Robert W. Moorman
xpress freight carriers have plied their trade in the Middle East long before the two Iraq wars, long before there was the infrastructure to support the business, long before Dubai was dubbed a global center of commerce. Consider DHL, which entered the Middle East market in 1976.
"We continue to regard the Middle East as one of DHL's most important markets," said David Wild, DHL commercial director for the region. "Currently, we're experiencing record growth in most markets."
That should be no surprise. The booming oil-driven economies and significant investment throughout the region, particularly in Dubai, set the foundation for continued growth of express carriers and their partners.
The region led the world by far in freight growth last year, expanding 16.1 percent over the year before, according to the International Air Transport Association.
Recent infrastructure developments make it possible for the Middle East to serve as a bridge to Africa, Asia and Europe. But the growing story is that of growing domestic, consumer-driven economies that are helping drive more express business within the region.
Today, 17 freighters make up the DHL Middle East network, with logistics centers at airports in United Arab Emirates, Bahrain, Qatar, Jordan, Egypt and elsewhere. The company operates in 15 Middle East countries, linking them to DHL's international network.
From only transporting documents in the 1970s, DHL and other express carriers now offer more services, including heavier shipments and customer-driven deadlines, which analysts say signals growing sophistication on the part of the express carriers as well as airports.
DHL claims to be the lead operator in the region for volume in both U.S. inbound and outbound shipments to the Middle East, although DHL declines to provide any specific financial or traffic figures.
To maintain its position, DHL earmarked $56.3 million for infrastructure improvement across the region over the next five to 10 years. DHL also plans to develop more than 984,000 square feet of land in the new Dubai World Central Airport. DHL also will build a 164,000-square-foot hub facility at the new airport, which will have six runways.
UPS and its Supply Chain Solutions division have served the Middle East for more than a decade. It is presently enjoying "double digit" growth annually and recently transitioned to from 757s to larger MD-11s, said Vasilis Gatzoyannis, director for the Middle East and North Africa. UPS declined to provide specific revenue and traffic figures for the Middle East, but reported a 15 percent export volume growth in 2006 for its Europe Region, which includes the Middle East.
UPS offers express service with joint venture partner GAC Logistics out of Dubai and is expanding efforts in Qatar, which, like Dubai, is a center of U.S. military and oil and gas related business.
"Qatar is, perhaps, the next Dubai," said Michael Harrell, UPS region manager for South/Central Europe, Middle East and Africa. "Qatar is a big story for UPS."
By early 2008, as part of its expedited product offerings, UPS will introduce time-definite early morning delivery in most of its Middle East markets. UPS also is expanding its spare parts logistics business in Dubai and elsewhere.
FedEx operates two MD-11 freighters daily from Dubai. The first connects Dubai with New Delhi and Mumbai. The second travels westbound to Europe and the U.S. The company has expanded its time-definite, premium International Priority Freight Service to a number of Middle East countries.
Hamdi Osman, FedEx's senior vice president operations Middle East, says FedEx plans to expand its service as part of a $200 million systemwide effort.
Even with the continued growth and investment, there are major challenges in operating in the Middle East.
"As you get further from Dubai, it gets more difficult to do business," said John Tansey, UPS country manager for the United Arab Emirates.
Each market is at a "different level of maturity" in its ability to import and export goods, said Tansey. Customs, transit clearance and registration processes for imports and exports can vary widely from country to country. UPS and other carriers would like to see a more uniform customs process adopted across the region, but understanding the countries in which cargo related businesses operate goes a long way to reducing the hassle factor.
"Businesses operating in the Middle East must be able to appreciate the specific nuances of the Arabic culture," said Bill Hill, group vice president for Dubai-based GAC Logistics, a 50-year-old forwarder. While much of Dubai and other locales resemble boomtowns, "these are still relatively young markets especially in terms of outsourcing of third party logistics services by manufacturers, distributors and retailers," said Hill
Another challenge for express carriers is recruiting qualified personnel, particularly in Dubai. Housing and the higher of living costs around Dubai make it difficult to attract qualified staff.
Two factors potentially threaten the air cargo market in the Middle East: The rise of India as a center for commerce and the departure of the U.S. military from Iraq and Afghanistan. For the first to happen, India would have to greatly enhance its airport infrastructure, modernize the aircraft fleet of its now-merged flag carrier, Air India, and liberalize its protectionist-leaning air service policies.
