Dubai's martitime sector benefits from healthy trade and cruise tourist volumes

Despite slowing global economic growth and geopolitical tensions placing renewed pressure on international shipping, Dubai’s maritime sector has continued to strengthen. In 2019 the emirate moved up in the ranking of the world’s top-10 maritime capitals, securing the ninth spot, compared to its position of 10th in 2017, according to a benchmarking study by Menon Economics and DNV GL. Today, the emirate is the leading maritime centre in the Middle East, India and Africa. Its rapid rise from a quiet fishing port in the 1970s to a regional and global shipping centre handling Dh1.3trn ($353.9bn) in non-oil trade comes down to careful planning, government investment and an attractive regulatory framework that is straightforward for logistics firms. Shipping continued to expand in 2018 and 2019 on the back of increased trade volumes moving through Dubai and investment in the emirate’s port infrastructure, while the leisure market and local manufacturing of yachts also reported solid performances.

By the Numbers

Although global growth predictions are lacklustre for 2019 and 2020, the volume of trade exchanges around the world remain high, benefitting steady expansion of Dubai’s maritime sector. The emirate’s non-oil trade reached Dh1.3trn ($353.9bn) in 2018, a slight increase from $350bn in 2017. However, long-term trade growth has been striking, with the value of trade rising by 72% between 2009 and 2018, and the volume of goods increasing by 44%. In 2018 imports totalled Dh770bn ($209.6bn), re-exports Dh402bn ($109.4bn) and exports Dh127bn ($34.5bn). According to data from Dubai Customs, trade through free zones in 2018 grew by 23% to Dh532bn ($144.8bn), while direct trade reached Dh757bn ($206.1bn).

China maintained its position as Dubai’s top trading partner in 2018, with Dh139bn ($37.8bn) worth of trade, followed by India with Dh116bn ($31.6bn) and the US with Dh81bn ($22bn). Container port traffic in the UAE – much of which is handled in Dubai – has also shown impressive long-term growth, increasing from 5.1m twenty-foot equivalent units (TEUs) in 2001 to 21.3m TEUs in 2017, according to the latest available data from the World Bank.

The sector’s contribution to Dubai’s GDP has risen in hand. According to data from the Dubai Maritime City Authority (DMCA), Dubai’s maritime cluster comprises more than 7400 companies involved in activities ranging from shipbuilding, container logistics and dry bulk cargo handling, to port services, maritime engineering services and dredging. As of 2019 the maritime industry contributed some 7% to Dubai’s GDP, at around Dh26.9bn ($7.3bn), almost doubling since 2015 when it contributed Dh14.3bn ($3.9bn). Shipping activities constituted the largest share of maritime GDP, followed by port operations, maritime engineering and support services. As of 2018 the sector accounted for around 3.3% of jobs in the emirate, with approximately 76,200 people working in maritime-related industries.

Seaports

There are three major seaports in Dubai that support the emirate’s trade and tourism industries: Jebel Ali, Mina Rashid and Mina Al Hamriya. In 1972 Dubai completed construction of Mina Rashid, its first container terminal, which initially had a capacity of 100,000 TEUs and two gantry cranes. Mina Rashid was expanded six years later and today serves as the emirate’s primary passenger cruise terminal, capable of handling seven mega-cruise vessels simultaneously, or a total of 25,000 passengers. Jebel Ali, opened in 1979, is the largest cargo port in the Middle East, with a capacity of 19.3m TEUs. Its facilities play a vital role in Dubai and the broader UAE economy, connecting maritime trade to air and land logistics. The port is also a prominent player in the global trade network thanks to links with 150 ports worldwide. Mina Al Hamriya, built in the late 1970s and typically the least known of Dubai’s three ports, also plays an important role in the emirate’s maritime sector. With space to berth 190 fishing vessels and home to one of the largest quarantine facilities in the Middle East, it is the primary destination terminal for livestock imports and the fishing industry.

Development Initiatives

The DMCA, the government authority responsible for overseeing and regulating the emirate’s maritime growth, has been at the heart of the sector’s success over the past decade. Tasked with establishing Dubai as a leading global maritime centre, the DMCA laid out the Dubai Maritime Vision 2030 (Maritime 2030) in 2014. This development plan, which followed on from the Maritime Sector Strategy 2012-17, seeks to improve the uptake of technology in the sector; strengthen the regulatory environment; reduce the environmental impact; and develop leading maritime training and education programmes, along with related facilities.

Some of the DMCA’s initiatives include the Dubai Maritime Virtual Cluster (DMVC), the Dubai Innovation Quay and the Maritime Advisory Council, which have significantly contributed towards building a safe and sustainable maritime sector. The latest project, the DMVC, was launched in September 2018 and showcases the DMCA’s success in integrating technology into various activities. The DMVC provides information on the maritime industry, its local players, and innovation, research and training programmes through a virtual platform. The main principle behind the platform is to showcase the emirate’s integrated portfolio of maritime services to global investors, and bridge knowledge gaps between local, regional and international stakeholders.

