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The transport & storage sector is a key component of Dubai's economy. Not only is it the second-largest component of GDP (after wholesale & retail trade and ahead of financial & insurance activities), it has also been the fastest-growing sector since the end of the Covid-19 pandemic, and as such has been the biggest contributor to Dubai’s headline GDP growth in recent quarters. Moreover, it is also key in fueling growth in the other most important sectors. Encompassing not only the transport of goods, but also people, it is an instrumental support of the ever-more important tourism sector, and through that retail trade, hotels and restaurants, and construction.
There have been challenges to the sector over recent years, with rising competition weighing on the ports sector, and the Covid-19 pandemic hitting all facets hard in 2020 when transport & storage GDP declined 34.9%. It has rebounded sharply since then, however, with real growth of 9.4% in 2021 and 26.8% in 2022. While nominal GDP for the sector exceeded pre-pandemic levels by the end of 2022, in real terms output had not fully recovered by the end of last year. With 10.3% y/y growth in the sector in Q1 2023 however, real transport & storage GDP exceeded Q1 2019 levels.
Source: Haver Analytics, Emirates NBD Research
Looking ahead, the expected slowdown in global growth next year (the OECD has in September downgraded its 2024 global growth forecast to 2.7%, from 2.9% previously) will prove a headwind to the sector. However we expect transport and logistics to remain an important driver of Dubai's economy over the medium term, underpinned by a growing domestic population and economy. Ongoing investment in producing world class infrastructure and companies will capitalize on Dubai’s enviable location at the meeting point of three continents and on the major East-West shipping routes. The UAE as a whole is the 14th best connected country in the world at present, according to the UNCTAD Liner Connectivity Index, and its infrastructure scores highly on the WEF’s Global Competitiveness Index. Finally, the announcement at the recent G20 summit of a rail and shipping corridor linking the UAE with India and the EU speaks to the country’s ambitions in this regard, and will further underpin Dubai’s position as a global trade hub.
The DP World-operated Jebel Ali container handling facility is the largest box-shipping port between Singapore and Rotterdam, with world class equipment, a deep draught able to accommodate the largest of the world’s mega vessels (crucial in securing the biggest services), and a present capacity of 19.3mn twenty-foot equivalent units (TEUs) per annum, set to rise to 22.4mn once Terminal Four is completed. The facility has long been the regional market leader, enabling it to handle far more volume than solely that destined for Dubai as it became the key regional transhipment hub – traditionally, less than half of the volumes handled at Jebel Ali have been port-to-port shipments.
However, in recent years this high level of transhipment volumes has left Jebel Ali more vulnerable to rising regional competition, with a series of major port investments in the Gulf region competing more vigorously to either provide transhipment services themselves, or simply to cut out the middleman and enable direct shipping of goods to their markets after upgrades to facilities. Over the past decade there have been a series of major developments and expansions launched or completed elsewhere in the Gulf, from Dammam in Saudi Arabia to KBSP in Bahrain and the Mubarak Port project in Kuwait. Closer to home, the growth of Abu Dhabi Ports facilities such as KIZAD is another challenge to Jebel Ali.
Source: Dubai Statistics Center, Emirates NBD Research
On the back of this mounting regional competition, in tandem with slowing global trade growth, container throughput growth at Jebel Ali stalled after 2015 when it handled 15.6mn TEUs, before falling back to 14.1mn TEUs by 2019. The pandemic posed another challenge to Jebel Ali volume growth, but the facility has been coming back strongly since the global reopening began, and it posted y/y growth in 2021 and 2022. 2023 has also got off to a positive start, with a total 7.1mn TEUs handled over the first six months on growth of 1.1% y/y.
The outlook for transhipment volumes will likely remain challenging in the near term if regional competition intensifies further and global trade falters. Indeed, exports out of China have been especially weak in recent months, and global trade volumes have declined in H1 2023. In 2022, total throughput expanded 1.7% to 14.0mn TEUs, but this was on the back of port-to-port volumes climbing 8.6%. However, the strong multi-modal logistics offering in Dubai, with easy connections to major highways and the air freight facilities at DXB and DWC will be supportive for transhipment over the longer term, as will the world-class storage facilities in Dubai.
More positive for the sector outlook is the aforementioned strong growth in origin and destination cargo, which is reflective of the strong economic growth in Dubai more broadly. With the population growing robustly (and ambitious plans to hit 5.8mn residents by 2040), this is being reflected in non-oil trade volumes with imports up 17.5% y/y in H1 in nominal terms, and much of this will be coming through Jebel Ali. Ongoing investment in developing domestic manufacturing industries will also support export growth going forward. DP World has welcomed the growth in port-to-port over transhipment volumes, with the former bringing in higher margin revenue.
