From regional player to global giant

PWC Logistics takes the plunge where many firms step back from a risky opportunity: yet to date it has paid off in massive growth

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By  Nicholas Wilson Published  January 8, 2006

PWC Logistics|~|PWC200.jpg|~||~|We go to countries that most companies shy away from,” said Charbel Abou-Jaoude, managing director of global operations for PWC Logistics. He was explaining how the Kuwait-based firm’s aggressive, can-do attitude has helped it snap up companies worldwide, and tripled revenue to US $3 billion last year.

Raghu Sarma, analyst at Kuwait-based Global Investment House, said, “Thanks to their new acquisitions they have moved from being a Middle East player to a global player.”
Yet back in 1997, when the Kuwaiti government sold its PWC shares to a group of investors headed by Tarek Sultan, PWC’s chairman, it was little more than a sleepy warehousing firm.

“The extent of the company’s business was renting out a plot of land or handing over a key to a padlock,” Abou-Jaoude said.

The new managers of the publicly traded industrial real estate company, which rented warehouse space and open land for storing goods or materials, looked at their new firm and its operating model. What they saw was an asset base that was not being leveraged, which they immediately took steps to correct.

From there on it was a rollout of various initiatives and changes that the company went through.

First they built shared facilities, attracting different customers to operate under one roof and managing it on their behalf. Then they managed their distribution for them.

It was the start of PWC’s explosive growth that continues today.

Abou-Jaoude said companies need to expand, which comes from acquisitions, growing organically by getting more business, and alliances or joint ventures with other companies in new territory.
“We’ve grown through all three: organically by winning more business from both new and existing clients; we’ve entered new geographies through joint ventures, and also new geographies on our own; and we’ve had three substantial acquisitions,” Abou-Jaoude said.

PWC’s growth has powered it from being a company heavily dependent on Kuwaiti government contracts only a few years ago, to a top global logistics firm today.

One company that reflects PWC’s growth outside of Kuwait is Tristar Transport LLC, which has operated in the UAE since 1991 where it is a major player in road haulage. Tristar, a division of PWC Logistics, operates a large fleet of road tankers and flatbed trailers. The company’s services vary from distributing industrial chemicals to Jet A1 bridging operations for the aviation industry.
It saw off four other competing companies last year to win an estimated $4 million, five-year contract to transport helium and nitrogen gas tankers for British Oxygen Company, one of the world’s largest gas firms, at BOC’s UAE Ras Al Laffan plant.

The rapid expansion of PWC subsidiaries such as Tristar has helped catapult it into the world’s logistics major league.
“If you look at our market, we are clearly in the top ten logistics companies. We are 14th in air freight, number seven in sea freight,” Abou-Jaoude said.

Its rise also earned it recognition when the Global Institute of Logistics (GIL) named PWC best third party logistics (3PL) in the GCC Region 2004-5. Siobhan Kelly, GIL’s head analyst said, “In PWC Logistics, we have found all of the key ingredients needed to succeed as a global 3PL. The company’s massive transactional experience and intelligent investment in supply chain execution software have seen it gain the necessary experience to step out of its own backyard.

“PWC has made excellent acquisitions, created key partnership agreements, and above all, added to what was already an enviable client list in double quick time — clearly making it the market leader in the region.”
And in the Middle East, the nimble-footed logistics giant has swiftly cashed-in on the energy boom. It has raced on from just offering oil firms staging yards that housed project materials to managing customers’ own sites and freight movement for refinery parts.

Its speed of change and flexibility helped it, in 2004, to win a major five-year service contract from Kuwait National Petroleum Company (KNPC). The oil mammoth has one of the world’s largest oil complexes and houses three oil refineries whose total capacity is about 900,000 barrels per day and is expanding.

The door-to-door contract includes transporting pipes, valves and other material from the suppliers to warehouses, and from warehouses ||**||PWC Logistics|~||~||~|full management of the KNPC warehouse network.

“The oil sector is something, in the past few years, that we have focused on significantly and acquired capabilities,” Abou-Jaoude said. In April 2005, PWC acquired a Louisiana-based company, TransOceanic Shipping, which has a large office in Houston that focuses exclusively on project forwarding — the movement of oversized material equipment and machinery, such as drilling rigs and very large vessels, for refineries.
The ink was barely dry on the contract when hurricanes Katrina and Rita tore through the Gulf of Mexico, sinking rigs and wrecking refineries.

Seagull Marine, a TransOceanic subsidiary, immediately leapt at the opportunity and became extraordinarily active in the region, assisting clients with damaged or destroyed rigs and platforms that littered the Gulf.

The company, which provides offshore logistics services as diverse as handling accommodation for crews and providing tugs and helicopters, thinks the recovery work will require a minimum of two years. The oil industry is still working on last year’s storm damage that already had a backlog of 18 months to complete, and now faces new reconstruction work.
“These companies hired any available vessels — foreign and American — to help in the recovery and re-construction work on the Outer Continental Shelf,” said Dave Thomas, senior vice-president of Seagull Marine. “Several vessels are dedicated exclusively to the thousands of miles of underwater pipeline systems; searching for missing or damaged pipes, valves and parts of missing platforms,” he said. The concentration of offshore construction, heavy-lift crane vessels, offshore supply diving boats and floating hotels and flotillas has shot up very dramatically.

