Jebel Ali Port and Free Zone: Its Impact on Companies Supply Chain Operations - Case Study Example

Introduction: This paper is a report, and it provides an assessment of the benefits of opening a manufacturing unit in the Jebeli Ali Free Zone, and using it as its operating base, in supplying products to the GCC distributors. In achieving the aims of this paper, this paper will identify the facilities that Jebeli Ali Port and Free zone possess, that make it attractive to numerous companies in the world. This paper would also analyze the benefits that our company, retailers, distributors and customers have, because of holding an operational base in the Jebel Ali Free zone. Furthermore, this paper would analyze the costs that the company would incur, in establishing a distribution center at the Jebel Ali Free Zone. The major intention of the creation of the Jebel Ali Free Zone is to provide incentives to companies, so that they may be able to add or create value in their manufactured products (Jebeli Ali Free Zone, 9). These incentives are also given to large transportation companies, responsible for the transportation of cargo. The Free Zone achieves this objective by providing an infrastructure that helps company to efficiently manufacture their products, and also to distribute them. These are supported by other value added services, provided within the Free Zone, and various incentives and proactive marketing. The intention of this free zone is to attract large business organizations for purposes of helping in the growth and diversification of the economy of Dubai. The Jebel Ali Free Zone is the first such organization to be awarded an ISO 9002 certification (Jebeli Ali Free Zone, 2). For the last decade, this free zone has managed to attract a high level of investment, and it currently has more than 7100 companies, all coming from different regions of the world. Most of these companies engage in the manufacturing or distribution of goods that can be used for export or domestic consumption. Global international brands, such as Samsung, Sony, Colgate, Honda and Daewoo have opened manufacturing units in this region, making it one of the fastest growing economic free zones in the world. This paper will therefore provide reasons why our company should consider opening some distribution units at the Jebeli Ali Free Zone. Facilities of the Port and the Free Zone: The Port of Jebeli is the largest man made harbor in the world. Due to its large size and efficient delivery of services, the Port of Jebeli Ali has managed to attract a significant number of foreign investments. The activities in this port comprises of 40% of the foreign direct investment that is found in United Arabs Emirates. One of the major reasons why companies are attracted to the Port of Jebeli is because it provides an ample space for the handling of containers. The Port has a container yard of approximately one million square meters. Because of this size of the Port, it is possible for the port to handle thousands of containers in a day. This is able to save on time and money, which are some of the factors that companies normally seek to save on. For instance, a delay in the handling of cargoes at the Port would lead to an increase in the costs of storing the cargo at the port. This would in turn lead to an increase in the administrative costs of the company. It is important to explain that a company that operates under high costs would find it difficult to maximize its profits, which is the major reason for the existence of a company. This port also has a sufficient space that can help it handle and store cargos for a long or medium duration of time. This is possible because the Jebeli Ali port has seven Dutch barns, comprising of a total of nineteen thousand meters square (World Port Source, 3). Furthermore, it has 12 shed which are covered, and these sheds lies on 90.5 meters square of land. These facilities were built for purposes of storing cargo on a short or long run basis. This is very attractive to business personalities; mainly because they are sure that their cargo would be stored safely, waiting for release. Furthermore, companies that do not have ready warehouses can use these facilities for long term proper storage of their products. This helps in the reduction of costs associated with the construction of new ware houses, and employing people to take care of these warehouses, and various cargoes found in them. Furthermore, the Port of Jebeli has an additional nine hundred and sixty thousand meters square of open storage (World Port Source, 2). This is a storage facility whose major aim is to store non-perishable products, or substances that cannot be destroyed by weather. In addition to these facilities, the Port of Jebel Ali has a berthing facility, for the roll on or roll off of car carriers and vessels, and it provides some sufficient space where it is possible to store motor vehicles on a long term or short term basis. This facility also helps in the handling of livestock. This berthing facility is one of the biggest in the world, and this makes it attractable to companies that are engaged in the business of exporting and importing motor vehicles. Furthermore, the region of Jebel Ali is one of the major transportation hubs in United Arab Emirates, and the region of Middle-East. Another important feature of the Jebel Ali Port is its Container Freight Station. This container Freight Station is very massive (World Port Source, 7). It is able to cover approximately 17.4 thousand meter square, and it has more than two hundred thousand meter square of open space, for storage. A container freight station is a very important port facility, and this is mainly because it is responsible for the loading and unloading of cargo from the ships. Due to its large size, the container freight station of Jebel Ali port has the capability of unloading and loading thousands of container cargo within a day. This is attractive to companies, because it is able to save on their time, and costs of storing the cargo in the port or at the ships. The Port also has a facility that is capable of storing perishable products such as chocolates, flowers, pharmaceutical drugs, etc. These cool stores are built in a 2695 square facilities whose temperatures and humidity are heavily controlled (World Port Source, 2). Furthermore, the Port has facilities that can be used for purposes of holding oil that can