International Finance
Logistics Magazine

How the UAE became a supply chain nerve centre

Integrated free zones, fast customs clearance and strategic location in the east-west trade route have all contributed to the transformation

The UAE has impressively transformed itself from a logistics hub into a supply chain nerve centre in recent years. Certainly, there are multiplying reasons driving the transformation and many ways in which it is acting as a redistribution gateway for multinational corporations. The more obvious questions are: What are the reasons contributing to its transformation? What are the profound implications for the economy?

Success of economic diversification efforts compounded with effective implementation of national logistics plans and digital transformation initiatives undertaken by public and private sectors are recognised to be some of the chief contributing factors. But that’s not all. The country’s trade facilitation reforms, fast customs clearance and strategic location in the east west trade route, in theory, which are all important to the industry’s growth have encouraged the UAE to emerge as a logistics hub and a gateway for Asia, Europe and MEA region.

A noteworthy fact is that its “geographical location and infrastructure has always positioned it as an ideal supply and redistribution gateway and offers huge growth potential for businesses,” Moustafa Elbanhawi, CEO of DHL Global Forwarding, Arab Cluster and head of industry projects and business development in Middle East and Africa, told International Finance.

The UAE’s developmental efforts in the logistics industry is reflected with the release of a new report titled Agility Emerging Market Logistics Index 2020 which observed that the country’s score has improved in all the three sub-indices—domestic opportunities, international opportunities and business fundamentals.

The UAE has been featured for the first time in the top 10 list of all three sub-indices. In particular, it saw significant improvement in business fundamentals and has moved up two places to ninth rank in international logistics opportunities. Realising the country’s progress in logistics, Agility has attributed its credit for improvement to the ecommerce market which is predicted to expand at a CAGR of 19.1 percent by 2023.

Studies carried out by the Ministry of Economy showed that ecommerce is one of the propellers pushing the country to the forefront of logistics. This is in line with Gopal R, Global Vice President for Transportation and Logistics Practice, Frost & Sullivan’s view that with rapid expansion in regional ecommerce growth, high priority is being given by the government to support development of ecommerce hubs around key sea and air ports.

“Combined transport is gaining prominence due to increasing demand for sea-air combination for freight movement, logistics and trade facilitation ease, coupled with established logistics infrastructure, technology adoption and availability of qualified resources are the key reasons the UAE continues to be a popular regional supply chain and distribution gateway in the region,” Gopal R told International Finance.

Free zones and infrastructure investments strengthen logistics
The logistics industry in the UAE is upbeat. “Its logistics ecosystem is strengthened by increased investment in the development of logistics infrastructure with a focus on improving global connectivity with multi modal logistics facilities, logistics process digitalisation, warehouse automation, reforms targeted to improve business environment and trade facilitation measures,” Gopal R said. “In addition, as a result of opening up of free zones around ports and airports the contribution of non-oil exports expanded increasing contribution from free zones.”

Integrated free zones and huge infrastructure investments play a huge part in its logistics transformation. This points to the fact that Dubai International airport is currently the world’s sixth busiest in terms of cargo traffic and Jebel Ali port is the ninth biggest container port undergoing further expansion to meet the surge in upcoming traffic. The obvious positive outcome from free zones is that they “provide a conducive tax free environment for trading between regions. All these support continuous improvement to keep the UAE as a preferred regional supply chain and distribution gateway,” Gopal R added.

Growth prospect for the UAE logistics
A report published by Frost & Sullivan said the UAE’s logistics market is expected to grow by 5.7 percent between 2015 and 2020 on the back of national logistics development plans, Expo 2020 and trade with Asia and Sub-Saharan Africa.

“Despite a general slowdown in global growth coupled with some short term market shocks, we still expect positive growth in the UAE due to a strong fiscal stimulus, Expo 2020-related infrastructure push, investment reforms and business-friendly laws,” Elbanhawi said. “Expo 2020 is expected to drive the logistics and supply chain segment even further and cement the UAE’s position as a global leader in logistics.”

Logistics industry contributes to real GDP
With the country scaling up the logistics industry, positive changes are to be seen for the economy at large in the coming years. The Dubai Chamber of Commerce and Industry noted that real GDP of the UAE’s non-oil sector is projected to grow at an average rate of 4.1 percent between 2019 and 2023 compared to 2.8 percent growth seen between 2014 and 2018.

Elbanhawi said that the momentum behind the UAE’s GDP growth over the next 5 years will likely be led by the country’s transport and logistics industry which is set to record growth of 7.9 percent. Even Gopal R highlighted the fact that expansion in trade has increased the share of non-oil GDP, strengthened the manufacturing base and reduced the dependence on oil revenue—further opening up opportunities in freight transportation, warehousing and freight forwarding segments.

“Due to the presence of global logistics companies in the UAE, competition has increased among service providers; regional expertise has become a key factor for companies that opted for logistics outsourcing,” Gopal R said. “All these support the transformation as a supply chain nerve centre, providing opportunities for logistics companies to play a regional role by using UAE as a base.”

Last year, the logistics industry’s gross output reached Dh219 billion based on the data released by the Federal Competitiveness and Statistics Authority. Already it ranks first in the Gulf region and third globally after China and India.

