Against a backdrop of several new infrastructure expansion projects, the Abu Dhabi transport and logistics industry has been growing rapidly in recent years, with 2014 being an encouraging year in this respect. The transport and storage sector’s total GDP contribution stood at Dh40.5bn ($11.02bn) for 2014, equivalent to 4.3% of the emirate’s GDP, up from 3.7% in 2013 and 3.3% in 2010.
Total activity in the sector grew by 12% in real terms in 2014, up from 7% the previous year, and since 2009 the industry has expanded at a real compound annual growth rate of 12.5%.
Road Transport
The total length of external roads, which includes inter-city roads but not city streets, stood at 2704 km in 2014, representing an increase of 6 km on 2013.
The Abu Dhabi region accounted for 793.4 km of the network’s total length, Al Ain for 1031.1 km and Al Gharbia for 880.1 km. The length of the network is set to grow, with a number of major road upgrade and expansion projects currently under way in the emirate. These include the construction of a new road, the E311, which will run parallel to the section of the E11 road that links Abu Dhabi and Dubai for a distance of 62 km, with the aim of reducing traffic congestion on the existing road.
Another major project under way is the construction of a road from Al Mafraq, near Abu Dhabi city, to Al Ghweifat close to the border with Saudi Arabia, which is being built at a cost of Dh5.3bn ($1.4bn). Construction on the project began in 2013, and the new road is due to be completed in 2017.
In August 2015 the tendering body, Abu Dhabi General Services Company, said around a third of construction work was complete. A major impetus for the project is road safety, through the provision of a multi-lane highway – the road will have between three and four lanes in each direction along its length – as an alternative to narrower roads running along the same route, as well as through construction of numerous interchanges to avoid the need for drivers to perform U-turns.
In addition, Abu Dhabi Police announced in November 2015 that it would reduce the speed limits on the Abu Dhabi-Ghweifat road, which has one of the worst traffic safety records in the emirate, in order to reduce the number of accidents. The new speed limits range from 100 km per hour (kmph) to 121 kmph for three sections of the road, as well as new maximums of 80 kmph for heavy trucks and 100 kmph for passenger buses.
Fuel Prices
In mid-2015 the UAE federal government moved to eliminate fuel subsidies in the country, which saw the price of petrol initially rise by around 24% – though diesel fell by 29% – in order to reduce pressure on government finances and encourage more efficient fuel use. After this initial rise, prices had fallen by 21% in March 2016 and are now linked to international prices and adjusted monthly. Despite these moves, fuel prices in the UAE remain competitive by international standards.
The country is one of a number of nations in the MENA region that has cut or reduced price support for fuel in recent years, including Jordan, Morocco and Iran; although a number of other Gulf nations – including Saudi Arabia, Kuwait, Bahrain and Oman – actually raised fuel prices in early 2016.
Master Plan
In October 2015 the Abu Dhabi government began work on updating its 2009 Surface Transport Master Plan for the emirate, which focuses on the Abu Dhabi region in particular. The process is expected to take approximately a year in order to take into account changes being made following its own recent update, such as modifications to the land use framework that governs development in Abu Dhabi City. The government has also drawn up a number of surface transport plans that are specific to Al Ain and Al Gharbia regions, and as of late 2015 these were awaiting final approval from the government and had yet to be published.
Based on the premise that economic development in general is only as good as transport infrastructure, the government’s master plans focus on providing all regions with sustainable and multimodal transport systems. This includes the 2014 introduction of 60 bus routes on the outskirts of Abu Dhabi and 40 routes serving different towns in the Western Region.
In order to realise this goal, the government’s master plans identified current and future infrastructure needs in the three regions of the emirate, with rural areas at the centre of this process.
