Delivery Services Growing Quickly in the Middle East

08/08/2012 10:30 am EST

Focus: GLOBAL

As more business flows into the Middle East, delivery and logistics companies are seeing a great deal of growth potential, as well as challenges from local players, reports Rory Jones of The National.

In a country with no formal addresses, courier services in the UAE are almost as important as a good air-conditioning system.

And for DHL, one of the market leaders in delivery across the region, the Emirates is among the fastest-growing markets worldwide, as the economy recovers and Dubai cements its position as a regional hub for exports and imports.

The delivery company has upped its marketing campaign in the region, aiming to attract small businesses to use its services. The courier plans to invest further to maintain heady growth in sales of 15% in the first half compared with the same period last year.

"We are constantly investing, training our people and looking for new facilities," says Ken Allen, the global chief executive for DHL Express, the express delivery arm of DHL. "Do we have a separate strategy for MENA [Middle East and North Africa]? Not really but as the business grows here what we can say is that we will not restrict any investment as long as the business is growing."

In the first half, DHL Express increased worldwide revenues by 10.3% to €6.2 billion, from €5.6 billion last year. It has a fleet of red and yellow aircraft, vans and logistics facilities, serving 220 countries and 600,000 customers on a daily basis.

Here, Allen talks about the challenges facing the industry and why he thinks Aramex, a locally grown competitor, has been so successful in the region.

Business seems to be growing rapidly in the Middle East for DHL Express this year. But you must have felt the effects of the Arab Spring last year and persistent conflict in Syria?

I was working in Bahrain during the First Gulf War, so we are no strangers to the upheavals that go on [in parts of the Middle East]. Whenever you have a disruption anywhere in the world...there's a short-term impact on business, that's for sure. But, as a company, we deal with crisis every day. Technical problems with aircraft, customs procedures change, people go on strike, so we are good at reacting.

But business in Syria must have fallen dramatically?

We have seen dips [in the Middle East], but our business has come back incredibly strong. Sometimes, because we are the only people who are staying there, we get rewarded for that. So our business in Bahrain dipped and it's come back very strongly; Egypt is the same. In Syria, we are doing everything we can to help our people and in the safest possible way, keep our business going. None of these things last forever.

Given heightened political tensions in parts of this region, as well as the Yemen cargo bomb scare, do you have greater security checks here?

If it is a big multinational company like Siemens, then obviously we have different procedures than if someone just walks in off the street. If people come to our facilities that we don't know, we do a full inspection. We flag it in the system so that when the package comes to the center, it gets a secondary inspection.

And are you under pressure from governments in terms of security?

We work with officials in the United States and the European Union. When the security issues happened in Yemen, the EU didn't want any packages flying over EU airspace for a while. So we stopped.

Every situation is well accounted for because a secure network is what we are offering to customers. The more you have your own dedicated aviation [fleet], the bigger burden on you.

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How many aircraft do you operate?

We have about 250 aircraft.

That is a big fleet, even bigger than Emirates Airline. How has the rising jet fuel price affected your business in recent years?

Quite honestly, fuel costs are not an issue to us in terms of normal day-to-day business, because we have a fuel surcharge. The whole industry does it.

But does it not affect the level of business you receive as companies find the surcharge rising?

Two or three years ago, when the fuel price [rocketed] and the surcharge was massive, I think then people started to think about moving production. In the short term, it's never an issue. In the long term, if it gets too high, then manufacturers ask whether they should relocate their business.

What is your customer base?

It's about 80% smaller companies. If you look at really big customers, we have about 500, but then we probably have about 5 million customers. In China, our business comes from small companies you would not really know that well.

You seemed to have noticeably increased spending on marketing in the past year, especially in the Middle East. Is that how you keep a high profile?

We are definitely doing a lot more. It comes back to the point that we are in every market in the world. Most big multinationals know the brand, it's been around for so long. But the world is full of small-to-medium sized enterprises that are very tech savvy and always looking for opportunities.

So you sponsor the Emirates Airline Dubai Rugby Sevens every year for exposure?

We also did the Rugby World Cup [last year], we do a lot for Formula 1, we sponsor Manchester United [football club]. We always try to do local things as well. Surf Life Savers [a beach safety authority] in Australia, they wear yellow and red with DHL on.

We had a rough patch between 2005 and 2009 where we weren't making much money. So when we turned the corner and started to produce a profit, we saw it was important for us to get our brand name reestablished.

Shoppers often complain it is difficult to get products delivered from international Web sites to the Emirates without hidden surprise charges or problems. What is the solution here?

What we try and do is to have [products] delivered to their office, which is a lot easier. Funnily enough, we have to do that in Europe as well, but a lot of companies are starting to kick back now because they don't want people's things being delivered to the work address.

So there is no easy answer?

Over time it will improve, because I think through software we will be able to make sure the customer is home. B2C [business to consumer] is a massive revenue opportunity, but you have to make sure [it is] profitable as well.

International B2C is exceptionally complex. If someone buys a $3,000 Armani dress and they want it shipped from Paris to Dubai, and then there's a customs duty to pay, if it gets there and it doesn't fit how do you get that duty back? How do you return it and how do you pay for the return? So I think a lot of B2C is attuned to a domestic environment.

Aramex seems to be doing quite well in the Middle East servicing consumers.

What Aramex did very well is they saw the business to consumer revolution, probably a lot quicker than everyone else did. They found a way to do it in the Middle East, which is not very easy. I think they did a very good job there, and have cornered the market in that B2C arena.

But you do not see Aramex as competition?

I think what Aramex has done is very good. I actually started my career in the Middle East in 1985, so I met Fadi Ghandour [the former chief executive] on a couple of occasions. I always had a lot of admiration for him and I think we always knew he was going to be a very successful businessman.

I think the difference in the models is that there are really only four integrators in the world, soon to be three probably. There's DHL, FedEx, TNT, and UPS. The barriers to entry are exceptionally high. The IT investments, having an office in every country in the world, it's very high cost.

Read more from The National here...

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