While the high-rises, gargantuan malls, five-, six- and seven-star hotels, and abundant glitz and glamour are all telling of Dubai’s place as the center of global aviation, much less known are the caravans of cargo that crisscross the globe from Dubai and other hubs in the Gulf Cooperation Council.
But at a time when the global economy and the big economic blocs are set to enter a tough year — according to the latest host of predictions by the International Monetary Fund, the Organization for Economic Cooperation and Development and the European Central Bank — Gulf countries are investing with fervor in their transportation and logistics networks.
They are intent on using their advantageous spot on the world map to consolidate their economies. Although the recognition for being the Arabian Gulf’s first “transportation hub” would go to the Sultanate of Oman, which as an explorer nation extended its rule to the Swahili Coast in Africa and pioneered this sector hundreds of years ago, today the United Arab Emirates is the region’s logistics leader.
“As with passenger demand, Dubai will likely be at the forefront of freight demand as well,” says Saj Ahmad, a regional analyst specialized in aviation and airlines. “Qatar and its new Doha International Airport that opens next summer will have a great advantage in being able to tap into cargo traffic,” he said. “These two airports will compete for business, but in the longer term, it’s evident that the massive investment earmarked for Abu Dhabi means the UAE capital too will be in the mix. In the same way that London, Paris and Frankfurt compete for the spoils of passenger and cargo traffic, so too are Dubai, Doha and Abu Dhabi.”
Logistics is an extremely competitive business and so, true to the spirit of ranking everything, the World Bank has measured the “logistics friendliness” of 155 countries since 2007. In the third edition of this Logistics Performance Index (LPI), published 2012, the UAE is the top performing country of all emerging markets, in 17th place globally, and has overtaken countries such as Australia, Norway, and Ireland when compared with the first LPI. Singapore and Hong Kong rank as the top duo in the 2012 LPI, followed by Finland, Germany and the Netherlands.
According to a private-sector logistics index, The Agility Emerging Markets Logistics Index focused on emerging markets and co-branded by regional company Agility and a UK-based transport consultancy, China and India are the leading markets in the sector.
The G.C.C. Logistics competition
GCC countries that have improved in the LPI from the second edition in 2010 are Qatar, up from 55 to 33, and Saudi Arabia, which advanced to 37 from 40. Bahrain and Oman follow on ranks 48 and 62, respectively, with Kuwait scoring the lowest among its Gulf peers at 70.
The LPI’s performance indicators include customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness. Oman took a little bit too much of its sweet time, probably with customs delays, and hasn’t quite kept up its infrastructure development. Bahrain and Kuwait took a nosedive on all fronts between 2010 and 2012 but they are eager to regain lost ground.
Kuwait is planning to catch up with port, airport and free-zone expansion plans estimated to total $6 billion, increasing handling capacity by several million tons. Similarly, Bahrain is in the process of spending around $3 billion on its logistics and transport infrastructure. Saudi Arabia, which has a natural competitive edge vis-a-vis its neighbors due to its market size, is no less busy developing its air and seaport capabilities, including building new economic cities and expanding existing metropolises.
Oman is planning to invest around half a billion dollars into its various free zones to restore its trade position’s ancient glory.
Qatar already benefits from the recent Logistics Village Qatar but with hosting the 2022 FIFA World Cup, it is also justified to expand its infrastructure further. What this all spells, of course, is increased competition among GCC states and it smells of overcapacity.
However, according to The Agility Emerging Markets Logistics Index, the UAE and Saudi Arabia feature among what is perceived to be the major logistics market of the future, and the UAE also made it into the list of markets for potential investment for the next five years. Adding Qatar, Kuwait and Oman, all five also rank among the world’s fastest-growing trade lanes.
Center of the world
According to analyst Ahmad, Dubai is currently harnessing new freight traffic into airports such as Dubai World Central (DWC). “Freighter operators love the capacity and space at DWC and they’re there for the long run,” he says.
DWC, which opened the first runway to cargo flights just over two years ago, recently reported 120 percent growth in cargo volumes since the third quarter of 2011, totaling 58,400 tons in 2012. Air traffic movement, comprising scheduled freight and some charter flights increased by 42 percent. Some 36 carriers operate at the airport.
