Infrastructure , Logistics & Economic Development: The Dubai Logistics Cluster

DIFC Economics Logistics Workshop, 10 June, 2010

Dr. Nasser Saidi
Chief Economist DIFC Authority
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Agenda

Globalization and Logistics Overview on Trade Patterns & Dynamics Inter-Industry and Intra-Industry Trade
Dubai Logistic Hub

Opening of Dubai World Central Challenges

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Logistics: Definitions
•Logistics - The procurement, maintenance, distribution, and replacement of personnel and materiel. -- (Webster's Dictionary) •Logistics - (business definition) Logistics is defined as a business planning framework for the management of materiel, services, information and capital flows. It includes the increasingly complex information, communication and control systems required in today's business environment. -- (Logistix Partners Oy, Helsinki,
FI, 1996)

•Logistics - (military definition) The science of planning and carrying out the movement and maintenance of forces.... those aspects of military operations that deal with the design and development, acquisition, storage, movement, distribution, maintenance, evacuation and disposition of materiel; movement, evacuation, and hospitalization of personnel; acquisition of construction, maintenance, operation and disposition of facilities; and acquisition or furnishing of services. -- (JCS Pub 1-02 excerpt) •"Logistics means having the right thing, at the right place, at the right time.“
•Source: http://www.logisticsworld.com/logistics.htm

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Logistics is a Powerful Engine of Globalization
•The recent process of ever closer economic integration – commonly dubbed “globalization” -- is propelled by two main powerful engines: ITC & logistics technologies facilitated by economic/trade policy reforms. •The advances in ITC have attracted most of the public's attention because they have transformed the life of billions of individuals through cellular phones, internet and satellite TV. But logistics the other engine of globalization has probably been even more momentous. •The drivers of the logistics revolution are the integration of transport modes and the standardization of procedures which have boosted synergies and economies of scale to an extent unimaginable 20 years ago. •Advances in intermodal transport integration have speeded up and strengthened the links between distant areas. Dubai has taken centre stage due to completion of state of the art infrastructure built in anticipation of a large jump in global trade in goods and services and people mobility.
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10 g lo b a l tre n d s in Tra d e Fa c ilita tio n Lin ke d to Lo g is tic s 1
1. Exports of manufactured goods Today 80% of developing countries’ exports are manufactured goods, up from only 20% two decades ago. 2. Globalized production About 1/3 of global trade is intra-company trade, and around 30% of trade is trade in components and unfinished goods. 3. Increased security concerns Security measures along the entire supply chain. 4. New Geography of Trade

Share of South-South trade has doubled since 1990.
5. Regional integration Increased regional and transit trade
Source: Jan.Hoffmann, UNCTAD
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10 g lo b a l tre n d s in Tra d e Fa c ilita tio n Lin ke d to Lo g is tic s 2
6. Within logistics expenditure Inventory holding decreases, and transport expenditure increases. 7. Technologies Containerization, shipping networks, use of computers and Internet. 8. Privatizations / concessions Ports, shipping lines, railways, airlines, airports. 9. Tariff reductions For most developing countries’ exports, International Transport Costs are 2 to 3 times higher than Customs tariffs on imports in developed countries. 10. Negotiations on trade facilitation at the World Trade Organizations

Source: Jan.Hoffmann, UNCTAD

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World Trade has Expanded at a Faster Rate than World Output

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World Export Trends by Region (Index 2000=100)
• Growth of world population and the fast integration of large Asian countries into the world economy are pushing up global demand and forcing a relocation of manufacturing activities across the globe. As a consequence the absolute volume of shipments and their value skyrocketed since the 1980s. • In 2008 as a result of the financial crisis, trade finance fell victim of a widespread bout of risk aversion, and as a consequence international trade dropped sharply and suddenly worldwide for the first time since WW II

Source: Netherlands Bureau for Economic Policy Analysis (www.cpb.nl)

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Trade Relationships Among Geographical Areas
Table 2 - Intra- and inter-regional merchandise trade, 2009 (in percentage of Bloc Trade)
Emerging & Advanced Developing developing Economies Asia Economies
64 64 62 75 52 50 17 16 13 5 23 8 35 33 35 25 44 30

