The Middle East has seen the development of a number of logistics hubs, each seemingly bigger and more high-tech than the last. Riad Mannan analysis the key elements needed to create a hub and asks if the regions growth can support the mega facilities
The GCC has been blessed by geography. By being at the crossroads of international trade between Europe and Asia, the northern gateway to Africa and the southern gateway to China, it can play an important role in the movement of goods throughout the world. Additionally, the region in itself has several thriving domestic markets that international traders want to deliver goods to. These two factors have inspired the growth of regional and global logistics hubs to be located in the major cities of the GCC.
While the geographic location, providing access to 2 billion people, is an inherent advantage for GCC logistics hubs, organisations setting up hubs have to consider a range of metrics for successful, long term growth.
Not least of these include macro considerations about current and future trade corridors, population growth, emerging trading partners and the growth of e-commerce. These issues cannot be controlled by operations and investors alike but they are key to establishing a hub which will cater for the needs of the industry well into the next century.
Other non-macro (but no less important) considerations revolve around strategic location, local infrastructure, access to air and sea ports, technology enablers, a skilled workforce, warehouse and storage facilities, low taxes and handling charges, efficient custom processes, and the value-add services they can offer in and around the hub.
These considerations will not only determine if the GCC region can host world class integrated logistics hubs, but if they can be competitive and sustainable going forward.
Changing Lanes
The last 30 years have seen dramatic changes in the national economies of the Middle East and beyond. The global population has gone from 5 billion to 7 billion, the value of world merchandise exports rose from $2.03tn to over $19.02tn, trade barriers lowered, cargo movements increased and transport networks expanded. The fall of the Berlin Wall revealed Eastern European countries desperate for modernisation and their peoples in need of modern, quality goods. China rose as an economic superpower and Asian Tiger economies also emerged as viable marketplaces. African countries came into the global economy with growing needs for goods and services. Industrialisation, modernisation, urbanisation and globalisation occurred.
Despite the recent recession, the long term view indicates that the global economy has improved in the last 30 years and that has led to an increase in the movement of raw materials and finished products rising exports and imports. These changes have driven the supply chain and logistics market over that period and the Middle East, led by the UAE, has become one of the most important hubs in the ensuing changing global trading lanes. The region played to its strength as a strategic location in the middle of trade routes and developed space to enable the handling of goods at sea and airports.
Over the last 30 years also the region itself has grown from a rural landscape to a city scape, with a large middle class population and increased spending on critical infrastructure, schools, hospitals and oil and gas projects all of which required an increase in the transportation of goods into and around the region driving the domestic logistic market.
Manufacturers set up their regional headquarters and distribution facilities around the region, attracted by the improving transportation links, modern facilities and skilled workforce. Companies specialising in logistics, transportation, freight handling, warehousing, packaging and supply chain management set up their businesses in the region to meet demands. In recent years, governments across the region have set up Free Zones with in-built logistics infrastructure, providing competitive reasons for using the air and seaports as stopovers for the transportation of goods globally, reducing the time to customers and making it more cost effective. The concept of logistics hubs was born.
Growth of regional logistics hubs and spokes
The current logistics market is huge. With a market value surpassing $4tn, the size of air and sea cargo shipments have significantly increased over the past few years. Logistics, as an industry, is playing an increasing role in a region determined to diversify from oil and gas revenues as demonstrated by the logistics sector contributing around 14% of the UAEs GDP and around 7% of Bahrains GDP.
As an example of increasing growth, the Jebel Ali Free Zone (Jafza), the flagship free zone entity of Dubai posted 2.2 million metric tonnes (MT) trade volume in 2014 as against 1.9 million MT in 2013. The Top 120 World Container Ports ranking listed Khalifa Port Container Terminal in Abu Dhabi as the third fastest growing container port in the world and the fastest growing port in the Middle East, based on its 26% volume growth in 2014 compared with 2013.
Mega events such as the Expo Dubai 2020 and World Cup in Qatar will continue to present tremendous opportunities for the logistics sector and call for logistics hubs to be developed around the region.
It is important to note that there are several kinds of logistics hubs ones that cater for global trade, ones that cater for regional and inter-regional trade and ones that only cater for logistics demands of a specific verticals like oil and gas, retail or manufacturing. They also vary in size and capacity handling facilities from small to global standards.
Even though GCC governments have already, and continue to, pave the way for interconnected transport links and facilities to create logistics hubs around the region, there are some key elements to creating a highly efficient logistics hub.
Location, location, location
One of the most critical success factors for any logistics hub is the strategic location of it. This may be an obvious statement, but they need to be located as close as possible to airports, seaports, quality road networks and railway terminals.
Global hubs need to be located close to high-quality transport links like Al Maktoum or Doha International airports and sea ports like Jebil Ali and King Abdulla Economic City as well as good road networks. For example the recent decision by Al Futtaim Group to build a logistics and distribution facility at the King Abdullah Economic City is predicated on the fact that it is on the Red Sea coast – not only offering expansion into Saudi Arabia and the wider GCC via road networks but to international destinations via the sea port.
