CASE 1:

THE TRANSPORTATION AND LOGISTICS: THE CASE FOR DUBAI PORTS WORLD

The world economy and global trade has been gradually growing since the recession of
2008-2009. Growth is coming from Europe and Japan where trade is stronger than expected,
from China and India where high growth rates continue to be recorded, and from less developed
countries where trade is primarily based on petroleum and basic commodities. The global
transportation and logistics industry is one of the most important factors that contributed to the
expansion of trade and logistics. Thus, it is important to understand how business is done in this
industry and know more about the trends in the transportation and logistics industry.
Several factor have led to the growth in the transportation and logistics industry: the
separation of raw materials, labor and production, decline in tariffs, import restrictions, and
exchange rate controls are some of the main factors that led to this growth. These factors have
resulted in an increased demand for transporting raw materials, unfinished goods, and finished
goods in the global economy. These trends have increased the demand for global transportation
and logistics services. For the year 2010, it was estimated that there was a total of 545 million
TEU (twenty-foot equivalent unit) that was handled globally, an increase of 113 percent over the
year 2000.

The Transportation and Logistics Industry

Ports play an important roles in the transportation and logistics industry. They provide
quality services, advanced technologies, and skilled labor that lead to increased productivity. The
World Bank has developed a logistics performance indication (LPI) for around 150 countries. The
LPI measure the different dimensions of supply-chain performance in the different countries such
as customs clearance procedures, quality of trade-related infrastructure, quality of transport
services, timeliness of delivery, and ability to track and trace consignments. The World Bank has
also highlighted the influence that government policies have on logistics performance. Countries
that attempt to develop policies to improve supply-chain activities find themselves scoring higher
on LPI than countries that do not pay attention to such policies.
Logistics has in the past focused on reducing barriers to trade, and on governmental
procedures implemented regarding getting clearance for goods at customs. While the laws and
regulations are important, they are not enough to advance the industry that includes various
stakeholders working and interacting together. It is also necessary to develop policies that
integrate all elements of the supply-chain so that various players can easily manage different
steps of their business. This aspect has been lacking lately and arguably should be given more
attention. An approach that centers on all the policies will have a major impact on the productivity
and efficiency of the logistics business. This requires bringing all the integrators together in the
logistics chain: cargo handling, storage, warehousing, freight services, air road, and courier. This
should result in an improvement in the global supply chain business.
Developing Logistics Clusters
Logistics clusters are geographically concentrated sets of logistics-related activities. They
are known to have high transportation services, low transportation costs, and an efficient flow of
goods. According to the World Financial Review, governments around the world are investing
significant resources in developing logistics clusters.
The advantages of such clusters are economies of scope, economies of scale, economies
of density, better service, and price stability. They also bring value by generating other business
activities and bring in new jobs. These benefits create a positive feedback loop attracting more
companies to them, resulting in further cost reduction and better efficiency.
Developing logistics clusters requires investment in seaports, airports, railways, and
highways. This helps in improving the overall infrastructure of a nation. Examples of leading
logistics clusters include Singapore, the Netherlands, Los Angeles, Dubai, Sao Paulo, and
Aragon. These clusters are also referred to as logistics parks, transport centers, logistics platform,
and logistics centers.

Doing Business in Different Countries

Local or domestic policies may affect the logistics operations in various markets. Some of
these policies may raise costs, reduce efficiency give preferential treatment for local or public
owned corporations, and put limitations on investment in certain activities. These policies can
significantly impact the supply chain, which may add costs to a firm and also affect the business
activity.
Foreign countries may introduce restrictive policies such as importing raw material as
opposed to processed products where the processing might be more efficient. Other restrictions
include bilateral agreements that distort competition, embargoes, business visa restrictions, and
security requirements.