All of which is good news for PWC, which makes some 10% of its revenue from the oil industry, in addition to its government, military, retail and wholesale, and high-tech sectors.

“We try to have a balance between the core sectors. The oil and gas sector, however, is a growing one for us and is an important segment of our business,” Abou-Jaoude said.
“I would say that a good 20 – 30% of our growth is going to come from the oil and gas sector. In this region it’s growing at a much faster rate than other sectors,” he said.
PWC not only sees today’s potential in the boom in production and exploration both upstream and downstream, but also eyes the opportunity provided by the production coming from wells that were developed three to four decades ago. “A lot of those wells are reaching the end of their useful life, so you have the need for new wells and new exploration. You have the need for more refining capacity, and you have a growing petrochemical industry,” Abou-Jaoude said.
He is, however, cautious about the mixed blessing that sky-high petroleum prices bring.
“A lot of people were predicting oil prices as high as US $100 a barrel. I personally hope that doesn’t happen. I think you need to strike the right balance with oil prices. If they spiral out of control they will drag down the global economy.”
Oil prices can positively influence our business by the growth of the oil sector, but if they go beyond a certain limit, then they start to negatively impact our global businesses. I do not think anyone in this part of the world is keen on seeing them higher than where they are today, he said.

His caution on crude prices, however, belies the risk-taking nature of PWC Logistics.

“As a company, we’re very different from a lot of organisations in the way that we think. We act and move quickly,” Abou-Jaoude said.
When it was pursuing the development of a facility in Kuwait three years ago, PWC heard of a company that was still at the conceptual stage of its facility needs. It had not issued any requests for proposals or tenders, when PWC jumped at the chance, sizing-up what the requirements were. This was even before the company had concluded its own work about a specific site and gone to the market.
PWC steamed in, spending $75 million on building the facility and signing contracts with service providers on a very tight timeline.
“Only two months later, we were doing business with this guy,” Abou-Jaoude said.

The risk extends to investing in countries where others are more wary of treading.
“Our competitors would not go into the areas where we operate — emerging markets and difficult markets. They would want to have a contract in place before they laid the first stone or made any move. We are prepared to act more aggressively and move a lot more confidently than our rivals, knowing what we are capable of delivering.
“That mind-set sets us apart from them,” he said.
PWC was a very early entrant into Pakistan and India, where it has operated for several years.

And it lost no time in moving into Sudan as soon as a peace deal was signed, apparently ending the civil war, despite the US embargo against the country and accusations from the West that its government abuses human rights.
“Sudan has turned the corner since signing the peace treaty between the south and the north, and clearly it is a country that is rich. It has a large population and a great deal of natural resources that need to be developed. Sudan needs to develop every aspect of its economy: infrastructure, services, the oil sector,” Abou-Jaoude said.

“It’s a country that is coming out of a period of neglect and is ready for investment in its roads, airports, ports, refineries, exploration, and drilling,” he said.
PWC’s role in the shattered country is building the capabilities from the logistics perspective — such as having a modern fleet of trucks that can drive on dirt roads or paved highways. It builds facilities that are capable of receiving and moving goods as efficiently as possible. “In one case we built barges on the Nile when the roads weren’t developed. We contribute in our own way. We don’t go in and build highways. That’s not our business. We reinforce the different pieces that make up the economy,” Abou-Jaoude said.

Ever restless for expansion, PWC is evaluating Iran — another country with a US embargo against it. It also has a radical president who is rarely out of international headlines.
“Clearly it’s a market that has possibilities and has large oil and gas resources. Naturally it’s one of the countries we would be interested in.”
“The geopolitical realities always influence what happens to business. We are a company that is focused on the business sector, and we are purely a commercial entity. The political scene in Iran has created uncertainty. In spite of all its problems, many countries, especially in Europe, are prepared to trade with Iran and do business there. And despite all of that, there is still a significant amount of oil and gas being produced there; so it has commercial merits, despite the risk of operating in the country.
“We aren’t in Iran yet, but we see it as a potentially huge market that we are interested in,” Abou-Jaoude said.
While developing nations’ economies are financially riskier to operate in than those of rich countries, which scares off some firms, the potential profit margin of working there draws in a firm like PWC.

“As a company that is focused on logistics services, we are directly linked to the global economy. If you look at the figures on a global basis, most developed economies spend between 8 – 10% of GDP on logistics, and if their economies grow, their logistics spending goes up proportionally,” Abou-Jaoude said.
If you look at the US or Western Europe, that’s the figure. If you look at developing countries and emerging markets, that figure goes up to as much as 16 – 20% in some cases, because of inefficiencies. As long as the world economy is growing, our business grows too,” he said.

