Global Logistics Spotlight: Dubai Flying High
With constant new development, soaring air cargo growth, and a busy port system, Dubai is shaping up to be the crown jewel of logistics in the Middle East.
While the Middle East’s cash crop has traditionally been oil production—a factor that has contributed both to the economic prosperity of some countries and the geopolitical volatility of others—increasingly, Middle Eastern nations such as the United Arab Emirates (UAE) are targeting transportation and distribution activities to grow trade prospects and compete with other emerging global logistics markets.
The UAE, and its prize city Dubai in particular, have started to diversify, focusing on economic development beyond the oil industry. Non-oil foreign trade in the UAE rose nine percent during 2006, from $130.6 billion to $142.5 billion, according to Dubai World, a Dubai-based real estate holding group.
“These results reflect the Emirates’ rapid economic growth in a short time and what it can achieve in the global trade arena,” says H.E. Sultan Ahmed bin Sulayem, chairman of Dubai World.
“Many factors helped push this economic expansion, especially the impressive growth in the UAE’s real estate sector, and increase in the number of international companies operating in Dubai.”
That includes some 6,000 companies located in Dubai’s Jebel Ali Free Zone, he adds.
On top of this encouraging development, the World Trade Organization’s latest national report lauds the UAE’s progress toward liberalizing trade.
“The UAE’s generally liberal and increasingly diversified economy, importance of trade to its economic performance, relatively low border barriers to trade, and growing economic power make it an increasingly important supporter of the multilateral trading system,” the report states.
The real driver and change agent for the Emirates’ transitioning economy is its converging air and ocean freight capabilities. And if the country’s present development is any indication of its future promise, global businesses will soon be cashing in on Dubai’s value as a major intermodal transshipment location.
AIR CARGO: Soaring with demand
Surprisingly the Middle East, not Asia, is currently the fastest-growing air cargo region in the world. Recent year-over-year data from the International Air Transport Association (IATA) reveals that airfreight traffic growth is trundling toward the Middle East (up 12.7 percent from last year), not the Far East (up 4.5 percent), as current trade winds might suggest.
Dubai International Airport’s cargo volume is growing at a rapid 12.5-percent clip, according to Airports Council International’s 2006 top 50 air cargo airports index.
It also currently ranks 18th in the world and first in the Middle East. Some of this growth can be attributed to increasing Asia-to-Europe cargo traffic, says Mark Smyth, senior economist for IATA.
“Dubai’s growth as a major cargo hub reflects the growth of Middle East airlines in long-haul cargo,” he observes.
As further evidence of this trend, Middle East air cargo carriers such as Emirates and Qatar Airways, and Dubai International Airport as a result, are expanding at a heady rate.
In April 2007, Emirates SkyCargo announced another record-breaking year (see sidebar, below) in overall cargo tonnage, and Qatar Airways leads a list of emerging Middle Eastern cargo carriers that are quickly flying up the ranks of global airlines.
In total, the Middle East is home to seven carriers—Emirates, Qatar Airways, Saudi Arabian Airlines, Gulf Air, Etihad Airways, El Al, and EgyptAir—among the world’s top 50 in terms of international scheduled freight tons carried, according to World Air Transport Statistics, an IATA publication.
By comparison, the United States claims five carriers on that list, including global expediters FedEx and UPS.
Growing air cargo capabilities are matched by the area’s expanding warehousing and distribution facilities, enhancing Dubai’s reputation as a pivotal transshipment location.
The gem of its emerging logistics facilities is the Dubai Cargo Village, a hub that comprises 82,000 square feet of ground space, with 27,000 square feet allocated for cargo handling and 26,000 square feet for storage. The cargo facility is adjacent to a staging area where four Boeing 747 freighters can be loaded or unloaded simultaneously.
Since the Dubai Cargo Village debuted in 1991, the facility has regularly expanded—it can now accommodate more than 450,000 tons of cargo annually.
While Asian/European trade is a primary factor driving air cargo growth in the Middle East, growing consumerism in cities such as Dubai is also contributing to this freight phenomenon.
“The Middle East today is one of the fastest-growing regions in the world,” observes Jamshed Safdar, senior vice president of marketing for Emirates Shipping Line, a Dubai-based ocean carrier. “This economic boom is primarily driven by oil revenues, as well as organic business growth, which are being reinvested within the region itself.
“Construction, too, has outpaced general growth predictions. This, in turn, has provided increased prosperity to the local populace, resulting in greater consumption and well being,” he adds.
OCEAN FREIGHT: Going the Distance
Growing in tandem with this appetite for consumer goods are trade links with countries such as India and China.
By example, the Middle East is currently India’s top export destination for a burgeoning consumer electronics sector. Exports reached $175 million in 2005-06, an increase of 96 percent over the previous year, according to the Electronics and Computer Software Export Promotion Council (ESC).
As far as growing trade reciprocity with China, 63 percent of respondents to a recent China supplier survey, Middle East Export Opportunities, cited the Middle East as the next “hot” export market for Chinese-manufactured goods.
The report, authored by consultancy Global Sources, polled exporters from mainland China, Hong Kong, and Taiwan to evaluate their current and potential trade activities in the Middle East.
Moreover, the survey’s findings back strong manufacturer support for China government targets to double Middle East trade—set to reach (US) $100 billion in 2010, up from (US) $51.3 billion in 2005. This growth bodes well for UAE’s emerging seaport network.
Currently, it features two ports among the world’s top 50 in terms of container volume, with Dubai ranked ninth (7.6 million TEUs) and Khor Fakkan, on the UAE’s east coast, landing at 47 (1.9 million TEUs).
