From ship to shore

Demand for supply chain management and associated logistics services is booming in the regional consumer electronics sector.

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By  Michael Thorne Published  September 3, 2006

|~|DHL200.gif|~|DHL has built a successful business providing logistics services, including shipping and delivery, to the consumer electronics industry.|~|The market for consumer electronics goods in the Middle East is becoming increasingly dynamic with vendors pushing fast product cycles as they compete with one another for market share. This is creating core logistical challenges for retailers and distributors, who are reassessing their supply chain strategies in a bid to protect margins while increasing market share. To add to this there are emerging logistical trends that companies must consider, such as the growing influence of free trade zones and their impact on regional distribution strategies, improvements in transport infrastructure – particularly in the GCC – and the emergence of lucrative consumer markets in sub-Saharan Africa. This climate of intense competition is also creating new opportunities for logistics providers, some of which are now looking to take on a bigger role in the distribution channel. Companies such as DHL and Aramex are offering their own value-added services, marketing packages that include holographic product markers and the insertion of local warranties and Arabic manuals. By offering these services, logistics providers can help reduce client overheads while also securing reliable and efficient routes-to-market through utilising larger economies of scale in terms of infrastructure capability. Aramex is the latest company to expand its logistics service portfolio, having recently launched a new initiative targeting the outsourcing requirements of consumer electronics and IT retailers. “Logistics support is becoming an increasingly important factor in the retail sector. Most companies currently rely on their own fleet of delivery trucks and in-house employees to deliver and install electronics items that they sell,” says Aramex’s vice president, UAE and Oman, Hussein Hachem. “This raises their overheads, which in most cases are already high as a result of their increased retail investment in new shopping malls across the region. We have a new proposition for retail in the Middle East; not only will we take care of the delivery of products but we will also manage installation. This reduces the cost and management problems associated with running these processes in-house. “What Aramex will do is develop a customised service based on a particular client’s needs. We hire our own trucks and train the necessary technicians to deal with specific products. We then link our software system to that of the retailer, or their distribution warehouse, so that when an order comes in we send our trucks to pick up, deliver and install it.” Aramex will launch this service in the UAE, initially focusing specifically on the consumer electronics, mobile and IT retail sector. It plans to then expand its service offering to cater to other countries across the Middle East. Hachem adds that Aramex is in the process of signing major deals with a number of unnamed flat-panel television manufacturers to manage the delivery and installation of TVs to customers. “We’re finalising a number of deals which should be actioned in the next 45 days,” he says. ||**||Booming logistics market|~|Shyam,-Mukkul-200.gif|~|Mukkul Shyam, chief operating officer of Dubai-based mobile handset and accessories distributor Cellucom FZCO.|~|The booming market for consumer electronics and mobile handsets in the Middle East is generating major windfalls for logistics providers. DHL’s Dirk Van Doorn tells ECN that the company has worked to considerably improve its road and air network in the region in order to be able to accommodate growth in the mobile and electronics industry. “We’ve upgraded our planes from turbo props that could handle five tonnes on takeoff to jet aircraft that can handle significantly more and our fleet of 60 trucks has grown to 200,” he says. “This is primarily driven by the consumer electronics and mobile segment. I would say that approximately 45% to 50% of our business is consumer electronics – of that about 70% is in the mobile industry.” New distribution models are also spurring different approaches to logistics in the Middle East consumer electronics channel. Dubai’s Jebel Ali Free Zone (JAFZ) is having a massive impact on the manner in which distributors service key markets as it provides a regional, tax-free base from where products can be sourced at short notice and in demand-specific bundles. “Instead of putting goods straight into different markets and paying duty upfront we can hold them in JAFZ and only pay duty as and when there is a demand for them in individual markets,” explains Manohar Punjabi, executive director of Jacky’s L.L.C. “The consumer electronics business in the Middle East is so vibrant that you don’t know what is going to be consumed locally and what is going to be exported to other markets, so the benefits of stockpiling in JAFZ are obvious. “We have buyers in other parts of the region, especially Africa. In these markets you can gauge roughly how much product they will need but conditions and situations change and therefore having the stock in Jebel Ali is a safer bet commercially. “You may be able to fill a full container with a larger product such as a refrigerator but with a smaller commodity such as a microwave, channel partners will more likely demand a range of models. In this case we bring containers to Jebel Ali, split them up and send off the bundles that buyers require,” he explains. Van Doorn cites Pakistan as a key market for consumer electronics and mobile products travelling out of Jebel Ali. “We’re not sure what the drivers are since economically Pakistan is far from flourishing, but there certainly seems to be a major demand for mobile phones and consumer electronics in general,” he says. “Iran is