Rail
Work is also under way on the development of a 1200-km rail network across the UAE, known as Etihad Rail, with most of its length located in Abu Dhabi. The 264-km first phase of the project, which is aimed at exporting granulated sulphur from the Shah and Habshan fields in the interior of the emirate to the port of Ruwais, was completed in 2013 and was in testing and commissioning since 2014. In late 2015 Etihad Rail received regulatory approval for the full commercial launch of the first leg of its route. The 264-km link from Shah and Habshan to Ruwais is operating with two daily trains each carrying up to 11,000 tonnes of sulphur. The company operates seven locomotives and 240 hopper wagons on the line, which by late January 2016 had transported around 4m tonnes of sulphur, according to Etihad Rail. Faris Al Mazrouei, CEO of Etihad Rail, told OBG, “Improving our operational efficiency is a continuous goal for us. In practical terms, Etihad Rail has an incentive-based contract with our operator, Etihad Rail DB, which is based on a number of safety and operational key performance indicators. Through this approach both Etihad Rail and our operating partner can ensure that the railway operates in a safe and efficient manner and that we are all working to the same industry-leading standards.”
As of late January 2016, the company had decided to temporarily suspend the construction tender process for the second phase of the project. The 628-km stage will run from Khalifa Port and Jebel Ali Port to the Saudi border at Ghweifat and the Omani border at Al Ain, linking up Abu Dhabi, Dubai and major ports along the way. The project will initially be focused entirely on freight, though there are future plans to also launch passenger services. Nasser Alsowaidi, chairman of Etihad Rail, told The National, “Etihad Rail is one of the biggest and most complex infrastructure projects ever undertaken in the UAE. As we enter 2016, we have been working closely with our partners and stakeholders to assess our strategic priorities for the year. As a result, a decision has been taken to postpone the tendering process for stage two while we review the most appropriate timing for this investment.”
According to Etihad Rail’s website, the 279-km third phase of the project, which will extend the project northwards to Fujairah, Ras Al Khaimah and Sharjah, is also in the pipeline, though there is currently no scheduled launch date for it. The second and third phases of the project could have a number of important benefits for the heavy users of transport and logistics services.
Down The Line
With the first leg of Etihad Rail completed and operating, small and medium-sized enterprises (SMEs) have already begun to benefit. From the outset, Etihad Rail intended to provide opportunities for both international investors and local SMEs. A number of regional SMEs have been sub-contracted on construction and supply projects, as well as being instrumental in the timely and efficient delivery during the first phase of the project. This is expected to be repeated during the second and third phases of the initiative.
Beyond the immediate construction and supply needs of Etihad Rail, the UAE rail network will support SMEs more broadly by boosting existing commerce and cutting down delivery time. The railway will also connect more remote areas, creating new trade centres throughout the country and expanding the country’s logistics capabilities.
For example, Al Mazrouei told OBG, “New transport infrastructure also plays a major role in the regeneration and creation of economically developed communities. Etihad Rail will bring new growth opportunities to currently underutilised parts of the country, such as the Western Region, creating new trade opportunities and therefore providing a welcome boost to SMEs.” Projects for the railway tie into the emirate’s master plan for improved connections to rural areas. The economic development of any area, urban or rural, is closely linked to the capability of its infrastructure, and the strength of this infrastructure, especially in rural areas, plays an integral role in social or economic development.
Needed Legislation
With the first phase of the network reaching full commercial operations, railway legislation in the UAE will require updates to keep up with the segment. New laws will contain provisions regarding railway safety, and the regulator will be the Federal Transport Authority (FTA). Operators will be required to file an application with the FTA for authorisation for both freight and passenger services. Until a pan-GCC agreement on safety regulations is reached, the same will also be the case for other GCC rail operators. Al Mazrouei told OBG, “The FTA will have an ongoing regulatory role in assessing whether rail operators continue to comply with safety requirements. They will do this through monitoring and audit activities.”
Regional Network
The project will form part of a wider 2117-km regional GCC Mainline project linking up all six GCC states, with Etihad Rail connecting to lines in neighbouring Saudi Arabia and Oman. The network is due to be up and running by 2018; however, given that three of the six GCC states have yet to tender the first phases of their sections, and that regional investment budgets have been reduced due to low oil prices, observers have begun to voice doubts that it will be completed on schedule.
In October 2015 Eduard James, director of content and analysis at Meed Projects, told the Dubai-based daily Khaleej Times that, “The ambitious GCC railway track is still in the planning stage, and it is an uphill task to meet [the] 2018 official launch deadline. 2020 is a more realistic date, but construction must start soon for that to happen.”
