Logistics and Supply Chain Management Amid COVID-19: Qatar as a Strategic Hub

Jun 8, 2020

SARS-CoV-2 hit a world unprepared for such a breakout. While responses to contain its spread have been driven by medical expertise, the impacts on national economic systems were accepted as opportunity costs of the necessary public health measures. The pandemic threatens all countries alike, and the operational effects on each one’s supply chain framework are therefore also interconnected. In a globalized world, cause-effect structures trigger immediate reverberations on national economies that in turn bring global output levels into line.

From a strategic point of view, however, each country displays a distinct “fingerprint” of supply chains that link its in- and outbound trade flows. While “strategic” is usually interpreted as long-term, and “operational” as its short-term complement, both take on a different meaning in Logistics and Supply Chain Management (LSCM). Here, a strategic decision can hardly be reversed, independent from its time horizon. In contrast, an operational decision can be retracted and its effects leveled out in the short or long term. In this scenario, strategic decisions bear a calculated risk. By the very nature of strategic LSCM decisions, their outcomes span economic, social, and political spheres.

In the mid-1990s, Qatar took a strategic decision to develop its North Field natural gas reserves and the country has since become a powerhouse in the global energy sector. Qatar has remained strong in the liquefied natural gas (LNG) market, even after the onset of SARS-CoV-2. This stance is well-exemplified by Qatar Petroleum (QP) recently booking 60 percent of the global shipbuilding capacity for LNG vessels to increase its tanker fleet. For QP, SARS-CoV-2 merely represents a short-term disruption.

Current efforts to expand the North Field harvest from 77 million tons per year to 126 million tons per year is another example of a well-defined strategic LSCM scenario. Part of Qatar’s philosophy in dealing with LSCM contexts is determination and continuity. The country’s firm belief in honoring the institution of a contract is reflected by the long term nature of the majority of its LNG contracts, and in how it is continuing to deliver its natural resources even to blockading countries since 2017. This has not only yielded Qatar the moral high ground but has also kept the Dolphin Energy gas pipeline operational.

Another effect of the calculated risk is that Qatar is now particularly well-equipped to withstand pressured oil prices. Qatar has one of the lowest break-even scenarios in the region to keep financing its economy even if the oil price, and the connected LNG price, decreases due to the COVID-19 pandemic. This enables Qatar to have a foreseeable energy revenue stream and financial intake even in turbulent times.

Analyzing these turbulent times from an LSCM perspective, three phases clearly stand out for Qatar. First, the years between exploration of LNG reserves until early June 2017, when the socio-economic blockade was imposed. Second, June 2017 to February 2020, when the global SARS-CoV-2 avalanche reached Qatar. Third, the ongoing phase since March 2020, in which the country is still under a blockade but is additionally challenged by the pandemic.

In phase 1, the country’s sourcing strategies were largely built on single sourcing. The scaling-up of its manufacturing capacity for these single-sourced products was to some extent minimized. The advantage lay in lower procurement prices and leaning on higher volume concentration in any one origin, but at the expense of vulnerability in the event, any of these deliveries were discontinued.

In phase 2, Qatar had to face those disadvantages. The supply of milk and dairy products, for instance, virtually collapsed overnight. The urgent need for a replacement solution saw Baladna, an already established domestic producer, radically increase its capacity in record time. Qatar shifted its supply strategies to multiple sourcing concepts and was able to overcome the adversarial supply chain implications of the blockade in a remarkably short time. The country also invested in its production capacity, adding to its overall resilience, boosted by superior logistics capacity in both air and sea transportation.

In the transition from phase 1 to phase 2, the outside-in context for Qatar’s supply chain system was characterized by break-even oil prices and the availability of additional capacity in the world’s logistical infrastructure, which offered new supply streams. From an outside-in perspective, Qatar has had to coordinate its supply chain system in innovative ways. From an inside-out perspective, sufficient resources and funds were available to support this massive coordination rearrangement. New origins could be introduced into the overall supply chain architecture, and the government could place significant demand on those origins, leading to an increase in transportation and freight volumes via air and sea.

In the transition from phase 2 to phase 3, however, the outside-in context changed drastically. In April 2020, the oil price inverted, turning former break-even oil prices into deficits for many countries, especially in the Gulf.

In phase 3, while Qatar’s logistics infrastructure and supply chain system are well-positioned, SARS-CoV-2 has become a massive threat to the global supply chain network. We have witnessed a global imbalance of supply and demand, drowned by a deeply impacted global economy. Some industries are performing better than others, and the economic outlooks for industries are varied. All of this leads to a distorted outside-in landscape for Qatar’s supply chain system.

As part of the activities to counter the 2017 rift, Qatar addressed international institutions beyond the GCC to solve the dispute amicably. New partners in politics and trade were found in a multipolar world. Being a GCC member remains a strategic asset as seen by the recent joint coordination on strategic food storage and security, but shifting its overall supply chain scope beyond the GCC is likely contributing to Qatar’s even greater resilience. To capitalize on this potential, however, new competencies are required. One of which is to orchestrate strategic supply and warehousing hubs for more fragmented subsystems of the global trade landscape.

With the global downturn of economic and trade activity, and national safety measures hindering free trade flow, we are likely to step into a world with more “regionalization” or even “multipolarization” characteristics. A formerly global trade system is likely to be divided into several subsystems. Boundaries between those subsystems no longer need to be only geographical or regional but also based on product categories, for example, medical supply chains.

Qatar’s strategic geographic location and logistical capacity link countries in Asia with those in Europe and in Africa. Warehousing and distribution hub capacity will be key to supply those destinations, with product categories ranging from personal protection equipment and ventilators, to vaccines, as they become available. The international trust and “brand recognition” that Qatar has earned as a reliable partner in the energy sector could be transferred to these other product categories, positioning the country as a strategic hub. Orchestrating a system of medical supply chains coordinated out of Qatar could be just a first step to establishing the country as a prime supply partner for many product categories using strategic LSCM capability.

 

Article by Frank Himpel, Associate Professor of Engineering Management and Decision Sciences, Hamad Bin Khalifa University

 

Read more about the COVID project here.

Read about the CIRS project on the GCC Crisis here.