Middle East’s Growth Corridor

Middle East’s Growth Corridor

When suspected al Qaeda terrorists attempted to use the global air cargo network to deliver explosive devices from Yemen last month, the Middle East’s reputation as the world’s terror capital roared back to the global public consciousness.

But that reputation masks another, lesser-known, fact: The Middle East is one of the world’s fastest-growing trade and supply chain regions, ripe with opportunity for U.S. and global trade and transportation providers.

U.S. exports to the Arab world are expected to jump 20 percent in 2010, to about $75 billion, following a year in which the trade and economic recession, combined with falling energy prices, cut U.S. exports 9 percent, according to David Hamod, president and CEO of the National U.S.-Arab Chamber of Commerce.

There will be plenty of new ports, airports, roads and railroads to handle the additional traffic, as projects that largely took a year off during the recession resume, offering opportunities for logistics service providers and engineering, training and professional services companies, Hamod said.

Nowhere will such opportunities be greater than in Dubai, the commercial capital of the United Arab Emirates, and Saudi Arabia.

Exports to Dubai soared sevenfold between 2000 and 2008. And while U.S. oil imports may dominate the bilateral trade with Saudi Arabia, U.S. exports soared in the two years leading up to the recession and appear poised to resume that growth.

With massive, multibillion-dollar transportation projects under way, the two Persian Gulf neighbors ranked in the Top 10 of Transport Intelligence’s Emerging Markets Logistics Index this year — and the United Arab Emirates ranks No. 1 among the 38 emerging countries surveyed for the “connectedness” of its transportation network, with a perfect score. That ranking assesses a country’s international and domestic infrastructure links as well as the level of service it receives from other countries.

Dubai’s transformation from regional hub to multimodal global logistics center is in high gear after a brief recessionary pause. Even the senior executives and government officials assembled in October for the launch of the Dubai Logistics Corridor had good reason to boast about its unprecedented scale.

The corridor, which encompasses approximately 80 square miles, bridges three huge complexes in Dubai: Jebel Ali Port, already the sixth-largest container port in the world; Jebel Ali Free Zone, which hosts more than 6,500 companies; and Dubai World Central, home to Al Maktoum International Airport, which will be the world’s largest cargo and passenger hub when finished.

Al Maktoum opened its doors to cargo in July and is scheduled to begin handling passenger traffic by the end of March. When complete in 2015, it will have six parallel runways, three passenger terminals and 16 cargo terminals. Eventually, officials say, Al Maktoum will handle 12 million tons of air cargo annually.

Although some skeptics questioned whether Dubai needed such a huge facility, air cargo volume in the Middle East is growing far more rapidly than the worldwide average. In September, Middle East air freight traffic expanded 24 percent year-over-year, compared with 11.1 percent in Europe, 13 percent in North America, 15 percent in Asia and 21.3 percent in Latin America.

Year-to-date, the Middle East’s air cargo traffic is up 31 percent year-over-year, nearly 6 percentage points better than the global average. Total available freight capacity in the region grew 15.7 percent through September compared to a year earlier, higher than any other region except Latin America, which registered 19.2 percent growth.

Al Maktoum’s cargo capacity reflects the region’s global focus: Cargo operations started in July with three carriers — the United Arab Emirates’ Rus Aviation and charter operator Aerospace Consoritum, as well as France-based European Cargo Services — providing five to seven flights a day. More than a dozen cargo carriers quickly added services, including Emirates SkyCargo, Rial Aviation and United Aviation Services.

In October, Panalpina, the Swiss global forwarding and logistics group, launched a twice-weekly freighter service linking Luxembourg with Hong Kong, via Al Maktoum. The service is part of Panalpina’s worldwide rotation linking Dubai with South Africa, Hong Kong and North and South America.

By making it easier and more cost-effective for sea and air cargo to flow in and out of three giant facilities — Dubai’s major port, its free zone, and its new international airport — officials said they expect to enhance the economic competitiveness of Dubai and the United Arab Emirates as a whole.

