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Logistics industry voices concerns over oil prices

Burgess COMMENTARY

Peter Burgess

Logistics industry voices concerns over oil prices

While the oil price slump could deliver cost relief for the logistics industry, any negative impact on the GCC's GDP and economic growth could spell trouble for the sector’s development in 2015, according to key industry figures polled by Logistics Middle East.

Discussing potential effects, Mustapha Kuwam, managing director-Gulf states, Globe Express Services (GES), said: “The GCC, which has substantial dependency on commodity exports, is facing enormous challenges brought on by the oil price weakness.

“Bahrain and Oman are feeling the pressure. Saudi Arabia, Qatar, the UAE and Kuwait are better shielded from the effects of the low oil piece due to large and mature domestic banking systems, access to international markets, and large sovereign wealth funds generating ample investment income.”

CEO of Kat Logics, Katharina Albert, agreed that Dubai and Abu Dhabi in particular are protected from falling oil prices, citing their successful diversification strategies over a number of years as a key component of this.

She also stated that falling oil prices will provide “a cost relief for the logistics industry” this year.

However, Shailen Shukla, head of logistics, Jumbo Logistics, said that while declining oil prices are 'a big positive for the logistics industry at a global level', firms operating within the GCC region will only see 'a slightly upside that could help balance out other costs' due to the controlled price of fuel price in the Middle East.

Andre Toet, CEO, Sohar Port and Freezone, added: 'Lower energy costs typically lead to lower consumer costs and, potentially, increased cargo volumes, but there are implications for profit margins, operating costs and job security if you don't achieve those volumes,' referring to this as a zero-sum situation.

In terms of slowing down growth in the GCC region, a prolonged period of lower government revenue may place more pressure on the private sector to fund investment, given GCC governments' high infrastructure spending plans, according to Mohammad Alkhas, GCC CEO, Aramex.

He shared: 'Lower government revenue may also result in increased government efforts to tackle energy subsidy reform, which could hurt a number of industries.

'Consequently, for the logistics sector, it is increasingly critical to invest heavily in e-commerce [and] to find more efficient and less costly transportation solutions.'

The price of Brent crude, a global price benchmark, has dropped 48% since its peak time last year.

Today (Wednesday, January 7, 2015) Brent crude oil fell below $50 a barrel for the first time since May 2009, hammered by a growing supply glut and weak global demand.

At the end of last week Iraq, the second-largest OPEC producer after Saudi Arabia, and non-Opec member Russia reported the highest production levels in decades.

By 2017 the UAE has set a target to boost production from its current 3mn bpd to 3.5mn bpd despite lower oil prices and global oversupply.