While the general outlook for global shipping remains underwhelming, the route into the region has been performing strongly. In October 2014 the energy analysis and research firm, Platts, reported that there was an undersupply of ships serving the Gulf. This has led to a sharp spike in rates in the region and the diversion of several Aframax vessels – an oil tanker of between 80,000 to 120,000 dead weight tonnes – to the region by ship owners. As of late October 2014, a ship owner could earn nearly $24 per tonne on the Persian Gulf to the East route compared to $14.50 per tonne on the Indonesia-Japan route, according to Platts. Given that the Gulf region accounts for 40% of the world’s oil reserves and a quarter of its gas reserves, there is tight supply for oil tankers and liquefied natural gas vessels. However, the region is showing strong demand across all segments of the shipping market, including container lines, which are offering strong volumes and opportunities. “In 2014 we experienced double-digit growth in our import numbers into the cluster,” Kapil Mehta, head of trade and marketing for the UAE, Oman, Qatar and Iran at Maersk Line, told OBG.
Historical Heavyweight
The UAE has traditionally been a strong market for container traffic due to import demand fuelled by domestic consumption. “Much of the GCC region’s shipping volume is based on imported consumables rather than industry, although the share of industry continues to grow steadily, driven mainly by exported semi-manufactured materials from the local chemical industry and aluminium refineries,” Jorn Hinge, president and CEO of United Arab Shipping Company, told OBG. In 2010, for example, the UAE ranked 12th globally as an importer of containerised cargo with a volume of 2.1m twenty-foot equivalent units (TEUs), according to the World Shipping Council. The rest of the Gulf combined ranked sixth with 2.7m TEUs. Local conditions suggest that the maritime industry serving the emirate should be kept busy over the next decade. This is the result of two major factors. Dubai has a strategic location serving emerging markets that have some of the highest growth rates globally. And secondly, domestic factors look favourable for shipping expansion over the medium term. “There is a big growth towards Africa and imports from the East and China. And we are seeing more global companies establishing headquarters for the Middle East here, so this will also increase imports to the area,” Nadia Abdul Aziz, managing director of Union National Air, Land and Shipping Company, told OBG. “Most of the construction and big business is in Dubai and most of the major shipping lines are going into Jebel Ali,” she added.
Expo 2020
Local demand alone is enough to build confidence in the performance of the Gulf-bound trade route. Dubai, supported by the award of Expo 2020 in November 2013, is forecast to achieve strong economic growth over the next decade. The Expo, the biggest global event after the Olympics and the FIFA World Cup, is expected to attract 25m visitors over the course of its six-month staging in late 2020 and early 2021. Preparation for the event will create as many as 277,000 jobs, while the government is planning to spend as much as $8.7bn, according to the law firm Jones Day.
The stimulus provided by the event is likely to have a dramatic impact on the economic and demographic situation of the emirate and consequently a positive influence on demand for shipping services. Jones Day has stated that event preparations could generate $23bn, or 24.4% of current GDP, for the local economy between 2015 and 2021, while economic growth rates will rise from the current level of 4.2% to 6.4% between 2014 and 2016, and as much as 10.5% by 2020. This should increase demand across all shipping segments to support the building programme. Dubai’s rising importance for the shipping industry, fed in part by this growth, has led to an uptick in shipping representation in the emirate. This began in 2007 when MUR Shipping, the global bulk carrier, set up its regional headquarters in Dubai Maritime City. Moreover, in the last two years the pull of the city has brought in many other shipping lines, a trend that is unlikely to abate anytime soon.
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