Transformation Trends in Dubai’s Logistics Industry

The UAE is ranked in 1st place in the GCC region and in 7th place out of 140 countries, for the quality of its air transport infrastructure in 2019. The logistics market in Dubai is projected to add additional USD 16 billion in value in the next 6 years hitting USD 60 billion by 2025.

Definition / Scope
Market Overview
Key Metrics
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Distribution Chain Analysis
Competitive Landscape
Key Market Players
Strategic Conclusion
References

Definition / Scope

First mile logistics involves connecting manufacturers and warehouses while the last mile logistics bridges fulfilment centers and customers. Second mile delivery or long haul deliver involves processing the shipment from warehouse to fulfilment center.

The logistics ecosystem comprises the following stakeholders:

Freight Forwarding

UAE has a strong freight forwarding market owning to the strategic geographical position on the trans-continental trade route and multi-modal connectivity.

Sea freight dominates the freight forwarding market in terms of volume because of expansion of seaports and development of free zones. Industry and retail is the major end user in terms of revenue in freight forwarding market of UAE.

Warehousing

Warehousing market of UAE has grown at a consistent rate because of increase investments in the economy in the manufacturing sector. Warehouses are majorly located near the free zone to ensure fast delivery and efficient movement of products across the borders.

The warehousing companies need to acquire license for handling specific products such as pharmaceuticals. Warehousing market has started adopting advanced technology such as WMS, block chain, RFID tags to ensure efficient operations. Along with warehousing, the demand for value added services has also increased in UAE.

Courier, Express and Parcel Market

Courier, Express and Parcel market of UAE has experienced astonishing growth due to increasing technological advancements, adoption of automation, high purchasing power and increasing mobile and internet penetration.

Ecommerce Logistics Market

E-commerce logistics market of UAE has experienced exponential growth because of increasing technological advancements, favorable consumer demographics and significant mobile and internet penetration. High dependence of foreign trade is also a major reason for e-commerce growth in UAE. Government has also supported the growth of e-commerce through development of free zones for e-commerce industries.

3PL Market

Increasing demand of value added services, increasing freight volume, economic diversification and increasing trend of technological advancements has opened up the opportunity for the contract logistics providers.

The growth in the market also encouraged the emergence of several new players by using asset-light and yet dominates the market by partnering with the domestic logistics companies, who knows the market better.

Market Overview

Total non-oil trade that happened in UAE in 2019 surpassed USD 420 billion, imports comprised 58% of the total non-oil trade.

The Logistics & Warehouse sector was the second largest contributor to GDP in 2019 producing value added of over USD 41.49 billion (AED 152.4 billion or 12.3 per cent of GDP).

The Logistics & Warehouse sector employs 10.3 percent of the employed workforce with more than 283,843 employees; this sector was the third largest employer in Dubai in 2019. Real value added in Logistic & Warehouse sector rose by 2.3 per cent in 2019, just above the rate of growth in Dubai’s GDP.

The quality of the Dubai’s transport infrastructure is a determinant of Dubai’s international competitiveness and of foreign investment inflows. The UAE is ranked in 1st place in the GCC region and in 7th place out of 140 countries, for the quality of its air transport infrastructure in 2019. The UAE was also in 9th position globally for quality of road infrastructure.

Dubai is a hub for multimodal logistics (maritime, air, and land shipping). Dubai ranked 15th according to the indicator on the use of digital technology, innovation and R&D centers in maritime shipping technology and the presence of global expertise in this field. Dubai was ranked as the 9th best global maritime capital in the world.

Key Metrics

Indicators	Base Year 2019
Market Size	USD 44.06 Billion
Growth Rate	CAGR 6.2%
Containers Handled (20 Foot eqv. Units)	14.11 Million
Non-Containers Handled	2.92 Million Metric Tons
Air-Freight Handled	2.57 Million Cargo Tons

Top Market Opportunities

Retail Logistics

Dubai is the world’s most attractive shopping destination with 62% of world’s luxury retail brands having business there. The retail sector contributes over 26% to the GDP.

The benefits of the flourishing retail sector are directly attributed to the retail logistics. The number of tourists visiting Dubai is tremendously increasing and they are attracted by the shopping experience in Dubai.

