Middle East Logistics: Looking Beyond Dubai

While Dubai draws much of the focus for companies looking for a point of entry into the Middle East-North Africa market, better options may be available to access the region's fastest-growing consumer markets




Global enterprises looking to import goods into the Middle East-North Africa (MENA) region have become accustomed to thinking of Dubai as their primary point of entry into the market. With well-established, modern port facilities, attractive free trade zones, and a locally headquartered marine terminal operation, DP World, that is one of the largest in the world, Dubai has much to offer for companies targeting the growing region.

But if you are considering extending your supply chain into the Middle East to tap into the region's rapidly growing consumer markets, Brian McHale would like to expand your horizons beyond Dubai.

McHale is the longtime American logistics industry veteran at the helm of Wared Logistics, a Jeddah, Saudi Arabia-based provider of importation, transportation, distribution and logistics management solutions and services in the MENA region. Formed last year as a joint venture of Saudi-owned Zahid Group Holding and Construction Products Holding Company (CPC), both of which have more than 30-plus years in the logistics industry in Middle East, Wared operates transportation hubs, warehouses, and distribution centers across the region, in Saudi Arabia, Egypt, Syria, Lebanon and the United Arab Emirates.

Wared offers services in Dubai and its fellow emirate, Abu Dhabi, but McHale points out that the bulk of consumers — and the bulk of future consumer spending — is outside the UAE. "We have the ability to import product with our physical locations in Dubai and Abu Dhabi, but it's really a question of math," McHale says. "There are only 1.5 million people in Dubai, and with the financial crisis there, the consumer market has been drying up faster than a damp towel in the Saudi sun. You're going to want to distribute your product to the consumer base, and that consumer base is in Saudi Arabia and Egypt and, to some extent, Lebanon."

In fact, a recent report from ARC Advisory Group notes that while the UAE will continue to enjoy much higher per capita income levels than countries like Saudi Arabia and Egypt, those latter two countries will together account for more than $200 billion in retail sales by 2013, according to estimates by Business Monitor International. Many retailers already are making plans to get into the market to take advantage of that increased spending. The ARC report, "Beyond Dubai: Taking a Holistic Perspective of Trade and Logistics in the MENA Region," written by ARC analyst Adrian Gonzalez on behalf of Wared, points to a 2009 survey of retailers by CB Richard Ellis suggesting that more than one-quarter of the 220 retailers questioned were "actively looking" to open at least one store in the MENA region.

Expanding Logistics Market

The ongoing and impending expansion in the region also is driving growth in the logistics industry within the region. In a report issued last year, consulting firm Booz & Company estimates the Middle East transportation and logistics market will increase from approximately $18 billion in total value in 2008 to $27 billion by 2012. "Transportation (ground transport, air and sea freight) will likely grow at approximately a 7 percent [compound annual growth rate (CAGR)], only slightly surpassing overall GDP growth. But logistics services, that is, warehousing, contract logistics, and freight forwarding, are expected to show substantially higher annual growth rates of 10 percent or more," the consultancy writes in the report, "Not Too Late: Finding Opportunity in Middle East Logistics."

Logistics service providers have a significant incentive for moving into the region, as profit margins for operations in the MENA region are likely to be higher than in more established areas of the globe. "Those profit margins can increase in tandem with the complexity and level of sophistication of the logistics service. But even basic road transport services yield operating margins of approximately 6 to 10 percent — significantly higher than in mature markets such as the European Union, where margins are typically about 2 to 4 percent," Booz reports. That trend is likely to continue in spite of the global recession, the consultancy adds.

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