Air Transport
Air traffic is also growing rapidly in Abu Dhabi. There were 213,200 aircraft movements in the emirate in 2014, up from 169,931 the previous year, according to a report on the transport sector from Statistics Centre – Abu Dhabi (SCAD). Of the 2014 total, 186,207 took place in Abu Dhabi region, while 26,993 took place in Al Ain.
Passenger numbers rose 18.7%, from 16.8m in 2013 to 19.9m in 2014, including 312,024 transit passengers, down from 355,357 in 2013. The overwhelming majority of this total passenger traffic travelled via Abu Dhabi International Airport (AUH), with 69,549 these moving through Al Ain. At AUH, all the partners involved in projects are also making major strides on a major expansion project, known as the Midfield Terminal Building (MTB), which is scheduled to hold an opening ceremony on National Day, December 2, 2017 (see analysis).
Ali Haydar Özak, project director at TAV Group, the company building the terminal, told OBG, “The importance of having a world-class airport to represent a city cannot be underestimated: it is absolutely vital that the first impression of the place for passengers sets a high standard. Many of these travellers may just be in transit so the airport will be their only experience of Abu Dhabi before flying onto another destination. That makes it even more important that the airport delivers on all possible levels and leaves passengers with a lasting impression.”
Much of the growth in passenger numbers in 2014 was driven by traffic to and from Asia, with arrivals from non-Arab Asian destinations increasing from 3.1m in 2013 to 4m in 2014, and passengers departing to Asia growing in number from 3.1m to 3.9m over the same period. In total, Asian routes accounted for around 40% of passenger traffic in and out of the emirate.
The next largest source of passengers was Europe, accounting for 23.7% of the total, with arrivals from Europe growing from 2m to 2.3m and departures from 2m to 2.4m over the same period. Arrivals and departures from and to GCC countries grew from 1.4m to 1.7m and from 1.5m to 1.7m, respectively, over the period, accounting in total for about 17.2% of total passenger traffic.
Traffic continued to grow strongly in 2015. Aircraft movements at AUH rose to 129,703 during the nine months to September 2015, a year-on-year (y-o-y) increase of 14.3%, while passenger traffic grew by 18% to 17.5m passengers, according to figures from Abu Dhabi Airports. The airport received over 2m passengers a month for the three consecutive months to September 2015 inclusive, having passed the 2m mark for the first time in July of that year. Air cargo traffic has also been witnessing strong growth, according to SCAD figures, with total cargo movement in 2014 growing by 12.8% on 797,340 tonnes in 2013. Imports were up 15.6% to 431,289 tonnes, while exports grew 9.7% to 366,051 tonnes. In the first nine months of 2015, cargo traffic at AUH grew 7.2% to 621,191 tonnes.
Airline
Passenger traffic through AUH has been driven in large part by national airline Etihad Airways, which is based out of AUH. The airline accounted for 75% of passengers moving through the facility in 2015, or 84% when other airlines in which the carrier owns an equity stake are taken into account.
In 2015 it carried 17.4m passengers during the year, up 17% on 2014 figures. The airline also operated 97,400 flights during the year, covering 467m km. It also carried 592,090 tonnes of freight and mail in 2015, a y-o-y increase of 4%. Etihad Airways is planning for continued rapid growth and has an ambitious expansion programme in place. At year-end 2015 the airline’s fleet consisted of 119 aircraft. Etihad Airways is also set to receive 10 aircraft deliveries by the end of 2016, including five Boeing 787-9s, three Airbus A380s and two Boeing 777-200 Freighters. Kevin Knight, chief strategy and planning officer at Etihad Airways, told OBG the firm would not seek to prioritise any particular destinations or regions under its expansion programme. “As a network carrier, it is important that we maintain a balance across all points of the network,” Knight said.
Partners
Complementing its organic growth, the airline also has 49 codeshare and seven equity partnerships. Etihad Airways holds minority equity stakes in seven other airlines, namely, airberlin (29.21%), Air Serbia (49%), Air Seychelles (40%), Alitalia (49%), Etihad Regional (33.3%), Jet Airways (24%) and Virgin Australia (25.1%). In June 2015 Etihad Airways announced that it was selling its stake in Aer Lingus, following the takeover of the Irish firm by International Consolidated Airlines Group, which owns British Airways and Iberia. The equity partner network had a fleet size of 711 aircraft and carried a combined total of 111.7m passengers in 2015. These partnerships delivered more than 5m passengers onto Etihad Airways’ flights, which was an increase of 43% over the 3.5m passengers recorded in 2014.
