Government support and private investments drive maritime expansion in Dubai

Over the past half-decade Dubai has risen into the upper echelons of the global maritime industry. In April 2017 it was named the fifth-most competitive maritime cluster in the world, and the 10th maritime capital overall by the Norway-based Menon Business Economics Group, which publishes a bi-annual report on the international maritime industry. The report measures various cities on attractiveness and competitiveness, technology, finance and law, ports and logistics, and shipping.

As the 10th-highest-ranking centre, Dubai was rated best in the MENA region. Furthermore, this is a notable rise from the previous edition, published in 2015, in which Dubai ranked 13th overall. The report predicts that Dubai will continue to grow in importance in coming years, becoming the sixth-most important maritime centre by 2022.

Steady Growth

This improvement in ranking reflects the rapid expansion of maritime services over the past few years. As of early 2017 the maritime industry accounted for around 7% of GDP, a 25% increase over the 2011 rate, according to government data. The sector is deep but also wide, composed of more than 5500 companies engaged in some 13,000 activities, from shipbuilding, container logistics and dry bulk cargo handling to port services, maritime engineering operations and dredging. “Our aim has been to generate growth across the sector, and to ensure that this growth is sustainable,” Nawfal Al Jourani, chief officer and director of communications of the Dubai Maritime Cluster Office at Dubai Maritime City Authority (DMCA), told OBG. “We have overseen the development of a thriving shipping community over the past decade.”

Despite positive performance, the industry faces a range of ongoing challenges. Like other shipping hubs around the world, in recent years Dubai has felt the negative effects of slowing trade, lower oil prices and a global oversupply of container shipping capacity. However, compared to many other maritime clusters around the world, the emirate appears to be well positioned to withstand the current period of relatively slow growth. “Dubai has invested heavily in new maritime technology in recent years,” Farhad Patel, director of Sharaf Shipping Agency, a major sector player in the MENA region, told OBG. “This points to the local industry’s resilience.”

A key factor in overcoming this issue has been DMCA, the authority charged with carrying out Maritime Vision 2030, the long-term blueprint for the sector. The strategy, launched in 2014, was implemented to solidify Dubai’s position as a centre for maritime activity and investment by boosting logistical capacities; improve the uptake and use of technology throughout the sector; reduce negative environmental effects of the industry; and develop international quality maritime training and education programmes and facilities.

In an effort to take advantage of the market’s strategic position, in 2016 the authorities – in conjunction with private sector players – established the Emirates Maritime Arbitration Centre (EMAC), a new legal entity with a mandate to resolve shipping disputes efficiently and at a lower cost than the traditional courts system. The launch of EMAC is particularly relevant given the spate of major new investments planned across Dubai’s maritime sector.

History

The sector has historically been a significant economic player, and a cornerstone of the UAE’s culture and international shipping reputation. Archaeological discoveries in the UAE, Oman and other nearby Gulf nations indicate that the eastern edge of the Arabian Peninsula has been a major trading hub for at least 2000 years. This trade took place largely by sea, with ships from East Africa, the Indian subcontinent and Asia moving a significant portion of the ancient world’s wealth through the Strait of Hormuz to be traded in the Middle East.

Fisheries and other extractive maritime industries have also long played a key role in the economy. In the early 20th century pearl fishing became the emirate’s largest industry, which required a large fleet of ships to operate out of Dubai Creek.

The maritime industry has remained a central player in the decades since the UAE’s first exports of oil in the early 1960s (see Energy chapter). Indeed, given the energy sector’s reliance on shipping for transport, national maritime infrastructure benefitted from considerable investments by the state and the private sector alike through the 1960s, 1970s and 1980s. Dubai Creek, the emirate’s primary maritime waterway at the time, was dredged for the first time in 1960 to allow access for larger ships. Since then the Creek has been deepened, widened and altered in other ways to improve access.

