Emerging threat to the UAE's logistics hubs
The United Arab Emirates (UAE), the second-largest economy after Saudi Arabia in terms of Gross Domestic Product amongst the Gulf Cooperation Council (GCC) nations, is a dominant provider to the global energy market with its rich oil reserve base.
Driven by the visionary efforts of one of its emirates, Dubai, the UAE has embarked upon several pioneering efforts to develop the nation into a prime logistics hub in the Middle East. Prominent among them are creation of the region’s first free trade zone - Jebel Ali Free Zone (JAFZA), most sophisticated sea port - Jebel Ali Port, and state-of-the-art cargo transhipment airport - Al Maktoum International Airport. Dubai’s traditional links with the nearby Gulf States, the Red Sea, East Africa, and the Indian sub-continent have enhanced the success of these ambitious projects.
Furthermore, with other Emirates like Abu Dhabi and Ras Al Khaimah following Dubai’s lead of focused development of world-class logistics infrastructure, the UAE has emerged as the preferred logistics hub in the Middle East.
Emerging Alternative Logistics Hubs in the Gulf
Inspired by the success of the UAE the other GCC countries have started developing their own logistics infrastructure facilities to emerge as alternative regional hubs, which could pose as a threat to the UAE’s position.
Saudi Arabia, the largest nation in the Gulf by area, population, and economy, has also realised the importance of industrial activity and transportation infrastructure in a country’s prosperity, and is actively promoting development of industrial zones. The expansion of capabilities of important sea ports like Jeddah, Al Jubail, and Dammam, and the enhancement of important airport capacities of Jeddah, Riyadh and Dammam have improved the overall logistics infrastructure in the country. Saudi Arabia has also taken the lead over its neighbouring countries in developing a nation-wide rail network for cargo movement through ongoing projects like Saudi Landbridge and the North- South Line.
Oman, area-wise the second-largest nation in the GCC, is strategically located at the mouth of the Gulf, surrounded by the Arabian Sea in the East and the Persian Gulf in the Northwest. It houses the biggest infrastructure of ports in the Middle East. Similar to the UAE, Oman has focused on world-class free trade zones in the form of the Sohar Free Zone, the Salalah Free Zone, the Al Mazyounah Free Zone, (which is another upcoming free zone), and industrial hubs at the Duqm port. With its ports on both the Gulf of Oman and the Arabian Sea, Oman offers immense opportunities as the major junction for emerging international trade and commerce between the Eastern and Western hemispheres, thereby proving to be a major threat to the UAE’s position.
Qatar has a rapidly-growing economy, owing to its rich gas reserves, and is also actively developing world-class logistics infrastructure. It has a free zone at the Doha International Airport and has formulated plans to establish two more free zones — one in close proximity to the Mesaieed Industrial City (MIC) and another that is expected to cater to the transport and manufacturing industries. Specialised industrial activity and warehousing zones in the country is led by ‘Logistics Village Qatar’, which is spread across one million square metres. Qatar is located midway along the Arabian Gulf with easy connectivity and proximity to Saudi Arabia, Bahrain, and Kuwait, as well as Iraq, and a major part of Iran. This proximity, coupled with initiatives for developing an integrated logistics infrastructure, could turn Qatar into a viable alternative logistics hub within the GCC.
Kuwait is also one of the leading oil and gas exporters in the GCC, along with Saudi Arabia and the UAE, apart from being the third-largest economy within the GCC. Kuwait has three major sea ports: Shuaiba, Shuwaikh, and Doha; and a commercial airport: Kuwait International Airport (KIA). Kuwait also has a free trade zone named Kuwait Free Trade Zone (KFTZ) located in Shuwaikh, close to Kuwait City. KFTZ offers less than 10 minutes access to Shuwaikh Sea Port and KIA, proving to be a viable option for ship-to-air consignments from Asia or the GCC to Europe and the Americas. Kuwait is also developing an additional modern port at Bubiyan. With its focus on developing an integrated industrial and logistics zone around KFTZ, Kuwait is expected to emulate Dubai’s success.
Implications of Emerging Alternative Logistics Hubs on the UAE
The development of free trade zones and industrial cities in neighbouring nations is expected to reduce the number of companies choosing the UAE (especially Dubai) as the hub of their operations. Regional logistics hubs, such as the ones in Saudi Arabia and Kuwait, pose a threat to JAFZA in the quest to be the premier logistics hub.
