Wednesday, October 19, 2005

The desert shall bloom :: Financial Times
Trading hubs in bud

if the government has its way, the Gulf emirate will soon become a global floriculture logistics hub - potentially threatening Dutch pre-eminence.

At the end of this month the Dubai Flower Centre (DFC) opens its doors and by early next year hopes to be attracting international shippers and wholesalers.

By routing their goods through tax-free Dubai - whether South African proteas, Kenyan green beans, Malaysian bouquet foliage or Sri Lankan orchids - shippers would be able to cut time and money off the chain linking 15 producing nations to Asian and Middle Eastern consumers.
. . .
Where once an east African rose would have travelled north to Amsterdam to be auctioned, packaged and flown on to a Tokyo florist, in theory it will soon be able to arrive faster and fresher by heading directly eastwards. Until operational, however, DFC officials are refusing to estimate potential cost or time savings.
. . .
Ian Strachan of Zurich-based ADI Consulting, the company contracted to manage the DFC, says east Asian flower shippers "want to shorten delivery times from African producers, but can't do that without the ability to sustain the cool chain".
. . .
"I think if the Dubai centre is successful as a handling depot, then it will be a big blow to the Netherlands," [Quint Wilken, managing director in the Netherlands for the Cool Chain Group] said. "If it also becomes an auction house, then that will be a disaster for people here."

The DFC has shelved plans for an auction house in the first phase, but has not ruled it out at a later stage.
. . .
"I expect some exporters will be interested, once they see how Dubai develops as a hub," [Felix Schrandt, chief executive of the Flower Council of Holland] said. "It took the Netherlands half a century to build its horticulture export industry though, so I don't believe that can be copied overnight."
As the article illustrates, the logistics and the market-making sides of trading hubs are mutually reinforcing. Holland of course is a major flower (think tulips) exporter and the flower market grew up around the export hub. There is a long history here. The existence of this well-established market made Amsterdam attractive as a hub for trade in other flowers not grown in Amsterdam, but in far-flung parts of the world. Buyers and sellers are both interested in getting the best price so they come to the market. And a hub where a variety of flowers come together facilitates the logistics of repackaging shipments from farm through to retailers.

What Dubai is trading on is that there are costs of shipping to the hub and then back out to retailers. Savings on these costs raise the possibility that another hub could be economically successful in the long term. Perhaps Dubai can successfully reverse the order of development of Holland's hub. Success, I think, will be judged in terms of whether the Dubai becomes a center not only a point in the cool chain, but also develops into a flower auction center.

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