Keller Publishing:

Global Logistics & Supply Chain Strategies

— February, 1997

Dubai Capitalizes On Strategic Location

By Karen Thuermer

With world-class infrastructure and a location convenient to major trade routes, Dubai is ideally positioned as a global cargo hub.

Known as the Hong Kong of the Middle East, Dubai is the only world-class distribution center between Europe and Asia

Located in the United Arab Emirates half-way between the major east-west trading routes linking the Far East and Europe, Dubai also is well situated to accommodate the growing north-south trade. Additionally, its location near the Indian subcontinent’s 1.3 billion population gives Dubai access to a market larger than that of the European Union or the North American Free Trade Agreement.

Developing transportation networks in this region as well as changes in the political composition of the world, mean that Dubai also can serve as a gateway to the countries of the Gulf region, Eastern Europe, the former Soviet bloc, Turkey, western Africa, and South Africa.

Among Dubai’s transportation and trading facilities are its well-equipped ports: Port Rashid and Jebel Ali Port; the Jebel Ali Free Zone Authority (JAFZA), which is surpassed in size only by Hong Kong; Dubai International Airport; and the Air Cargo Village.

Success of the huge free-trade zone sets Dubai apart from neighboring competitors, such as Fujairah in the UAE and Jeddah, Saudi Arabia. At last count, 925 companies from 72 countries had located within JAFZA, and 42 percent of these companies are from industrialized nations, including 70 from the United States.



	“Some companies will even disassemble products such as televisions and radios at the zone and send them on to places like Bombay, where they are reassembled, to avoid India’s high duties.” — Jafza’s Ahmed Al-Tayler

Although JAFZA may once have been regarded as a “white elephant” by the rest of the trading community, “it is now attracting multi-national corporations because of our entire package,” said Saeed Ahmed Al-Tayer, JAFZA assistant managing director.

The zone provides manufacturers with 274,405 square meters of open and covered storage space, much of which is temperature-controlled. Many companies, including manufacturers of electronics, cars, textiles, apparel and construction materials use the zone for light manufacturing or assembly, then re-export products to other markets around the world. “Some companies will even disassemble products such as televisions and radios at the zone and send them on to places like Bombay, where they are reassembled, to avoid India’s high duties,” said Ahmed Al-Tayer.

The $3 billion Jebel Ali Port can handle all types of ships, including containerized, bulk, ro/ro, general cargo and tankers with draughts up to 46 feet. It is the busiest port in the Middle East, second to Port Rashid.

Both ports also are among the world’s most efficient, according to the Dubai Ports Authority (DPA). Advanced container management systems are said to result in a productivity rate of 150 container moves per vessel per hour. Most ships calling on Port Rashid — a modern 35-berth, deep — water port close to Dubai’s city center — can be unloaded in six to 12 hours. DPA tells customers that a container can be in their consignee’s warehouse in downtown Dubai within 25 minutes of unloading.

Speed is particularly important at Port Rashid, which has developed a reputation for sea-air distribution. Cargo on an arriving ship can be transferred to Dubai International Airport’s Air Cargo Village (DCV) three miles away in as little as four hours.

Dubai’s sea-air distribution capabilities are increasingly used by companies that want to reduce transit time between the Far East and Europe or the United States, but don’t want the expense of a total air freight move. Sea-air volume through the DCV amounted to 67,355 tons in 1995, an increase of 56.7 percent over 1994 figures.

Sixty-three airlines now offer service to Dubai International Airport, and some are making major investments at the airport’s new $500 million, 220-acre Airport Free Zone. For example, DHL has constructed a state-of-the-art $4 million, 42,000-square-foot distribution center within the zone. In its two years of operation, business has increased 200 percent.

Federal Express has signed a lease for 192,000 square feet of distribution space at the airport, and AEI Emirates, a subsidiary of logistics operator Air Express International, currently is building a new warehouse and distribution center. Expected to open in July, the AEI facility will serve as the company’s operational hub for the Middle East, Africa and the Commonwealth of Independent States (CIS). The 85,000-square-foot facility is AEI’s second distribution center in the region; its first opened in 1994 in JAFZ.

To accommodate increased business, the airport is implementing a $500 million expansion designed to double its present size by the year 2000. When completed, it will provide for a total passenger capacity of 15 million annually and a cargo capacity three times its 1994 volume of 249,257 tons.

“The new plan, when completed, will propel the Dubai airport into becoming one of the top 10 airports of the world,” said H.H. Sheikh Ahmed Bin Saeed Al Maktoum, president of DCA. Plans call for a new concourse with 28 gates equipped with loading bridges, 22 remote gates, a new duty-free shopping complex, and a hotel for in-transit passengers.

A new free-trade zone — the first in the Middle East to cater to high-tech businesses — is being developed in three phases and will promote exports and re-exports. Phase I, already completed, includes 10 parking bays that accommodate Boeing 747s, all of which can be “worked” simultaneously. Phase I also includes a terminal for seasonal or chartered flights, plus warehousing.