More and more international luxury fashion brands will have eyes in the region’s attractive marketplace. Investing in retail logistics will be the opportunity for the Emirati and rest of the world.

Market Drivers

Robust Economy

The economic growth of Dubai is well over the growth rate of UAE. After the sluggish growth in 2017 when the economy of UAE drastically fell down, Dubai maintained leveled off the economic trajectory comparing the growth rate in 2016.

Since 2018, the economy of both the region is rising steadily. The GDP growth rate in Dubai was recorded 2.1% while it was just 1.6% for UAE. The forecast also looks promising for the Dubai’s economic progress.

E-commerce Growth

The e-Commerce market in the UAE hits USD 18.5 billion (AED 68 billion) in 2019, accounting for 27% of total e-commerce size in GCC region. The market is expected to surpass USD 27 billion by 2022.

Dubai’s Trade

Dubai’s total trade value of exports and imports exceeds USD 350 billion yearly. Despite the slowing trading economy worldwide, the trade volume from and to Dubai is witnessing positive growth as shown in the chart.

Decentralized Regulation

There is a lack of centralized body to regulate the integrated growth of multimodal logistics in Dubai. The various regulatory bodies are RTA, JAFZA, DAFZA, Dubai Maritime City Authority, etc. Each of these regulatory authorities tries to regulate and develop the industry from different perspectives.

Absence of Railroad Infrastructure

Etihad Rail is the only UAE’s national railway for freight and passenger transportation yet to be launched in the region that will connect seven emirates of the UAE. The project is estimated to cost USD 11 billion and it will cover 1200 kilometers distance in the region and is expected to run in operation by 2024.

Low Ship Ownership Activity

Businesses find ship ownership less attractive in Dubai and financing in ship is also at nascent stage. Most of the ships operating in Dubai’s major ports are owned by foreign investors and operated there.

Industry Challenges

Low-capacity Utilization

The Lorries have to excessively backhaul while moving within GCC region due to lack of parking spaces at key transit locations resulting in unproductive resource consumption.

Non-tariff barrier

The presence of non-tariff barriers to move goods to other GCC countries by using rail road transport leads to increased time in transit of goods by road.

Technology Trends

Artificial intelligence

Through AI, Businesses can help automate various supply chain processes such as demand forecasting, production planning or predictive maintenance.

AI in supply chain consists of technologies that seek to emulate human performance and knowledge, such as improving order delivery and service levels by using AI capabilities to determine the routes a company should take to optimize deliveries, or optimizing shipping replacement parts by applying AI algorithms and notifying users of a potential equipment failure prior to it occurring.

As per the study, early adopters with a proactive AI strategy in the transportation and logistics sector enjoyed profit margins greater than 5 percent.

IoT

IoT adoption is growing in selected supply chain domains. Logistics groups already use sensors to track assets or containers.

The IoT could have a broad and profound impact on the supply chain in areas such as improved asset utilization and higher uptime, improved customer service, improved end-to-end supply chain performance, or improved supply availability, supply chain visibility and reliability.

Autonomous things

The rapid explosion in the number of connected, intelligent things has given this trend a huge boost. Robots, drones or autonomous vehicles enable new business scenarios and optimize existing ones.

Autonomous things are often physical devices operating in the real world, such as robots carrying out jobs in a coordinated fashion to create a seamless and connected process in manufacturing facilities or by using drones for inventory quality assurance through taking images with the drone’s camera to reduce time for inventory checks.

Blockchain

Documentation that is needed at each step of value chain takes days and even months in case a single document is lost or missing. To verify the transactions autonomously, blockchain helps in improving communications and border administration using the technology.

A single shipment could require hundreds of pages that need to be physically delivered to dozens of different agencies, banks, custom bureaus, and other entities. Blockchain is solving this issue as an integrated system to solve the huge pain.

Maqta Gateway, a subsidiary of Abu Dhabi Ports, is already using blockchain called Silsal. The aim of the platform is to provide greater security, transparency and efficiency in trade.

Last week neighbouring Dubai announced a similar project. Silsal reduces friction by speeding up information exchange, providing access to transaction status updates, and reducing the need for paperwork, phone calls, and in-person visits.

