Oil used to be the cash crop of the Middle East but, in recent years, many countries in the region have witnessed extensive investment in airports, seaports, roads and free zones. As a result, a host of logistics, transportation and distribution operators have flocked to the region, increasing trade prospects, fostering additional FDI and making the Middle East increasingly competitive with other emerging global logistics markets.
Logistics, distribution and transportation is big business. Through four business activities – logistics, distribution and transportation; sales, marketing and support; headquarters; and maintenance and servicing – the sector accounted for nearly half of all FDI projects in the Middle East between January 2012 and January 2014, according to data from greenfield investment monitor fDi Markets.
According to fDi Markets, between January 2012 and January 2014, the Middle East's logistics, distribution and transportation sector saw 56 FDI projects weighing in with total capital investment of $62.83m. Some 31 of the projects, or 55.4%, were recorded in 2012. During the two-year period, the top 10% of investors accounted for 19 projects, or 34% of the total number. fDi Markets data indicates that 14% of the projects were expansions, with an average capital investment of $15.1m in such projects.
Companies hailing from Germany were the largest investors in the sector, with 12 projects and $27.2m in capital investment. US companies were the second most prolific investors, accounting for six projects and $14.5m in capital investment.
Seven destination countries – the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, Iraq, Oman and Jordan – accounted for the majority of logistics projects between January 2012 and January 2014. The UAE was the top destination, accounting for more than one-third of all projects (19), while Saudi Arabia was second with 15. Investment into the UAE amounted to $36.7m, with Saudi Arabia receiving $26.1m.
The top destination city was Dubai, with 16 projects, followed by Doha (Qatar), Jeddah (Saudi Arabia), and Manama (Bahrain), each with four projects.
A study by business consultancy Frost & Sullivan indicates that the UAE logistics market should experience consistent annual growth of about 8% to 9% until 2020, when annual revenues are projected to reach $16bn. Dubai, in particular, has created a logistics mega cargo hub anchored by its trade corridor that covers some 200 kilometres. The corridor links Jebel Ali Port, now the sixth largest container port in the world, with the Jebel Ali Free Zone (Jafza) and Dubai World Central (DWC) to form a single custom-bonded free-trade zone.
DWC is the site of Al Maktoum International Airport, which is expected to be the world’s largest airport when it is completed, as well as Dubai Logistics City (DLC), billed as the world’s first truly integrated logistics platform. Meanwhile, Jafza is home to more than 6500 companies, including Choice Logistics, a US-based logistics service provider that opened a parts distribution centre there in July 2013 to serve the entire Middle East.
"We have had a presence in the Middle East for nearly a decade, and that has allowed us to develop valuable relationships and local knowledge in regions where it is not possible to conduct business as an outsider," says Gary Weiss, executive vice-president of global operations at Choice Logistics. "Our new distribution centre in Dubai is yielding immediate savings and service improvements for our fast-growing [number of] clients."
DLC is also attracting a growing number of firms. In February, global contract logistics provider DB Schenker Logistics, a wholly owned subsidiary of Deutsche Bahn, commenced construction on a new logistics centre in DLC. The facility will feature an 8500-square-metre warehouse, which will provide general cargo warehousing, distribution and value-added services such as warehousing temperature-sensitive cargoes and processing automotive and industrial spare parts and fashion items.
"The services offered combined with the optimal location of the facility will enable a smooth and accelerated flow of sea-to-air and air-to-sea cargo transportation, thus facilitating our customers' goods movement in their global supply chain," says Ako Djaf, the regional head of contract logistics at DB Schenker.
Elsewhere in the UAE, FedEx Express, a subsidiary of US global courier delivery firm Federal Express (which already has operations in Jafza), is set to open a 2880-square-metre logistics depot in Abu Dhabi. Located at the Abu Dhabi International Airport, the facility provides enhanced connectivity to the FedEx regional hub in Dubai, and aims to improve service coverage within Abu Dhabi. With the ability to sort up to 3000 packages an hour, the facility has the capacity to significantly increase inbound mail sorting rates.
Qatar plans to spend $130bn on infrastructure improvements in the coming years, as it prepares to host the 2022 football World Cup. Among the projects in the pipeline is a new airport, the New Doha International Airport (NDIA), which will replace Doha International Airport. When fully completed in 2015, NDIA, which encompasses some 22 square kilometres, will be able to handle 50 million passengers, 2 million tonnes of cargo and 320,000 landings and take-offs each year.
In November 2013, Dutch freight forwarding specialist TNT Express opened a new warehouse in Doha’s industrial area. The reason, says Raju Cherian, TNT Express manager, is that Qatar is considered one of the fastest growing markets in the world for the company. “Moreover, the upcoming World Cup is set to continue the country’s growth within the sector,” he says.
TNT Express is also investing more than $13m in a project at Dammam’s King Fahd International Airport in Saudi Arabia, with plans to expand its air and road hub fivefold. When operational in January 2015, the 4800-square-metre sorting and customs clearance facility, which will be housed in a 10,000-square-metre building, will allow TNT Express to offer efficiency and speed, and will connect it to existing facilities throughout the Middle East, Asia and Europe.
Given its potential to develop into a major cost-effective trading and distribution location, Iraq is also attracting a growing level of investment in the logistics sector. In 2013, Atlasjet Havacilik, a subsidiary of Turkey-based tour operator Ersoy Turistik Servisleri, invested in the city of Arbil, by entering into a partnership with Iranian airline Zagros Air.
Deals such as these show that the Middle East is taking positive steps towards great economic diversification, reducing its reliance on its natural resources and establishing a broader base of growth for the future.