another market that is finally making good on its commercial potential. The single biggest challenge we face is dealing with the bureaucratic nature of customs laws in Tehran. The position we hold at this point in time is that while we will attempt to clear a consignment and deliver it to the local market, it is advisable that the consignee comes to the DHL office and, in conjunction with the DHL staff, clears the shipments. This is because Iranian customs regulations are often vague and open to interpretation. Hence, if you are the owner of the goods you will fight harder to get a reduction in your customs duty than a company such as ours.” Given the importance attached to getting products into the market as quickly as possible, improvements in infrastructure – particularly in the GCC – combined with less strenuous customs laws have helped to streamline the distribution process. “We are always keen to avoid [shipment] delays, since they can negatively impact the image that retailers have of your business,” says Mukkul Shyam, COO of mobile handset distributor Cellucom. “In each of these markets you need to get type approval for products. These are normal bureaucratic processes but they can take a lot of time. Our shipment may be ready for delivery but the product cannot move until this process is complete. Europe is a much more progressive market in this respect.” Van Doorn stresses that there is a problem with clearing product through customs that particularly affects the fast moving mobile handset market. “Complications revolve primarily around documentation,” he says. “Issues always arise relating to things such as certificates of origin and complying with specific country destination requirements. “In Saudi Arabia they have the Saudi Arabian Standards Organisation (SASA), which makes submitting the correct documentation a very laborious process. You are required to take a sample of the item you wish to ship and send it to a SASA-endorsed laboratory. They conduct an analysis of the items in question then give you the OK to ship. Then you have to legally formalise your shipping documents – your commercial invoice, your DHL airway bill and your certificate of origin. You then have to go to the embassy where they must stamp every page. “I’m not sure if it adds any value to the equation. There are similar problems associated with getting product to market in Kuwait and Qatar." ||**||Key challenges|~|Hachem200.gif|~|Aramex VP, UAE and Oman, Hussein Hachem says the company is committed to providing customised services to its CE clients. |~|Van Doorn says that DHL, along with other key industry players, is trying to convince the authorities to rescind some of these requirements. “What needs to be understood is that the transportation and logistics industry is highly fragmented, so while you may have all the integrators working together, that doesn’t mean that all the freight forwarders are also working in the same way – or the air cargo operators, for example,” he says. “It’s a very cumbersome process trying to get each party to agree to certain standards, which would enable us to provide more efficient services to our clients. “By taking away some of this red tape we would be able to take away some of the associated costs and the end-consumer would actually benefit but because these obstacles remain, it sometimes proves an unnecessarily expensive process.” Logistics service providers must also maintain high levels of security when dealing with consumer electronics, IT and mobile products, given their high value nature. The Technology Asset Protection Association (TAPA) offers an industry standard that channel players can use as an indication of the level of investment a provider has made in ensuring that stock is secure. Companies can acquire scaleable degrees of certification, with A-class representing the highest standard. Other logistics providers may class themselves as TAPA-compliant, but this does not necessarily indicate that they have made the required investment to be classified as even C-class TAPA compliant; unless this is specifically stated. “We’ve invested a huge amount of money in security equipment because these items are highly valuable,” says Van Doorn. “Our facilities are A-class TAPA compliant, meaning that they are 100% compliant with its regulations. “We see this as one of the demands that will become a key differentiator going forward. Consumer electronics manufacturers and traders will demand that their product is stored in a safe facility complying with these standards, especially as they look to enter markets where the risk of theft is even higher, such as certain markets in sub-Saharan Africa. It’s on the back of our investment in this respect that we are able to win some key consumer electronics contracts.” Distributors will increasingly look to outsource their logistics requirements as channel players seek to streamline their routes-to-market in the face of diminishing margins. The advantages that major logistics firms offer is that they can provide larger economies of scale to handle the transportation and warehousing requirements of mutliple clients. They can also offer a diverse array of services including shipping, after-sales delivery support of small electrical components and product customisation. A key benefit of outsourcing logistics is that it enables channel players to effectively control their distribution costs, without facing the added management and logistical burden of dealing with these issues in-house. By outsourcing logistics contracts with a particular service provider who is then responsible for providing logistical support at a set price or pricing plan, channel players can avoid spiralling costs associated with supply chain management failure. This doesn’t mean that problems in the supply chain will not occur but given the expertise of many of these service providers, whose core business focuses on logistics issues, it is safe to say that the risks of delay can be significantly reduced.||**||

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