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25 September 2009 -10 events that shaped the GCC's logistics industry
by David Ingham on Sep 24, 2009
The logistics industry has become one of the key drivers of economic activity in the GCC. Without modern transportation networks and warehousing facilities, the GCC countries’ recent boom in retail, construction and tourism activity would not have been possible.
For nations such as the UAE and Bahrain, logistics is also far more than just a facilitator for other industries. It constitutes a major industry sector and contributor to GDP in its own right.
It took a long time, plenty of investment and lots of hard work for the Gulf to build its modern logistics infrastructure. There are certain events, however, that were key in shaping the industry as we have now come to know it.
In this Special Report, arabiansupplychain.com has identified ten events that we believe helped shape the GCC’s modern logistics industry.
To compile this list, we scoured the archives and put our collective heads together as an editorial team. We hope you find the list informative and please let us know your thoughts at the bottom of the article.
Trucial States treaty of 1853
Under the Trucial States treaty of 1853, Bahrain, Qatar and the seven emirates of the future UAE became protectorates of the British Empire.
The agreement, known formally as the ‘Treaty of Peace in Perpetuity’, would effectively stay in place until 1971 when the UAE was formed, and Bahrain and Qatar became independent.
Britain’s main aim with the treaty was to quash piracy in the Gulf, but it also deterred potential external aggressors from attacking the Trucial States, leading to more than a century of relative calm in the Eastern Gulf.
It was during this prolonged period of stability that national borders took shape, links with the global trading system were forged and commerce, particularly in Dubai and Bahrain, really took off. Without the treaty, the map of the region might even look a little different.
Dubai’s 1894 tax exemption
1894 was a big year for Dubai. A large part of the city was destroyed by a devastating fire and while reconstruction was taking place, the decision was made to grant a full tax exemption to foreign traders.
As a result, merchants from Iran, Sind and Baluchistan came to do business in the city, trading in all manner of goods and founding companies that have, in many cases, endured to this day.
Without the dredging of its famous creek, Dubai’s massive transportation industry and, indeed, modern Dubai as a whole, probably would not exist.
Since the 19th century, the creek had served as the commercial lifeblood of Dubai, but by the 1950s, its limited depth and unkempt banks were putting serious limits on the size of ships that could be accommodated.
In the long term, this would inevitably hold back the city’s potential as a trading hub. So in 1959, the late Sheikh Rashid commissioned Overseas AST to clear the creek, deepen it and give it reinforced concrete banks.
Much larger boats could now be accommodated in the creek at a new cargo handling area and bulk container ships anchored offshore could be served by barges.
As a result of the dredging operation, maritime commerce in Dubai reached a whole new level. Although modern cargo ships now dock at Jebel Ali Port, the Creek remains a focal point of daily commercial life in Dubai.
Dredging of Dubai Creek
Without the dredging of its famous creek, Dubai’s massive transportation industry and, indeed, modern Dubai as a whole, probably would not exist.
Since the 19th century, the creek had served as the commercial lifeblood of Dubai, but by the 1950s, its limited depth and unkempt banks were putting serious limits on the size of ships that could be accommodated.
In the long term, this would inevitably hold back the city’s potential as a trading hub. So in 1959, the late Sheikh Rashid commissioned Overseas AST to clear the creek, deepen it and give it reinforced concrete banks.
Much larger boats could now be accommodated in the creek at a new cargo handling area and bulk container ships anchored offshore could be served by barges.
As a result of the dredging operation, maritime commerce in Dubai reached a whole new level. Although modern cargo ships now dock at Jebel Ali Port, the Creek remains a focal point of daily commercial life in Dubai.
Opening of Jebel Ali Port and Free Zone
The dredging of Dubai Creek in 1959 and the opening of Port Rashid in 1972 had preserved Dubai’s position as a regional trading hub. Volumes, however, continued to grow rapidly and container ships were becoming larger and larger with increasingly sophisticated handling requirements.
In 1976, therefore, Sheikh Rashid ordered the construction of the world’s largest manmade port. When completed in 1979, Jebel Ali famously became one of only three manmade objects, along with the Great Wall of China and the Hoover Dam, to be visible from space.
Another major milestone was crossed in 1985 when Jebel Ali Free Zone was opened, allowing companies to base their warehousing operations right next to the port. Now, goods could come into port, be shifted to a nearby warehouse and then loaded into a truck for redistribution across the GCC.
Companies based in the zone would pay no tax and would be free to hire who they wanted. The free zone model has since been replicated across the region and underpins the UAE’s economic success
Launch of Emirates Airline
In 1985, with US $10 million in startup capital and two borrowed planes, the emirate of Dubai launched its own airline.
