Bridge from Bahrain

With the rising cost of business in the Middle East's traditional logistics hubs, could Bahrain provide a low-cost alternative for firms targeting the Upper Gulf region.
FAST FORWARD: GOP assistant director general Hamad Fakhro says the zone already has plans to grow.
FAST FORWARD: GOP assistant director general Hamad Fakhro says the zone already has plans to grow.

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With the rising cost of business in the Middle East's traditional logistics hubs, could Bahrain provide a low-cost alternative for firms targeting the Upper Gulf region.

Delegations from the new logistics zone in Bahrain have been appearing at all four corners of the globe in a bid to attract investments from the leading players of the industry. The new development is being marketed as a small "boutique" logistics zone that caters to the specialist market of the Upper Gulf.

Applications for tenancy opened in May this year and within just a few months the authority found itself five times oversubscribed. As a result of the exceptional level of demand, the operator, Bahrain's state-owned General Organisation of Seaports (GOP), announced that the zone could be increased by 150%. Experts believe that the expansion will trigger direct investments worth up to US$600 million.

 Bahrain has the chance to become the entry port of choice for firms doing business in Saudi Arabia.

"Bahrain Logistics Zone (BLZ) already has plans for a future expansion of 1.5km²," says Hamad Fakhro, assistant director general, GOP. "The unparalleled demand from local and international companies has strongly indicated BLZ is heading in the right direction.

With the expansion plans in place, we aim to efficiently bridge the gap between current levels of demand and supply for warehouse facilities aimed at the logistics sector."

The free zone will be adjacent to the ambitious new Khalifa Bin Salman (KBS) port in the Hidd region, north of the country. Costing $530 million, the port will be privately operated by a partnership between APM Terminals and YBA Kanoo Group. And within just 5km of the port is Bahrain International Airport, with its accompanying free zone.

"BLZ offers numerous advantages in comparison to other zones serving the Gulf market. It is crucial to highlight BLZ's location and its close proximity to the new KBS port, which has an estimated initial container capacity of 1.1 million twenty foot equivalent units (TEUs), with plans already in place to expand capacity up to around 2.5 million TEUs," says Fakhro.

"One of the great advantages of BLZ is that it is a multimodal logistics hub, providing easy strategic access to a number of crucial transport routes, including Bahrain's causeway link to Saudi Arabia, the proposed road link to Qatar, and other important links throughout the world from Bahrain International Airport. Thus, transit time for cargo delivered to the Upper Gulf will be significantly reduced," he adds.

Indeed, it is the Upper Gulf market - consisiting of Saudi Arabia, Qatar, Iran and Kuwait - that BLZ will be targeting. This means that the project is unlikely to compete head to head with the UAE's Jebel Ali Port as a new regional transhipment hub.

"Most companies are not seeing Bahrain as an alternative hub, but as a complementary hub to their existing operations in the Lower Gulf," says Mauricio Zuazua, a partner with consultant firm AT Kearney, which is working closely with GOP to develop a strategic plan for BLZ.

This is certainly true of DHL, which in 1976 established its first regional hub in Bahrain. Despite shifting its central operations more towards Dubai in recent years, the company was the first to be granted space in BLZ for its freight forwarding arm, Danzas AEI.

"DHL does not expect that BLZ will become a rival to Jebel Ali, as Bahrain is clearly positioning itself as a boutique-style free zone and will therefore not compete directly with its UAE counterpart," says DHL country manager Jonathan Johnston. "We will continue to invest in expanding our presence in the region with infrastructure developments at Dubai Logistics City and Dubai Cargo Village, as well as growing our existing footprint in Jebel Ali," he adds.

Bahrain currently ranks 36 on the World Bank's Global Logistics Index, several rungs lower than the UAE's impressive ranking of 20. But the fact that BLZ is a small operation compared to other projects in the region and is located in a country that has not yet truly established itself as a logistics hub, may mean that it will take time to establish its name.

"The Middle East is geographically well positioned to be a major logistics hub," says Cedwyn Fernandes, a leading supply chain academic. "However, it's not all about location and a successful logistics hub requires state-of the-art multimodal facilities, a friendly business environment and a skilled labour force.

Based on these criteria, Bahrain has great potential to become a major logistics hub and the state also has the chance to become the entry port of choice for firms doing business in Saudi Arabia - the largest consumer market in the region.

What may constrain BLZ are the economies of scale and scope that have a substantial impact on companies opting to use Bahrain as a logistics hub for their operations," adds Fernandes.

"Dubai Logistics City definitely has a headstart and once companies have made decisions to locate at a particular hub they will be reluctant to move in the short run. The Bahrain logistics hub may need to focus on specific industries and thus create economies of scale and scope for that selected industry group.