Amongst all the neighbouring countries developing competing logistics infrastructure, the UAE is likely to be impacted most, owing to to major developments in Saudi Arabia followed by Oman. Saudi Arabia offers an impressive domestic market within the GCC, along with land connectivity to more nations than the UAE. With key sea ports and airports on the Persian Gulf, as well as the fact that the Suez Canal is one of the world’s key trade lanes, Saudi Arabia offers many options for developing logistics hubs to serve the GCC nations as well as the larger Arab world.
Oman is also in a more geographically advantageous position than the UAE, being the only country within the GCC to have close access to the Indian sub-continent, China, and the African continent. With its boundaries extending from the Gulf of Oman to the Arabian Sea, and key ports with integrated industrial zones on both these sides, Oman has emerged as a reliable alternative transhipment and re-export hub for the GCC, South Asia, and Africa. Above all, using Oman as a transhipment hub within the GCC saves at least two days of travel time and associated fuel costs for shipping lines, which could prove to be a key factor in the success of its logistics sector.
Initiatives by Qatar and Kuwait have enabled them to fulfil respective domestic logistics management needs and reduce their reliance on the UAE for transhipment, packing, and distribution within their domestic markets. With integrated logistics infrastructure projects similar to Dubai, both these nations have also been able to acquire some part of international transhipment trade volumes from the UAE.
Also, due to rapid growth in the real estate market and scarcity of land, the UAE has turned into a costly location for operations. Relatively high rents and costs of operation, including wages, adversely affect Dubai’s standing as a transport and logistics hub, thus eroding some of its attractiveness in several industry sectors.
Impact: Options for the UAE
The UAE has attained its current status as a/the premier logistics hub in the Middle East due to its pioneering efforts in the sector. Now that multiple neighbouring countries are also trying to emulate its efforts, the UAE should focus on pioneering efforts to retain its leadership. In addition, Frost & Sullivan recommends that the UAE needs to focus on reducing the cost of operation for companies in the country.
Apart from improving the capacities and integration of existing infrastructure, the UAE should rapidly develop facilities and, if possible, additional logistics hubs that complement the existing infrastructure. Large-scale infrastructure projects including Dubai Logistics Corridor, Dubai Logistics City, enhancing of Jebel Ali Port and JAFZA, Dubai World Central, and the prestigious, ground-breaking Al Maktoum International Airport, among others, are expected to retain Dubai’s (as well as the UAE’s) position as the dominant logistics hub. The new Al Maktoum International Airport promises a less than four-hour transfer time from off-loading a ship to boarding an aircraft. Dubai Logistics City is delivering a dream concept of an integrated logistics platform, as it seamlessly integrates with the new international airport in Jebel Ali and the existing Jebel Ali Port and Free Zone for air and ocean transport infrastructure.
Plans for Etihad Rail to connect with Jebel Ali Port with JAFZA, Dubai Logistics City, and Al Maktoum Airport is another significant pioneering initiative by the UAE. With inclusion of rail service into its integrated transportation network, the country is likely to gain a significant first mover competitive advantage even in the multimodal logistics market within the region.
Logistics industry experts in the region observing the emergence of alternative logistics hubs in the GCC suggest the UAE should implement the following measures to retain cost efficiencies for companies operating from its territory, and thereby retain its leadership in the GCC: reduction of airport landing/parking charges in order to stay ahead; reduction of seaport dues, in order to remain competitive; remove land premium and quit rentals for companies leasing land in free trade zones; reduce land cost near sea and airport areas, and extend land tenure without additional premiums; introduce special incentives that allow trusted logistics companies to break-bulk (that is, deconsolidate both local and transhipment cargo) close to their own factory premises outside the free trade zone; allow pre-clearance of cargo: in some countries, this facility is allowed only to air express companies. This facility should also be extended to other logistics companies; liberalise policy on regulation of labour.
Frost & Sullivan believes that the ongoing development of logistics hubs in the region does not yet pose a major threat for UAE in the short to medium term. However, to retain its leadership in logistics, in addition to the progress it has made in enhancing its logistics infrastructure, the UAE is recommended to ensure cost efficiencies for companies to continue using its ports and free zones as their base of logistics operations. It is also imperative for facilities like JAFZA to continually upgrade its facilities and be cost-efficient.