Origin / Destination
Advanced Economies Developing Asia Emerging & developing Economies European Union* Middle East Western Hemisphere**

European Union
42 15 26 66 20 11

Middle East
4 7 5 3 12 2

Western Hemisphere
6 4 6 2 2 18

Source: IMD DOTS. Remark: * EU 25, ** Estimated Data N.B.: Rows do not add up to 100 due to overlap in country composition of blocs

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Inter-Industry Trade and Intra-Industry Trade
•Logistics, which was considered ancillary to production, now is one of the key competitive advantages in manufacturing. •As the transport costs drop, the internal supply chain within companies becomes integrated into a logistics department and subsequently the logistics departments of different companies amalgamate their operations to minimize inventories (Just-inTime concept). Internal integration paves the way to external integration •As a result, trade in finished goods gives way to trade in semi-finished goods and inputs which allow to exploit economies of scale in manufacturing. •Integration goes hand in hand with decline in costs and improvements in logistics efficiency because this type of trade is more sensitive to transportation costs than trade in primary goods and final products. •In the world's largest markets—North America, Western Europe, and East Asia—intraindustry trade represents a high and increasing share of total trade.

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The Evolution of the Grubel Lloyd Index by Area
•The Grubel and Lloyd index measures intra-industry trade •Measured at the 3-digit SITC level, intra-industry trade increased from 20% of world trade in 1962 to 44% of world trade in 2006. •Western Asia, and most of Africa have not developed much intraindustry trade. This is one of the main distinctions between these two regions and the rest of the world. •Opportunity for Dubai role as a trade hub to harness the untapped potential of regional intra-industry and interindustry trade.

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Reshaping the World Economy
•The globalization of economic linkages gives rise to profound dynamics where two processes dominate: Specialization. Linked geographical entities are able to specialize in the production of commodities for which they have an advantage, and trading for what they do not produce. As a result, the global division of labor is shifting towards enhanced regional specialization insofar as reductions in production costs outweigh the additional transport costs. Fragmentation. Geographically connected economies may experience a concentration of production activities into one country or district, due to economies of scale and the necessity to locate supplier of inputs near the factories. •Increased specialization and fragmentation generates more trade, providing opportunities even to some small economies without a technological edge. For example, a country like Cambodia may not be able to build sophisticated computers or modern cars, but it can produce the cables or wires that will be used in assembly lines elsewhere. Through this "vertical disaggregation" of production, economic activities have spread to developing regions.

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Trade Elasticities by Country Groupings
Import volumes
Advanced economies Country Groupings Developing Asia Middle East Full sample 2.99*** 0.61 1.92* 1.06 3.39*** 0.59 1.81 1.16 Full sample 3.01*** 0.59 3.57*** 0.85 2.97*** 0.53 1.80** 0.73 1990s 2.77** 0.64 0.52 2.38 2.03 1.38 -1.08 2.47 1990s 2.39*** 0.64 1.62 1.64 2.04* 0.98 0.09 1.59 2000s 3.46*** 0.46 2.53 0.05 3.92*** 0.48 2.59** 0.03 2000s 3.58*** 0.33 4.51*** 0.80 3.47*** 0.54 2.53*** 0.66

Emerging Economies

Export volumes

Emerging Economies Middle East

Advanced economies Developing Asia

Country Groupings

• The advances in logistics have reshaped macroeconomic relationships. • Trade elasticities to world GDP increased sharply in the last decade: but while advanced economies experienced a mild increase in import volume elasticity, emerging markets saw it doubling in the comparison between the ‘90s and the 2000s. • Developing Asia registered a fivefold increase and the Middle East went from negative (a statistical artifact due to the oil prices slump in the 1990s) to a figure in line with developing Asia.
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Asterisks denote p values thresholds: *p < 0.1; **p < 0.05; *** p < 0.01; Underlined values denote standard deviations

