Dubai Silk Road strategy to capitalise on logistics infrastructure and global connections

 

According to the World Shipping Council, Dubai’s Jebel Ali is the 10th-busiest container port in the world, handling nearly 15m twenty-foot equivalent units (TEUs) in 2018. Developed in the 1970s, the facility is now the globe’s largest man-made harbour and the biggest port in the Middle East. It is the only port in the World Shipping Council’s top 10 located outside South Asia, a list dominated by China’s massive transport infrastructure – the largest of which is Shanghai, with an annual capacity of 42m TEUs. The expansion of South Asian trading activity has proved useful to Dubai: in 2019 China announced plans to invest $3.4bn in two Dubai-based trading facilities, including a 60m-sq-foot storage facility for Chinese goods that will feature wholesale and retail outlets focused on regional and international trade. Aside from the useful injection of foreign capital, the investment is a significant vote of confidence in Dubai’s capacity to act as a global logistics hub.

New Plan

The logistics sector has recently emerged as a central front in Dubai’s effort to boost its non-oil economy. News of the Chinese deal broke at an advantageous time for the government’s most recent logistics initiative: in March 2019 Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, crown prince of Dubai and chairman of the Dubai Executive Council, outlined the emirate’s plans to capitalise on its trade and logistics infrastructure through the Dubai Silk Road development – a strategy formulated by the Ports, Customs and Free Zone Corporation (PCFC), in collaboration with other entities. It aims to boost traffic between trade and free zones within the UAE, but also seeks to enhance logistics connections between Dubai and the rest of the world.

Two domestic entities will play prominent roles in this effort. DP World, formed in 2005 by a merger between Dubai Ports Authority and Dubai Ports International, is to spearhead the expansion of marine interconnectivity. DP World currently has a presence in 40 countries, operating 78 marine and inland terminals, which includes ports, logistics parks and economic zones. The company is well positioned to expand: in 2018 it reported $5.65bn in revenue and $1.27bn in profit. The expansion of Dubai’s air connectivity, meanwhile, is to be driven by Emirates, Dubai’s flag carrier. A subsidiary of the government-owned the Emirates Group, the carrier serves 155 airports in 83 countries from its Dubai hub, and operates the world’s largest fleets of Airbus A380 and Boeing 777 aircraft. Like DP World, its balance sheet reveals plenty of capacity for expansion: in FY 2017/18, Emirates posted total assets of Dh141.6bn ($38.6bn) and an operating profit of Dh5.3bn ($1.4bn) in what was considered a challenging year for global airlines.

Road Ahead

Dubai’s logistics and trade indicators are already pointing in the right direction. In March 2019 chairman of the PCFC revealed that during 2017 sea trade grew to Dh467bn ($127.1bn) and air trade reached Dh594bn ($161.7bn). A further expansion of these figures as a result of the new initiative offers broad economic benefits. “Our goal of becoming an established global trade and logistics hub will reflect positively on our economy by boosting competitiveness and sustainability,” Sheikh Hamdan told local press at the time of the announcement.

There are more benefits for stakeholders in the real estate sector: namely, a successfully delivered logistics strategy, which promises relief in an era of declining prices. A 2019 report by Savills, a global real estate advisor, highlighted an oversupply of industrial and warehousing space in Dubai, finding that grade-A property rents had declined by 4-6% across the city in the first six months of the year, while grade-B rents fell by 8-10%. The implementation of the Dubai Silk Road strategy, and the uptick in demand for suitable real estate from primary developers and third-party logistics providers, is therefore a welcome prospect.

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The Report: Dubai 2020

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