"If that happens, cargo and passenger-carrying airlines could bypass the Middle East and fly directly to India en route to Europe or elsewhere," said David Hoppin, principal with MergeGlobal, an aviation consultancy.
Few in the industry see that on the near horizon.
"I heard that comment about India 10 years ago," said UPS's Harrell. "In those 10 years, Dubai and the surrounding area have added more capacity, which makes them more efficient."
"India is already a significant player in the parcel industry and it has not hurt the Middle East," said FedEx's Osman, who believes expansion in India trade will help the Middle East.
"We see a great opportunity for the Middle East and India trade lane and are currently investing in the area," said DHL's Wild. DHL owns a controlling stake in Indian express carrier Blue Dart, which will add 20 facilities and 12 warehouses across India by the end of 2007.
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Airline Cargo
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While the express carriers have been building in the Middle East, the region's own carriers have been aggressive in ramping up their own cargo business.
Abu Dhabi-based Etihad Crystal Cargo and Emirates SkyCargo of Dubai have impressive traffic and revenue growth and offer plenty of competition, as well as capacity, for the integrators.
Etihad in 2006 carried 134,181 tonnes of cargo and some $216 million in cargo, doubling the young carrier's role in the freight market.
Emirates carried more than a million tonnes of cargo for 2006, a 21.5 percent jump over the previous year, and earned $1.2 billion in revenue, 29.2 percent over 2005. SkyCargo accounts for 21 percent of Emirates' overall revenue. The first half of the 2005-06 financial year saw Emirates SkyCargo's revenue jump 33 percent and its tonnage by 20 percent to 482,743 tons.
But both carriers struggle with the very thing that drives overall business in the region - the price of oil, and soaring jet fuel expenses.
And there are other challenges. For Emirates and its cargo division, delays in A380 deliveries "caused us a lot of pain and affected our growth plans," said Ram Menen, executive vice president for Emirates SkyCargo. "We should have six A380s flying now," said Menen. To compensate for the lack of lift, "we've had to cut down considerably on our expansion plans."
Cut down, but not halt. Emirates recently announced the addition of several new passenger destinations: Venice, Newcastle, Houston and Sao Paulo. Separately, Emirates SkyCargo launched A310-300 freighter services weekly between Dubai and Djibouti.
Etihad plans to expand its routes by 18 percent, including Sydney, Dublin and Milan, which will yield "huge cargo opportunities," said Rupert Batstone, acting executive vice president cargo.
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Dubai, the second largest Emirate in the United Arab Emirates, is an important trans-shipment point and logistics hub for Indian goods, said Wild. A recent report on trade between Dubai and India, said Wild, showed a 336 percent increase from $2.5 billion to $10.9 billion over the last five years.
In 2006, total non-oil trade between India and Dubai hit $10.9 billion, said the report. India posted $2.5 billion worth of exports to Dubai and $4.4 billion of imports from the Emirate.
"To capitalize on this growth, we will establish a formal trade lane management structure in the same way as we have focused on China and the U.S.," said the DHL executive.
Dedicated air freight carriers and airlines, which transport substantial belly freight, are major sources of growth, which will emanate from Dubai, Doha and Abu Dhabi.
"There is a sort of arms race between Emirates, Qatar and Etihad airlines," said Hoppin, "which rests principally on a continued restriction on air traffic rights directly from Europe, which causes more traffic to flow through the Middle East."
In its Global Traffic Forecast for 2006-2025, the Airports Council International said Middle East air cargo market is helped by the "positive spill-over from high oil prices" and plans by Middle East carriers to develop passenger hub operations also will benefit "freight as belly capacity grows."
The impact of the U.S. military presence, and the military's potential departure, is a matter of constant conjecture.
"It all depends on how we leave it," said Richard Aboulafia, vice president analysis for the Teal Group. If the U.S. military ultimately succeeds in Iraq and Afghanistan, "you could actually have a peace dividend," said Aboulafia. "If, however, the Middle East resembles Vietnam in the mid-to-late 1970s, there won't be a peace dividend."
The express carriers aren't waiting for that dividend, investing now in what they see as robust economies.
GAC Logistics is augmenting its logistics park in Dubai with a $15 million expansion. The facility now offers more than 115,000 pallet positions. GAC recently signed a global agreement with Qatar Airways for cargo operating between Doha and more than 70 destinations.
