In the disparate commercial region that comprises the Middle East and Africa, the fear of emerging competition is the top business concern for executives across the transportation industry, according to the 2016 Willis Towers Watson Transportation Risk Index.
Maritime executives in particular rate greater competition as the primary risk faced by their companies in a region that is characterized by wide differences in national economic development, political systems and culture.
Even in relatively homogenous regions, such as North America, ‘emerging competition’ takes various forms in this multimodal industry — from new or rising players and partnerships to new modes of transportation brought about by advances in technology. This is especially so in a region as diverse as the Middle East-Africa.
Marine dominated by shipping alliances
On the seas, the container shipping alliances increasingly dominate the intercontinental markets, and their powerful tentacles are spreading into secondary regional and coastal trades. As of late October, the big 3 alliances – 2M +1, Ocean and The Alliance – operated 72% of the 20.8m-teu global fleet that is currently trading, according to Alphaliner. Of all the carriers owned in the Middle East and Africa, only the United Arab Shipping Co, headquartered in Dubai, is a member of those alliances. The rest are on the outside looking in.
Private port operators, shipbuilders and repair yards in the Middle East and Africa’s eastern seaboard are also intently watching the emergence of the giant Saudi Aramco maritime yard being built at Ras al Khair. Scheduled to be the largest such facility in the world when it opens in 2021, the huge complex is part of the Kingdom of Saudi Arabia’s (KSA) sweeping economic reforms designed to reduce its dependence on dwindling oil revenues.
Rail and road transport see different competitive risks
The wider region’s land transport providers, who rate ‘emerging competition’ as their No 3 risk, face a different set of competition-linked challenges.
On the African continent, the gradual privatization of the rail networks is raising competition and improving transport efficiency—particularly for freight, the movement of which has long been constrained by the limitations of the continent’s resource-starved roadways. Some three-quarters of the sub-Saharan African rail network (excluding South Africa) is already wholly or partially privatized, adding to the competitive pressures on public operators and road hauliers.
The improved infrastructure that is ostensibly a product of private investment is expected to drive a parallel transition of freight from road to rail. Ironically, it is the state-owned Transnet that is driving that trend in South Africa. Others with similar ambition undoubtedly will accelerate the changeover, but countries on the continent move at very different speeds, economically, so infrastructure is destined to emerge slower than some would like.
In the Middle East, rail privatization is more prevalent, even if the impetus has slowed recently with declining price of oil. The region is awash with tenders for rail (in Qatar, Oman, KSA and the UAE, for example); once these new networks are online, truckers will struggle to compete for cargo.
On the technology front, Dubai-based DP World is investing in an Elon Musk-inspired ‘hyperloop’ system. Hyperloop technology — moving specially built vehicles inside low-pressure tubes at near-supersonic speeds over long distances — is in its nascent stages. Cost and safety concerns will likely restrict initial services to the carriage of cargo, but passenger transport is the ultimate goal. As it is early days, the potential scope of this technology’s impact is unknown. But DP World believes it to be an immediate game-changer for terminal operations, ostensibly by-passing the demand for road transport.
Air transport more concerned about social unrest
In the air-transport sector, where state support and market protection is more common and the pace of market-liberalization efforts slow, emerging competition does not rate among the sector’s top 10 individual risks. Their top perceived risks are associated with the business impact of social unrest and terrorism, according to the Index.
The fear of ‘social unrest, involuntary migration and terrorist threats’ was the highest rated risk across any mode of transport for the region. A rating that high may appear to indicate a consensus, but it is likely generated by very different concerns in a sector where resources vary by country. In general, air-transport executives are comparatively more worried about the overall risk landscape than their sea and land counterparts, according to the Index.
For example, given the robust security culture in some Gulf countries, airlines with international networks are more concerned about business interruption in the parts of Europe that have recently proven more vulnerable to attacks. While the region’s smaller airlines would worry about losing destinations outright in the region’s less stable nations.
The reasons for the air sector’s No-3 rated risk – protectionism and the restriction of open competition – are likely associated with the commercial strategies available to carriers with vastly different resources.
Small regional carriers hoping to get a foothold in some of the Middle East’s more restricted markets would see protectionism as a major impediment to their growth opportunities. Those concerns would be echoed by regional carriers in Africa, for whom progress on adopting 1999’s Yamoussoukro Decision – the continent’s de facto road map to full market liberalization – has been too slow.
The opportunity is certainly there. The African passenger market is projected to grow by 5.1% a year until 2035, adding some 192 million passengers, according to the latest forecasts from the International Air Transport Association (IATA).
During that period, the 10 fastest-growing markets in the world in percentage terms will be:
- Sierra Leone
- the Central African Republic
Each market is expected to grow by more than 8% each year on average, doubling in size each decade, IATA says. But increasing protectionism, it warns, could hijack the forecasts.
Those concerns are not only shared by regional airlines with limited resources, however. Some of the Middle East’s more well-healed carriers would also share those sentiments. Expansion-minded international players such as Emirates, Qatar Airways and Etihad Airways are struggling to expand their original footholds in popular destinations across the U.S. and Europe, with the home carriers in those markets alerting their regulators to the growing foreign presence.
Henry Adair is the Transportation Regional Industry Leader for CEEMEA and his role is to harness the specialty skills of Willis Towers Watson worldwide to effectively serve our clients in the region. A product of the Willis Graduate Scheme, Henry joined Willis’ aviation division in 2006 and moved to the Middle East in 2011 in order to provide expertise to our extensive aviation client base there. He is an Associate of the Chartered Insurance Institute (ACII).