be made available for rent. These are called tanker berths, and they serve a very important purpose in providing energy, in form of oil and its substances to various companies that are operating within the region. It is important to explain that accessibility to energy is one of the factors responsible for attracting investors within a region. This energy is readily available at the Port. The Port of Jebel Ali is also linked to the Cargo village at the Dubai International Airport, via an electronic railway system (Terterov, 178). The cargo village is of great importance to business personalities, mainly because it helps in handling perishable products, and ones which need to be urgently transported. The time of transportation between the Port and the air port is approximately four hours. Based on this fact, it is possible for perishable products to reach the Port of Jebel, to its airport in about four hours, therefore protecting them from decomposition. The Jebel Free Zone also has some facilities that make it attractive to investors. The Jebel Free Zone is strategically located at the Jebel Ali Port. The strategic location of the Jebel Free zone is an indication that it has the capability of accessing majority of the markets that are found in the world. It also has a close proximity to Dubai International airport. This air port is one of the busiest airports in the world; hence it is possible for companies to transport perishable products to their respective markets. Jebel Free Zone also has a close proximity to the Al Maktoum airport. This is a cargo airport, responsible for transporting only cargoes. Based on this fact, Jebel Free Zone is able to connect the Al Maktoum airport, with Dubai International Airport. This helps in better and efficient transportation of cargo by air. Furthermore, the Jebeli Ali Free Zone has a modern 6 lane highway (Jebeli Ali Free Zone, 7). This highway makes it easy for the transportation of cargo, from the Jebeli Ali Port, to the airport (Jebeli Ali Free Zone, 7). Furthermore, it has a railway system that connects UAE with Oman and Saudi Arabia. This railway system has the capability of transporting more than 50 million tonnes of cargo, within any given year. One of the factors that attract investors to a region is the transportation system of the region under consideration. The transportation system of Jebel Free Zone is superb, hence attracting a large number of foreign investors or companies. Another important facility attracting companies to this Zone is that it has accommodation facilities for laborers working within the free zone. For example the northern side of the Jebel Ali Free Zone has some 4850 rooms of accommodation, while its southern side has about 4600 rooms (Mangan, Lalwani, and Lutcher, 312). These rooms have a provision of catering services, washrooms, and they are near mosques, supermarkets, retail stores and laundry services. Multinational companies such as Sony have a presence in this zone. For example, a company such as Sony Corporation has acquired a 23,000 square meter of a warehouse. This is the largest storage space in the world that is able to store a single type of an electronic product. Other multinational companies such as General Motors, Daewoo, IBM, Samsung, Black and Decker are also operating manufacturing units, and warehouses in the Free Zone. However, majority of business organizations operating in this Free Zone are small scale companies that want to take advantage of the business incentives offered by the government of UAE in this zone. However, for a small company to qualify for a license in this Zone, they must be very active. For purposes of operating in this Free Zone, there are two important licenses that business organizations must acquire. One license is the Zone trading license. This license is able to allow business organizations that want to export, import, distribute or sale items to operate. This is mainly because the major aim of our company is to distribute mobile handsets, and other electronic products or materials. The company must therefore acquire the Zone trading license. Another type of license is the zone industrial license. The industrial license is able to allow business enterprises and companies to import, export and manufacture raw materials or even finished products. This type of license therefore applies to business organizations involved in the manufacturing sector. Another type of license is the service license. This license is offered to business organizations that want to produce or offer a specialized service. However, the service under consideration must not conflict with the services that the organization under consideration is offering in United Arab Emirates, or even abroad. Furthermore, the Free Zone has another type of license which is referred to as the national industrial license. This type of license is able to allow companies whose shareholders own 51% are citizens of United Arab Emirates (Jebeli Ali Free Zone. 5). This type of license allows these companies to import raw materials, manufacture finished products, and export them to various parts of the country under some specialized terms and conditions. It is also important to explain that companies which qualify to receive the national industrial license would also qualify to be exempted from duty, for the products which are imported to the states that form the Gulf Cooperative Council. Benefits of Holding Inventory at the Free Zone: There are numerous benefits that the company would get by operating a store at the Jebeli Free Zone. One important advantage is that the zone allows for a 100% ownership of the company under consideration. This means that the shareholders of the company would not cede some of their shares or a controlling stake of the company to the citizens of United Arab Emirates. Another benefit to the company is that there would be a 0% corporate tax (Jebeli Ali Free Zone, 5). This is for a period of 50 years that the company is in existence, within the region. This means that the operational costs of the company would be reduced; hence the company may get the capability of maximizing its profits. Other taxes which are zero rated include, import tax, income tax, and re-export duties. Furthermore, this zone has no restriction on the currency that can be used. This means that our company can use any currency that is stable and does not fluctuate. Another benefit that