Phase II will include distribution center warehousing; Phase III will offer build-to-suit infrastructure for light manufacturing industries. Plans also call for constructing a runway near the new facility.

The Dubai Air Cargo Village offers a particular economic advantage for cargo designated for just-in-time shipments. “Merchants dealing in JIT are not interested in paying high rates for storage,” said Sultan Seed Bin Nasser Al Mansoury, DCV director. “It is expensive to store goods in Europe as well as in Hong Kong and Singapore. The Dubai Air Cargo Village offers cost-effective and competitive rates.”

Officials at DCV see the end of the recession in Europe and positive growth in Southeast Asia—particularly in Vietnam and Indonesia, where new points of origin for cargo destined to Europe are being developed—as additional favorable signs for Dubai.

The Indian subcontinent and China also are expected to generate huge air freight volume using Dubai as a transit point.

“Both countries are ideally placed vis-a-vis Dubai,” said Mansoury. “The only hindrance is that their facilities have to be upgraded to match international standards.”

Las Vegas, Nevada
McCarran International Airport is central to Las Vegas’s plans to become a major distribution hub for the western U.S.

Dubbed the “Silver State” because of its once-bountiful supply of that metal, Nevada now is considered a top distribution and manufacturing location for companies seeking easy, cost-effective access to major markets in the western U.S. and the Pacific Rim. California, the world’s sixth largest market, literally is minutes away.

With two international airports, a broad network of major interstate highways and a grid of cross-country rail lines allowing quick access to the 52 million consumers in the western region, Nevada qualifies as a major hub. As such, it is home to a fast-growing warehousing and distribution center industry and offers some of the most advanced logistical services available in the marketplace.

A major contributor is Las Vegas’s McCarran International Airport, one of the top 10 busiest airports in the nation. McCarran’s activity is driven by the passenger and tourist trade but it results in a cargo windfall: plenty of belly space, frequent lifts and lower operating costs.

Companies locating distribution centers in Las Vegas can fly their products in on one of the 850 flights that land at McCarran each day. From there, they can ship via highway to a wide variety of destinations, including Los Angeles — less than six hours away — and the Mexican border. Nearly 50,000 tons of cargo are handled each month through the airport. In December, Delta recorded its highest month ever for cargo to Las Vegas: 4.6 million pounds.

One company taking advantage of these attributes is Levi Straus, which located one of its three U.S. distribution centers in the area. “At 800,000 square feet, its Las Vegas facility is its largest,” said Clare O’Brien, marketing director and economic development manager for the airport.

The airport recently extended its east-west runway from 8,900 feet to 10,500 feet. Another runway, extended to 14,805 feet in 1994, is the longest civilian runway in the United States.

McCarran offers 120,000 square feet of cargo storage space, up from only 12,000 square feet in 1990, and is adding space at a rapid pace. “In November, we broke ground on 40,000 square feet of warehousing/distribution space,” O’Brien said. “This year we will break ground on another 100,000 square feet of space, 50,000 square feet of which is already pre-leased.”

The 160-acre Foreign Trade Zone No. 89, which encompasses eight subzones, is located on airport property at the Las Vegas International Air Cargo Center.

“A wide variety of companies use these subzones, including the gaming industry, chocolate and wine distributors, pharmaceuticals, retailers and manufacturers,” O’Brien said.

Nearby, the Hughes Airport Center, a 390-acre business and industrial park with FTZ status, currently offers 1.7 million square feet of cargo space with another 1.5 million square feet under construction.

Still more space is available at the Cheyenne Center, a 209-acre, master-planned industrial park located near the North Las Vegas Airport. The Center is home to Federal Express and to a 155,000-square-foot distribution facility for Lechter’s housewares.

“Southern Nevada’s strategic geographic location, pro-business climate, and its dynamic marketing efforts make Las Vegas’ future as a cargo hub bright,” said Robert N. Broadbent, McCarran’s director of aviation.

Brownsville/McAllen, Texas
Proximity to the Mexican market and the maquiladora industry along the border has given these two South Texas cities a nearly irresitable lure.

The North America Free Trade Agreement has turned the South Texas border port of Brownsville into a magnet for companies doing business with Mexico. Consequently, the port’s Foreign Trade Zone No. 62 has become the second largest FTZ in the United States, exceeded only by the New York/New Jersey zone. Commonly referred to as “The Port of NAFTA,” Brownsville has 44,000 acres it can activate as FTZs.

Free-trade zones are particularly important in this area because of the maquiladora — or “twin plant” — program in Mexico. Companies can use the lower labor rates in Mexico for their labor-intensive or assembly-line activities, then move the products into an FTZ for quality testing or value-adding activities before re-exporting or distributing them in the U.S.

Approximately 110 maquiladoras currently operate in the Rio Grande Valley, manufacturing goods such as televisions, automotive seat belts and components, electric motors, athletic shoes, and ceramics.

Other companies are locating in the Brownsville area because of its easy access to the Mexican market. In October, Titan Wheel International of Quincy, Ill., announced plans to construct a one million-square-foot plant in Brownsville to make tires for agricultural and construction vehicles. Titan’s new facility will be the largest manufacturing plant in South Texas.