About Dubai Ports World

Dubai Ports World was founded in 2005 as a result of the merger of Dubai Ports Authority
and Dubai Ports International, the latter of which having been founded in 1999. It has more than
28,000 employees across its global operations. Excellence and innovation are two values the
company embodies in its commitment to customers, profitable global growth, and responsible
corporate and personal behavior.
Dubai Ports World attempts to provide the best customer experience to its customers. It
heavily invests in its people and technology to provide better customer service worldwide. This
customer-oriented approach has resulted in strong relationships with customers and superior
customer service levels. Dubai Ports World Jebel Ali facility has been voted as the “Best Seaport
in the Middle East” for 19 consecutive years.
Dubai Ports World operates in more than 65 terminals across 6 continents: North America,
Europe, Asia, Africa, Australasia, and South America. In 2012, it handled more than 56 million
TEU representing a market share of around 8 percent and its capacity is expected to rise to more
than 100 million by TEU by 2020.
Dubai Ports World is among the top three global terminal operators. It is one of the new
players in the global market, with an aggressive growth and acquisition strategy. The majority of
its business comes from emerging markets in South America and Africa. Their global expansion
initially started in the Middle East, then extended into major ports in India. One of the major
expansions for Dubai Ports World took place in 2006 when it acquired Peninsular and Oriental
Steam Navigation Company (P&O) of the United Kingdom in 2006, for US$ 7 billion.
This was considered highly controversial by many in the United States, because it included
a number of ports in the U.S. as well. These ports were sold shortly after they were purchased.

The Overseas Environment

Operating various markets offers opportunities as well as challenged. The opportunities
include access to new markets, access to natural resources, and innovative technology. The
industry remains dynamic and profitable where emerging markets experience a significant growth
in business. Governments are constantly aspiring to open their ports to logistics companies to
facilitate economic growth and jobs. Logistics companies offer blue-collar, white-collar, and no-
collar jobs while also providing opportunities to open new businesses.
Dubai Ports World faces challenges with regard to the complexity of operating in certain
countries such as Africa, where the supply chain is an expensive and time-consuming activity.
Transportation costs comprise up to 75 percent of the retail price in markets such as Malawi,
Rwanda and Uganda. For example, transporting a car from China to Tanzania could cost around
$5,000 while transporting the same car from China to Uganda would cost $9,000.

Finding the Right Skills

The logistics industry is primarily a people’s business. Around 25 percent of the costs of
logistics are labor costs. Thus, it becomes essential to attract, train, and motivate qualified people
at all levels. One of the first issues that Dubai Ports World faces when it operates in a foreign
country is finding qualified and skilled labor. There is usually a low supply of qualified candidates,
low wages, low industry profile, and poor working conditions.

Risk Issues
Addressing risk in the supply chain is becoming a priority for businesses. Supply-chain
risk can be caused by various disruptions: environmental risk such as natural disasters; geo-
political risk such as threat of attacks; and terrorism; economic risk such as currency fluctuations,
demand shocks and supplier failings; technological risk such as outage in IT and
telecommunication systems, etc. Risk can be controlled by conducting scenario analyses,
collaborating with the different players by sharing information, identifying vulnerabilities and
synchronizing back-up plans.

Technology in Business
Dubai Ports World has been keen to use advanced information technology tools to
facilitate its business. It has been using mobile technology to make life easier for customers by
saving time and money. They also use mobile technology for their employees. Issues such as
labor deployment, vessel arrival and gate appointments are communicated via mobile devices.
This is linked to the human resource department which assigns labor to points of work, which
results in more efficient work. Recently, this technology enabled container shipping lines to access
bay and stowage, which helped reduce port call time.

Environmental Considerations
The presence of logistics companies my result in air pollution. This increases the health
hazards around those clusters. Thus, there is always a tradeoff between the economic benefits
of logistics operations and the hazards of their effects on the environment and health of the
surrounding community. There are “green innovations” in logistics operations and processes that
are ultimately minimizing the negative effects of logistics operations on the environment.

The Future
Thee logistics industry has high prospects for growth as the global economy grows. There
are several matters that need attention to support this growth. There is a need for more
comprehensive logistics policies that bring the various components of logistics together: land
transportation, railway, shipping, commerce and finance. More coordination is needed between
these institutions. Additionally, more investment in logistics infrastructure such as roads, rail and
shipping is needed to ease traffic congestions, reduce costs and air pollution. Thirdly, people
issues are becoming increasingly prominent and need to be addressed by those with the right
skills in order to ensure high quality services throughout the industry.
The future of Dubai Ports World looks promising. It continues to sustain its growth by
penetrating new markets while offering a unique customer experience. Its people remain the key
stakeholders responsible for delivering the best service. Dubai Ports World is a global leader in
logistics and transportation.
QUESTIONS

1. What global factors have contributed to the growth of the transportation and logistics
industry? How have they contributed to this growth?
2. What steps has Dubai Ports World taken to benefit from global economic changes?
3. What economic factors influence the success of the international transportation and
logistics industry?
4. How can logistics companies increase business with countries in Europe, Asia or Africa?
5. What threats exist for Dubai Ports World? How would you overcome these threats?
6. Discuss some of the legal issues that have faced Dubai Ports World? How has this
affected their operations in the United States and other places?