DP World has also initiated integration with the TradeLens blockchain container shipping platform. Global pandemic is forcing logistic providers to join blockchain to spur semaless information flow amid lockdown in many counties that halted the international airline operations.

Intelligent transportation systems (ITS)

ITS helps in easing management of traffic, in responding to incident, in enhancing safety, and in managing revenue. The Road and Transport Authority (RTA) of Dubai in membership with ERTICO are working in preparing and updating the technical specifications and international standards related to smart transport systems.

By using ITSs, freight logistics operations could be improved by enhancing the exchange of information and real-time status updates regarding different business operations in different modes of transportation.

Robotic Process Automation (RPA)

The market for automated materials handling is expected to reach USD 499 million by 2023 in the GCC region. IQ Fulfillment is the first robotics fulfillment solution in the entire region powered to handle a capacity of 12,000 orders of robotic fulfillment per day and another 15,000 orders of sorting a day.

The USD 21 million warehouse expansion project led by Swisslog for one of UAE water-bottling plant, Mai Dubai, is a threshold for a fully automated plant.

Other Key Market Trends

Transformation Trends:

Digitization
Sales Channel & Marketing
Digital Business Model

Logistics players are focusing to transform their factor and operations towards digital modeling, data use, IT system, cloud usage, autonomous processes, and information sharing. Moreover, they are adopting ERP software such as E-finance, digital HR, Knowledge Sharing System in the company.

Also, the customer interaction has changed from legacy system to digital omni-channel customer experience. The digital trend has changed the transparency, communication, collaboration, and responsiveness ecosystem in the logistic sector.

DP World and Oracle has agreed in partnership to develop an integrated technology platform. The platform would enable DP World to use Oracle’s Cloud Applications like Finance, Operations, and Procurement Suites.

The deeper applications that would be integrated are Machine Learning, AI, and Block Chain. It has also introduced online portal for seamless logistic service offerings.

Shift in International Trade
New Trade Route Solutions

As outlined in the 50 Year Charter, Dubai Silk Road plan is approved by the Emirati ruler. The strategy internally aims to enhance trade between free zones and the rest of the emirates.

And externally, the strategy aims to improve the strategic and operational connection of logistics services between DP World terminals worldwide with Emirates airlines playing a key role.

Another reform is World Logistics Passport initiative which seeks to drive economic development efforts globally along with its partners, and its commitment to establishing new ties to support trade at the international level by enhancing trade capabilities, especially in the logistical sector, and by facilitating the movement of goods, transportation, shipping and supply services through global trade corridors.

Software-driven Process Changes
Intelligent transportation systems (ITS)
Robotic Process Automation (RPA)
Predictive maintenance and drone supervision
Blockchain solutions
Artificial Intelligence (AI) solutions for T&L

The detailed discussion about these software-driven process changes has been covered in technology trend and technology outlook section.

Shifts in Markets’ Domestic Commerce (E-commerce investing in logistics & logistics consolidation)

Big business entering e-Commerce market in the UAE hit USD 18.5 billion (AED 68 billion) in 2019, accounting for 27% of total e-commerce size in GCC region. The market is expected to surpass USD 27 billion by 2022.

Mobile phone penetration surpassed world-record high of 210% in the region. Amazon acquired Dubai-based Souq.com in 2017, which had over 50 million customers and operations in all GCC states, positioning itself as a major e-commerce player in the region.

In addition, in late 2017, Amazon announced the launch of its AWS Data Center in Bahrain as part of its market expansion plan for the region. The UAE government set up a duty-free e-commerce hub Matajir.com in 2014, as an initiative to work closely with local and international companies.

The aggressive growth of the e-commerce market in the UAE increases demand for professionally qualified logistics service providers to meet the logistics requirements of their customers

The recent funding grabbed is by Dubai based last mile delivery start-up called iMile amounting USD 10 million in Series A funding in 2020. Likewise, Fodel, a last mile delivery tech start-up in Dubai pocketed USD 100 million in technology fund at the end of 2019.

Market Size and Forecast

The growth rate of the logistic and warehouse sector in Dubai was record highest in 2014 achieving 15.5%. However, the growth rate started to stumble reaching 3.1% in 2016.