companies enjoy in this free zone is that there is no minimum capitalization that companies need to have (Terterov, 175). This therefore means that the capitals that a company needs to invest are not restricted; hence many companies can invest in the region. Furthermore, these companies are also allowed not to involve citizens of UAE in their operations (Terterov, 175). This means that the company can outsource for its own employees out UAE, and employ them without any penalty. Furthermore, there are numerous accommodation facilities for foreign workers within the zone. The company can take advantage of these facilities. The company would also enjoy an access to a seamless logistical infrastructure. This infrastructure offers some of the best connection in regard to transportation. This is because the Free Zone is connected to the sea, via the Jebeli Ali Port, to the air, via Dubai International airport and the Al Maktoum airport. It is important to understand that The International Airport of Dubai is amongst the largest in the world, and it plays an important role in connecting the world with UAE (Mangan, Lalwani & Lutcher, 312). Furthermore, the Port of Jebeli Ali is one of the biggest in the world, and it’s off loading and parking services are very fast, and this would enable the company to save on costs associated with storage, of products in the ships (Jebeli Ali Free Zone. 5). Furthermore, the Al Maktoum airport can provide the company with the services needed to transport its cargo through air. This is because it is an airport that mainly specializes in the transportation of cargo, and it is strategically located near the Jebeli Ali Free Zone. The company would also benefit from the land transport, specifically the rail transport. This is because the railway system is able to link UAE with countries such as Oman and Saudi Arabia. These are some potential markets for the products of the company. Furthermore, the company would benefit from low cost energy substances such as electricity and oil. Chances are also high that the company would benefit from business connections. This is because of the presence of the large number of business institutions within the region. Based on these facts, the distributors of the company would mostly benefit from the transportation infrastructure that the Jebeli Ali Free Zone is able to command. This is advantageous because they would manage to supply the products of the company at ease, and without additional costs associated with poor transportation systems. To retailers, they will manage to sale the products of the company at lower costs. This will give them a competitive advantage over their rivals. Consumers will also benefit from these low prices. Furthermore, they will also be able to get high quality goods at a better and cheaper price. Costs the Company has to consider: There are numerous costs that the company has to consider when seeking to open a branch at the Jebel Ali Free Zone. One such cost is the fee charged for registration. This fee varies with the type of company. For instance, our company wants to establish a branch in the zone. The fee charged would be, 5000 AED (Jebeli Ali Free Zone, 6). This is one time fee. 200 AED would be charged on the memorandum and articles of association. The specimen signature would be charged at 50 AED per signature. Other fees would be charged on the warehouse. The cost charged on renting a ware house depends on the square meters of the ware house. The lowest cost is 350 while the highest cost is 600 AED per square meter, per year. The company should also consider the costs it incurs on office space. These spaces are also charged per square meter, with the lowest being 1800 AED, and the highest standing at 2500 AED per square meter (Jebeli Ali Free Zone. 5). The company should also consider the costs of license that it would pay. A logistic license goes for 30,000 AED, while a service license goes for 8,000 AED. Furthermore, there is a requirement that the company should insure the rooms that they are using for their business. On this basis, the company will also be forced to consider insurance costs while seeking to open a branch in Jebeli Ali Free Zone (Jebeli Ali Free Zon, 5). Other cost that the company should consider is on sustaining its foreign workers in the region. This is because the company would be forced to relocate some of its experienced workers in the region. It therefore has to sustain them, by paying them some special allowances. Conclusion: In conclusion, the Jebel Ali Port and Free Zone are very important economic locations in United Arab Emirates. For instance the Jebel Ali Port is the largest man made harbor to be made, and it is one of the few man made facilities that can be observed through the space. The Jebeli Ali Port has more than 20 berths, in over 15 kilometers of quay. The Port has the capability of handling large pieces of container ships, bulk carriers, car carriers, and specialized cargo vessels. Furthermore, the Jebel Ali Port and Free Zone are strategically located, and this enables the companies operating in the port to access more than 1.5 billion of customers who are found in the emerging markets of Asia, and its neighboring countries. The company will therefore benefit from opening a distribution center in this zone. The transportation infrastructure that is found in this zone will help the distributors of the company to efficiently distribute these products to the emerging markets of Asia, Europe and Africa. Furthermore, the financial incentives offered by the government of UAE makes it very cheap and affordable to operate a distribution and manufacturing center in this region. Bibliography: Jebeli Ali Free Zone. (n.d.). Jebel Ali Free Zone (JAFZA) Products, Services and Benefits. Retrieved February 22, 2015, from http://www.fbsemirates.com/list-of-uae-free- zones/jebel-ali-free-zone/#products. Top of Form Bottom of Form Mangan, J., Lalwani, C & Lutcher, T . (2008). Global logistics and supply chain management. Chichester, England: John Wiley & Sons. Top of Form Bottom of Form Rosefielde, S. (2013). Asian economic systems. New Jersey: World Scientific. Top of Form Bottom of Form Terterov, M. (2006). Doing business with the United Arab Emirates (2nd ed.). London: GMB. World Port Source. (n.d.). Port of Jebel Ali. Retrieved February 23, 2015, from http://www.worldportsource.com/ports/commerce/ARE_Port_of_Jebel_Ali_1423 Read More