The logistics market in the GGC and Middle East and North Africa region is “about to flourish.”  There is a growing and influential consumer base that will drive this, said Brian McHale, chief executive of Wared Logistics at the International Week of Transport and Logistics, or SITL, which is underway at the Dubai International Convention and Exhibition Centre.

The transport and logistics sector in the Middle East region is showing substantial growth rates and yielding attractive operating margins, Fadi Majdalani, Partner of Booz & Company said.

“Despite the challenges posed by the current economic crisis, the region’s logistics market is stable and the outlook promising,” Majdalani said in statement sent from his Beirut office. Booz & Co. predicts that the Middle East’s transport and logistics market will reach $27 billion by 2012.

The logistics market in the GCC countries, estimated $18 billion in 2008, represents around 2.3 per cent of the gross domestic product, or GDP, of the GCC countries, said Majdalani.

“Our estimate is that the market in the region will continue to grow annually by approximately 10 per cent until 2012,” said Majdalani.

“Transportation is likely to grow by 7 per cent, slightly surpassing overall GDP growth. But logistics services are expected to show substantially higher annual growth rates of 10 per cent or more,” he said.

The transport and logistics sector in the Middle East region not only shows substantial growth rates, but also yields attractive operating margins, said Majdalani. “Those profit margins can increase in tandem with the complexity and level of sophistication of the logistics service. But even basic road transport services yield operating margins of approximately 6 to 10 per cent—significantly higher than in mature markets such as the European Union, where margins are typically about 2 to 4 per cent, he said.

Freight forwarding, which requires more sophisticated capabilities, typically yields a margin of 8 to 12 per cent in the Middle East and North Africa, or Mena, region. “The current economic crisis is expected to have a moderate impact on profit margins across most segments but the long-term profitability outlook remains positive,” he said.

Solid economic growth and substantial investment in the local production base is one of the factors pointing to bright prospects for the logistics sector in the Mena region. Low logistics outsourcing level in the region, especially when compared to global benchmarks, is another factor behind the bright outlook, Majdalani. “Evolution of global logistics hubs in key locations, such as Dubai, along the Europe-Asia trade route, which is showing above-average growth rates is also driving the industry growth,” he said. Most participants at the SITL echoed the upbeat outlook of the logistics industry. “Dubai is one of the major hubs.  In a time when cutting costs is a crucial part of business, we are able to use Dubai as a hub to dock large shipments which can then be deconsolidated and shipped on in smaller targeted quantities, which is a great way of reducing logistics costs,” said Geodis Communications Manager Michael Zuchold.

    issacjohn@khaleejtimes.com