Regional Competition
Etihad Airways faces substantial competition from other airlines operating in the region, with Dubai-based Emirates, Qatar Airways and, slightly further afield, Turkish Airlines all in the midst of major capacity upgrades supported by large airport and route expansions. However, Knight did not regard regional overcapacity as a major threat in coming years. “We are fortunate to be based in an area that is growing at a faster rate than global air passenger traffic as a whole, and our proximity to some of the largest and fastest-growing markets in the world is supportive of both our growth and that of some of our competitors,” he told OBG. “The rate of passenger increase in India and China has been slowing slightly, but they remain massive markets with strong growth, and we are also well-positioned to take advantage of rising demand from Africa, as well as more mature markets such as the US and Europe,” he added.
Subsidy Row
Etihad Airways and other Gulf carriers are also facing challenges to international routes in the form of efforts by competitors, some of which claim Middle Eastern airlines are unfairly subsidised, to restrict their access to other markets. The New York Times reported in April 2015 that the US government would review claims by three large US carriers – Delta Air Lines, United Airlines and American Airlines – that Etihad Airways, along with Qatar Airways and Emirates, have effectively been receiving government subsidies through interest-free loans and equity injections. In response to the allegations, the three US companies have been petitioning the US government to review the US’s Open Skies agreements with the UAE and Qatar, as well as to suspend new flights from the two countries. In March 2015 France and Germany also requested that the European Commission take measures to prevent what they allege is unfair competition from Gulf carriers, which they accuse of receiving state subsidies and guarantees, following a letter sent by major European carriers to the commission in December 2014.
In November 2015 Violeta Bulc, the transport commissioner for the European Commission, said she wanted EU member states to give her a mandate to negotiate a new air traffic agreement with GCC countries in order to establish “a level playing field”.
Etihad has responded robustly, pointing out the criticisms it has received show only a limited understanding of UAE law, and noting that the subsidies are in fact loans that must be repaid in full. The airline has also noted that, as its financials are not public, media speculations about these subsidies are essentially conjecture, and that the US and European airlines were attempting to use the existing regulatory structure to shore up their own positions in an increasingly competitive market.
Urban Transport
Although the car remains king in Abu Dhabi, authorities are working on a range of initiatives to provide alternative methods of urban transport in order to avoid further congestion in the future and improve the emirate’s environmental performance. Bolstering such transport links is a key element of the city’s urban framework plan. “Plan Capital 2030 is about moving people rather than vehicles, and therefore has a major focus on public transport,” Falah Al Ahbabi, director-general of the Abu Dhabi Urban Planning Council (UPC), told OBG.
Planned new infrastructure includes the creation of a phased 44.5-km metro line from Abu Dhabi International Airport to Port Zayed via Zayed City, and three light rail lines within the North Island totalling approximately 49 km, as well as a bus rapid transit network. The Executive Council approved funding for the project design in 2012; however, the timing of procurement and construction remains under study. Al Ahbabi told OBG that the recently updated version of Plan Capital still showed a need for the network. The city launched a line of bus routes in 2008, and 14 routes are now operational on Abu Dhabi Island, many of which link it to neighbouring parts of the city such as Al Maryah and Al Reem islands and Zayed Sports City.
A smartcard payment system, known as Hafilat, was launched in March 2015, and in October of that year cash payment on buses was phased out. Despite moves to reduce fuel subsidies in August 2015, the Abu Dhabi government said in October 2015 that it did not intend to increase public bus fares. An increase in prices three years earlier significantly reduced passenger numbers on the network, according to a report from The National.
In 2013 the Abu Dhabi government also launched a Transport Mobility Management strategy, which is aimed at reducing congestion and increasing sustainable travel. The strategy includes plans for a range of initiatives, including park-and-ride schemes, car-sharing schemes and the adoption of flexible working hours in order to reduce peak rush hour. A park-and-ride scheme, based on shuttle buses departing from a car park at Zayed Sports City to downtown Abu Dhabi City, was launched in January 2014, though reports from Gulf News shortly after the launch suggested that use of the scheme was light. The government has also created an app to facilitate car-sharing, but as of late 2015 was awaiting approval for its launch.