In 1972 Dubai completed work on Port Rashid, the emirate’s first container terminal, with a capacity of approximately 100,000 twenty-foot equivalent units (TEUs) and two gantry cranes. Six years later, in 1978, Port Rashid was expanded. Today the port serves cruise ships, roll-on roll-off, bulk and break-bulk vessels, and traditional wooden dhows, which primarily serve other Gulf ports and India.

Dubai’s port capacity increased substantially in 1979, when the government opened the Port of Jebel Ali, located 35 km south of Dubai. Numerous investments and expansion projects have since made Jebel Ali the biggest port in the Middle East, situated in the largest man-made harbour in the world.

Top-Line Performance

According to DMCA, in 2015 – the most recent year for which data was available at the time of publishing – the sector contributed approximately Dh26.9bn ($7.3bn) to the economy, which was around 7% of GDP. Shipping contributed the largest share to maritime GDP, followed by port operations, maritime engineering and support services. The maritime sector employed some 76,000 people in 2015.

These figures are notable given the slow growth in global shipping in recent years. “Offshoring in the 1990s and up to 2007-08 pushed the maritime industry to all-time highs,” Christian Juul-Nyholm, managing director of Maersk Line in the UAE, Iran, Qatar and Oman, told OBG. “In the wake of the international financial crisis, however, the industry struggled with excess supply and flagging demand. It is only recently – since the latter half of 2016 – that we have begun to see a global recovery.”

While Dubai has managed to weather this slow growth period more effectively than many other maritime clusters, it has nonetheless affected local industry. Many of the region’s industrial players have held off on new investments and expansion projects, which has slowed exports from the region. In the first three quarters of 2016 state-owned port operator DP World reported a 6.7% year-on-year (y-o-y) decline in gross container volumes in the UAE, to a total of 11.1m TEUs, due primarily to slowing trans-shipment cargo moving through Jebel Ali.

Given this situation, DP World has slowed its previous expansion plans at its flagship port in Dubai. In 2015 the company announced that it was going to build a fourth terminal at Jebel Ali, boosting container volume capacity by around 16% to reach 22.1m TEUs by 2018. However, as of late 2017 this plan was on hold, as was an earlier planned 1. 5mTEU expansion of Jebel Ali’s Terminal 3.

By late 2016 global trade – and hence, shipping – was showing indications of an impending upswing. In the second quarter of 2017 DP World reported a 10.7% increase in gross container traffic across its global operations, as compared to the same period in 2016. In the first half of 2017 the ports operator handled 34m TEUs across its global portfolio of container terminals, with gross container volumes growing by 8.2% y-o-y. In the first half of 2017 volumes in the UAE grew to 7.7m TEUs, which was up 4.3% y-o-y. Second quarter y-o-y growth was 6.6%. Given these and similar figures, a turnaround in shipping is widely thought to be under way, with positive implications for the emirate. “We expect to see growth in trade in 2017 and 2018,” Al Jourani told OBG. “This has been a long time coming, and we are well prepared to take advantage of the improving economic situation to further boost Dubai’s reputation as a maritime hub in the region.”

Development Plans

The sector’s medium-term development plan was the Dubai Maritime Sector Strategy (MSS), which was initiated in 2012 and ran to the end of 2017. Developed and managed by DMCA, the MSS was made up of a number of basic strategic objectives, including expanding Dubai’s maritime GDP, supporting the UAE’s federal-level logistics, trade and tourism sectors, and improving the maritime regulatory framework in alignment with international best practices. Additionally, the MSS laid out a handful of ancillary goals, including boosting Emiratisation across the industry, improving statistics collection and publication, improving access to private financing for maritime companies, and ensuring sector sustainability in terms of safety, health and environmental impacts.

The MSS has driven the development and implementation of a significant number of initiatives and investments. Priorities include reconfiguring Port Rashid for cruise operations; improving inter-port, multi-modal connectivity throughout the emirate; ensuring that the regulatory framework is on a par with international maritime standards; and implementing regular sector surveys and other data-collection practices. Since mid-2016 the Dubai Maritime Cluster Office – which was established by DMCA in June of that year to coordinate and supervise the MSS – has overseen these programmes.

