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Wed 1 Jun 2005 04:00 AM

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Quantum leap

Dubai Logistics City boasts that it is the first purpose-built multimodal transport hub in the world. However, will the free zone be able to find enough business to fulfil its ambitions?

|~|Retouchedforweb.jpg|~||~|Dubai Logistics City (DLC) shows an ambition that is remarkable even by the emirate’s high standards. A key component of the new Jebel Ali Airport City, which itself promises to be the world’s biggest airport by some distance, DLC is aiming to become a ‘must have’ on any logistics company’s list of operations and a key centre of world trade.

“When we talk about Dubai as a logistics platform, we think on a global scale,” says Dr. Roland Zibell, DLC’s project director. “Dubai can be one of the pillars of global logistics covering four main markets: the Middle East, the CIS, Africa and India… This is a market of two billion consumers with a growth rate of 5-7% per year, which all of a sudden has attracted in businesses who are now looking for a platform to do sales, logistics and aftersales operations.”

The scale of DLC, which will begin operations in 2007, is almost as big as the market it is targeting. The free zone will eventually spread over 25 km², thereby forming one of the largest parts of the planned 140 km² Jebel Ail Airport City, which is being managed by Dubai’s Department of Civil Aviation. The overall 45 year plan also includes 850 tower blocks, residential developments, a science park and a recently announced exhibition city. However, the focus will be the airport, which will eventually have six parallel runways and the capacity for 120 million passengers and 12 million tonnes of cargo per annum. Dubai International Airport will also remain in operation adding capacity for another 60 million passengers and more than 5 million tonnes of cargo, once the Mega Cargo Terminal is built. (Last year, just under 1.2 million tonnes of cargo, up 22%, passed through DXB.)

DLC is key in Dubai’s plans to attract 12 million tonnes of cargo into the Jebel Ali airport, a target that is nearly four times the amount handled in Memphis International, the home of FedEx and the world’s busiest cargo airport, last year. The free zone is designed to become a platform for both third party logistics providers and distribution centres for other companies. These will be the only types of businesses able to operate within it; other operations will instead have to look for premises in Dubai’s numerous other free zones.

“Dubai Logistics City will add to the landscape of free zones [in Dubai] by being a zone that is exclusively designed for the logistics business, either industrial or trading companies with distribution centres, or service providers doing any kind of logistics service,” explains Zibell. “DLC is not designed for standard industrial or trading businesses, so it is not where you would find a car manufacturer doing its business, just because it is a free zone.”

The main advantage for logistics companies of moving into DLC is its proximity to both the Jebel Ali seaport, which is also being expanded to handle 15 million TEU (container units) per annum, and the new Jebel Ali airport, and the fact that both are within the same customs bonded area. This means that an ocean container can be offloaded in the port and then transferred to the apron of the airport without having to go through customs, something that DLC says is not possible anywhere else in the world. To further extend the connectivity options available at DLC, there will also be a bonded road link to the existing Dubai airport as well.

“With Dubai Logistics City we do not focus on a single transport mode any more,” says Zibell. “The primary focus is not therefore to attract an airline or a shipping company to come in, as the logic of the business is the other way round.”

“Instead, Dubai is interested in getting companies to do their business here and to stay here. The focus must therefore be on trading, as if a distributor of spare parts makes the decision to come to Dubai, all of the service providers and forwarders will also come and they will stay here as long as there is business for them,” he adds.

In terms of facilities, DLC will offer logistics companies a wide variety of options, including either constructing their own buildings or leased premises. Forwarders will be offered plots in an exclusive area next to the 16 air cargo terminals and the airport apron. They will be able to have their own plots from 500 m² upwards on long term leases or access to shared facilities. There will also be another 1200 plots available for 3PLs and distribution operations, which can be from 2500 m² upwards. ||**|||~||~||~|According to Zibell, these plots are already attracting strong interest from logistics companies, with many expressing interest in building their own facilities. “The feedback is almost overwhelming,” he says. “Furthermore, instead of companies saying they will move in and slowly develop the business, a lot of them — local, regional and global — are working on long term strategic projects… As such, instead of leasing 500 m2 of warehousing, they would like to go for their own set-up from day one, much more so than we actually expected,” he adds.

However, while DLC may be proving attractive to logistics companies, it seems to run the risk of just taking business from other free zones in Dubai, not least Jebel Ali and the Dubai Airport Free Zone (DAFZ), which are also promoting themselves as regional hubs for logistics companies. Zibell argues though that DLC compliments these other free zones rather than creating competition for them.

“It is complementary because it provides a platform that has been designed for the logistics industry. If you look at the Jebel Ali port, you have a good basis, but now we need to make sure that there is room for the new type of business, the integrated logistics, which combines the different transport modes with the services,” he comments.

Indeed, in many ways, the most import thing DLC offers is space. Jebel Ali is notoriously crowded at present, and there is also little room for expansion at the current airport. “Dubai Logistics City adds more land, which is a relief to the current situation in the Jafza area,” says Zibell. “At the same time, it is restricted to logistics companies, so we will keep land reserved for quite long periods of time to ensure that logistics companies will find a plot of land as they grow.”

Logistics companies also now need more land, not just because they are handling bigger volumes, but also because they are aiming to offer more value added services. This was the key driver in the launch of the Jebel Ali airport project, as there was no room to develop these facilities at DXB.

“The story [of DLC] starts at the old airport, where you can see quite a lot of congestion on the landside,” says Zibell. “There are a lot of projects going on to improve the situation on the airside, such as the cargo mega terminals… but on the landside, there are few options to expand the space for companies even for traditional services, never mind looking forwards to when logistics companies want to expand the scope of their services as well,” he adds.

Despite these advantages, Zibell does not expect logistics companies to leave Jafza and DAFZ en masse for DLC. Instead, he believes that some organisations will operate across all of the free zones, while others will be more interested in just focusing on one. “From the outside all logistics companies look the same, but they are not,” he says.

“Some companies say ‘our focus is on ocean freight, so we are going to stay there [in Jebel Ali].’ Some companies say ‘we are in airfreight, we could not find a good spot at the airport, so we will move to DLC.’ Other companies say ‘we have to evaluate whether we need all of our operations under one roof or if it makes sense to separate them’,” he explains. “For some companies, it may well make good sense to separate [their operations] because depending on the structure they have, they might want to have dedicated facilities for certain customers independent of their standard operations in different transport modes,” he continues.

Jebel Ali will also be able to retain much of its business because of the cost of land at DLC. While the exact pricing of individual plots of land is yet to be finalised, the prices will be more than in Jafza. “The policy is that the closer you get to the apron, the higher the lease price will be,” says Zibell. “The price will therefore be higher than in Jafza, but the closer you get to Jafza, the closer you get to the Jafza pricing level… However [DLC’s rents] will be considerably lower than at the current airport in DAFZ.”

This therefore seems to suggest that there is a long term question mark over the future of DAFZ. The biggest selling point for the free zone was always its proximity to the airport, which included direct access to the apron. DLC, however, will also offer this and the added advantage of being much closer to the Jebel Ali port and free zone, as well as being considerably cheaper. Zibell though, believes that DAFZ will not be hurt by DLC.

“If you look at the companies in DAFZ at the moment, they are companies that require less space, as they do high value business. This is something that will probably not change in the future,” he contends. “Also, as DXB is still growing, it is good to have this room for the business to go into that zone; however, the focus is different to Dubai Logistics City.”||**||

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