Whilst currently there are only a few locations around the region that can handle global bulk cargo movements through a logistics hub, as new airports and sea ports are built and developed, more options will become available.
Abu Dhabi Ports is the master developer, operator and manager of ports and Khalifa Industrial Zone (Kizad) in the UAE, and its ten non-oil ports. Kizad has helped Abu Dhabi to develop itself as one of the premier logistic hubs in the region.
Captain Mohamed Juma Al Shamisi, CEO at Abu Dhabi Ports says: Kizad, the integrated trade and industrial hub of Abu Dhabi, is located adjacent to Khalifa Port one of the most technologically advanced ports in the world and the first semi-automated container port in the region.
In Dubai, logistics has become one of the most important industries in Jafza due to its strategic location between the Jebel Ali Port and Al Maktoum International Airport. Jafza is home to 294 companies from 28 countries that mainly reach the Middle East and Africa region, West Asia, CIS and Indian Subcontinent. To reinforce this, HE Sultan Ahmed Bin Sulayem, chairperson of DP World and of the Ports, Customs and Free Zone Corporation (PCFC) said at a recent forum held for JAFZA customers: The transport and logistics sector in the UAE is supported by its strategic location, infrastructure of global standards and the absence of bureaucratic procedures. These factors have played a crucial role in the development of this sector.
Add to this mix the planned 2,100km GCC railway. Even though the current construction delays mean that freight operations could be some years away, the railway will eventually link existing air and seaports to currently under-utilised sites across the region providing even more location options for hub operators.
The planned railway linking GCC network is also expected to add a new dimension to regional transport network. This will have a strong impact on the existing players in the logistics sector. The interconnectivity with Saudi Arabia, the largest market, with ease of online customs processing and competitive pricing with high frequency sea and air services, make Jafza a natural logistics hub, Bin Sulayem added.
Regional hubs have the advantage of not needing to be close to international transport hubs but at the same time they do need to be close to reliable corridors that cater to the local marketplace. This may mean more land-based transport via a local or regional road network and smaller regional airports. Vertical hubs, be they global or regional, also have to be closer to their centres of delivery, i.e. near oil and gas centre or retail manufacturing centres.
Creating modern facilities for clients
A related consideration to the location of the hub is the existing and future logistics infrastructure and state-of-the-art facilities. In order to entice companies to invest in and use the logistics hub, operators need to provide value-add functionality which caters to the long-term demands of clients. In addition to the basic cargo handling capabilities, this may also include enough land to grow the hub, chilled storage, warehouse, bulk handling facilities, distribution centres and residential and related service buildings for retail, banking and even healthcare facilities.
The Industrial Valley within the King Abdullah Economic City (KAEC) is one of the fastest growing logistics and manufacturing hubs in the Middle East, offering a wide range of plot sizes ranging from 5,000 sqm to 500,000 sqm and a dedicated area specifically planned to meet the needs of the logistics industry. The Industrial Valley has already attracted a number of major logistics tenants including third-party logistics companies such as Aramex. Tenants are attracted by the citys ability to offer a comprehensive, tailor-made solution including flexible plot size and share, commercial office space, worker and executive accommodation and talent support.
The fact that the city is also able to offer a comprehensive array of residential accommodation options is a key differentiator. KAEC can provide accommodation for every budget, from worker accommodation in The Village through to entry-level homes in al Shurooq and Al Waha and executive accommodation in the Al Talah Gardens, Al Murooj and Bay La Sun communities. The city also has world class education, professional and executive development facilities and state of the art healthcare to make the city a complete environment to live, work and play.
Therefore, whilst location is a key factor, the facilities offered at a logistics hub is no less important. Providing end-to-end, value-added supply chain capabilities which imbued norms of a business hub can make the logistic hub very attractive to customers.
Custom and service centres
Another important element of any successful logistics hub are the services offered, particularly the customs clearance and brokerage services which facilitate smooth cargo flows. As logistics customers place ever more complex demands, hub operators need to respond, in collaboration with customs authorities, with services that reduce transport time whilst easing business transactions and lowering costs.
Dubai Customs recently called for streamlined trade corridors across the region which would allow trucks to move without barriers but still ensure security and stop illegal trade. Essential to this is the cooperation between customs and non-customs organisations to streamline formalities and utilise technology to share information across borders to allow for control and inspection.
King Abdullah Port offers a Smart Gate system, integrated with the Port Community system and the Terminal Gate systems to improve operational efficiency Port. The Smart Gate system is also integrated with security and operational processes, creating a more efficient interface between King Abdullah Port gate operations and government bodies such as Customs and Coast Guard.
The Smart Gate system automates security functions, authenticating the identity of the driver, vehicle and cargo, reducing or eliminating the need for human intervention. It also significantly reduces the time needed to handle trucks at the Port gate and speeds up turnaround time in the Port, helping the terminal operator improve productivity.
The integrated services of Khalifa Port and Kizad also offer great opportunities, and long-term competitive commercial advantages, including exceptional supply chain efficiencies to the clients. The access to markets, world-class infrastructure and dedicated investor support offered by Kizad, have already attracted investors from across the globe.