The GDP contribution by logistic and warehouse sector was USD 37.21 billion in that year. But it gained traction in 2017, hitting 8.4% and again falling down to 2.1% in 2018. In 2019, the sector grew at an average rate of 6.2% to total USD 44.06 billion worth in value contributing to GDP.

The total number of containers handled at Dubai’s ports was 14.11 million units.

Containers Handled	2017	2018	2019
In Million 20 foot equivalent units	15.37	14.96	14.11

Within the non-container division, total break bulk shipment hit 2.32 million metric tons and total bulk totalled 2.92 million tons.

The total number of livestocks shipments was 112,000 through ports. Total movement of ships was over 257,000 units and total vessels in and out were just below 20,000 units in 2019.

Non-Container Goods Handled	2017	2018	2019
Total Break Bulk (Million Metric Tons)	3.80	2.80	2.32
Total Bulk (Million Metric Tons)	4.75	4.54	2.92
Total Live Stock (Head Thousands)	126.68	84.98	112.14
Total Ships Arrived/ Departed	317362	280487	257667
Total Vessels Arrived/Departed	20891	21849	19727

Volume of airfreight in and out from Dubai- 2.68 million tons

Air Freight from-to Dubai	2016	2017	2018	2019
Cargo Tons in Million	2.57	2.66	2.68	2.57

Almost 2.57 million tons of cargo was transported via airfreight in 2019.

Emirates Sky Cargo is the world’s second largest cargo carrier. It handled almost 13,000 Freight Tons Kilometers (FTKs) in 2019.

The number of Heavy Vehicles operating in Dubai reached 58,553 units and the number of Trucks operating hit 48,769 units in 2019.

Market Outlook

The logistics market in Dubai is projected to add additional USD 16 billion in value in the next 6 years hitting USD 60 billion by 2025.

Dubai is planning to invest USD 35.7 billion on the development of DWC and an adjacent logistics hub known as Logistics District across a free zone-designated area stretching 145-sq-km.

The project is designed to turn Dubai’s second airport into the world’s biggest with an estimated eventual capacity of 220 million passengers and 16 million tons of cargo.

Another project taking shape at the moment and planned is Etihad Rail, a USD 200 billion project that will transverse the GCC countries once it is completed.

Likewise, through a USD 50 million investment by DP World, Virgin Hyperloop One is working to develop a network of closed, low-pressure tubes through which passengers and cargo pods will move at very high speed.

Technology Roadmap

Outdoor Applications:

Although today’s self-driving vehicles are typically restricted to indoor, closed-course, or warehouse environments, these precursors may soon pave the way for robots to take over airport, yard, and port logistics in order to reduce congestion and improve employee safety.

A research project called SaLsa is actually trying to test autonomous transport vehicles in yards.

Convoying:

For trucking transportation, convoying consists of lines of vehicles wherein the first vehicle is driven by a human, while those that follow along, coupling and de-coupling at stops along the way. Multiple pilot projects are already underway.

The Bosch VisionX truck study is still in its concept stage, but parts of the study are already being trialed in other ways. It has been testing driverless cars on freeways in the US, Germany and Japan for a couple of years now through its highway pilot test-driving program.

The 1.3 kilometer convoy was first tested in UAE from Emirates SkyCargo, Dubai Airports, DWC, and Allied Transport back in 2014 that together organized for 43 Allied cargo trucks to be decked out in UAE flags, planned the convoy route and driving logistics.

Last mile package delivery:

Although today’s self-driving cars are primarily designed to excel at highway driving, in the future, delivery companies, like DHL, may be able to bring packages directly to customers’ doors by using aerial or terrestrial robots.

DHL partnering with EHang have already tested fully automated and intelligent smart drones for last-mile delivery in China. The EHang smart drone has eight propellers on Quadra-copter designed with multiple redundant systems carrying upto 5 Kg of weight.

Similarly, FedEx’s Roxo will soon start catering to a range of businesses in the UAE, giving them the opportunity to use the robots for last mile deliveries and potentially reduce costs.

For the commercialization of this robust technology, the ROI is yet to be proven. But delivery drones have the potential to transform the way goods are delivered.

Distribution Chain Analysis

Consignors could be any party from manufacturer, wholesaler, distributor, retailer, to individual. Consignor could take the service of freight forwarding agent or could plan the transport himself.

