S Report: Logistics mega-projects in the spotlight

Governments throughout the GCC are continuing to invest heavily in the improvement of their various logistics and transportation facilities, particularly those utilised by the oil and gas sector

The development of logistics projects relies on continued growth in freight volumes.
The development of logistics projects relies on continued growth in freight volumes.

In recent years, vast sums of money have been invested in the transport infrastructure by governments right across the Middle East, in an attempt to diversify their oil- and gas-dependent economies.

A recent example is the King Abdullah Economic City Port in Saudi Arabia, which began operating in January 2014. The port has a capacity of 1.3mn 20ft-equivalent units (TEUs), which is expected to rise to 4mn TEUs by 2016, 7mn by 2018 and, ultimately, 20mn. As 25% of the world’s trade passes through the Red Sea on the way to the Suez Canal, the developer, Emaar Economic City, hopes that the port will turn into a global hub, in the same way as the ports in Dubai or Abu Dhabi have in the Gulf.

Other multi-modal hub developments in the region include the $14bn development of the port of Sohar, Oman, in conjunction with a new airport at Muscat, and the 2mn TEUs Doha seaport in Qatar, which complements cargo operations at the new Hamad International Airport.

In the UAE, DP World’s new terminal in Jebel Ali will add a further 4mn TEUs, at the same time as the development of the Dubai World Central Al Maktoum International Airport (DWC) and the expansion of Dubai International Airport (DXB). Additionally, Khalifa Bin Salman Port has been completed adjacent to the Kizad trade zone and Abu Dhabi International Airport.

However, the development of so many logistics projects is not without risk, as they rely on continued growth in freight volumes. Many of the forecasts were made during the mid–2000s, when global trade was booming and, with demand falling away, the Qatari authorities have announced that Phase 1 of the Doha seaport project will open with just half its capacity being used. To utilise all its planned capacity by 2030, direct volumes would have to grow at 15% a year, according to Transport Intelligence (Ti), which is one of the world’s leading providers of expert research and analysis dedicated to the global logistics industry.

Last year, DP World’s port volumes in the UAE rose by just 2.7%. In Oman, the volume of cargo handled by Port of Salalah grew by 6.5% and that of Port Sultan Qaboos by 5.5%. In air freight, cargo volumes in Doha rose by 4.7%, followed by Dubai International Airport with a 6.8% rise, and Abu Dhabi’s airport saw an unusual surge in cargo of almost a quarter, according to Ti.

Furthermore, these growth figures may not be wholly new business, created by attracting volumes to the region, but rather a result of cannibalisation, with the mega-hubs of Dubai and Abu Dhabi coming at the expense of smaller port and airport locations like Fujairah and Sharjah.

However, the foundations are strong. To diversify from being just a refuelling point for air freight carriers and shipping lines, the Middle East has created hub and spoke operations, offering many advantages, such as free trade zones, open sky policies, easy customs procedures, and a lack of corruption.

The Gulf countries’ advantage in transport and logistics assets led to the increase in popularity of sea-to-air products – consignments that start off as sea freight are offloaded in the Middle East and then shipped by air to a final destination, mainly in Europe.

A lack of air cargo capacity out of India meant that shippers could more easily move goods by sea to a major port such as Dubai, and then air freight the goods to Europe. The imbalance of air cargo flows into the Middle East, which left air carriers looking for back-loads to Europe, supported the sea-to-air product and resulted in a reduction in transit time of a week or more. Today, Dubai International has 56 truck docks for import, export and perishable cargo, with seven dedicated to sea-to-air traffic. Both Dubai’s airports are integrated with the main sea ports of Port Rashid and Jebel Ali.

International manufacturers are increasingly turning to Dubai as a base for their distribution facilities at hubs such as the Jebel Ali Free Zone. Companies are increasingly basing their distribution operations in the Gulf due to its business-friendly attitude, a fact that was borne out by the 2014 Agility Emerging Market Logistics Index. The report concluded that, in terms of market compatibility, which measures how favourable conditions are for business and trade, Qatar, the UAE, Oman, Saudi Arabia, Kuwait, and Jordan dominated. When it came to connectedness, meanwhile, which measures the quality of the transport infrastructure, the report’s top 10 included the UAE, Oman, Saudi Arabia, Bahrain and Qatar.

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