Dubai Logistic Hub
 A logistic system spans three dimensions: a) the spatial or regional dimension (i.e. the transportation problem), b) the vertical dimension (flow of commodities from the initial use of resources to the manufacturing of final goods demanded by the consumer), and c) the time dimension (inventory and warehouse of merchandise and parts).  Logistics comes under the umbrella of “Transportation, Storage and Communication” sub-sector in Dubai’s GDP calculation. As per the latest data, this sector contributed close to 10% of overall GDP. In 2009, the data for the UAE indicate that the country logistics and supply chain industry grew by 3.6%.  Dubai is the world’s third largest re-export hub, after Hong Kong and Singapore. DP World's UAE Region is among the leading hubs in the world, serving more than 100 shipping lines. In 2008, the UAE Region of DP World recorded an 11% growth in throughput with the handling of 11.8 million TEU, as compared to 10.65 million TEU in 2007.

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International Comparisons
•In the Global Competitiveness Index, the UAE was ranked 23, with a score of 4.92 against the top Switzerland’s 5.60 •In terms of the infrastructure sub-component, UAE outranked all its regional peers even Qatar which was ranked one above the UAE. •There is a strong correlation and positive effect of infrastructure and logistics on competitiveness

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World bank Logistics Performance Index •WB publishes a Logistics Performance Index:
1. Efficiency of the clearance process by customs and other border agencies. 2. Quality of transport and information technology infrastructure for logistics. 3. Ease and affordability of arranging international shipments. 4. Competence of the local logistics industry. 5. Ability to track and trace international shipments. 6. Domestic logistics costs. 7. Timeliness of shipments in reaching destination.

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UAE is ranked 24th on the global LPI scale

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UAE can improve across all criteria
Country Germany Singapore Sweden Netherlands Luxembourg Switzerland Japan UAE Bahrain Kuwait Saudi Arabia Qatar Oman LPI 4.11 4.09 4.08 4.07 3.98 3.97 3.97 3.63 3.37 3.28 3.22 2.95 2.84 Customs 4.00 4.02 3.88 3.98 4.04 3.73 3.79 3.49 3.05 3.03 2.91 2.25 3.38 Infrastructure 4.34 4.22 4.03 4.25 4.06 4.17 4.19 3.81 3.36 3.33 3.27 2.75 3.06 International shipments 3.66 3.86 3.83 3.61 3.67 3.32 3.55 3.48 3.05 3.12 2.80 2.92 2.31 Logistics competence 4.14 4.12 4.22 4.15 3.67 4.32 4.00 3.53 3.36 3.11 3.33 2.57 2.37 Tracking & tracing 4.18 4.15 4.22 4.12 3.92 4.27 4.13 3.58 3.63 3.44 3.32 3.09 2.04 Timeliness 4.48 4.23 4.32 4.41 4.58 4.20 4.26 3.94 3.85 3.70 3.78 4.09 3.94
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Logistics Competence: wide global disparities

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Logistics Performance Index Breakdown
The UAE scores among the best and most efficient logistics hubs in the world
Export Time & Cost Port or airport supply chain Distance (kms) — 75.00 75 972.15 270.02 428.63 Lead time 3.63 2.17 1 2 3.83 2.29 2.46 (days) Land supply chain Distance 407.16 119.06 — 75 Lead time 1.41 2.38 1 2 2 3 Import Time & Cost Port or airport supply chain Distance — — 75 75 Lead time — 2 3 1.78 2.29 2.03 Land supply chain Distance 407.16 241.03 — 75 489.36 536.14 Lead time 3.04 2.51 2 3 2.29 4.93 3.45

Singapore 224.07 Germany Bahrain Kuwait Qatar KSA UAE

Cost 612 422 150 855 250 649

(US$) (kms) 5,000 75

(days)

Cost 354 298 150 531 551

(US$) (kms) 3,000 75 1,500 —

(days) (US$) (kms) — 335 250 721 274 960 5,000 75

Cost

(days) (US$) 409 250 354

Cost

1,250.00 428.62

2.53

482.74

6.32

3,000 696

1,000

1,170
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Source: World Bank LPI 2009

