GCC logistics market to double growth on back of energy boom - Emirates24|7

GCC logistics market to double growth on back of energy boom

Christmas says the sector is attracting interest as firms focus on region. (PATRICK CASTILLO)

The GCC logistics market is set to double its growth in the coming years, say senior analysts and players.

Moves to increase supplies of oil to meet ever-increasing global demand and the positioning of the region as a major international hub are expected to be the key driving forces for an increase in logistics market.

"The regional logistics and transportation markets are about to reach a turning point," David Christmas, Managing Director, Middle East, for DHL Exel Supply Chain Management, told Emirates Business.

"The sectors are attracting an increasingly high level of interest and investment as global companies – seeking growth rates and profit levels far beyond what they can achieve in more developed markets – shift their strategic focus to the region.

"The growth is driven by the massive inflows of capital, which the present boom in oil and gas revenues has precipitated, and the logistics sector has been a prime beneficiary as firms invest in upstream and downstream infrastructure projects."

Industry analysts believe that growth within the regional logistics market will double over the next few years due to continued foreign investment and government policies favouring economic expansion.

Opportunities for the logistics market continue to present themselves because of the continuing multi-billion-dollar investment in construction, including tourism projects, as well as transportation facilities such as ports, logistics parks and airports.

The importance of consumer markets is increasing as per capita gross domestic product (GDP) soars throughout the region and this has resulted in increased demand for luxury goods as well as the evolution of the grocery retail sector.

A recent industry report has valued the GCC logistics market at more than $11 billion (Dh40.4bn). Currently Dubai alone channels more than $17bn of imports a year, and this too is set to increase tremendously.

Al Maktoum International Airport, to be partially opened this year, will be able to handle 12 million tonnes of cargo annually – more than both Chicago's O'Hare and London's Heathrow. The opening of Dubai Ports World's Terminal Two is expected to lead to a capacity increase of an additional five million twenty-foot equivalent units (TEUs) to the existing nine million TEU capacity.

According to a recent Business Monitor International Report, freight carried growth across all modes in the UAE – measured in million tonne-km (mntkm) – will average 6.2 per cent per annum in the 2007-2011 forecast period.

"We expect the UAE economy to grow by an average of 5.4 per cent per annum over the next five years, providing an important level of support for the freight business," says the report. "Infrastructure investment will also remain high, with the emirates continuing to focus on a variety of ambitious transport projects in aviation and shipping."

The authors see an annual sea-freight tonnage growth of 6.8 per cent in Saudi Arabia on the back of an oil and gas export boom and predicts 6.6 per cent air freight traffic growth in Kuwait over the next five years.

Michael Profitt, CEO of Dubai Logistics City (DLC), said: "Currently, Middle East air cargo growth is the highest among all regions in the world. The region is a key meeting point for East-West intercontinental trade and straddles the crossroads of the Asia to Europe and Asia to Africa trade routes."

Profitt believes the region is set to become an international logistics hub due to regional governments' commitment to investing in integrated multi-modal infrastructure that helps in product distribution and enhances the region's role as a redistribution hub.

DLC is the world's first multi-modal integrated logistics platform and forms part of the 140 square kilometre Dubai World Central aviation complex.

DLC's phase one will start operations this year and more than 40 per cent of its 25 sq km leasable land has been reserved. The contract logistics and forwarding areas will be completed by 2010 and 2012 respectively.

Construction of the Saudi Arabia's $26.6bn King Abdullah Economic City has begun. The city will be located along the Red Sea and the basic drivers will be a port with a cargo capacity of 30 million TEUs integrated with an international airport and a railway line connecting major cities.

Hussein Hachem, CEO of Aramex for the GCC region, said: "We see a brighter future for the logistics market in the region as infrastructure developments provide excellent connectivity between airports, seaports and road networks. This will certainly make this an ideal transport and logistics hub to serve as a bridge to regional markets."

Hachem said that more players were set to tap into the lucrative regional logistics market and that competition was likely to stiffen over the coming years, adding that only those capable of ensuring quality service would be able to survive.

He added that sectors such as pharmaceuticals and construction would see increased interest from logistics companies as demand increased.

Investment in logistics received special attention in the Dubai Strategic Plan and the emirate has shown remarkable progress in the development of the sector since 2000.

Seven per cent of Dubai's workforce is employed by the logistics sector.

The logistics industry, including storage and communications, represents 13 per cent of Dubai's GDP. In nominal terms it recorded 20 per cent growth in 2005 compared with the previous year, placing itself among the fastest-growing economic sectors in Dubai.

 

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