Resilience keeps UAE's logistics sector active

While the global economic slowdown rattled the logistics and freight-forwarding sector, it was a different story in the GCC, and especially in the UAE.

For the global logistics industry, the year 2009 is best forgotten. The slump in global sea as well as air trade, thanks to the economic slowdown not experienced in the last 60 years, weighed heavily on the logistics, supply chain, freight forwarding and express service providers. Erosion in revenue, shrinking customer base, employees layoffs, and above all, significant drop in the demand for their services hit them hard, with smaller companies being impacted most severely.

But being a trade hub, apart from its strategic location between the West and the East, proved to be a strength for the GCC, and especially the UAE. That saved it from the debilitating effects of the global downturn to a large extent, the logistics sector being no exception.

"Although relatively small in terms of revenues, the GCC has exhibited the fastest growth rates in the world over the past three years. The huge levels of investment in the region in terms of air and sea infrastructure, combined with the buoyant oil and gas industries, have seen the industry weather the economic storm comparatively well," said John Manners-Bell, Chief Executive, Transport Intelligence, a London-based research and analysis firm on the logistics industry.

"The region saw the sea freight forwarding industry fall in size by 10.6 per cent in the first half of 2009, compared with a global decrease of 32 per cent. Airfreight was less affected with a downturn of three per cent, compared with a global figure of 28 per cent," he said.

According to Airports Council International's latest figure for October, the Middle East topped global airfreight traffic growth year-on-year (y-o-y). The total airfreight traffic in the Middle East in the month of October posted an increase of 17.5 per cent y-o-y, the highest growth rate posted by any region in the world.

For the same month this year, the volume of freight traffic in the Middle East was 279.1 tonnes (slightly less than 284.2 tonnes recorded in September), while the Asia Pacific region saw the highest airfreight traffic movement at 1999.8 tonnes.

Analysts observe that 2009 in the region passed off as a year of steady and resilient expansion, with major logistics players holding on to the market in much better way than in other parts of the world. The UAE's, and the overall GCC region's, growth in the logistics sector was primarily driven by a new opportunities such as massive government spending on ports, logistics parks, free zones airports, among others that kept the flow of goods running and the logistical services steady.

Dubai's position as the heart of regional trading, with around 60 per cent of the imported merchandise transiting through it, kept its position as a regional logistics hub. Buoyed by the growth opportunities, major homegrown logistics solutions providers, such as Aramex, announced plans to expand overseas and look for attractive acquisitions within and outside the region.

Manners-Bell said, Aramex's asset-light business model and its flexible cost structure, allowed it to exploit excess capacity. "The company will be looking to expand throughout the developing world, based on its strong performance," he said.

The strategic position of the region as a trade and logistics hub also attracted global logistics players, such as FedEx, DHL, UPS and TNT, CEVA, to exploit the opportunities as well as further their market presence.

Milestones in the UAE

The year 2009 was packed with some of the big-ticket happenings in the UAE's logistics sector such as mega logistics projects being unveiled, multi-million dollar acquisitions of logistics companies by UAE-based companies and signing of big contracts.

The year began with Dubai Logistics City (DLC), part of the world's first multi-modal integrated logistics platform at Dubai World Central (DWC), licensing its first logistics operator to commence operations in March. RSA Logistics DWC, a Dubai-based logistics company, completed the construction of its 25,000 square metres distribution centre in a record time of 12 months.

The 21.5 square kilometre DLC is part of Dubai Government's 2015 strategy to enhance the emirate's transport and logistics services and capitalise on its geographical location to make Dubai a regional hub for logistics.

Further, in July this year the Economic Zones World (through its flagship entity Jafza) and Dubai Aviation City Corporation –responsible for the Dubai World Central "aerotropolis" development – came together to create one of the largest multimodal logistics platforms in the world 'The Dubai Logistics Corridor'.

One of the key aspects of the corridor project is that it will link the upcoming Dubai World Central – Al Maktoum International Airport, Jebel Ali Port and free zones, with an integrated sea, air and land transport infrastructure. The project when complete will add more than a million additional square metres of logistics space and is expected to add a workforce of an additional 150,000 people.

This will bring together for the first time in the Middle East all of the components needed to create multi-modal logistics platform.

In November, the Dubai Logistics Corridor project took a new direction with announcement of the appointment of Salma Hareb, CEO of Economic Zones World, as Chairperson and Rashed Buqara'a, Chief Operating Officer of Dubai Aviation City Corporation, as Board Member.

In the same month, there was a major acquisition. Abu Dhabi-based Invest AD agreed to invest €50 million (Dh264.66m) to take a significant minority stake in Ekol Lojistik AS, a Turkey-based integrated logistics company.

The transaction is the first by the Abu Dhabi Government-owned financial services company for its new private equity fund – Invest AD Private Equity Partners II. It was structured in the form of a capital increase to assist Ekol fund its expansion plans.

Another major announcement in Abu Dhabi was in June when Abu Dhabi Airports Company (Adac) announced a joint venture agreement with Helios SinoGulf Property Development to develop a logistics and business park under free zone regulation adjacent to Al Ain International Airport.

The development will cover 650,000 square metres and will include office space, distribution centres, light industrial units, freight forwarding stations and supporting facilities in a business park, that will cater to the needs of air cargo, aerospace, and related industries. The first phase of development represents an investment of more than Dh900m. The development will start immediately and the first phase is scheduled for completion towards the end of next year.

