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GCC countries can gain a competitive edge in global trade and logistics, in which they seek to become hubs, through digitization. Logistics, the lifeblood of the economy, have a critical role to play in GCC countries’ national development and economic diversification plans. By implementing policies and practices that put digitization first, GCC countries can also overcome the continued dominance of manual processes and the fragmentation of logistics policies and initiatives. With the global logistics sector forecast to grow from around $8 trillion in 2020 to around $12.8 trillion in 2025 according to IHS, a digitization-first mindset can allow GCC countries to take a larger share of the global market.
The difficulty is that some GCC countries are behind their competitors when it comes to logistics performance. The exception is the UAE, which ranks 11th on the World Banks’ Logistics Performance Index. In general, GCC countries have fallen behind because of three major factors: the lack of modern and integrated infrastructure, insufficient service quality, and legacy processes.
Although GCC countries are investing in infrastructure, there needs to be more integration. The effectiveness of logistics depends on integrating infrastructure by connecting transport modes such as road, rail, aviation, ports, and shipping lanes. The quality of logistics services also requires improvement. GCC logistics players are often small, lack the scale to innovate, and tend to compete on price rather than quality. They offer straightforward services rather than the consultative approaches that leading firms provide. The region also has too many inefficient, antiquated legacy processes that discourage business. Elsewhere, digitized logistics processes reassure the government, enable trade, and have created new business models thanks to the use of data and analytics.
- First, governments should be “digital first” when dealing with logistics. That means integrating digitization within policymaking, which makes it data driven. Spain has already done this, implementing a single window that assembles information that allow different forms of transport and logistics nodes to operate together, all of which can then be complemented with global data. Abu Dhabi is bringing in a similar “single source of truth” system. For GCC countries, these single window systems would allow them to seek new logistics business, prevent supply chain and trade dependencies on other parts of the world, and inform localization policies.
- Second, governments should use digitization to get rid of outdated processes to improve efficiency and help them to compete with leading logistics hubs. It can allow countries to introduce systems that communicate with each other and that unify customs systems. In some countries that means automating port terminals or using robotics to reduce the need for manual labour. In Singapore, the customs authority has digital customs procedures and electronic payments.
- Third, governments should use digitization to simplify logistics procedures and encourage innovation. Some of the best examples are coming from new, digital players that are disrupting logistics such as Forto (which forwards freight digitally) and Transporeon (which provides cloud-based logistics). Established firms, such as Deutsche Post DHL Group, are using digital to connect their devices, automate processes, and experiment with incubators and research labs. GCC governments could assist with investment, shared incubators could help private sector logistics players innovate, and carefully chosen funding of research and development would promote innovation.
- Fourth, governments should strengthen the position of gateway ports in the global market through digitization. The aim is to give GCC gateway ports regulatory conditions on par with their global competitors. Technology solutions that enable real-time information, better control of transport conditions, and risk-based inspection approaches to make gateway ports “smart.” These changes are important because the GCC’s competitors are not static. Rather, new processes are emerging elsewhere that use artificial intelligence to provide visibility into the supply chain and thereby make physical border checks redundant.
Such smart ports also allow for leaner processes that connect all those involved in trade and logistics, and make them more efficient. Importantly, smart ports can foster regional and international cooperation through systems that communicate with each other by integrating each country’s logistics solution. Also, GCC countries can help fund their trade partners to digitize, thereby building new trade links and logistics business—such as in Asia, Africa, and Latin America.
GCC countries have an opportunity to earn their place as major logistics hubs. By using digitization to enable change, rework processes, and allow for disruption, GCC countries can show that they can compete globally in the growing logistics business.
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