Tax & Accounting Blog

Virtual Freight and Logistics Corridor (VFLC) – Logistics Simplified – Part 1

Blog, Global Trade, ONESOURCE January 29, 2016

Investments in transport infrastructure are maybe the most important single contributor to urban growth.  Related to this, transportation is also critical to the location decisions of international business. That is one reason why the development of a logistics hub – be it global or regional logistics hub or a specialized port city, airport city, warehousing hub or something similar – is appealing to the local economic development policy in our globalizing world.

Many European cities, especially those in Germany, France, the UK, and the Netherlands, have for long been major global and regional logistic hubs. Similar kinds of hubs in the United States include New York-Newark, Houston, Minneapolis-St. Paul and Dallas-Fort Worth.  In Asia world-class logistic hubs include Singapore and Hong Kong which are challenged by ambitious developments as Shanghai and other Chinese logistics hubs and Dubai Logistics City (DLC) in United Arab Emirates move  toward becoming the world’s first truly multi-modal integrated logistics platform.[1]

Dubai: A Pivotal Hub in the Global Economy

Dubai has become a key player in the global economy and it aims to reinforce its position by enhancing its standing as a global business center to be among the top 5 centers for trade, logistics, finance, and tourism. [2]

Following a study of current status and needs of the freight and logistics sector, Dubai Customs collaborated with the Department of Economic Development to develop the Virtual Corridor initiative, which is a unique and a first-in-its-kind automatized customs procedure.

An Overview of the Transportation and Logistics Industry

Transportation and logistics refer to the management of the flow of resources between the point of origin and the point of consumption. The entire process usually involves integration of information flow, material handling, production, packaging, inventory, transportation, and warehousing.

Based on Gartner definition of Global Trade Management (GTM) Pillars, Transportation and Logistics, Compliance and Trade Finance, all together compose a holistic GTM functional architecture.

Trade compliance functions address the activities ensuring international transactions comply with and adhere to the rules and regulations of importing and exporting countries, and that all reporting, documents and financial obligations are met in a timely fashion.

The Council of Supply Chain Management Professionals (CSCMP) defines logistics as the process of planning, implementing, and controlling procedures for the efficient and effective transportation and storage of goods including services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. This definition includes inbound, outbound, internal, and external movements[3].

The transportation and logistics industry is comprised of companies engaged in the transport, storage, and distribution of freight by road, rail, water, and air.

  • Transportation entails air, road, rail, and marine transport.
  • Warehousing includes warehousing or storage services during manufacturing and/or distribution.
  • Freight forwarding includes documentation, insurance, and custom clearance.
  • Value-added logistics services include packaging, labeling, bar coding, tagging, warranty processing, and returns management[4].

Logistics requires planning; transportation is just the mode to execute the planning, when moving freight from point A to point B. Clearly, they are not the same thing, but transportation is just simply a part of logistics.

When it comes to logistics, the logistics executives have oversight to the elements that support the movement and storage of goods beyond the mode of transport that include:

  • Packaging
  • Containerization
  • Documentation
  • Insurance
  • Storage
  • Importing and Exporting Regulations
  • Freight Damage Claims
  • Collaborating with other executives within the supply chain
  • Managing vendors and partners
  • Mitigating risk
  • Mitigating expenditures, with a continuous review of costs associated with the entire flow of goods

Transportation is the most important segment of the logistics industry, generally accounting for 40–60% of the total logistics cost for most companies, followed by warehousing at 15–20. Freight forwarding and Value added logistics services (VALS) constitute the remaining share.[5]

Conclusion

Dubai has been the pillar of the Gulf Cooperation Council (GCC) trade development since the 1970s. The emergence of Dubai as a logistics hub has had a positive impact on the rest of the Arabian Peninsula. Saudi Arabia, Qatar and Kuwait port facilities did not have the capacity to fully handle the surge in trade that spurred from the boost in economic activity over the last decade. Dubai delivered the perfect example of an integrated logistics platform, as it seamlessly integrates the International Airport and Jebel Ali Port and Free Zone.

To learn more about import or export, visit our ONESOURCE Global Trade page

Sources

[1] http://s3.amazonaws.com/academia.edu.documents/30827647/anttiroiko_local_responses_tregroup_final_2009.pdf?AWSAccessKeyId=AKIAJ56TQJRTWSMTNPEA&Expires=1448363361&Signature=W3e2q7ZUhEF8r0oPwAjtDckwzmM%3D&response-content-disposition=inline%3B%20filename%3DUrban_Response_to_Global_Intercity_Compe.pdf

[2] http://www.dubaiplan2021.ae/the-economy/#

[3] https://cscmp.org/sites/default/files/user_uploads/resources/downloads/glossary-2013.pdf

[4] http://almasahcapital.com/uploads/news/news_127.pdf

 

[5] http://cerasis.com/2013/08/13/transportation-and-logistics-management/