Pressure Port


Economic News

22 Jul 2010
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DUBAI: Last week, Dubai Ports International (DPI) proudly took the reigns of its newest acquisition: the Port of Fujairah's container terminal - the latest in a growing list of entities that have recently fallen under DPI's management.

Under the agreement, DPI will spend an estimated $155m in upgrading and running costs during a 30-year concession, although a provision exists that could extend the contract for another 20 years after the expiration of the current agreement. Fujairah, with its projected capacity of 1.7m TEUs (twenty-foot equivalent units) per year, has 1.3-km of quay and currently is the world's second-largest bunkering centre.

The signing of the agreement in effect shores up the future of the Port of Fujairah.

"If we did not move forward with such an agreement," Captain Mousa Murad, the general manager of the Port of Fujairah told the local press, "many shipping lines may have gone elsewhere."

With the heightening of world competition, many smaller ports are starting to feel the squeeze. International shipping lines have seen their profit margins shrink over the years as greater competition forces shipping costs ever lower. Throughout the Middle East, government-run ports have been turning some or all of their management over to private companies, as efficiency and profitability have been proven to rise with the implementation of these arrangements.

In 1998, for example, regional competitor Salalah, in southern Oman, turned to AP Moller-Maersk (APM) to assist in the management of the Omani port. APM also recently took over operations in Jordan's port of Aqaba. Both have seen major jumps in business since foreign expertise arrived.

But the takeover of Fujairah is more than a charity project. It is important for DPI as well. With the acquisition of the Port of Fujairah, Dubai Ports, the holding company for DPI, gets a valuable Indian Ocean outlet on the Arabian Peninsula. Dubai Ports also includes the local Jebel Ali Port and Port Rasheed,

The first of these two will be assisted by the recent move, as the overland Fujairah-Jebel Ali road connection is important if there are problems in the Strait of Hormuz. Jebel Ali is still the busiest port in the Middle East and has maintained that title for a number of years. Since its inception in 1979, the port has made a solid claim to being one of the world's most important shipping destinations. In 2004, container traffic to Jebel Ali jumped 25% to reach 6.42m TEUs, displacing Antwerp in the 10th spot of the world's top container ports.

But over the last few years, Jebel Ali's stranglehold on the region has begun to ease. Despite high volumes that keep costs low, Jebel Ali is still situated in the risk-laden Gulf, which necessitates high insurance rates for companies that have their cargo transit there.

The physical act of taking ships into the Gulf also adds days - meaning higher costs for shippers - to the total transit time for goods. In the past, with the lack of any viable alternative, Jebel Ali was worth the extra price tag. But Salalah, which boasts an excellent location on Indian Ocean shipping routes and avoids the high insurance rates most regional ports suffer from, now has a powerful profile.

Sharjah, just up the coast from Dubai, is also trying to position itself as a larger shipping player. On May 17, Sharjah announced that it had plans to build another container terminal, the emirate's third, at Hamriyah Port. But Dubai is not content to let nearby emirates whittle away at its business. Less than 200 km down the coast from Dubai, DPI won a bid to take over Abu Dhabi's port in January and plans to take over operations there soon.

DPI has also moved into the international sphere. In late March, it took over operations of the Rajiv Gandhi Container Terminal in Kocki in India. The 30-year build-operate-transfer (BOT) contract will see the construction of the first international container transhipment port in India, according to the newspaper The Hindu. With the completion of this deal, DPI now has two strategic holdings in India.

But far bigger headlines accompanied DPI's February takeover of CSX World Terminals. The $1.1bn deal brought CSX's extensive terminal network into the clutches of DPI, immediately raising its East Asian profile. Falling under DPI's sway were CT3 and CT8W, two terminals in Hong Kong, the world's busiest container port. They also acquired the Chinese ports of Tianjin and Yantai, making a legitimate play for a piece of the booming shipping traffic spurred on by demand in China, the world's fastest growing economy.

Under the deal with CSX, DPI would also take over port operations in Australia, Germany, the Dominican Republic and Venezuela. These will be added to an already diverse collection of holdings that include operating contracts in India, Saudi Arabia, Djibouti and Romania.

With the flurry of activity in the last few months, Dubai Ports, with their 15 global terminals, are estimated to be the sixth largest global operator.

To finance their worldwide expansion, Dubai Ports is reported to be arranging for a $3.5bn loan to finance the purchase of their CSX holdings, expand Jebel Ali port and upgrade the Jebel Ali free zone. If the transaction goes through, it will be the largest banking deal made in Dubai, the daily Gulf News reported on May 18.

It seems as if port operations in Dubai, like many things locally, are therefore continuing to push the envelope. Most operators will claim that there is more than enough shipping traffic to ensure that all ports in the world can be successful, dismissing claims that rapid hub and ownership expansion is a bid for trumping the competition. But while a cornucopia of business may be the case now, savvy shipping conglomerates, always on the lookout for better rates and technology, dictate that maritime traffic is forever fickle. Shipping lines can shift overnight if port conditions become unfavourable. DPI's aggressive strategy might simply be to meet rising world demand, but there is certainly evidence that they are intent on securing their dominance and ensuring that local upstart ports don't siphon away even some of their business.

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