Similarly to volumes at Jebel Ali, air freight volumes in Dubai (with the bulk handled at Dubai International but with Al-Maktoum International playing a growing role) have not yet recovered previous highs as of 2022. Total volumes across the two airports hit 2.7mn tons in 2018, before a runway closure in 2019 contributed to a 4.1% decline that year, followed by a 20.7% drop in 2020 as the Covid-19 pandemic hit. There was a robust 19.9% surge in volumes in 2021 as global demand for high value consumer electronics in particular accelerated, but volumes declined once more last year, dropping 10.3%. H1 2023 volumes at DXB were 853,000, down 6.2% y/y.
Source: Dubai Statistics Center, Emirates NBD Research
As with global trade volumes more generally, air freight volumes could come under continued pressure through the end of this year and into 2024 as consumer demand weakens on the back of ongoing inflationary pressures and tight monetary policy. The experiences-over-goods dynamic that has played out since the post-pandemic reopening will likely also continue to weigh on demand for air freight in the near term. Nevertheless, as with Jebel Ali volumes, a growing domestic population will remain supportive of growth in the sector over a longer-term horizon. This will be facilitated by strong global connections, with Emirates SkyCargo just one major operator: the company boasts 155 destinations in its air network, and an integrated road feeder service. In May, it announced two new Boeing 747-F dedicated freighter planes amid plans to double its cargo capacity over the next decade on the back of bullish growth projections.
Emirates has also been instrumental in driving up passenger volumes through Dubai International Airport, along with other major regional and international airlines. The recovery in domestic tourism has played a part in this, as visitor numbers to Dubai over the January to July period hit a record 9.8m, up 21.4% y/y and 2.6% higher than pre-pandemic 2019 numbers. However, DXB does not only cater for domestic traffic but is also a major global transit facility, and the airport handled 41.6mn passengers in the first half of the year. Paul Griffiths, CEO of Dubai Airports, told Dubai Eye’s Business Breakfast radio station in September that the forecast is for 89mn passengers in 2023, which if realised would be even with 2018 volumes and up 36.8% y/y. As Chinese visitors return to international travel, this number will likely be exceeded next year. Meanwhile, Al-Maktoum International is still a much smaller player in passenger volume terms but Griffiths talked up the potential development of the airport as the city grows and the aim for the facility to eventually handle up to 250mn passengers annually remains.
Source: Dubai Statistics Center, Emirates NBD Research
Strong connectivity with India remains key for Dubai airports, and it was the destination country for 6mn passengers passing thorough DXB, or 14.6%, in the first half of the year. While measures by the Indian authorities to boost its own airlines’ direct connections with Europe and the US could limit future growth from this market, as could the development of new Saudi Arabian services (3.1mn passengers, or 7.8%, at DXB in H1), the ongoing global growth of tourism and Emirates’ strong presence in East Asia will help offset this. Emirates has been ramping up its China services once more this year since China’s zero-Covid policy was ended, with frequent direct flights to Beijing, Guangzhou, Shanghai, and Hong Kong, and ongoing connectivity to over 24 other points through partnerships with local carriers.
Finally, it is worth noting that the transport & storage component of Dubai’s GDP also encompasses travel within the emirate, and the expansion seen in this regard this year is strongly indicative of ongoing robust growth in the population and the economy at large. Over the past several years the number of journeys taken on Dubai’s metro and tram services has recovered steadily, rising to a record of 49,518 in December 2022. Over 2022 as a whole, journeys numbered 549,699, up 11.7% y/y. Meanwhile the number of taxi trips taken last year rose to 105.2mn, up 18.3% on 2021 and just shy of the peak of 105.6mn taken in 2015.
Traffic on Dubai’s roads continues to grow, leading to healthy revenue for electronic toll gate operator Salik. Since its partial listing 12 months ago, Salik’s share price has risen 67.0% as of September 21st. In 2022 there were an average of 1.48mn trips every day, and Salik’s core forecast is that net annual toll traffic on the Salik road system will ‘rise 5.5% CAGR from 2022 to 2025, and by 2% from 2026 to 2071.’
Source: Dubai Statistics Center, Emirates NBD Research
Looking further ahead, the development of the UAE’s rail network will help facilitate the movement of both goods and people by rail. The newly developed line now runs for 900km from the UAE’s southern border with Saudi Arabia through to Fujairah and connects all the major ports including Khalifa Port and Jebel Ali on the way. Not only will this boost rail freight volumes in the near term, but the eventual linkage with the rail networks of the rest of the GCC should support regional trade growth and economic integration. Within the next decade, the launch of passenger rail services on the network will support the planned population growth in the Dubai.
Daniel Richards
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