In line with the Maritime 2030 strategy, the government of Dubai has continued to leverage the emirate’s strategic position and robust regulatory frameworks to increase the attractiveness of its maritime sector to global players. The 2016 creation of the Emirates Maritime Arbitration Centre (EMAC) was an important development in this regard. Established by government decree, EMAC is a specialised organisation that provide services for resolving international and domestic maritime disagreements through arbitration, mediation and other means of alternative dispute resolution. Its creation has filled a geographic gap in the arbitration market and thus works to meet the legal needs of companies operating in the regional maritime industry.

Major Players

The maritime sector’s largest player is DP World, which operates Jebel Ali, Mina Rashid and Mina Al Hamriya, and holds various overseas investments in port terminals. Established in 1999 as Dubai Ports International, the firm’s history stretches back to the 1980s, when the UAE merged management of Jebel Ali and Mina Rashid to establish a regional ports operator. Following a series of mergers and acquisitions in the late 1990s and early 2000s, DP World emerged in 2006 as one of the largest port operators in the world. While container terminals constitute most of its business, DP World also has break-bulk cargo and roll-on/ roll-off operations, as well as cruise terminals around the world. By the end of 2018 DP World’s portfolio consisted of 78 marine and inland terminals in 40 countries, according to the firm’s 2018 annual report, with 195,600 TEUs moved every day. Together, its ports handle about 191 vessels per day, or nearly 70,000 over the course of a year.

Asia Pacific and India is DP World’s largest market, and in 2018 the firm handled 32.9m TEUs in this region. This was followed by 29.5m in Europe, the Middle East and Africa, and 9m TEUs in the Americas and Australia, for a total of 71.4m TEUs. In the UAE the company moved 15m TEUs that year, mostly in Dubai. DP World’s operational results in 2018 were very strong, with revenue and net profit increasing substantially from 2017. Revenue for 2018 stood at $5.6bn, a 19.1% increase from $4.7bn in 2017, largely due to a string of acquisitions that included local ship repair yard Drydocks World and maritime-focused real estate district Dubai Maritime City. The company’s profit for the period was $1.36bn, slightly more than the $1.33bn recorded in 2017.

Most major international shipping lines operate in Dubai, including Danish giant Maersk, French firm CMA CGM and Swiss-owned Mediterranean Shipping Company, alongside a handful of regional players such as Sharaf Shipping Agency, Transworld Shipping and United Arab Shipping Company. These companies are active in Dubai’s non-oil trade activities.

Rules & Regulations

The emirate’s maritime industry is experiencing some significant positive changes as the government seeks to strengthen the regulatory environment underpinning the Maritime 2030 programme. The establishment of EMAC in 2016 marked the first major step forward in this area. EMAC operates within Dubai International Financial Centre (DIFC), a financial services free zone that exists in a legal environment that is aligned with international best practices and largely based on UK law. The DIFC courts oversee any arbitration decisions made by EMAC, meaning that the parties involved do not need to go through a UAE court to resolve contract compliance or other matters, which could be a lengthy process. The creation of EMAC has helped streamline arbitration and resolution proceedings of a growing number of maritime disputes in the emirate and wider region; reflecting this, the annual arbitration caseload in the DIFC has increased by 10% or more in recent years.

Digitalisation has been key to EMAC’s ability to keep pace. In comments to local media in January 2019 on the body’s e-arbitration processes, Jyothi Mani, case manager at EMAC, stated, “EMAC leverages its existing technical infrastructures to ensure an efficient arbitration process to maximise resources and meet global challenges imposed by factors such as time zones, accessibility and location.”

A review of the UAE’s Maritime Law is another major legal development expected to address some problems faced by the sector. The current Maritime Law dates back to 1981 and was most recently amended in 1988. Recognising that the sector has changed significantly since then – particularly with regards to the internationalisation of shipping fleets and staffing, as well as evolving global trade regulations – the UAE government has been working with various public and private sector stakeholders to modernise the framework. Following several delays, the draft law was published in July 2019 and greeted with enthusiasm by the private sector. The new law, which is expected to come into force in early 2020, provides a number investment incentives, including 100% ownership rights of maritime companies; registration of vessels under the UAE flag; and the establishment of a new maritime development fund for investment in the sector.

In conversation with OBG, Rania Tadros, managing partner at international commercial law firm Ince’s Dubai practice, described the new law as “one of the most significant developments in UAE’s maritime sector in recent years”, adding that it is hoped the legislation will “fill some of the gaps present under the old law, regarding ship agents and charter parties, for example”. Tadros pointed to other positive regulatory developments in the industry, such as efforts led by the Federal Transport Authority, which has increased its active presence and responsiveness to the needs of the local shipping industry.

Leisure Market

While cementing its place as a global maritime trade hub, Dubai’s leisure maritime market – comprising privately owned recreational craft and the cruise industry – has also seen recent growth. According to the Department of Tourism and Commerce Marketing, cruise tourist arrivals in the 2017/18 season – which ran from October to July – numbered 558,781 aboard 110 ships. This rose by 51% to 846,176 cruise tourists on 152 ships in 2018/19, prompting the body to set a target of 1m cruise tourists for 2020. By August 2019, 211 ships were already confirmed for the 2019/20 cruise season.

