Middle East transport and logistics at the crossroads

Middle East governments must take advantage of their unique geographic location to become a trade hub for the future.

Today, the Middle East region is in the middle of exciting global, regional and local developments in terms of transport and logistics. With the explosive growth of global and regional trade, and especially the trade between Europe and Asia and within the broader region, the Middle East faces unprecedented opportunities to capitalise on the unique strength of its favourable geographic location.

“The Middle East region’s excellent geographic location and very good accessibility by air, land, and sea have brought it to the top of the agenda for global logistics as the strong growth of global trade requires efficient transport and logistics structures,” says Fadi Majdalani of Booz Allen Hamilton.

“Hence, from a global perspective, the region has a set of three unique opportunities.”

First, the region can benefit from the strong volume growth on the trade lane between Europe and Asia.

Second, and more importantly, the Middle East will benefit from the volume growth on the Europe-Asia trade lane as shippers use larger vessels and apply more advanced logistic concepts. The hub-and-spoke approach, an alternative method to transport, becomes more favourable as volumes and vessel sizes increase. In this layout, the volume from one origination point is loaded onto a vessel irrespective of its destination and then transported to a central node, ie the “hub”.

If volumes and vessel sizes achieve a certain threshold size, a hub-and-spoke approach is the ideal logistics concept to achieve cost-effective transportation.

Finally, the third driver of the Middle East as a growth area for global logistics along the Europe Asia trade lane is the need for multi-modal hubs.

For most goods, a complete airfreight transport is still much too expensive to be viable. Hence, a new transportation concept that we call “acceleration in motion” becomes more important. “Acceleration in motion” offers a conversion from sea transport to air transport. The shipper can start with cost-effective sea freight transport and, if need arises due to better sales or unexpected additional demand, the shipper can manage almost in real-time how fast additional supplies will be brought to market. In sum, this process allows the shipper to achieve better trade-offs on speed to market, stock availability and transportation costs.

The Middle East is a natural location to do the sea to air transport conversion,
for three reasons:

The region is already the natural hub for refueling stopovers for the air freight industry; The location is easily accessible by sea and is increasingly becoming a hub for the sea freight industry; and “Acceleration in motion”, if done in the Middle East, achieves attractive reductions in transportation time-approximately five to seven days—while still conserving the cost-effective sea transport rates for half of the total transport.

In fact, Dubai has already made significant infrastructure investments in the integration of its airport and sea port in Dubai.

Four macroeconomic elements make a strong and efficient transport and logistics sector a strategic must:

• Enhancing economic activity. Strong and efficient transport and logistics service offerings are essential to provide efficient access to markets for domestic trade and manufacturing and enhance economic activity. At the same time, the availability of efficient transport and logistics services is increasingly a key decision criteria for foreign direct investment, in addition to competitive factor costs and availability of skilled resources.
• Enhancing industry competitiveness. Opening markets and abolishing import custom duties increasingly expose domestic industries to global competition. For the Middle East, these realities have ramifications on two levels: First, the effective removal of import barriers, as promoted by the World Trade Organization, exposes local and domestic markets to global competition; thus, Middle Eastern manufacturers face increasing competition in their home markets. Second, Middle Eastern manufactures face stronger competition in their international export markets as global logistics and supply chain services become more sophisticated on a global scale.
• Growth of the industry sector. The transport and logistics sector itself provides an attractive opportunity to enhance economic activity. The Middle East’s opportunities globally and in its own broader geographic region, described earlier, make a strong transport and logistics sector crucial for the Middle East in particular.
• Generation of sustainable job opportunities. Finally, besides providing a key building block for growing economic activity in manufacturing and other sectors and hence providing a basis for increasing employment levels, the growing transport and logistics itself will provide the substantial potential for employment growth that Middle East countries are eagerly looking for. As in other emerging markets, an additional supporting factor of the industry’s employment potential is the Middle East’s competitive labour cost, which reduces pressure for automation and workforce efficiency.

Each of these four macroeconomic elements provides rationale enough on its own for the Middle East to position the development of the transport and logistics sector very high on the government agenda. They are even more compelling in combination.