Freight Forwarding agents plan domestic and international shipping on party’s behalf. Freight Forwarders might not always own transportation assets like truck, rail or ship but they manage for such services. Custom brokering firms facilitate clearing of consignment through ports and custom check-points.

Warehousing companies provide storage of goods on transit or where customers leave the goods for varying periods. Transport service providers help in movement of goods via air, land, or sea. Finally there are some other transport related service providers participating in the value-chain.

Competitive Landscape

The freight forwarding and warehousing market of UAE is highly fragmented in nature. Companies are focusing on investing cold storage and cold transportation.

UAE market has witnessed emergence of various startups providing contract logistics for road freight such as Trukker, Trukin and Load Me.

These aggregators tend to bridge the gap in the demand and supply of the fleets for road freight and hence eliminate inefficiency in the market.

The major players in the UAE logistics and warehousing market are Al-futtaim logistics, Jenae Logistics, RAK Logistics, Global Shipping & Logistics, and Emirates logistics. UPS and DHL have market dominance in parcel packaging segment.

Individual truck operation market is highly fragmented in Dubai. Al Mashaweer Transport, Allied Transport, and Oman Transport capture 30-40% of the land transport market. Major 3PL truck providers are Agility, Ceva Logistics, and Mohebi Logistics.

In maritime shipping, Jebel port handled by DW World captures the majority of the market share. DP world captures 20% share of the global ports operation. Emirates Sky Cargo captures the majority of the air freight logistics in Dubai.

Key Market Players

Al-Futtaim Logistics

Al-Futtaim Logistics was established in 1980 as a regional provider of supply chain solutions, now it has a global reach to 150 countries through its strategic alliance with global network partners.

It offers a full range of advanced end to end supply chain management solutions such as: Global Freight Forwarding and Local Services, Warehousing and Contract Logistics, Local and Cross Border Transportation and Distribution, Corporate Transportation, Domestic and International Relocations, Finished Vehicle Distribution, and Lead Logistics and 4PL.

Al-Futtaim Logistics is involved in providing solutions for:

Automotive Logistics
Retail Logistics (including F&B, Fashion, etc…)
Humanitarian and Military Logistics
Project Cargo, Heavy Lift and Break Bulk
Industrial Solutions
Exhibitions & Events Logistics
Ecommerce Last Mile Solutions

The company manages over 250,000 square meters of warehousing and 1,000,000 square meters of open storage space, with its own fleet and operational centers located at major air and sea hubs in the UAE.

The company earns over USD 10 billion in annual revenue.

Jenae Logistics

Its services include domestic and international freight transport solutions, import and export customs clearance, airfreight consolidation with door to airport and door to door services, ocean freight – full container load & less than container load services, sea-air movements, air-air movements, sea-shore shipments, transshipments, cross shipment arrangements, warehousing & distribution, overland transportation to GCC & Middle East – FTL & LTL, and procurement & outsourcing.

It generates over USD 1 billion in annual revenue.

RAK Logistics

RAK Logistics LLC operates as a freight company. The company offers services, which include air freight, sea freight, road transport, logistics, and warehousing distribution worldwide.

The company’s yearly revenue surpasses USD 100 million.

Global Shipping & Logistics

GLS first started its operation in 1975 as a 3PL provider in UAE. Currently, it owns 100,000 square meters warehouse. The company’s operations include international freight, customs clearing, port haulage, cold chain ware housing, and distribution services.

The company’s yearly revenue surpasses USD 6 million.

Strategic Conclusion

Despite the short-term impact of covid-19 that not only affecting Dubai’s Logistics sectors but also hampering the global supply chain, the long-term outlook of the UAE’s logistics markets continues to remain strong.

The growth will be leveraged by multiple projects and visions that are set for the multimodal logistic ecosystem by the Emirati leaders. Trade volumes have decreased significantly since the declaring coronavirus as a global pandemic Feb-June of 2020 and the UAE’s logistics sector is expected to be economically impacted particularly given its re-export hub status.

Overall, the UAE’s modern transport infrastructure ranked eighth globally on Global Competitiveness Report 2019, combined with its strategic location, the country is an opportunistic hub for global businesses looking to extend their foot-print into emerging markets by using the UAE as a regional supply and re-distribution gateway.