Handling it – Geoff Wheatley’s frank assessment of the year that was

by Guest Posting on 2010-09-08

The year that was - 2009 - was tumultuous, the recession sparing none. Geoff Wheatley, Regional Director Middle East and Africa, SSI Schaefer speaks candidly about how the downturn has affected the materials handling industry and the company's damage control measures.

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LOG: what was the market situation going into 2010?

Wheatley: 2008 was a very healthy year. We had a very good order bank as we entered 2009. This kept us going probably until the third quarter and then the enquiry levels started to drop after the first quarter of 2009. So we had contracts in hand but there was very little business coming through in the UAE as we entered 2010. But let me go back a little. In the middle of 2009, we obviously understood what was happening to the capital equipment business in the UAE. In a nutshell – it was dreadful.

A lot of companies will tell you differently but this is the fact, there’s nothing to hide. During the middle of 2009 we had the realization that we could no longer depend on orders solely from the UAE – and apart from the UAE, certain parts of the GCC also suffered. Saudi was okay, business in Qatar was a bit patchy – so we started to look elsewhere for new business.

We stepped outside GCC boundaries and started to develop business elsewhere – and I’m not saying where because everybody follows what Schaefer does and I’ve seen this happen. Every time something is printed about what Schaefer is doing or planning to do in the future, copycats follow us there. The lookalikes come into the market place. We focused on Africa and the rest of the Middle East – Iraq, Iran, Afghanistan, Libya, Syria, Morocco, Algeria, North Africa, Sub Saharan and South Africa. We scored some major projects in Africa and other countries which allowed me keep my staff, but in summary, business is down 30 to 40 percent and that still stands and hasn’t improved.

Where is the market headed?

I think it’s been static since the middle of last year. Our market share hasn’t dropped, in fact it has increased but in a much smaller market, although that doesn’t help when you budget a certain amount of dollars per annum and set up all the resources to make that demand, but we’re hanging on and we haven’t retrenched anyone. I haven’t reduced expenses. We are still going ahead with our new facility in Dubai Logistics City which will be completed this year. It’s an AED2 million to AED2.5 million (US$540,000 to US$650,000) investment. It’s an office and a workshop of about 3,500 sq meters in size.

Why was there a need to get into DLC?

It seemed a goof idea at the time. It will be owned by Schaefer 100 percent. I will have the space to double the staff. We will have a good workshop facility and storage facilities that will satisfy us for the next 20 to 30 years.

How vulnerable was the materials handling industry?

In the UAE, we were totally dependant on two issues – direct investment which obviously dried up because of the world recession and many major international companies put off their plans to expand into the Middle East, and of course the local investors were also hit so the two avenues of finance which produced warehousing facilities in JAFZA, DLC and everywhere else dried up.

Retails business slowed down dramatically. In order to support my clients, I have stretched their payment schedules. Fortunately we’re a strong company financially all over the world. I have back up from different factories around the world and from my head office.

Logistics basically promoted all other businesses that’s why the ruler’s office has issued a statement that the economy of Dubai in the future will not be based on real estate, instead it will be based on tourism and logistics which is going back to the roots, back to where it should be, back to where it started. You know, we’ve been badly damaged reputation wise because the overseas press takes delight in reporting bad news such as what happened with Dubai World. They don’t like to report happy news or good news. So it will be a slow turnaround.

The retail business has picked up for sure, but the key industries are still suffering. The hotels are full because you can fly from London to Dubai for GBP400 and a great hotel but the same trip from Dubai to London will cost GBP3000 with the same airline. Emirates is promoting Dubai in a big way by reducing the price of seats, they are also offering cheap connecting flights so that the passenger spends two or three days in Dubai and spends a US$100 – that helps the tourism industry, the hotel industry and the food and beverage industry. But the logistics industry is already geared up for full hotels so they don’t need extra capacity to keep food delivered to the hotels.

Warehouse in JAFZA and other industrial parks are not running at full capacity. Rates are unbelievably low. The price per pallet per month in JAFZA at the moment is the lowest in history. Normally you should be getting about AED12 (US$3.26) per pallet per month these are 2006 price. Then it dropped AED5 then it went to AED6 now it’s down to AED2 (US$0.54) or nothing. I can rent pallet spaces in the cold storage for AED5 (US$1.36).

This has affected revenues of logistics companies dramatically so they’ve got to cut staff, they cannot invest, they’re not building another 30,000 sq meter facility and that’s what we live off, so yes, it’s awfully tough at the moment. And we’re only safe because of large projects outside of the UAE. If we go back to 2008, 70 percent of the business was coming from within the UAE and now 70 percent is coming from outside the UAE. That’s the big change.

I don’t see any sign of a turnaround this year. I don’t see any improvement happening until the middle of 2011.

What have you learned from this recession?

We weren’t making any mistakes that we have to learn from. Being in Dubai we were all riding on the crest of the big ware and we were all warned. We all knew what was going to happen, but nobody thought it would hit so hard. It was a double jeopardy for Dubai. The real estate prices were over inflated anyway so we had the real estate bubble bursting at the same time as the world recession so Dubai caught a double whammy, whereas Abu Dhabi was much more conservative and they’re only now started up to develop a much more controlled development. Dubai was just an explosion which we all enjoyed and it’s great to live here, but then you see 50 to 60 projects getting stalled; the population dropped from whatever it was to minus 400,000 people. That meant 400,000 people that were now not buying anything, not eating, not drinking – all that affect logistics. Everything in life is geared around logistics and that’s obviously why the Sheikh’s office has recognized this.

Geoff Wheatley
Regional Director Middle East and Africa
SSI Schaefer