Technology

Two overarching pillars have emerged from the MSS, the first of which is a focus on technology. In many other global markets, shipping and other maritime services are largely an analogue business, relying on large machines and labour. However, under the MSS DMCA has unveiled a series of initiatives aiming to digitalise the domestic maritime industry. In March 2017 DMCA announced the launch of Innovation Quay, a research facility and tech incubator to support innovation in maritime technologies. Potential areas of investment at the facility are expected to include the development of 3D-mapping technology for navigation and related purposes; the study of logistical algorithms; and research into self-piloting “drone” ships.

Rules & Regulations

A second goal under the MSS has been a focus on streamlining and improving the regulatory environment. The establishment of EMAC in April 2016 marks a major step forward in this area. The new arbitration centre falls under the aegis of the Dubai International Financial Centre, a financial services free zone that operates in a legal environment in line with international best practices, largely based on UK legal systems. EMAC will also resolve disputes under UK law, which is expected to lend considerable credibility to its decisions. Arbitration is the widely preferred method for conflict resolution throughout the global maritime industry, where complex national oversight and ownership mean it can be difficult to apply the law of any single jurisdiction. In the past those involved in maritime legal conflicts in Dubai have sought arbitration in London. EMAC officially opened its doors for new cases in February 2017.

In early 2017 the national maritime sector was in the process of drafting a new federal maritime law to replace the current UAE Maritime Law, which was enacted in 1981 and most recently amended in 1988. Between 1988 and 2017 the maritime business has changed dramatically. Key shifts include the internationalisation of shipping fleets and staffing, and the growth of global trade, which ballooned throughout the 1990s and early 2000s. Furthermore, existing maritime law does not acknowledge the legal roles of cargo, shipping agents or stevedores, nor does it encourage ship owners to register ships in the UAE. These issues are expected to be addressed by the law, which is currently still in development.

Key Players

The largest and perhaps most important player is DP World, which operates the Port of Jebel Ali and is involved in a variety of other activities. Formally established in 1999 as Dubai Ports International, the firm’s history goes back to the 1980s, when the UAE combined management of Jebel Ali and Port Rashid in an effort to establish a regional ports operator. Following a series of mergers and acquisitions in the late 1990s and early 2000s – beginning with a partnership with a local firm in September 1999 to manage Saudi Arabia’s Jeddah Islamic Port – DP World emerged in 2006 as one of the largest port operators in the world. While container terminals constitute the majority of its business, the firm also operates general bulk and break-bulk cargo operations, roll-on roll-off and cruise terminals in various countries.

At the end of 2016 DP World’s portfolio consisted of 78 marine and inland terminals, with 174,000 TEUs moved per day. Its combined ports handled around 180 vessels per day, or 66,000 over the year. The MENA region remains DP World’s largest market, and in 2016 the firm served 19 countries in the region, with a total capacity of around 39m TEUs at 38 operating terminals.

DP World recorded solid finances in the first half of 2017, posting global profits of $682m, a 1.4% increase y-o-y. Revenue increased by 9.6% to $2.3bn, and the firm reported $595m in capital expenditure for the period. A planned expansion of Jebel Ali announced in 2015 was on hold as of late 2017.

Most of the world’s major shipping companies operate in Dubai, including Danish giant Maersk, French firm CMA CGM, the Swiss-owned Mediterranean Shipping Company and many others. Furthermore, a handful of key regional players are located in the emirate, including Sharaf Shipping Agency, Transworld Shipping and United Arab Shipping Company. These firms handled a considerable percentage of the total Dh647bn ($176.1bn) in non-oil foreign trade moving through Dubai in the first half of 2016, according to latest available data from Dubai Customs. Of this total value, imports accounted for Dh401bn ($109.2bn), while exports made up Dh74bn ($20.1bn) and re-exports were Dh172bn ($46.8bn). The most important partners in non-oil trade during the period were China, with Dh79bn ($21.5bn), India (Dh48bn, $13.1bn), the US (Dh43bn, $11.7bn), Saudi Arabia (Dh27.4bn, $7.5bn) and Germany (Dh24bn, $6.5bn).

