The shipping distance between UAE ports and China is expected to be reduced from 15,000 km to 2,500 km due to the Gwadar Route
The UAE’s logistics industry is gearing up to take advantage of China’s Belt & Road Initiative (BRI), under which projects worth $1.1 trillion are at various stages of development in more than 132 countries around the world.
The major initiative, which was launched in 2013 to develop a modern-day version of the land-based Silk Road Economic Belt & the Maritime Silk Road of the 21st Century, will promote the UAE as an international trading hub, as well as a crucial destination linking Asia, Africa and Europe through its state of the art infrastructure for air, shipping and road facilities.
Experts said the BRI initiative will benefit the UAE economy, trade in general and logistics and transport sectors in particular. Referring to the Federal Competitiveness and Statistics Authority’s recent report, they said the logistics sector’s gross output amounted to Dh219 billion last year and the sector’s contribution to the UAE’s gross domestic product is projected to increase to 8 per cent by 2021.
With over 20 per cent of Arab-China trade and more than 25 per cent Chinese exports to Arab countries already been passing through the UAE, the emirate is positioned itself to take centre stage of the BRI initiative because of its strategic location, excellent infrastructure and stable economic policies.
The UAE and China have already announced many initiatives due to which the emirate will consolidate its position as a key transit point for Chinese exports to African and European countries. One such example is setting up a Traders Market in Jebel Ali Free Zone that will create the first smart free zone market place in the Middle East for the retail and wholesale industries and aims to serve the wider region with a population base of over two billion.
DP World and China Commodity City (CCC) Group Company will develop this $150 million Traders Market project by 2021. Zhao Wenge, Group Chairman of CCC Group, said the Middle East and Africa region is critical for the BRI and his group is ready to serve this high-growth market through the Traders Market.
“We have chosen Jebel Ali for its efficient infrastructure, business-friendly environment and significant trade with China,” he said.
Sultan Ahmed bin Sulayem, Group Chairman and CEO of DP World, said this deal highlighted DP World’s ability to attract trade through its best-in-class infrastructure and emphasising Dubai’s position as the regions premier trading hub.
“This investment showcases our trade-enabling strategy as we look to catalyse trade and the movement of goods through removing inefficiencies and lowering supply chain costs,” he said.
In addition to this, a 2.1 million sqft e-Commerce City is also under construction in Dubai that will cost Dh3.2 billion and ultimately promote trading and logistics in the country.
Experts said the UAE will emerge as a strong trading hub in Silk Road Economic Belt and the logistics industry will be its major beneficiary.
Referring to a recent report of the Dubai Chamber of Commerce and Industry, they said the UAE’s air freight market will expand by a compound annual growth rate of 4.8 per cent over the 2017-21 period while container port traffic in the UAE is expected to rise from 22.4 million twenty-foot equivalent units (TEU) in 2017 to 28.4 TEU by 2021.
Shailesh Dash, Chairman of Gulf Pinnacle Logistics, said the BRI is an ambitious plan proposed by China aiming to strengthen trade, infrastructure and investment between China and 65 countries who, according to World Bank 2018 estimates, contribute 30 per cent of the world’s GDP, 62 per cent of the world’s population and 75 per cent of known energy reserves.
“Even though the proposed economic corridors in the BRI do not formally include the GCC, the UAE is set to benefit directly and indirectly from such an ambitious initiative,” he said.
Firstly, he said the China along with the UAE and other Arab countries have founded the Asian Infrastructure Investment Bank, which allows the UAE to invest in international infrastructure and logistics opportunities, diversify its economy and benefit from high-growth markets.
“Logistics giants headquartered in the UAE such as DP world will also expand their infrastructure and handling capacity across Europe, China, Africa, and Southeast Asia in anticipation of increased and faster trade due to reduced distances and enhanced agreements between the newly linked countries,” he said.
“The shipping distance between UAE Ports and China is expected to be reduced from 15,000 km to 2,500 km due to the Gwadar Route,” Dash said.
Secondly, as the BRI develops, the UAE in general and Jebel Ali Port in specific will gain further prominence as an international trade hub for several countries serving as a connecting centre between Asia, Europe and Africa. “Cities along the way of the BRI corridors are set to flourish due to increased trade, investment and job creation.”
Thirdly, he said UAE logistics companies are likely to adopt Chinese technologies including driver-less and autonomous vehicles.
Finally, he said the UAE in general and the logistics industry in specific are set to benefit from Chinese investment inflows and financing of BRI projects.
“China’s state-owned banks recently established offices in the UAE and will be instrumental in pumping liquidity into the infrastructure market,” he said.
According to a recent report from the Emerging Markets Forum, China has committed or dispersed around $600 billion in loans since 2013 under the initiative, compared to $490 billion by the group of multilateral development banks comprising the World Bank, the Asian Development Bank, the African Development Bank, and the Inter-American Development Bank.
China’s main international funding agencies such as Export-Import Bank of China and China Development Bank are funding $334 billion of infrastructure projects globally that are currently in different stages of developments, according to researchers. Of the total, projects with a combined total of $249 billion are in execution.
UAE a Crucial Connector between Asia, Africa & Europe
Dash said the UAE is strategically and best-positioned among all of its Arab World counterparts to be the crucial connector between Asia, Africa and Europe.
“We remain very optimistic about the UAE logistics industry and the opportunities arising in that space. Local logistics players should enhance their skills and upgrad their capacities to handle growing volumes in the near future,” he said.
Dash said the development of the infrastructure will intensify competition among courier and last-mile delivery companies. Shorter travel distances will raise the client’s expectation to receive shipments faster than ever before putting significant delivery pressure on the delivery industry.
“Delivery companies will have to be faster, more efficient and fulfill shipment requests within the same-day or within few hours just to stay competitive. Large last-mile delivery companies are likely to invest in new warehouses and facilities adjacent to the newly paved ‘belts’ to strategically position their delivery capabilities,” he said.
Shipping Companies Confident of Brighter Outlook
Rodney Vegas, chief executive of Abdul Mushen Shipping and So-Safe Logistics, said the development of the BRI will provide a win-win situation for international trade, bilateral cooperation and the global economy.
“Almost all countries, whether directly or indirectly involved in the ambitious plan are likely to benefit due to enhanced infrastructure, reduced bottlenecks and lower transportation costs,” he said.
He said the shipping companies and logistics providers are upgrading their existing capacities amid expectations of high volumes of business in coming years.
“This initiative will help us be ahead of the curve and get ready for more business opportunities,” he said, adding that the industry is confident of brighter outlook.
Courier Companies need to be Fast, more Efficient
Najeeb Kabeer, Managing Director of Century Express, said the development of the Silk Road will serve as a secular trend which will significantly enhance the customer’s product delivery time but is likely to put severe pressure on delivery companies.
“Last-mile delivery companies will surely benefit from the development of the new Silk Road in the form of shorter travel distance, increased shipment activity and enhanced infrastructure. However, the ultimate beneficiary is the end-consumer as he/she will benefit in the form of enhanced delivery experience, shorter wait-time and lower delivery prices,” he said.
He said companies that are relatively small and slower in adapting to the pace of a fast-moving environment will lose market share to more established players.