Aside from the massive number of businessman and leisure visitors that Emirates Airline has brought into the country, it has also helped reinforce Dubai’s position as a global re-export hub.
Emirates was the world’s seventh largest cargo airline in 2008 (based on scheduled freight tonne kilometres) and Emirates SkyCargo, its freight division, is one of the world’s largest operators of dedicated freighter planes.
The success of Emirates’ cargo operations was one of the key reasons for the construction of Dubai Cargo Village, its subsequent expansion and the decision to build Al Maktoum International Airport. Emirates Airline has helped make Dubai a vital link in the flow of time sensitive and perishable goods between producers and consumers across the world.
Opening of Dubai Cargo Village
Dubai Cargo Village (now rebranded as ‘Dubai Cargo Gateway’) is the centrepiece of the cargo operations of Dubai International Airport, the world’s eleventh busiest cargo airport in 2008.
Dubai Cargo Village was built in 1991 to assist the freight operations of Emirates Airline and support the growth of air cargo between India, East Asia, Africa and Europe.
It was initially designed to handle 150,000 tonnes of cargo per year and ever since its opening, management has been in a constant race to keep capacity in line with demand. By 1998, capacity had been expanded to 500,000 tonnes annually and in 2005 that was further expanded to one million tonnes. In 2008, annual capacity reached 2.7 million tonnes.
In addition to having lots of space, Dubai Cargo Gateway has the technology to handle just about any kind of freight, including explosives and dangerous goods, radioactive materials, live animals, human remains and ‘extremely’ valuable goods.
Whether or not it will continue to operate after Al Maktoum International Airport opens for business is still unclear. Whatever its long term future, Dubai Cargo Gateway is one of the pillars
Upgrading of Dubai-Abu Dhabi road in mid 1990s
Following the opening of Jebel Ali Port and Free Zone, pan-Gulf redistribution of goods by road from Dubai took off. The Dubai-Abu Dhabi highway thus became vital for the future of the regional logistics industry.
The road had been paved in the 1970s, but even in the 1990s, it was still a dual carriageway with roundabouts and many safety bumps that slowed down traffic. In the mid 1990s, work began on the improvement of the road.
It was widened to four lanes on each side, resurfaced and roundabouts were removed or replaced by flyovers. By the late 1990s, Abu Dhabi could be reached in less than two hours from Dubai, down from around four hours before work began.
Kuwait’s government sells its controlling stake in Public Warehousing Company
In 1997, the government of Kuwait decided to sell its controlling stake in Public Warehousing Company, a warehouse construction and leasing firm focused on the local market.
With new management and an infusion of cash, the company quickly reinvented itself as a broad 3PL and embarked on a pan-GCC expansion drive under the much catchier name of ‘PWC’.
After establishing a strong foothold in the GCC, PWC would later embark on a global acquisition drive, which culminated in its renaming and rebranding under the name ‘Agility’.
According to Armstrong & Associate’s influential industry yearbook, Who’s Who in Logistics, Agility was the world’s tenth largest 3PL in 2008.
Aramex delists from Nasdaq
Why does Aramex’s delisting from Nasdaq rate as more important than its decision to go public on a global stock market in the first place? In our opinion, it was the decision to delist from Nasdaq in 2002 and return to private ownership that led to its emergence as a global express delivery company.
Under private ownership, the company received new funding and new impetus that first manifested itself in the creation of the Global Distribution Alliance (GDA). Initiated by Aramex, the GDA brings together 40 independent express companies from around the world, giving each company in the network global reach through access to 12,000 offices, 33,000 vehicles and 66,000 employees.
Aramex has subsequently cemented its global position with a number of acquisitions, including the takeover in 2006 of Dublin-based Twoway-Vanguard and the 2005 purchase of UK-based Priority Airfreight.
It cost the Rasmala Buyout Fund US $61 million to snap up Aramex in 2002. On September 14, its valuation on the Dubai Financial Market, where it listed in 2005, was US $624 million.
Creation of GCC Customs Union
When it was introduced in 2003, the GCC Customs Union was hailed as a revolutionary step forward in the movement of goods throughout the GCC.
The idea was simple: a single tariff of 5% (paid at the point of entry) on goods imported into the GCC and free movement of goods throughout the GCC thereafter. Furthermore, goods made in the GCC would move duty free within the union if they met certain criteria related to content and local ownership of the company.
Teething problems were inevitable, as many shipments ended up being double-taxed, nor have cross-border delays been entirely eradicated, as recent problems on the KSA border testify. But there is broad agreement in the industry that the union has helped stimulate the flow of goods throughout the GCC.
Perhaps more significantly, the union was a key step in a broad process of regional economic integration that has seen massive cross-border investment in recent years. In the future, the GCC may abolish customs duty altogether and replace it with local sales taxes.