad Rail and Agility will establish long-term, mutually beneficial cooperation with the aim of developing and enhancing the logistics and transportation network between the UAE and GCC.

The logistic firm railway partnerships could include the following arrangements:

  • Co-location of warehouse facilities with railway intermodal yards.
  • Consolidation/deconsolidation services for small freight shippers (less than truckload shipments).
  • Low rail rates for backhaul shipments (i.e. shipments where the rail wagon or container would otherwise be empty).

Partnering with a railway to meet customer’s transportation needs will likely start with international container traffic but as the GCC railway network gets built out there may be opportunities for both domestic, or transboundary intermodal rail logistics service providers.

Ownership and operation of a facility to extend rail service at origin or destination

Given the fact that many existing industrial areas and ports within the GGC countries have not historically been served by an extensive railway network there will be opportunities to connect existing establishments with the new rail infrastructure that is currently being built. Many existing shippers` access to rail service will be limited because they do not have a branch line or industrial siding where they can load or unload their freight. Rail based logistics firms, real estate developers, or railways may consider providing a variety of transload facilities that would enable shippers to use the railway, including value-added services that extend beyond basic transportation.

Rail Based Logistics Services For Bulk Traffic:

  • Trucking of freight from/to the shipper`s plant to a rail siding for loading/unloading onto a railcar.
  • Ownership and operation of a terminal or transload facility providing loading and/or unloading services. Can be independently developed or operated under contract to the railway or the shipper.
  • Leasing of bulk and specialty rail cars for customer shipments.

Rail Based Logistics Services for Container Traffic:

  • Services in addition to first and last mile transportation include shipment tracking and tracing, inventory management, bar code scanning, customer order fulfillment, deconsolidation or consolidation of shipments for domestic and export distribution, packaging, pallet shrink wrapping, product labeling, and assembly.

Rail Based Solutions

The freight segments most likely to benefit from the GCC rail infrastructure investment include the bulk (dry and liquid), container, break-bulk and possibly the movement of equipment and vehicles. As such, rail-based logistics opportunities will be available to both asset owning and non-asset owning companies.

  • Asset owning firms include railways, trucking companies, distribution facility owners.
  • Non-asset owning firms examples may include intermodal marketing companies and freight forwarders.

To maintain or grow railway freight traffic consistently over time requires an efficient operation and the coordination of numerous activities with the railway. Customer requirements for service reliability, quality, shipment visibility and tracking, invoicing, billing accuracy and cargo planning and forecasting all rely on information technology to help perform the physical movement of cargo by the respective transportation and logistics services. The co-ordination of strategic and tactical actions across and between organizations will be an essential business function that should not be overlooked in the GCC’s drive to build sustainable freight traffic on the GCC network.

For GCC railways to take advantage of the opportunities that an expanded rail will bring it will require developing system-wide logistics functions and core competencies related to:

  • Locomotive allocation,
  • Car allocation,
  • Crew calling,
  • Train dispatching,
  • Maintenance of blocking and classification tables,
  • Maintenance of train schedules,
  • Monitoring of transit time performance and transportation efficiency,
  • Supporting the needs for differentiated service,
  • Customer service,
  • Electronic Data Interchange (EDI).

For shippers interested in leveraging the transformational benefits that rail freight transportation could bring it will be essential to have dedicated and knowledgeable logistics professional perform the following tasks:

  • Market research,
  • Cost and price analysis,
  • Service design and route analysis,
  • Tariff and contract negotiations,
  • Sales.

Benefits of Developing Railway Logistics Excellence

Developing railway logistics excellence and industry knowledge can help drive the creation of logistics clusters that will help drive industrial development and employment, reduce traffic congestion and improve road safety within the GCC region. On three levels excellence in rail logistics will help drive industrial development and job creation.

The first level is in the basic supply chain management activities: jobs, like running warehouses, driving trucks and for the railway. But logistics activities also include information technology jobs, operating supply chains effectively and safely, tracking cargo and optimizing freight movements within the GCC region or globally, in addition to jobs in customer service and management.

The second level of job creation arises from to possibilities associated with container traffic flows where value-added activities like preparing promotional tagging for a retail display or repackaging inside a distribution center for efficiency can be performed. Distribution centers co-located with a railway inland terminal or nearby are the ideal place to do so-called postponement operations because that’s the point [in the supply chain] when you know what customer demand is.

The third level of employment creation in rail-based logistics clusters is the attractiveness to manufacturers. Rail logistics clusters with good access to seaports enjoy low transportation costs coupled with high level of service and good market access. Manufacturing plants located in where there are transload facilities or inland terminals enjoy the efficient movement of inbound material, parts, and raw materials as well as distribution of the finished product

The benefits of developing railway logistic competency in the GCC region is also being driven by leading firms with an interest in sustainability. In a May 18, 2015, interview with ICIS News Saudi Arabian, manufacturer SABIC confirmed plans to deliver chemicals and polymers to its customers through rail transport as a means to reduce its carbon footprint. Currently, the world’s largest petrochemical based on net income moves its products via trucks.  “The mode change to rail will reduce CO2 [carbon dioxide] emissions by 48,000 metric tonnes per annum,” Mark Tarrant, Asia head of global supply chain center of excellence at SABIC, told ICIS. The company has not finalized a timeframe to make the change, but Tarrant said: “The migration will take place as we expect it to shorten the journey to our markets.”

A challenge for everyone with an interest in the growth of the GCC rail freight network is how to balance new infrastructure development with the need to increase rail logistics competency within each organization, so they are aligned with the market opportunities. Firms and organizations that start to answer these questions now will be in the strongest competitive position.

See the Financial Times article “Saudi port initiative at the forefront of a push to diversify” to read Darryl Anderson, Managing Director of Wave Point Consulting comments on the key challenges that should be addressed to leverage the full potential of the port and rail infrastructure investments.