Dubai’s Hamdan Bin Mohammed Cruise Terminal, the largest cruise terminal in the world by size and handling capacity, has been crucial to this growth. It has welcomed around 25 international cruise liner companies including Royal Caribbean, Costa Cruises, Cunard Line and Princess Cruises since its inauguration in 2014. From its opening through to 2018, the terminal saw a total of 2.3m passengers, while the number of cruise vessel calls rose from 94 in 2014 to 120 in 2018. To reach its target of 1m cruise passengers in 2020 and establish Dubai as a regional centre for maritime leisure traffic, the government is investing in a series of major infrastructure upgrades. A project to build the Dubai Cruise Terminal at Dubai Harbour, the first dedicated cruise port in the region, is currently under way. When completed towards the end of 2020, the new terminal will have the capacity to accommodate six cruise ships at a time.

Expanded infrastructure and a government decision in 2018 to grant six-month, multiple-entry visas to crews of ships docking at local ports are proving attractive incentives for international cruise companies. In January 2019 Mohamed Abdulaziz Al Mannaei, executive director of Mina Rashid, told local press that 10 international cruise companies had been asked to keep Dubai as their main destination for the 2020/21 season, effectively equating to at least 10 international cruises beginning in Dubai.

Boat Builders

In addition to shipping, Dubai has a long-standing reputation as a regional centre for the luxury yacht segment. Each year the city hosts the Dubai International Boat Show, which has been running since 1992 and attracts one of the world’s largest gatherings of leisure boat enthusiasts and companies, including manufacturers. At the 2019 event in February, over 800 companies from 50 countries were in attendance.

Gulf Craft, established in 1982, is the largest manufacturer in Dubai’s rapidly expanding boat-building industry. Gulf Craft produces around 500 vessels per year, ranging from small 8-metre-long boats to 61-metre-long superyachts. In 2018 the company ranked seventh in the global ranking of international shipyards, published by The Superyacht Group. Most of Gulf Craft’s sales are to overseas clients in Europe, the Mediterranean, Australia, the US and South-east Asia, but the company is looking to expand into other markets, and vessel sales are expected to rise by 10% in 2019. The regional market for superyachts is particularly attractive, with 216 superyachts registered across the Middle East as of early 2019.

Investment

In recent years the government of Dubai has been working to support growth in the maritime sector. Around Dh239bn ($65.1bn) was invested in the UAE’s ports in 2018, mostly in Dubai, which is a sharp rise from a total of $66bn between 2014 and 2017. Strikingly, in 2018 the UAE alone accounted for some 30-35% of regional investment in the maritime sector. One of the major ongoing infrastructure projects is DP World’s expansion of Terminal 4 at Jebel Ali for an estimated $1.6bn. This will increase the port’s capacity by 3.1m TEUs when it opens, which is slated for late 2019.

DP World has been on a major investment drive in recent years, spending $2.5bn on acquisitions in 2018. This continued in the first half of 2019, when the group purchased two terminals in Chile for $520m, a 50% stake in a Peruvian port logistics company for $315m and increased its stake in its Australian assets, bringing the firm’s investment in DP World Australia to $997m. For 2019 the group also set aside $1.4bn for investments in the UAE, Ecuador, Somaliland, Senegal and Egypt. Moreover, in June 2019 DP World engaged in talks with the Russian government to operate ports the country is planning to build along the North Sea.

Challenges

Although Dubai’s maritime sector has expanded, port facilities have grown, investment has increased and the emirate has positioned itself as an international centre for nautical arbitration, several challenges exist. Chief among them are the tensions between the US and Iran, and the latter’s capture of two oil tankers in the Strait of Hormuz in July 2019. While the government has sought to assuage fears over how the tensions could affect commercial activity, geopolitical uncertainty is nonetheless rendering the operational environment difficult for some sector players, with potential knock-on effects for investment. “Our biggest challenges relate to geopolitical tensions in the region. This is something we will have to wait and watch to see how it pans out,” Farhad Patel, a captain and the director of Sharaf Shipping, told OBG. “The UAE has been smart enough to veer away from these tensions to date.”

While Iran’s actions have pushed insurance premium up for the container shipping and oil tanker segments, it has had little effect in other areas, where business has gone on as usual throughout 2019. For example, after the oil tankers were seized, a spokesperson for Royal Caribbean reaffirmed to vacation news site Cruise Arabia & Africa that, “At the present time, RCL Global Security does not assess the recent maritime-related incidents in the ... Gulf as indicative of threats to the cruise industry.”

Outlook

All eyes are watching how geopolitical tensions will evolve, as any escalation would likely have a major impact on shipping and maritime tourism through the Strait of Hormuz. In 2019, however, acts of seizure had little impact on the emirate’s business. Sector operators will be looking ahead to the implementation of the new Maritime Law in early 2020, which is expected to bring a host of pro-investment incentives and boost the value of the industry. Indeed, expectations are high that the maritime sector’s share of the emirate’s GDP will rise beyond the current 7% in coming years, supported by a host of factors such as the guidance of the DMCA, additional local and global investments by DP World, higher numbers of cruise tourists and increased sales of personal water craft by local yacht builders.