Global Investment House’s Sarma said, “At first, there was some concern about their exposure in developing countries through their IT services segment, but that is a thing of the past now, and they are delivering solutions to major clients in countries such as Pakistan.”
They are moving into countries like Jordan as they open up their economies — these markets are doing so well, everyone wants to open up their markets and privatise things, he said. “Going to these countries no longer looks like a risk.”

One venture, however, where PWC did get singed, was when it went to the market to find funding for a project just after the Kuwaiti government had sold off its shares.
Abou-Jaoude said, “Back in 1997, if you went to companies and asked them if they were interested in outsourcing logistics on their behalf, they would have thought you a lunatic, that you had landed from Mars.
“Despite that signal, we had the conviction at the time that this is the inevitable trend, and we went ahead and built a facility that could handle 32,000 pallet positions, and we had to live with that facility sitting empty for a good six months before we saw the first customer coming in,” he said.
“So you could say we were possibly burned by having a facility that was empty for that time. However, we take a very long-term approach to things, and when we see clear trends or clear signals that we have confidence in, we make the move. We are not afraid to make the move and we have the staying power to see it through,” he said.

“There are many examples of us being ahead of the game and very gutsy to go and do things ahead of time,” Abou-Jaoude said confidently.

One of them was when PWC told regional governments to get their customs houses in order, and then helped them do it. The firm saw the way governments operated in the Middle East as having a direct impact on global trade: trade that logistics firms get their bread and butter from.

PWC sees its mission as facilitating trade. Economists and import and export firms complain that in the Middle East a lot of processes, especially customs procedures, are very bureaucratic and in need of modernisation.
So, six years ago, PWC decided to develop a customs modernisation solution built around a software application platform using Microsoft technology. “It took us a long time — any time you deal with governments, change doesn’t happen quickly. But we were convinced that this was the right thing to do,” Abou-Jaoude said.
Five years later, PWC’s persistence was rewarded with a build, operate and transfer (BOT) contract to provide the systems for modernising all of the customs procedures in Kuwait, as well as gaining involvement in every aspect of running those ports, whether they are land, sea or air, wherever goods come in and go out of the country.

PWC’s MicroClear customs software helped earn it the Outstanding Achievement in the use of IT in Logistics award by a Middle Eastern magazine, IT Weekly.
Ghassan Farra, PWC logistics chief information officer, said, “Our technology differentiates us from our competitors.”

All of PWC’s warehousing facilities operate using the best-in-breed EXceed WMS warehouse management system and barcoding, scanning and radio-frequency communication technologies. PWC also provides its customers secure, on-line visibility to their inventory level and event information through the web.

The firm’s MicroTransport vehicle tracking system provides on-line, real-time vehicle tracking. Tight integration between MicroTransport and both the warehouse and order management systems provides full visibility to both vehicles and their contents.

PWC’s most visible success, however, has been in its rapid buy-outs of companies round the globe, giving it more than 17,000 employees in 450 offices spread across more than 100 countries. Today, over 50% of its revenue comes from outside of Kuwait.

It bought three companies last year: Singapore-based Trans-Link Group, a specialist in event and exhibition logistics; TransOceanic Shipping; and GeoLogistics, a global forwarding firm headquartered in Santa Ana, California.
PWC Chairman and Group Managing Director Tarek Sultan said GeoLogistics is a recognised leader in global freight forwarding with a significant presence in key Asian, European and Americas’ markets.

“Freight forwarding is a service that will continue to grow at impressive rates, and one where strong market participants will continue to distance themselves from their midsize competitors. GeoLogistics will significantly increase PWC Logistics’ global forwarding capabilities, especially within, to, and from the Middle East,” Sultan said.

Shares analyst Sarma said PWC is looking for logistics niches such as exhibitions. “It’s a new ballgame for the company. They are into an area that they haven’t worked in before. Previously, they used to move food and petrochemicals. But thanks to the three companies they’ve bought with their special focuses they should be able to pull it off successfully,” he said.
Sarma said he does not think there will be any more immediate major capital expenditure on acquisitions.
The way in which PWC made its acquisitions, however, leaves the door open for more buy-outs in the future.
“To buy Geologistics they went to the world capital markets, even though they had the funds. They wanted exposure to the international markets and syndicated loans banks. That experience will be useful in case of any more acquisitions in the future,” Sarma said.

And to Abou-Jaoude, the Middle East’s future looks rosy, with Gulf nations joining the World Trade Organisation and globalisation bringing more trade and competition to the region.
“We see competition as something that’s very healthy. Our chairman’s criteria for us was never to be satisfied to benchmark ourselves against people in the region,” he said.
“The company is facilitating trade, and competition will help us develop faster and deliver better services to our customers,” Abou-Jaoude said.
“I see these globalisation trends as very healthy, as it increases global trade. If it comes at the price of increased competition, it will challenge us, which is better for our shareholders and customers.”

And, according to Sarma, PWC Logistic’s shareholders, who received a 45% stock dividend last year, are set to reap the benefits of 2005’s expansion and the company’s aggressive risk taking.

Equity analysts are keenly tracking the company’s stock. “I think that there is quite a bit of value in their shares, whose prices should rise in the months to come,” Sarma said.||**||

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