Another major event was in October when under the patronage of Sheikh Ahmed bin Saeed Al Maktoum, Chairman, Dubai City of Aviation Corporation – Dubai World Central, Aramex broke ground on its new Logistics Centre, located in Dubai Logistics City, strategically located next to the Jebel Ali Port and Free Zone.

The Dh120m Aramex facility encompasses a built-up area of over 43,000 square metres, situated on a 140,000 square-metre area of land, and is due for completion in the first quarter of 2011.

In May, Aramex also announced an agreement with Vodafone Qatar, one of the region's new mobile telecommunications operators, to provide express and logistics solutions in Qatar.

Another homegrown logistics player, Momentum Logistics, a subsidiary of the international port management company, Gulftainer, announced in October signing a contract with United Arab Shipping Company (UASC) to provide the company with logistics services.

UASC is a major player in the Middle East and adjacent markets, in container shipping. According to the contract, Momentum Logistics will provide UASC with dedicated warehouse space and other logistics services, in addition to their regular business at the company's container repair and washing facilities.

Global players homing in

The year also saw major global logistics companies making Dubai as its base for regional operation. In January, the Dubai Department of Economic Development (DED) and Deutsche Post DHL announced research partnership, whose recommendations are on course for implementation next year. The joint research initiative will address three areas critical to Dubai's growth, namely, reducing congestion, improving convenience, and minimising carbon.

In October, Ceva Logistics, the global supply chain management companies, opened its new state-of-the-art regional headquarters in Jafza. The 12,000 square metre building will house Ceva's regional corporate office as well as warehousing facilities.

Regional milestones

In September, GAC, the Swedish logistics and shipping company announced that with the recent acquisition of the 42,000 square metres warehouse in Jafza's south zone, the company's facilities within the free zone have reached over 160,000 square metres, which also include 107,000 square metres of Logistics Park and 8,000 sq metres of space for its headquarters. GAC's facility in Jafza is one of the group's largest worldwide, currently accounting for more than 20 per cent of its global revenue.

Another global logistics and supply chain firm, APL, a unit of Singapore-based Neptune Orient Lines, a global cargo transportation and logistics company, announced in August the launch of its flow centre operations within Dubai Logistics City's international free trade zone.

The operations can access a scalable capacity of up to 25,000 square meters and 26,585 pallet positions, and can be expanded to 40,000 square metres.

Outside the UAE, one of the major happenings included Wared Logistics, the Saudi Arabia-based logistics and transportation services provider, announcing in September partnership with Preferred Freezer Services, the global provider of cold storage warehouses, to construct and manage refrigerated warehouses throughout Mena region.

Another happening that has its global ramifications is Qatargas and Shell signing a memorandum of understanding in March that will lead to the two companies jointly researching liquefied natural gas (LNG) logistics.

Through this joint logistics research collaboration, Qatargas and Shell aim to develop new ways to optimise supply chains to deliver to LNG global markets. The research will be conducted at the Qatar Shell Research and Technology Centre at the Qatar Science and Technology Park.

In terms of major contracts awarded to regional logistics companies this year, Agilty's winning a Rasgas award was one of the biggest in the region, and perhaps globally. In September, Kuwait-based global integrated logistics solutions provider, Agility, was awarded a major new contact in Qatar by RasGas, the country's premier LNG enterprise. The scope of the multi-million dollar contract comprises global freight forwarding, transportation and customs clearance for a period of four years, both locally and around the world.

In April, Agility also announced the expansion of its logistics hub in Singapore along with the extension of its Asia Pacific headquarters. The new 14,500 square metres facility is located at Changi North.

However, the news that the US Department of Justice had obtained an indictment against Agility and has intervened in a civil lawsuit under the False Claims Act, both of which allege that the company committed fraud against the US government, was also one of the major happenings in the region's logistics sector.


The less privileged ones

The global logistics and supply chain industry was not as privileged as the UAE's or GCC-based companies.

According to John Manners-Bell, Chief Executive, Transport Intelligence, a London-based research and analysis firm on the logistics industry: "There were few major acquisitions in the year, as companies focused internally on cost cutting. The lack of finance available was also a factor in this trend. Instead companies such as TNT looked towards partnerships – for instance an alliance with Con-way Freight to link their road networks in Europe and the US."

He said there were some major personnel changes at the top of the leading logistics companies, impacting on strategic vision during a very difficult period.

Hartmut Mehdorn, CEO of Deutsche Bahn, resigned in March over allegations that the rail and logistics organisation had spied on its workforce.

He left the company, which owns Schenker, stuck in transition between the state and the private sector, he said.

Another major global happening this year pertained to Deutsche Post's Chief Financial Officer John Allan. Allan, who was tipped by many to take over at the top of the company and a guiding light in the integration of DHL and Exel, suddenly announced his intention to resign.

DHL's attempt to go into partnership with UPS in the US failed in April when talks between the two companies over using UPS aircraft for DHL's US domestic express business was terminated.

"This ended a disastrous period for DHL, which after losing billions of dollars in the US, will focus on international express," said Manners-Bellsaid.

DHL is also looking to get rid of its French express operation, which has also been losing money. The industry has entered a new period where are there are no sacred cows left in terms of restoring profitability, Manners-Bell said.

The air cargo industry was badly affected by the downturn. Cargo B Airlines was just one of the carriers to go out of business.

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