Leisure Market

In addition to various shipping activities, there is a growing leisure maritime market in Dubai, which is composed of both privately owned pleasure crafts and the cruise segment, which has grown dramatically over the past decade. According to Dubai Cruise Tourism (DCT) – a subdivision of the Department of Tourism and Commerce Marketing – over 625,000 cruise tourists visited Dubai on 157 ships during the 2016/17 cruise season, which runs from October to July each year.

Cruise tourist and ship call numbers grew by 15% and 18%, respectively, over the previous year. This follows two consecutive years of double-digit growth in both passenger numbers and ships. Indeed, in the 2015/16 season, Dubai recorded 19% growth in cruise passenger arrivals and 24% expansion in ship calls. This recent increase in cruise ship arrivals is at least partly due to the introduction of an updated multiple-entry UAE visa system in 2014, which has made it considerably easier for people from a number of emerging markets – including China, India, Russia and South American nations – to visit.

Also driving expansion in this segment has been the entrance of a steadily growing number of cruise operators and increasing government investment in the industry. As of 2016-17 more than 25 companies sailed through Dubai regularly, including most of the world’s largest operators. This list includes Royal Caribbean, Costa Cruises, AiDA Cruises, Cunard Line, P&O Cruises and Princess Cruises.

In 2014 the government inaugurated the 28,000-sq-metre Hamdan bin Mohammed Cruise Terminal at Port Rashid. With a 14,000-passenger capacity, it as an extension to Dubai’s main cruise terminal at Port Rashid, which can handle 25,000 passengers daily and seven large cruise ships simultaneously. In late 2016 DP World announced plans to improve cruise facilities at Port Rashid in 2017, in preparation to meet DCT’s goal of attracting 1m cruise tourists to the emirate by 2020.

Building Up

In addition to shipping, Dubai has a longstanding reputation as a regional centre for yachting. The annual Dubai International Boat Show, which has been running since 1992, has become one of the world’s largest gatherings of leisure boating enthusiasts and companies, including manufacturers. Indeed, Dubai has a rapidly expanding boat and yacht manufacturing industry. Gulf Craft, which produces some 500 vessels a year, was established in the emirate of Ajman, just north of Dubai, in the early 1980s. Today the firm is one of the largest superyacht manufacturers in the world. While most of Gulf Craft’s output is sold for export outside the UAE, a growing percentage of its vessels have been registered within the country.

According to the Dubai Council for Marine and Maritime Industries, between 2009 and 2015 the number of yachts in the emirate doubled. In 2015 Gulf Craft announced that it would invest $100m up to 2020 to build a new manufacturing shipyard in Dubai Maritime City. Similarly, a range of other boatbuilding firms have either set up shop in Dubai or invested in the segment. For example, local firm Instinct Marine manufactures sport fishing boats designed specifically for waters and weather conditions in the Gulf. They do this at a 40,000-sq-foot facility on Dubai Creek. Other yacht manufacturers and related firms currently active in the emirate include Al Shaali Marine and ART Marine.

Outlook

Maritime players currently face a number of challenges, including regulatory issues related to the shipment of bulk cargo – which constitutes a large percentage of exports – to the US and Europe, rising demand for new technology across the global maritime segment, and increasing competition from other ports in the Gulf and across the wider Middle East. DMCA has had significant influence in addressing these issues thus far, and will likely continue to play a key role in the future. Since the authority launched the MSS in 2012, the strategy has given rise to a wide range of initiatives that have contributed to continued growth in challenging conditions. For example, in 2016 DP World recorded a 3.2% increase in global gross container volumes, despite a worldwide operating environment characterised by oversupply, low rates and flagging demand. With this performance in mind, DMCA expects Dubai’s maritime industry to be worth some $66bn by 2018, up from approximately $60bn at the end of 2015.