Gulf logistics reform must be prioritised

When Kristalina Georgieva, managing director of the IMF, visited the World Government Summit in Dubai earlier this year, she spoke candidly about the opportunities and challenges facing the GCC.

Georgieva, while praising the reforms, which have brought about economic transformation, diversification and stability, also encouraged regional governments to deepen economic integration. 

Trade between GCC countries has tripled to $70 billion in the past decade. But this still only represents 10 percent of the bloc’s global exports, versus the 50 to 60 percent seen within the European Union.

Georgieva said that the GCC could become a leader in cooperation and connectivity through better-harmonised regulations and standards and improved transport networks.

Her words will be warmly received by the Gulf’s transport and logistics sector. There has long been a sense of frustration about the time, cost and resources required to move goods short distances between countries. Road freight is critical to the GCC economy, and its importance will only increase as the region develops. 

However, unless bottlenecks are addressed, growth will be constrained. The GCC can ill afford such inefficiencies in this volatile global economic environment.

One of the problems freight companies face is the lack of border crossing points, often resulting in long queues. While plans to expand crossings have previously faced delays, there was positive movement in February with the opening of a new crossing in Fujairah between the UAE and Oman. This development is expected to ease the movement of goods and people between the two countries.

The amount of paperwork required to make each crossing contributes to delays. The International Road Transport Union estimates that up to 12 documents are needed for each cross-border transit

However, the issues are not only physical. The amount of paperwork required to make each crossing contributes to delays. The International Road Transport Union estimates that up to 12 documents are needed for each cross-border transit, depending on the country involved and the type of goods being moved. 

In addition, shipments are often inspected (sometimes on both sides of the border), adding time and cost to the movement. Trucks may be held until electronic duty payments are confirmed in customs bank accounts, disrupting delivery timelines.

Trade process complexity is made worse by a lack of standardisation across the region in terms of the varying permits and licences required by importers and exporters. 

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According to the Gulf Petrochemical and Chemical Association, “misalignment on policies, procedures, and lack of coordination between standards, infrastructure and charges in the GCC region, especially for speciality chemicals, are the predominant reasons behind border delays, as they lead to numerous documentation requirements and ultimately long customs clearance process/time.” 

In many cases, this can result in trucks being turned away, even for minor discrepancies. There have also been complaints that changes in regulations are not efficiently shared with shippers or logistics companies by the relevant customs authorities. Georgieva raised the point that increasing levels of digitalisation could address many of these problems.

One immediate solution to expedite cross-border transits is the UN-backed TIR customs transit system. The system enables goods to be shipped from a country of origin, through transit countries, to a country of destination in secure sealed compartments via a mutually recognised arrangement backed by a UN convention. 

This approach has already proven its value. The logistics firm Kuehne and Nagel reported that it cut border waiting times at the UAE-Saudi crossing from two or three days to less than one. By sharing advance cargo information, TIR helps customs authorities focus their efforts on higher-risk shipments, allowing low-risk goods to pass through more efficiently.

Trucking network

Pre-validated and trusted operators benefit from the arrangement by providing their customers with more transparent and predictable services, while increasing the productivity of their vehicles and drivers.

This agreement has benefited road freight companies during the Red Sea crisis. By bypassing the Bab al-Mandab Strait and the Gulf of Aden, a trucking network across the GCC has developed. Goods arrive in ports such as Salalah and Sohar in Oman or the Arabian Gulf and are then trucked to and from Jeddah on the Red Sea, allowing shippers to avoid routes around the Cape of Good Hope.

It is to be hoped that Georgieva’s words will spur the GCC’s governments to greater cooperation and deeper economic integration. 

The Gulf Petrochemical and Chemical Association has estimated that border waiting times result in a loss to the region of almost SAR1 billion ($266 million) a year just in terms of idle trucks and drivers – and ignoring the losses related to delayed deliveries, inventory holding costs and potential product damage. 

If the region’s trade and transport systems are to become world-class, these issues must be swiftly and effectively addressed.

John Manners-Bell is CEO of Transport Intelligence Insight and founder of Foundation for Future Supply Chain