Al Shamisi comments: The industrial zone has the capability and facilities to host the technologically advanced projects and many businesses have already utilised this opportunity. Abu Dhabi Ports collaboration with Abu Dhabi Customs ensures smooth customs clearance for cargo at all ports. Looking at upcoming plans, it has the potential to meet future demands of the industrial and logistics sectors in the Emirate.
Innovation and state-of-the-art technology
In addition to the location, physical infrastructure, facilities and services offered, a logistics hub eco-system must also have strong ICT (information, communications and technology) infrastructure. This should be future-proofed as much as possible as the flow of mission critical information and the speed of hub through-put is a key success factor for many clients. Moreover as the traditional supply chain becomes the e-supply chain, so the logistics hubs will have to become e-logistics hubs. As such, the use of technology will become a key differentiator for hubs competing for customers.
A robust network of wireless, fibre cables, hardware and software will need to be in place to enable the sharing of information on an instantaneous basis. Technologies used to optimise the warehouse and transportation management systems within and with-out the logistics hubs will become the norm. In an ever increasing global logistics marketplace, innovative cloud-based technologies will be a game changer for operators and customers alike one has to invest in it so that the other can take advantage of it.
Solutions which provide greater transparency of cargo movements in real-time and allow hub operators to optimise traffic and goods throughput will continue to drive hub innovations. For example, smart x-ray applications must be in place to enable the examination and inspection of cargo and container through-put with the least amount of disruption and delay. Indeed, hub operators can use automated processes to provide customers with customised solutions creating efficiencies within the hub and reducing the waiting times for cargo and therefore speeding up through-put, reducing costs at the same time.
The King Abdullah Port Community System is an open electronic platform that enables intelligent and secure exchange of information. Operators can use the Port Community system to book container pickup/delivery appointments, connecting with the Smart Gate system to save time and increase efficiency.
Fully mobile enabled, the system allows users to access information on a wide range of operational data including vessel movements, information on hazardous cargo, container status and consignment events among others.
For Abu Dhabi Ports, Al Shamisi comments: We have prioritised innovation, the deployment of advanced port technology, and well-planned expansion of infrastructure to keep up with the rising throughput at all our ports. We have ensured that our innovative systems would always keep pace with the fast growing trade volumes.
Maqta Gateway the first purpose built Port Community System (PCS) in the Emirates developed by Abu Dhabi Ports, will transform the port operations. The system offers shipping lines, shipping agents, customs agents, terminal operators and other government agencies a single point-of-access and real-time information across a wide range of services. With the beginning of initial trial operations following the successful completion of Stage-1 of the overall project development, Maqta Gateway will start full operations from this year.
The implementation of Jades terminal operating system, Master Terminal, is set to bring productivity gains of 15 to 20%. Already implemented at Zayed Port, Khalifa Port and Musaffah Port, the new system will be deployed in five of Abu Dhabis ports providing more accurate cargo information before vessel arrival to plan operations well in advance.
Container stacking is another area of innovation that can increase capacity. The overall stacking capacity at Khalifa Ports container yard for example is expected to increase by 40%.
Future drivers: e-Commerce
As the global and regional retail consumer leads the way to buying more items online, so the companies involved in fulfilment will be charged with having efficient processes to deliver on-time. This is true not only for the retailer and logistics companies involved but for the logistics hubs themselves, who will play an important role in bridging the first and final miles.
According to eMarketer, global e-commerce trade is around $1.5tn and is expected to grow exponentially over the next few years with more mobile and tablet purchases going forward. The GCC region will play an important part in that growth. While the majority of those online purchases are for items like tickets for flights, concerts and accommodation, there is increasing use of the internet to buy physical items like clothes, bulk stationary and even furniture. The logistics hubs have to modify their offerings in the warehouse and distribution capabilities to match this growing demand for e-commerce packages.
As Bin Sulayem stated at the forum: The logistics industry is rich with new opportunities and a promising future in the long-term due to the increasing intra-regional trade and the spread of e-commerce. We attribute this to the incentives and services that Jafza provides; most notably the Logistics Corridor which links sea, land and air. The corridor links Jafza with Jebel Ali Port and Al Maktoum International Airport; thus supporting companies in shipping goods between the port and the airport in record time.
Increasing competition
Different logistics hubs around the GCC are competing to offer cost-effective, fast and reliable options to regional and global customers. The rise of multi-modal global hubs where all of the above elements come together and provide customers with an integrated approach to the movement of large cargo and small packages will increase competition throughout the region. The national and vertical hubs will also face increased competition to provide logistics solutions to an ever demanding customer delivering goods across the region.
King Abdullah Port is already one of the largest facilities on the Red Sea, with a capacity of 3 million TEUs (Twenty Foot Equivalent Units). By the end of the 2016 the port will have a container capacity of 4.5 million TEUs, a ro-ro capacity of 300,000 CEUs and a bulk capacity of 3 million tons, making it a logistics port for container and vehicle freight into the Kingdom and the wider GCC.
There are several who are well placed to fulfil the role and more are coming on stream. There have been suggestions that the GCC cant host many more major logistics hubs, but as long as there is global trade and e-commerce, there will always be a need for hubs that can provide efficient handling of cargo.