The government also plans to put in place a scheme to financially incentivise car-sharing, but this will first require a change in the law to avoid clashing with taxi regulations.
Leasing
Fleet sales to corporate clients, hotels, tour operators and limousine firms are another major driver for the auto segment. Massar Solutions provides a wide range of services across fleet management, vehicle hire and supply chain solutions for government, semi-government and private sector clients. Massar currently operates a business-to-business and business-to-consumer vehicle rental business under the Payless franchise of the Avis Budget Group and has a total fleet of around 10,000. The company also recently started a new pay-as-you-go leasing programme known as PayPerKay. Using a mobile app, PayPerKay allows the user to manage how much they spend on a monthly basis, which allows them to save money as they only pay for what they use rather than a fixed rate. Users who only require contracts for short distance will benefit the most from this.
Contracts are available for 12, 24 and 36 months, all of which include a free 1000-km allowance and roll over any remaining kilometres to the next month. Qusai Kankazar, Massar’s deputy CEO, told OBG, “A programme like PayPerKay addresses an existing gap in the market. It provides a more cost-efficient solution to those who are only driving short distances per month.” Ultimately, the wider appeal of such fleet services for all types of customers is the containment of the costs and risks associated with owning and operating your own fleet. Paul Greenwood, Massar’s CEO, told OBG, “As e-commerce within the retail sector continues to grow, this in turn is creating heightened demand for third-party logistics. Additionally, many companies are beginning to outsource their logistical needs, preferring to focus on their core business.”
Active Travel
The Abu Dhabi authorities are also working to encourage more walking and cycling in the emirate, and in Abu Dhabi City in particular, through initiatives such as the construction of dedicated cycle paths, as well as shaded walkways.
In April 2014 the DoT launched a Walking and Cycling Master Plan with the goal of fostering “an active travel culture for all”. While these forms of transport are often not a viable option between different areas of the spread-out urban centre, which are often linked by large highways, the government’s urban planners are trying to encourage new forms of land use whereby residents increasingly live and work within self-contained communities. “Getting people walking and cycling is a whole-of-government initiative to improve both health and liveability,” Al Ahbabi told OBG.
Yas Island already boasts a network of cycling paths alongside main roads, and a 7-km dedicated bike path also runs along the Corniche road in the city centre. New cycling infrastructure is being planned and built throughout the city with new facilities along Al Bainuna Street, Sheikh Zayed Road, Al Raha Gardens, Al Wathba, Al Zeina and Khalifa City.
The Abu Dhabi Urban Street Design Manual put together by the UPC, which was updated in 2012, includes requirements for walking and cycling facilities and is being applied to all new developments in the city, while existing streets are gradually being retrofitted in line with the new requirements.
In December 2014 The National also reported on the launch of a new bike-sharing scheme – similar to the so-called Boris Bike scheme in London and Vélib in Paris – based around 10 stations and hosting a total of 75 bikes for hire, on Yas Island and in nearby Al Raha beach. “Conditions are increasingly there for people to walk and cycle, and there is certainly a great deal of demand for infrastructure that allows them to do so,” Al Ahbabi said.
Customs
The Abu Dhabi Customs Administration (ADCA) is currently working on trying to improve its performance as regards the time and cost involved in clearing goods through ports and warehouses. The UAE as a whole (data is not available for Abu Dhabi specifically) came 101st out of 189 countries in the “trading across borders” category of the World Bank’s 2016 Doing Business rankings. Its comparatively poor performance was due largely to the high cost of border compliance procedures. The cost of border compliance for exports stood at $650, compared to an OECD average of $160 and a regional average of $445 – though the country outperformed the regional average in most other areas.
Nevertheless, Neil Watson, chief operating officer of Abu Dhabi Terminals (ADT), said the port faced no problems in dealing with Customs. Watson said, “The administration has come a long way and continues to move in the right direction with its strong drive to move all procedures online.”
Marwan Gharaibeh, advisor for strategic planning and performance management at ADCA, told OBG that the directorate had moved from mostly manual clearance procedures to mostly electronic clearance at Khalifa Port during 2015, which he said helped to substantially improve clearance times, and that the administration was now working with Abu Dhabi Ports to extend this to other ports.