The UAE government’s push to sustain as a supply chain nerve centre
In this context, the Dubai Silk Road strategy is brought into sharp focus with initiatives pointing toward infrastructure, logistics and connectivity. Supported by DP World and Dubai Chamber of Commerce, China is one of the biggest trade partners for the UAE. “The UAE-China bilateral trade is expected to cross more than $70 billion by 2020,” Gopal R said. “Port Infrastructure development projects in the country’s Khalifa Port and Jebel Ali Port are expected to improve connectivity with BRI infrastructure in Central Asia, Eastern Europe, South Asia and China. This in turn will result in increased flow of exports and imports through UAE Ports.”

The strategy is set to uplift Dubai’s position as a global economic and business hub “enabled by its exceptional connectivity and logistics services,” Elbanhawi explained. That in turn might introduce rejuvenated efforts to “enhance infrastructure such as improvements to Dubai’s ports, airports and free zones—building a stronger ecosystem for thriving trade.”

The UAE government is also developing a rail network to connect seaports, distribution centres, major transportation hubs, freezone areas and freight terminals. In fact, the rail development is expected to speed up the growth of the country’s logistics industry.

Dubai is prime to become one of the world’s top logistics centres
Dubai plans to become one of the top five logistics centres in the world as part of the Dubai 2021 plan. Supported by a robust legal framework, Elbanhawi is positive that the city’s pool of expertise spans the logistics business community, regulators and other government entities—in turn creating a unique offering which “makes it unlikely for any other potential logistics centre to match up to in the foreseeable future,”

Elbanhawi reinstated the fact that the city’s strategic location between the east and the west makes it an ideal hub for transshipment routes and enhances the ease of doing business in terms of customs and regulations. “We are certain that Dubai will continue to be an important hub and we continue to keep a lookout for opportunities to ensure we help our customers tap new prospects,” he said.

DHL is important to intra-regional trade
Intra-regional trade offers an opportunity for the region to boost economic growth and job creation through lower non-tariff barriers and reduced trade costs. It is against this backdrop that DHL has strengthened its expertise and offerings in this part of the world to meet customer needs in the international market. “We are committed to grow intra-region trade and bolster volumes in all trade lanes as the region as a whole continues to hold strong economic prospects,” Elbanhawi pointed out. “We are also looking to provide customised and tailored solutions to meet the needs of our customers.”

Last February, DHL launched its Global Humanitarian Logistics Competence Center in Dubai to provide forwarding and logistics services to the humanitarian and public health sectors to support emergency disaster response and ongoing development programmes. Following that the company even established the Centre of Excellence for DHL Industrial Projects in the city supported by competency centres in Egypt, Ethiopia, Kenya and Turkey to jointly coordinate complex logistics projects across the region.

DHL seeks to become supplier and forwarder for key sectors
The company is focused on driving organic growth by investing in present and future markets in the region. This will include harnessing opportunities to tap cross-border trade and ecommerce, Elbanhawi further elaborated. “We will continue to tap deeper into our expertise in various sectors to support our customers. These sectors include perishables, life sciences, technology and humanitarian logistics to name a few.”

More specifically, DHL Industrial Projects which addresses the needs of large-scale industrial and infrastructural developments will seek to further strengthen its position as the preferred supplier and forwarder for key international oil and gas, engineering, procurement and construction companies.

Technology is at play for the future of free trade zones
Furthermore, the Dubai 10x initiative supervised by the Dubai Future Foundation is aimed at enabling Dubai government entities to anticipate global changes in all sectors and transform Dubai into a city of the future. “This initiative comprises nearly 23 key projects with focus on infrastructure, smart governance, trade facilitation and infrastructure development,” Gopal R said. “Free Zone Exchange and Dubai Airport Freezone has announced the development of Dubai Blink, the world’s first B2B smart commerce platform”—using artificial intelligence for the future of free zone trade.

Digitalisation is being adopted by stakeholders in the UAE’s logistics infrastructure. An example of that is a digital 3PL company FreightOn looking to digitalise the logistics industry. Research shows that 95 percent of businesses prefer to work on a single platform to improve their shipment time and minimise time spent on the next shipment.

In another example, DHL introduced Saladoo which is a fully integrated digital freight platform that enables shippers and transport providers to make fast and reliable road freight connections within the UAE. In practice, the platform simplifies road freight processes by matching shippers to transport providers, introduces transparency with tracking and enhances efficiency by optimising routes, cargo and time.

It was a natural choice for DHL to launch Saladoo in the UAE because of its untapped opportunities comprising a fragmented road freight market that lacks transparency and trust across many players involved.

Using the platform, carriers can maximise their truck load for greater efficiency and look to reduce their carbon footprint—which is in line with DHL’s efforts to reduce all logistics-related carbon emissions to zero by 2050. “All contractual relationships will be organised through the existing local DHL entity thereby providing trust and peace of mind to carriers and shippers alike,” Elbanhawi said. “We believe that it will plug the digital gap in logistics technology to accurately match shippers’ needs and transport providers’ offerings in the Middle East and Africa as well.”

“Some of the initiatives include adoption of electronic systems to streamline exports and imports process, development of integrated transport infrastructure and improvement and liberalisation of logistics and special economic zones.,” Gopal R explained. Overall, the number of policies and initiatives with a deep focus to improve global connectivity using multi-modal logistics is what has transformed the UAE into a supply chain nerve centre.

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