As East-West trade flourishes, and governments and investment bodies across the Middle East and north Africa (MENA) continue to expand trade volumes and diversify their economic base, the logistics sector is seeing a clutch of new hubs coming on stream, while demands for all types of transportation are increasing.
According to a report from global real-estate company Jones Lang LaSalle, light industrial/logistics will be one of the best performing sectors in the MENA property market over the next few years. There remains a strong underlying demand for good-quality light industrial and logistics units, and this will be boosted by continued investment in major new transport infrastructure, including seaport, airport and railway projects across Gulf Co-operation Council (GCC) member countries.
Urbanisation and the emergence of mega-corridors, such as the Cairo-Dakar Highway and the GCC Etihad Rail network, are helping foster inter-regional trade, as well as providing new choices for logistics hubs. But as Srinath Manda, programme manager, transportation and logistics practice, at business consulting firm Frost & Sullivan, points out, in most parts of the MENA region, the climate restricts the choice of locations for developing large-scale warehousing projects. He adds: “However, the majority of the governments in this region have either launched or are in the process of developing free-trade warehousing zones that are expected to improve availability of modern warehousing infrastructure in the next five to 10 years.”
Major road-building projects are helping to improve the movement of goods throughout the region. The first road linking Oman and Saudi Arabia is set to open by the end of this year, and will cut through the latter’s ‘Empty Quarter’. It will create opportunities to boost the economic fortunes of Oman’s Dhahirah region, as well as doing away with the need for traffic to pass through the United Arab Emirates, helping to make journeys quicker and reducing paperwork.
Developments in the region’s rail network are helping to shape the face of the logistics industry. Etihad Rail was set up to develop, build and operate the UAE’s national railway network. The network links the country’s industrial centres and also forms a vital part of the planned GCC railway network, linking the six member countries of the GCC.
Etihad Rail has signed a raft of memoranda of understandings (MoUs) to boost use of the railway. For example, it has agreed an MoU with container port business DP World to develop an intermodal rail terminal in Jebel Ali Port; with Abu Dhabi’s Centre of Waste Management, which will integrate the network into its plans to convert waste into energy; and with Sharjah Cement Factory, for the transport of basic raw materials and cement to its customers throughout the UAE. It also has a deal with DHL, which will use the railway once the second stage of the network is operational, boosting connections between Jebel Ali in Dubai and Ghweifat on the Saudi Arabian border, as well as improving links across the rest of the UAE. Another deal with logistics firm Aramex will use the network for deliveries across the UAE and for a crossborder service to other GCC countries; while a deal with Hoyer Global Transport will see the logistics service supplier working with Etihad Rail to develop a bulk liquid transportation system across the UAE that also links to the rest of the GCC.
The International Air Transport Association’s (IATA's) March 2013 figures reveal that there has been a remarkable start to the year for Middle Eastern airlines’ cargo traffic. It says in a press release: “The region has grown 12.4% faster for the year to date compared with the same period last year. In March, capacity was up by 9.1%.” Africa’s cargo markets have also grown during the same period, climbing by 3.2% thanks to strong expansion in regional developing economies.
Instability in the region as a result of the Arab Spring uprisings saw some firms opting to change their shipping locations. However, the mood is more upbeat now, with new routes and vessels being added to shipping services in the region. For example, Med Cross Lines has added another ship to its cargo service to Libya. According to Mr Manda, however, political instability in the MENA region has only partially affected the prospects of the logistics industry. “Except for the nations where there was civil unrest, other nations are progressing with their planned projects in logistics. It is also expected that once stable governments are established in the countries that have witnessed instability, logistics infrastructure development is likely to gain pace.”
“Global factors such as rising production cost in countries such as China and high transport costs have led companies to shorten their distribution and logistics networks to be closer to their end-users,” says Michael Heitmann, national director at Jones Lang LaSalle MENA. “Dubai is a good example: it has established itself as the destination of choice for large corporates due to its strategic location and availability of a comprehensive transport network, which enables it to provide access to large source markets in the region, such as Saudi Arabia and Iran.”
“Dubai is the most prominent logistics hub in the entire MENA region due to its well-established transportation and storage infrastructure represented by Dubai Logistics City, Jebel Ali Port, Al Maktoum International Airport and Jebel Ali Free Zone (Jafza),” says Mr Manda.
Mr Heitmann agrees: “The most important hub in MENA is Jafza, with Jebel Ali Port having handled a total of 13.1 million TEUs [or 20-foot equivalent units – a standard measure of container traffic] in 2011, which is among the top 10 ranking of container ports worldwide.”
IATA spokesman Chris Goater says that Dubai tops air logistics in the region. “Its proximity to the port is key and significant government-led development has added a lot of capacity. Emirates Airlines has an extensive network and is seen as a successful carrier that can reach numerous destinations around the world. What’s more, it’s been successful in attracting a good, skilled, flexible labour force.”
Logistics investors have continued to put their money on Dubai this year. DHL hit the headlines with the construction of its ground operations facility, at a Dh100m ($27m) site in Dubai’s Meydan’s Racecourse district. Covering an area of 17,265 square metres, the new facility includes a 7272-square-metre indoor sorting and loading area and the company’s new 4333-square-metre head office.
“As the region’s economy goes from strength to strength, this new facility marks not only a milestone in the growth of DHL but also of the UAE economy,” says Frank-Uwe Ungerer, country manager for DHL Express UAE. “DHL’s latest investment will help to further consolidate the global connectivity of the UAE by connecting the Middle East to DHL’s global network for at least the next 20 years, and thereby ensuring continued growth through improved transit times and network reliability.”
Saudi Arabia’s Jeddah Islamic Port continues to be a key location for logistics. As Mr Heitmann points out, this is the second busiest hub in the Middle East, handling a total of 4 million TEUs in 2011. In north Africa, Egypt’s Port Said is a key hub for marine transport because of its strategic location near the Suez Canal, through which about 10% of global marine cargo passes.
Other locations are also taking off across the region. Mr Manda says: “Inspired by the success of Dubai, Abu Dhabi has been focusing on transforming itself into a similar logistics hub through projects such as Khalifa Industrial Zone Abu Dhabi [Kizad]. In addition, UAE’s neighbouring countries are trying to develop logistics hubs similar to Dubai’s: Saudi Arabia (with Jeddah and Al Jubail), Oman (with Sohar and Salalah), Kuwait (with Kuwait City) and Qatar (with Doha).”
Mr Heitmann agrees: “Kizad aims to become one of the world’s foremost industrial zones. Khalifa Port opened recently and will have an initial capacity of 2 million TEUs. It is planned to grow over a number of phases to eventually be able to handle up to 15 million TEUs. Kizad is opposite Khalifa Port and strategically halfway between Abu Dhabi and Dubai, and will have a site area of 417 square kilometres.”
Mr Goater believes Qatar is also a location to keep an eye on. “There’s a lot of interest in the new airport in Doha and this will have a completely new cargo facility. Qatar Airway’s network is expanding rapidly and it sees cargo as a very important plank of its investment process,” he says.