Is logistics heading for a roadblock?

The price of diesel has started shooting upwards throughout the Middle East, increasing the cost of transportation. The situation has shaken the confidence of the region’s logistics industry, which is reliant on distributing products by land. As customers face higher logistics bills, the smaller distribution companies are now questioning their future.

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By  Robeel Haq Published  May 7, 2006

|~|DLC2.jpg|~||~|Logistics is flourishing throughout the Middle East. The region has attracted a constant supply of international companies with ambitious plans for distribution centres around the region. Demand has actually reached such peaks that logistics companies are facing a shortage in available storage space because their warehouses are running to full capacity. What could possibly have a negative impact on such a healthy situation? Unfortunately, we recently discovered the answer to this question when diesel prices started shooting upwards around the world, including the Middle East. The situation has shaken the confidence of the industry and placed a question mark around the future of smaller companies struggling to compete in the competitive logistics marketplace. Of course, distribution companies initially absorbed the rising price of transportation without passing the extra costs onto their clients. Customers need stability from their logistics providers and cannot bear the brunt of fluctuating costs. This is entirely reasonable. However the price of diesel has reached record levels, making the subsidising of costs financially unviable. Both smaller and larger players in the logistics industry are slowly increasing their prices. Although a few companies have managed to maintain their existing rates, the possibility of further diesel price hikes might jeopardise their stance in the future. I have talked to a variety of logistics companies and it seems customers have reacted differently to the situation. Some are showing understanding towards the situation and others are genuinely upset about the price increases. In part, it simply depends on the logistics company’s ability to communicate the situation and justify the reasons behind their increases. Unfortunately, the rising cost of diesel had a greater impact on the Middle East logistics industries compared to many of its global counterparts, because local distribution companies are more reliant on transporting consignments by land. A considerable percentage of their budget is spent on diesel for their vehicle fleets because alternative modes of transport within the region are pretty much non-existent. Airfreight is too expensive and a railway network covering the entire Middle East remains a pipedream. This makes the logistics industry somewhat over-reliant on land transportation, much to the annoyance of countless drivers stuck behind delivery vans during one of the region’s many traffic jams. Luckily, transporting products by land works incredibly well for many companies and we have a fairly impressive road network in place with developments underway to make further improvements. Of course, it would be nice to have more alternatives, but until that happens, it seems logistics companies are destined to remain king of the road. ||**||

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