“The opening of the Dubai Logistics Corridor is a milestone event,” Shaikh Ahmed Bin Saeed al Maktoum, president of Dubai Civil Aviation Authority and chairman of Dubai Aviation City, said at the launch. “Building upon our existing world-class infrastructure, the Dubai Logistics Corridor further increases Dubai’s competitiveness as a global logistics hub.”

The corridor will improve the flow of sea-to-air cargo by eliminating the processes of exit and entry from one zone of the corridor to the other, said Salma Hareb, chairman of Dubai Logistics Corridor. “There will be a potential elimination of double customs inspection,” she said.

The next step will be to align the business processes and electronic platforms of the various entities within the corridor to create a unified multimodal logistics platform. Regulations will be harmonized between all parties involved in the logistics process, including Dubai Customs, Dubai Airports and DP World.

In Saudi Arabia, ongoing construction continues on four of six planned economic cities — at a cost of $60 billion — driven by private-public partnerships. Although Saudi Arabia has no plans to compete with Dubai as a global logistics center, the kingdom is proceeding on massive projects to upgrade its transportation and logistics infrastructure. Saudi Arabian Railway last spring signed a $74 million agreement with India’s state-owned Rites Ltd. to run a major mineral railway linking the northern Jelamaid region with Ras Azzour near the industrial port city of Jubail.

The railway also recently became the sole operator of the $7 billion Saudi Landbridge development. This cargo and passenger railway will link the Port of Jeddah on the Red Sea with the Persian Gulf ports of Dammam and Jubail, from which cargo will be shipped to the United Arab Emirates, Iran, Kuwait and elsewhere in the region.

Although Saudi Arabia’s reputation for advanced logistics lags Dubai’s, Colin Clarke, executive general manager of Kanoo Freight in Dammam, said he is optimistic about Saudi Arabia’s efforts to upgrade its logistics infrastructure and become a more cost-effective location for U.S. exporters and providers of logistics services. Clarke compares the most recent economic cycle in Saudi Arabia with the 1980s, when activity slowed dramatically after oil prices plunged.

This time, however, “the Saudi Arabian government, after several years of strong oil prices, has the money it needs to invest” in numerous major projects, even if Saudi Arabia is running a deficit. Despite the low profile of its logistics infrastructure outside the energy sector, Clarke said there are no dramatic differences between Saudi Arabia and the United Arab Emirates when it comes to managing logistics. World Bank surveys also rate both countries high in the ease of doing business, he said.

Still, the United Arab Emirates outshines its neighbors. In the most recent Global Competitiveness Report 2010-2011, the World Economic Forum ranked the emirates 25th in the world for competitiveness, and included it in the most advanced category of “innovation-driven economies” along with such countries as the U.S., Germany, Japan, Sweden, Australia, Canada, Switzerland, the U.K. and Singapore. The United Arab Emirates, which also ranked among the top 10 countries in more than 18 indicators of global competitiveness, is the only Arab country to reach that status.

Despite the opening of the Dubai Logistics Corridor, the United Arab Emirates must make major reforms if it is to fully exploit the opportunities provided by its advanced infrastructure, said Shaikh Khalid Bin Zayed Al Nahyan, chairman of Dubai-based Bin Zayed Group, a diversified company providing business consulting services. Speaking in October at the World Economic Forum, Al Nahyan said Dubai needs “better communication, more transparency and better governance in both private- and public-sector operations.”

He said Dubai was hurt during the recession because investors took on excess leverage, and because it invested heavily in the West when prices collapsed. These kinds of reforms, Al Nahyan said, would reduce the risk the UAE could suffer similar damage during the next great recession, despite the billions of dollars invested in securing Dubai’s future as a global center of trade and logistics.

Contact Alan M. Field at alanmf1233@comcast.net.