In order to speed up clearance times, the ADCA has also shifted much of the administrative burden of Customs procedures from inspectors to brokers, while increasing the penalties for false declarations.
“We aim to reduce clearance times at ports from around 50 minutes in 2014 to 10 minutes in 2020, and from 30 minutes to eight minutes at land borders,” Gharaibeh told OBG.
Logistics & Warehousing
The Khalifa Industrial Zone Abu Dhabi (Kizad) is fully integrated with Khalifa Port (see analysis) and includes two elements devoted to logistics, namely, a port logistics zone next to the port and a 2.1-sq-km logistics cluster with dedicated plots available for lease. According to Abu Dhabi Ports, phase one of the Kizad Logistics Park (KLP), consisting of 41 pre-built warehouses, is already fully let, while phase two, which consists of 64 warehouses, is under construction and will be completed by the third quarter of 2016.
Light industrial units and free-zone warehouses are also part of KLP’s full plan and are currently being designed. ADT also provides its petrochemicals client Borouge with more than 200,000 sq metres of covered warehouse space within the container terminal it operates at Khalifa Port.
Watson told OBG that the firm expected to pack over 200,000 tonnes of products at the facilities in 2015 and that it hoped to double that figure in 2016, adding that ADT was interested in expanding its logistics services to other regional petrochemicals producers in addition to Borouge.
Better Hydrocarbons Logistics
Unsurprisingly, given the economic importance of the oil industry in the emirate and region, hydrocarbons-related logistics and transport services are a major element of the local industry. “Despite the drop in oil prices, the oil and gas industry remains the main driver of the logistics industry,” Bassel El Dabbagh, CEO of logistics firm Agility, told OBG. “Investment in the industry is increasingly moving offshore, which has created demand for a range of intricate logistical solutions, as marine logistics are substantially more complex,” he said.
“The last 18 months have seen delays in implementing a number of projects, which has been difficult for the industry; however, some are now moving forward,” Edward Talbot, general manager of transport firm ALE, told OBG, adding that the execution of complex offshore island-based projects were a key focus of the business for 2016, although lower oil prices and high competition were putting pressure on profits. “A core part of our business is to support large engineering, procurement and construction projects, and as an engineering, heavy-lift service and logistics provider we are impacted by global market conditions. Although the effects are being felt, the key going forward will be to continue providing innovative and cost-effective solutions for clients.” El Dabbagh said there are a number of notable constraints on the development of the third-party logistics sector.
“Many companies continue to run their own logistics operations rather than outsource to third-party providers, the reason being that real estate remains generally accessible and labour is still relatively economical,” he said. However, El Dabbagh added that he expected outsourcing levels to increase in the coming years as real estate and labour prices increase and customers come to demand higher quality and safety standards.
Additionally, Roberto Zanca, CEO of Emirates Ship Investment Company, commented on how lower oil prices may in fact be a boon for transport and logistics firms in the oil and gas industry.
He told OBG that, “Lower oil prices have increased demand for petroleum products, resulting in a subsequent increase in demand within the product tanker market. Additionally, higher refinery margins have led to both a higher end-consumer demand and a supplier-driven increase of transportation of refined products.”
Zanca added, “Low oil prices combined with increased investment among GCC nations in downstream products could present an interesting opportunity for tanker companies to potentially invest in new ships in order to raise capacity as a means to capitalise on future growth.”
Outlook
Abu Dhabi’s transport infrastructure is set to continue to develop rapidly in coming years. Major new roads and AUH’s Midfield Terminal Building (see analysis) are set to open in 2016 and 2017, respectively, while Etihad Airways will continue to grow its capacity for the foreseeable future. The second phase of Etihad Rail will eventually constitute a major boost to the development of multi-modal transport and logistics infrastructure.
Port infrastructure is also likely to be further expanded as traffic at Khalifa Port’s container terminal continues to grow, triggering the next phase of the project’s development. However, comparatively low oil prices, if sustained, may slow down the development pipeline for other projects, many of which have yet to announce launch dates, such as the Abu Dhabi City metro and light rail lines.
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