The development of Free Trade Zones in and around the UAE’s growing port facilities—it now maintains 32—have similarly helped facilitate and expedite foreign trade with China and the United States, and other areas.
Global ocean freight carriers are taking notice of the UAE’s growth as well. Last year, Emirates Shipping Line launched its inaugural sailings, with the Middle East trade lane as the focal point of its development strategy.
Maersk Line, the world’s largest ocean container shipper, credits Middle East business with 10 percent of its total trade volume, according to Marc Gijsbrechts, Maersk CEO for the Middle East.
In 2007, the ocean carrier expects the Middle East to grow faster than any other market in its network and predicts that by 2009 Maersk Middle East alone will handle the same volume that all of Maersk Line handled globally 10 years ago.
One reason for this expected freight volume surge is the Middle East’s increasingly balanced import/export market.
In Dubai, for example, over the past three decades the freight import/export balance has shifted from a ratio of 6:1, to a ratio approaching parity. As of 2004, import volume stood at 618,996 tons of freight versus 522,154 tons of exports, according to the Global Cargo Village.
A balanced overall import/export market in the Middle East—which has primarily been an import-driven surplus market—will require countries and companies to invest in necessary equipment as the market progresses from surplus to deficit.
This trend heralds even greater opportunities for ocean carriers such as Maersk and Emirates that are fast making waves in the region.
3PLs: Alluring Territory
As the region’s infrastructure and service capabilities continue to expand, global 3PLs are following. Their path offers a clue to the emerging transportation and logistics potential of Dubai, the UAE, and the Middle East.
Itasca, Ill.-based SEKO recently set up a regional facility in Dubai to marshal growing air, ocean, and ground operations throughout the UAE.
Following suit, German service provider Schenker entered into a joint venture with Al Naboodah, a locally owned manufacturing and investment company, to better coordinate activities in the Middle East and East Africa.
Dubai is also home to GAC Logistics, a global third-party logistics provider that has played a vital role in the region’s development. With offices throughout the Gulf, its services and facilities have helped provide the logistics and transportation backbone to facilitate industrial and infrastructure development projects in Dubai.
Bill Hill, group vice president of logistics services for GAC, sees Dubai’s logistics potential only expanding, especially with the planned development of Dubai Logistics City and a new cargo airport 25 miles outside Dubai at Jebel Ali.
Both facilities will be part of Dubai World Center, a proposed 87-square mile project that will feature an international airport—with the current combined capacity of London’s Heathrow and Chicago’s O’Hare—as well as a number of sector-specific business offerings including aviation, logistics, commercial, residential, and recreation.
“Development policies such as the Dubai Airport Free Zone, the proposed cargo airport in Jebel Ali, and Dubai Logistics City have made Dubai an appealing site for companies wanting to allocate portions of their global supply chain here,” Hill says.
One major concern surrounding Dubai’s continuing growth, however, is the instability of the Middle East in the wake of the Iraq war, and the continuing threat of global terrorism.
Justifiably, questions about security and safety abound. Yet equally important from a supply chain perspective, transportation and logistics infrastructure development is progressing in spite of, and perhaps as a result of, the ongoing conflict.
“The continued massive inflow of capital and the magnitude of multi-billion-dollar construction projects are ongoing in the Gulf, indicating that the war did not dampen investors’ confidence in the region,” notes Hill.
In addition, the war’s resulting demand for food and services, humanitarian aid, materials for reconstruction, and military logistics remains, giving logistics service providers a role to play in moving essential goods and materials into the region.
These concerns notwithstanding, the UAE’s location and logistics potential are difficult to ignore.
Leveraging on the Emirates’ multi-modal connectivity, companies gain access to a vast geographical area and markets with different demographics. Dubai is a gateway not only to the Gulf Coast countries and Levant, but also to the global market.
A three-hour flight will give a company access to more than two billion people. For global businesses looking to stay ahead of the curve, two billion people is an investment well worth banking the future on.
Emirates SkyCargo Flies With Demand
The Middle East’s flagship airline, Emirates, is pushing its cargo operations full throttle as demand for capacity in the region continues to accelerate.
Emirates SkyCargo recorded strong growth across its entire network during fiscal year 2006-07, carrying a record 1.2 million tons of cargo while surpassing the previous year’s best by 13.5 percent, according to The Emirates Group’s annual report. The Emirates Group comprises Emirates Airline, Dnata, and several other subsidiary companies.
Overall, cargo revenue topped out at $1.5 billion, a 19-percent increase over 2005-06, and contributed 20 percent to the airline’s transport revenue—one of the highest contributions of any airline in the world with a similar fleet.
Dnata, Emirates’ ground handling services arm, similarly matched the carrier’s growth. In its 48th year of operation, Dnata remains at the heart of the rapid traffic growth at Dubai International Airport, handling 535,132 tons of cargo (up six percent) during the 2006-07 fiscal year.
Dnata revenue mirrored cargo growth as gross income ballooned 16.5 percent to $565 million during the period.
Its profits of $98 million represent an increase of 11 percent compared to last year’s $88 million, despite ongoing construction and expansion projects at Dubai Airport.
As a result of this unprecedented growth, Emirates SkyCargo is making considerable investments in its cargo carrying capabilities.
In addition to 10 Boeing 747-8 freighters currently on order, it has signed a lease agreement with TNT Airways for a Boeing 747-400ERF that began operations in May.
It also contracted for another two aircraft from Guggenheim Aviation. These two aircraft are expected to debut in late 2007 and spring 2008, respectively.
In total, Emirates SkyCargo carries freight on 102 aircraft, including nine freighters, to 89 cities globally.