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Behind the scenes: What’s drawing investors to logistics?

The e-commerce boom and the impact of digitalization are catalysts spurring investor interest in the supply chain and industrial logistics sectors. What else?

Robust infrastructure pipeline, strong imports and exports, and Expo 2020 drive positive business sentiment The UAE maintained its position within the Top 3 overall emerging markets and as the best in the region The need to digitalize, modernize systems and processes is now greater than ever among traditional players

The UAE logistics market has soared above the storm of currency fluctuations, geopolitical tensions and the volatility in oil prices to record strong growth in 2018 and the first quarter of 2019. In fact, according to the 2019 Agility Emerging Market Logistics Index, the UAE maintained its position within the Top 3 overall emerging markets and as the best in the region. It was also ranked the best in business fundamentals. 

Investments in the logistics sector have been fuelled by a robust infrastructure pipeline, strong imports and exports, positive business sentiment, and projections surrounding the upcoming Expo 2020. The demand for industrial and logistics warehouses have also been driven by increased airport cargo throughput, port throughput, and road freight tonnes, a recent Deloitte study indicates. 

Another recent JLL report pointed to the boom in e-commerce and the impact of digital transformation as catalysts spurring investor interest in the supply chain and industrial logistics sectors. This is evident in the growth of on-demand services and the launch of Amazon.ae, replacing Souq.com in the UAE, almost 24 months after its $580 million acquisition of the e-commerce platform. In 2018, about 51 percent of all e-commerce brands offered same-day delivery, and conversely, a BRP Consulting study indicates that by the end of 2019, 65 percent of retailers are projected to offer same-day deliveries. 

Source: 2019 Agility Emerging Market Logistics Index

The sale-and-leaseback of Transworld Group's logistics facility in the Jebel Ali Freezone in Dubai, Trukkin raising $3.5 million in its latest round of funding, as well as Chinese manufacturing giant East Hope Group's plans to invest in a $10 billion project in Abu Dhabi's Khalifa Industrial Zone (KIZAD), are all indicative of increased investor interest in the UAE's strong logistics sector. 

With an increasing number of technology-based startups disrupting the sector, the need to digitalize and modernize systems and processes is now greater than ever among both traditional players and newer companies. The growing internet and smartphone penetration in the region coupled with IoT technology boasting lower latency has not only eased processes such as locating fleets but has also seen competition skyrocket with speedy deliveries. With 5G around the corner, and other advancements such as AI, blockchain and robotic automation moving from use-cases to scaled implementation in the UAE, the logistics sector remains one of the hottest bets in the market.

Source: 2019 Agility Emerging Market Logistics Index 

It's no secret that DP World Jebel Ali, which is one of the most bustling and best-equipped ports in the region, has set the bar high with unmatched container handling facilities. Its proximity with the Jebel Ali Free Zone has made it a strong port-of-choice. Along with the Khorfakkan Container Terminal; the DP World Port Fujairah, which is the only one on the UAE's east coast and a regional leader in bunkering facilities; and the Mina Zayed port, the UAE's top ports and Free Zones have created an ideal environment for the growth of the logistics sector in the region. The nation's infrastructure spending, its vibrant local economy, and robust surrounding regional economies have also contributed to the development of the logistics industry. 

The growth outlook for the logistics sector in emerging markets such as the UAE is positive. The International Monetary Fund (IMF) has projected a growth of 4.5 percent in 2019, following a 4.7 percent expansion in 2018.