“This signing is going to draw a lot of new manufacturing to the area,” said Marie McDermott, president of the Brownsville Economic Development Council. “Suppliers to Titan, as well as other agricultural equipment manufacturers, will cluster in the area.”

Nearby in McAllen, FTZ No. 12 is home to Zenith, National Medical Care, Delco and Sony, among others. An expansion of the McAllen zone to 695 acres from its current size of 85 acres is planned.



	Free-trade zones are particularly important in this area because of the maquiladora — or “twin plant” — program in Mexico.

Anticipating that expansion, Orchid International, a leader in the metal-forming industry, recently chose the McAllen FTZ as the site for a new plant. The highly-automated, $10 million, 100,000-square-foot facility — expandable to 400,000 square feet — is unique in that rail spurs run directly through the facility.

“Orchid chose to locate in the McAllen FTZ [due to] bonded, duty-free shipment of goods across the border,” said Melissa Washburn, an Orchid spokesperson.

Over the last three decades, McAllen FTZ No. 12 has developed into one of the major customs ports of entry on the Texas-Mexico border and was the first inland port to be approved by the Department of Commerce. McAllen is a regional air transportation center serving the fourth fastest growing metropolitan area in the U.S. A $26 million terminal inaugurated in 1994 at McAllen-Miller International Airport now is served by Continental and American Airlines, as well as other carriers.

Brownsville also is making major investments in infrastructure improvements. A $5 million highway overpass recently was completed as a crucial first step in a railroad relocation project designed to remove port-related rail and truck traffic from downtown Brownsville and redirect rail lines around the city for more direct port access. A new intermodal terminal also is in the works.

The port is in the process of obtaining a permit to build an international bridge-dedicated exclusively to cargo-across the Rio Grande River into Matamoros, Mexico. This will provide time and cost savings to industries conducting cross-border transportation.

The bridge also will create the only bi-national industrial park along the U.S. and Mexican border with its own seaport.

Denmark
Once considered only a gateway to Scandanavia, Denmark is vying for a greater role as a pan-European distribution hub.

This small country, traditionally viewed only as a jumping-off point for shipping to Scandinavia, believes it has the right combination of attributes to become the premier gateway for pan — European distribution — a title to which nearly every country in the European Union is laying claim.

Denmark offers what the new European marketplace demands, according to Niels Boserup, CEO of Copenhagen Airports and chairman of the board for the Invest-in-Denmark program: namely “quicker delivery and lower distribution cost.”

Sven Brunsted of Copenhagan-based Logistics Consulting Group agreed. Brunsted cited an LCG comparative study that shows Denmark has a clear advantage over other European nations in terms of combined warehousing and distribution costs. European-based companies, particularly smaller firms, have been paying too much for transport and distribution, Brunsted said. These companies now are discovering that there is an opportunity in this area to save as much as 1 percent to 2 percent of revenue.

Brunsted also cited as other distribution-critical assets Denmark’s highly developed land transport system; its well-established shipping network that covers the North and Baltic seas; efficient airports and telecommunications; flexible labor laws; and cooperative public authorities.

Denmark’s transportation infrastructure also was noted by the International Institute for Management Development of Lausanne, Switzerland in its annual World Competitiveness survey. Denmark was ranked third for port access, behind the U.S. and Singapore, respectively. The institute placed Denmark second worldwide for railroad infrastructure, behind only Switzerland. In addition to these assets, a massive public works project connecting Denmark to Sweden via a highway and railway bridge will add to the country’s logistics capabilities.

The Invest-in-Denmark program has successfully capitalized on Denmark’s logistics capabilities when targeting U.S. multinationals seeking a European base. In recent months the Danes have reeled in, among others, LSI Logic, Toys ‘R’ Us, NOVEX, and Massey Ferguson. LSI Logic established a $4.5 million chip design center in Ballerup. Toys ‘R’ Us, which currently is undergoing a pan-Scandinavia expansion, located in Rodovre, on the outskirts of Copenhagen. California-based NOVEX recently joined a growing list of U.S. biotech manufacturers that have chosen Copenhagen for European distribution.

Massey Ferguson, a manufacturer of farm equipment, recently closed three warehouses in Denmark, Norway, and Sweden and relocated a new central distribution facility just miles from Copenhagen’s Kastrup Airport. By doing so, the company decreased its capital expenditures from $14.5 million to $5 million.

“We wanted to lower our costs in operating the three warehouses and, at the same time, be able to provide overnight distribution via air and one- to two-day deliveries by truck,” said Preben Orsted, supply manager for Operation Scandinavia.

“Being at Europe’s geographic center was not a solution,” he added. “What counted for us was to have access to the airport and the motorway, particularly since we send stock orders by truck.”

European companies are looking north to Denmark, as well. Olivetti, an Italian manufacturer, saved more than $61 million in two years by placing not only its centralized Scandinavian warehouse in Denmark, but also its centralized EDI-system, product marketing, service and administration activities. Its total cost reduction was 47 percent.