Around 50% of all the goods that are shipped into the UAE are destined for Saudi Arabia. The causeway directly to the Kingdom gives Bahrain a unique advantage over the UAE in terms of transit times. By comparison, trucks visiting the UAE-Saudi border can often be delayed for a period of days as a result of the heavy levels of traffic.

Johnston believes that BLZ will provide unique benefits for DHL, not least because it offers more economical mothership journeys to a more attractive transhipment point.

We believe that the location of the logistics zone in Bahrain may provide an improved feeder vessel service to the Upper Gulf countries. In addition, the establishment of this facility is likely to attract further foreign investment, given the geographical position of Bahrain within the Middle East and the appealing business environment," he says.

The project will provide many benefits for DHL, including the opportunity to have our own container freight station on site. It also allows us to be closer to customs and port authorities, enabling streamlined processes for clearanceof goods in and out of Bahrain, and will also act as a gateway to Saudi Arabia. Furthermore, we will also have more warehouse space, allowing us to attract 3PL customers." 

Since Danzas became the "anchor tenant", signing a MoU with GOP in April, the only other applicant to be confirmed has been CEVA, which recently announced investments worth $800 million in the Middle East region.

Included in that package is the lease on a 10,000m² plot of land, which will be developed in partnership with United Holding Group.

According to Middle East director Shamsudeen Ahmed, BLZ has been targeted as a place where the company can diversify into oil and gas logistics. "Bahrain is an important platform for logistics operations to and from the northern Gulf, especially for the oil and gas sectors, and our presence at BLZ  will allow us to further expand our regional operations and service clients more effectively," he remarks.

Amongst other companies to base facilities in the Kingdom, although not in the logistics zone, are Span Group and Aramex. Aramex's new facility is located in the Bahrain International Airport Free Zone.

Hussein Hachem, CEO for the Middle East region, explains that the facility was there to ensure Aramex meets the demands of an increasingly competitive market. "We are committed to providing our customers in Bahrain with the most efficient distribution network possible, one that is supported by worldclass infrastructure," he states.

The GOP is offering 20-year leases on plot sizes at BLZ ranging from 2000m² upwards. Also on offer are fully built warehouses, which will be rented at a monthly rate of $13.40-$32 per square metre.

While rents are soaring in Dubai, other areas in the Gulf are already exploring the development and operation of free zone complexes," says Fakhro. "In addition, some countries, such as Bahrain, have already taken the necessary steps to improve their logistics infrastructure and ports of entry.

The GOP has spared no expense in attracting what it calls the "right tenants". In June, delegations from BLZ attended an annual 3PL summit in Atlanta and a transport logistics expo in the Chinese city of Shanghai.

The government has invested over $2.9 billion in logistics infrastructure in the country and it seems clear that the biggest players are likely to win pride of place. It is believed that only 20 local companies will be accepted as tenants.

"The BLZ is part of a series of investments that the government of Bahrain is making to expand its logistics industry," says AT Kearney's Zuazua. "As a result, the GOP wanted to ensure sustainable logistics businesses whose business plan fits with this charter are allowed. Companies are chosen to be part of BLZ based on maximising export activities, job creation, investment, and ensuring logistics value-added activities, among other criteria."

It is clear that the development will bring massive benefits to the Kingdom's economy. Aside from the $600 million that will be generated from foreign direct investment, BLZ is also expected to generate 2400 medium to high-wage jobs. Moreover, it is believed that many other companies will be drawn to the Kingdom as a result of the improved logistics infrastructure and the attractive business prospects for the future.

Whatever happens, Bahrain will be in a position to glean some highly significant benefits from the booming regional logistics industry.

"The Arabian Gulf's economy is undoubtedly growing at a significant rate. The property and construction sectors, among many others, are achieving an all-time high. Businesses are growing and so are their needs for logistics and freight forwarding activities. Thus, local organisations operating in the logistics sector are facing a significant demand for warehousing needs," concludes Fakhro.

"Bahrain is no exception to this accelerated growth. With the support of its forward-thinking government and the private sector, Bahrain is certainly ready to face future challenges.
 

DHL

DHL opened business in Bahrain in 1976 and, at the time, was the only operator of its kind in the Middle East. Since then it has received significant support from the government as a result of the contribution it has made to the local economy and employment sector.

The company operates a fleet of 17 aircraft based at Bahrain International Airport through its regional aviation office for Eastern Europe, Middle East and Africa (EEMEA).

As well as investing in BLZ, the company will continue to expand its presence in the Middle East with infrastructure developments at the Dubai Logistics City and Dubai Cargo Village, and through growing its existing footprint in Jebel Ali. DHL is also investing in a state-of-the-art air integrated hub facility at the new Al Maktoum International Airport.

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