In numbers

118: Number of logistics companies at Jafza

$12bn: Total trade value

22 per cent: Total direct Jafza trade

Source: Jafza, September 2010

Jebel Ali Free Zone (Jafza) benefits from Dubai’s strategic geographical position on major trade routes. As the mid-point between markets across Asia, the Middle East, Africa and Europe, Dubai is the ideal transit hub for global movements of goods and, in consequence, Jafza has attracted businesses from across the world – 118 logistics companies have a base there.

We are analysing the business case to define the scale of operations. We are looking at how to phase development

Stefan Fallet, Danzas AEI Emirates

The logistics industry generates an estimated 9 per cent of Dubai’s total gross domestic product (GDP) and Dubai’s Department for Economic Development announced last year it planned to increase that contribution to between 13 and 15 per cent of its GDP.

Warehouses below capacity in Dubai

But the global economic downturn delivered a body blow to Dubai’s plans for logistics growth. Volumes stagnated last year, ending the years of double-digit increases in growth the industry enjoyed in 2005-2008. Many logistics companies whose warehouses were full to bursting in previous years were operating at 50 to 60 per cent capacity last year and the industry laid off an estimated 20 per cent of its Dubai-based staff.

We do not believe in a build-it-and-they-will-come approach. It’s all about designing to meet customers’ needs

Frank Courtney, Barloworld

Despite this, Jafza has continued to seek new investment from logistics companies. The new South Zone on the landward side of Sheikh Zayed highway is developing industry-based clusters and its sister-company, property developer Gazeley, offers the choice of ready-built or customised offices and warehousing.

Among the new tenants are supply chain management multinational CEVA Logistics, a company which evolved from TNT Logistics and Texas-based EGL. Last year CEVA’s group revenues topped E5.5bn ($7.6bn). In October this year it opened phase one of a tailor-made 63,000-square-metre site, two units comprising a 35,000 sq m warehouse with 500 sq m of office space. Phase two will add a 26,000 sq m warehouse and 400 sq m of offices.

Its three Jafza bases handle a mix of fast-moving consumer goods, automotive, industrial and energy-related cargo. CEVA customers have already leased 20,000 sq m of space, says John Gould, the company’s Middle East managing director.

In preparation for the economic upturn, Jafza is planning a new and ambitious cargo project in the shape of Dubai Logistics City (DLC). This is a joint venture between Jafza parent company Economic Zones World (EZW) and Dubai Aviation City Corp. It occupies a 21.5 square kilometre site between Jebel Ali port and the new airport, Al-Maktoum International. Benefiting from its proximity to global sea-air connections, DLC aims to become the world’s largest multimodal logistics platform. In 2007, Kuwait’s MA Kharafi and sons won the $411m turnkey construction contract to build DLC’s head offices, convention centre, business hotels, car park, leased offices and other amenities.

DLC, Dubai World Central Aviation City and the port of Jebel Ali will form a single, customs-bonded free zone. Work is under way to align procedures between DLC, the port, airport and their respective free zones. As a next step, authorities in Dubai will launch a one-stop shop for registration, licensing and human capital management.

Future expansion will create a common operational platform, harmonising business practices, rules and regulations. A marketing campaign will be launched to draw new customers to DLC and, within 30-40 years, it aims to handle up to 12 million tonnes of cargo a year and offer faster transfers of cargo than any other country in the world. A six-lane highway and rail shuttles will connect DLC to the port and airport, making it possible to transfer cargo between air, sea and road within 20 minutes.

DLC has made available 1 million square metres of space for warehousing, industrial use and distribution to forwarders, logistics operators and integrators. A dedicated 41,000 sq m air cargo terminal will handle up to 600,000 tonnes of air freight a year.

Global logistics players in Dubai

Global logistics companies which have signed up to take space at DLC so far include Aramex, Kuehne & Nagel, RSA Logistics, Eagle Industries, Integrated National Logistics, Hellman Calipar Healthcare Logistics and Erhardt & Partner Solutions.

Aramex is building an AED120m ($33m) logistics centre at DLC, 43,000 sq m of built area on a 140,000 sq m plot due to open for business in the first quarter of 2011. It will have space for up to 40,000 pallets.

Logistics firm Danzas AEI Emirates has reserved two plots at Al-Maktoum Inter-national Airport, covering 155,000 sq m and 45,000 sq m respectively. It hopes to start operations at the new airport next year.