With capacity also growing in the emirate of Abu Dhabi and Dubai International Airport (DIA), Ahmad reckons that DWC’s triple-digit freight growth will start to come down. Dubai Airports, which has been operating its Dubai Cargo Village at DIA since the 1990s, is further expanding terminal space by 30,000 square meters to be able to handle 4.1 million tons of cargo by 2020. However, it is DWC that will eventually take over all freight operations in the emirate and is expected to cater for 12 million tons of cargo annually once fully operational by around 2020. A highlight of DWC infrastructure is a dedicated feeder road to the important Jebel Ali Free Zone (JAFZA) and Jebel Ali Port. Developed in phases, the strategy of DWC is to converge transport and logistics facilities to maximum catering to a potential market base of more than 1.5 billion consumers across the MENA and South Asia region.
“DWC is a first-of-its-kind ‘aerotropolis’ in the Middle East, combining a super-airport, planned city and business hub,” says Khalid Ibrahim, vice president Strategy and Corporate Communication at DWC. The concept behind DWC is to create a self-contained economic and social ecosystem built around the world’s largest airport, whose advantages will also add up to deliver significant cost savings in the long term.
Activity at the airport is going to increase in 2013 as construction of one non-automated and two automated cargo terminals will increase the total cargo capacity to 1.4 million tons per annum.
While hyped-up initial expectations for aviation at DWC had to be taken down a few notches in the financial crisis and post-crisis years, it now plans to launch commercial passenger airline services. “Final preparations are underway for the passenger terminal and technically we are ready to accommodate commercial passenger aircraft within a short period of time,” Ibrahim says.
DWC’s Logistics District has seen the first corporate tenants move in but the focus is on flexibility that would allow the Logistics District to accommodate long-term projects. “This is a crucial aspect of our strategy for the Logistics District and the entire DWC project, especially as the logistics industry plays a very important role in the long-term strategic plans of Dubai and the UAE,” he adds. Dubai Airports Strategic Plan 2020 calls for an investment of around $7.8 billion, which includes the expansion of DIA terminals. The new Concourse 3, purpose-built for the A380 fleet of Emirates Airlines, is increasing the number of airplane stands by 60 percent by 2015. Based on past performances at DIA, Dubai Airports forecasts a cumulative annual passenger growth of 7.2 percent and expects to serve 98 million passengers by 2018.
The expansions of aviation in Dubai and Abu Dhabi, where the Abu Dhabi Airports Company (ADAC) is on a multi-billion dollar expansion plan, are reflected in the cargo volumes handled by the UAE-based airlines. ADAC reports cargo was up by nearly 25 percent to 48,000 tons last September compared to September 2011.
Emirates Airlines, reporting its financial year at the end of September 2012, said its cargo volume had increased by 16 percent since April. “The cargo volumes have increased significantly, and for the three months ending September 30, 2012, the freight load factor for Air Arabia cargo exceeded full capacity offered. This represents an increase of 36 percent as compared to the same period in 2011,” Sharjah-based Air Arabia wrote in a statement.
It appears that the GCC has not only made it onto the map of global logistics but the Gulf has captured a pivotal spot.
“If you want to compete on the global stage you must have a good base in the Middle East to support rapid growth,” says a spokesperson of Emirates Sky Cargo, arguing that the investments and professionalization of the logistics industry in the region over the past few years have placed Dubai as a great hub to channel flows of cargo for supply chains.
When the UAE celebrated their 41st National Day early in December, the obligatory reviews of last year’s achievements and outlooks for 2013 highlighted the growth of aviation and logistics among core economic achievements. The new Khalifa Industrial Zone Abu Dhabi (KIZAD) industrial and logistics zone and Khalifa Port in Abu Dhabi, just a short trucking hop across the internal border from Dubai’s DWC and JAFZA, had its official opening in September 2012 and KIZAD’s anchor tenant, Emirates Aluminum Smelter (EMAL) is already operating a berth at Khalifa Port.
The port in December took over all container traffic from Abu Dhabi’s older Mina Zayed Port, three months ahead of schedule. KIZAD’s phased development will see an additional 220,000 square meters of warehousing (of which 120,000 will be a free zone) coming to life by the second quarter of next year.
For the next 12 months, the list of new investments and project implementations promises that the capacities will certainly increase, irrespective of what surprises the global economy holds in store.