Dubai World Central in Figures
• Dubai World Central (DWC) is a mega Airport facility with a total surface covering 140 square km, twice the size of Hong Kong Island. • Cargo Terminal which will be opened this month is the first of 16 terminals, and has a capacity of 200,000t, spread over 41,000m² of the built-up area, the terminal's capacity can be extended to 600,000 tonnes; • DWC capacity is designed to reach (by circa 2020) 12 million tonnes of cargo a year, more than three times that of Memphis International Airport currently the world’s largest cargo hub, and 160 million passengers a year. • Airport will comprise five runways each 4.5km in length and 800m apart, one of them capable of handling all new-generation aircraft such as the A380 superjumbo. • Airport could allow the simultaneous landing of four aircraft throughout the day, with minimal in-air queuing that is the bane of major airports and results in high fuel consumption and increased emissions. • 91m-high air traffic control tower which is an aviation landmark and the tallest freestanding control tower in the Middle East. • Over 100,000 parking spaces for airport staff and passengers.

Source: IMF WEO (Apr 2010), DIFC Economics

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Opening of DWC comes at a critical juncture
IATA revised up forecasts for air travel and air cargo growth in 2010, to 7.1% and 18.5% respectively. Load factors have reached record levels as capacity returns to the market at a slower pace than the revival in transport demand.

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Dubai Logistics Corridor  The Dubai Logistics Corridor, will be the world's largest multi-modal logistics platform encompassing Jebel Ali Port, Jafza, Al Maktoum International as well as Dubai Aviation City/Dubai Logistics City.  On completion, it will quadruple Dubai’s logistics efficiency and its capability to move goods across the region by reducing sea-air transfer time to less than an hour from the present four hours.

The DWC sub-clusters

•The surrounding mini-cities include
The Dubai World Central Residential City, Dubai World Central Logistics City, Dubai World Central Enterprise Park and Dubai World Central Golf City. Dubai Aviation City

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Challenges I
• Transport Reform. Current regulations prevent trucks over 2.5 tons from using the major urban thoroughfares such as Sheik Zayed Road during day time. DWC will face the problem of how to transfer goods from and to the existing Dubai Airport Free Zone, Dubai International and other free zones. • Transfer of merchandise should bypass customs, i.e. without container inspection in order to speed up the process. This can be achieved though the use of containers with electronic seals that can be tracked on GPS systems. • Internal Trade Facilitation: Ban on large truck forces a myriad of small vans to reach every shop in Dubai and in other Emirates. Alternative could be to organize a Consolidation Centre Warehouse for retailers located in close proximity (e.g. malls) so to reduce pollution and congestion while increasing efficiency. • Facilitate Passenger Flows. Initial focus on cargo traffic should not deemphasize the importance of passenger traffic. In reality the bulk of freight is transported in passenger planes.

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Challenges II
•Improve Trade Facilitation Services: Currently it is easier to import goods as the customs are opened 24/7. For export the facilities are available only 5 days a weeks, until 7 pm. Furthermore, the Dubai Chamber of Commerce’s Jebel Ali FZ office which releases Certificates of Origin closes at 3:00pm and is closed on Fridays. Ideally all services should be available on a 24/7 basis. •Build Logistics Capacity: Dubai’s logistics cluster needs to strengthen its ability to upgrade and develop workforce skills locally. Dubai should promote specialized Science & Technology Institutes & University level courses together with research and development in logistics, engineering, robotics and architecture.

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External Challenges
 Dubai facilities are serving a wide region, but access to other countries is hampered by factors outside the reach of the UAE authorities. A relevant example is the Customs Service in Saudi Arabia where systems and procedures have not been modernized in line with the requirements of modern logistics chains.  In order to raise their global competitiveness, the GCC need to develop integrated multi-modal transport systems that can efficiently support and connect local, regional and global markets. • Railroad network • International Highways  Harmonization of Regulations • Simplify and standardize custom procedures • Establish a maximum time for inspection and clearance • Aim to achieve a single market for goods and services within 3 years
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Rediscovering our Past: The Hejaz Railroad, 1914

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Th a n k Yo u !

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