“We are analysing the business case to define the scale of operations,” says country manager Stefan Fallet. “We have reserved a plot of land and are looking at how to phase the development to benefit our business as a whole. For example, the new airport offers us the opportunity to configure a dedicated perishables chamber to target this segment.”

A cautious approach to operating out of Dubai’s new airport has prevailed since it opened in June. Located next to Jafza and Jebel Ali port, it is billed by its owner and operator Dubai Airports as the world’s largest airport, with the capacity to handle more than 12 million tonnes of cargo a year, plus in excess of 120 million passengers annually. It will have an initial capacity for 250,000 tonnes of airfreight.

Although owner and operator Dubai Airports announced that cargo flights would start this summer, industry sources report that business is slow. “As far as we know, it opened with a test flight,” a logistics manager told MEED in August. “But we have yet to see Al-Maktoum International handling regular freight flights.”

Market prospects for logistics firms in the UAE

Jafza says it has signed up 16 cargo carriers so far, including Aban Air, Coyne Airways, United Aviation Services, Aviation Services Management, ACI and EuroAsian services.

But logistics companies are a lot less bullish about market prospects than they were during the boom years of 2003-2008. “In many ways, what happened last year was a natural levelling-off,” says CEVA’s John Gould. “Even though the industry has had a roller-coaster ride, logistics has always been a cyclical business.”

Nevertheless, industry analysts say that Jafza can no longer take its market leadership for granted. Faced with new competition from other free zones, ports and airports across the GCC, many predict that Dubai will have to work harder to retain its position as the leading Arab logistics hub and cannot take new business for granted.

South Africa’s Barloworld Logistics entered the Middle East market in 2008, through its acquisition of local forwarder, Swift Freight. The company has two warehouses of 20,000 sq m at Jafza. With volumes expected to stagnate this year, Barloworld plans to grow through increased regional market share, expanding into supply chain logistics.

“We do not believe in a build-it-and-they-will-come approach,” says Barloworld chief executive officer, Frank Courtney. “It’s all about designing the supply chain to meet the customers’ needs. A company looking to use Jebel Ali as its launch pad for the GCC might not necessarily need a dedicated warehouse.

“We are not averse to using third-party companies’ warehouses. Our plan is to become a leading supply chain logistics player, not a leading provider of warehousing. The economic crisis made companies look with new interest at supply chain logistics, not just when it comes to cost, but in terms of adding value.”

Concerns common to Jafza logistics companies include infrastructure constraints, rising costs, government red tape and a shortage of skilled, trained personnel, says Alexander Borg, regional director in Dubai of the Chartered Institute of Logistics and Transport (CILT). In particular, Borg says, the industry needs greater standardisation of practice.

CILT is working to improve training, accreditation and standardisation of logistics practice in Dubai. It has signed an agreement with investment giant Dubai World to implement best industry practice and has similar ventures with Emirates airline, the Dubai National Air Transport Association and Dubai’s Department of Economic Development.

Accredited logistics experts in Dubai

The institute’s long-term goal is to have a CILT-accredited logistics expert in every relevant company in Jafza. It estimates that about 60 per cent of Jafza tenants are involved in transport and logistics, employing about 100,000 people.

CEVA’s John Gould believes that Dubai will retain its position as the leading regional logistics hub, due to its location as a gateway to fast-growing markets such as Saudi Arabia, Qatar and Abu Dhabi. Trading companies from other GCC countries import goods via Jebel Ali, then store them under duty-free conditions before dispatching them to the end-customer.

Borg believes Dubai has set itself challenging logistics development goals. Nevertheless the goals are achievable ones, he says – but only if Dubai addresses critical issues of cross-company standardisation, skills shortages and the need for better communication and transparency between state departments and private sector logistics players.

Faced with cheaper rival free zones in Ras al-Khaimah and Fujairah, and with a massive new industrial complex and port development at Taweelah in neighbouring Abu Dhabi, Dubai cannot take its customers for granted as it moves into a new era of logistics expansion and growth.

“We need to see a holistic relationship between government bodies and the private sector,” Borg says. “If private companies are to invest in infrastructure, IT and warehousing, they need government support. The government must address high costs and bureaucracy in particular. Dubai has called the shots in the past; it cannot rely on being able to do that to the same degree in the future.”