Don’t look for DP World to build or buy new container terminals in the United States anytime soon. That’s not sour grapes over the 2006 rebuff by xenophobic U.S. politicians who blocked the Dubai-based company from operating the East and Gulf Coast terminals it acquired through its purchase of P&O Ports. Instead, it’s because the U.S. no longer provides an opportunity fitting its global strategy.
The world’s third-largest terminal operator is banking on expanding its business at deep-water ports where it can buy or build container terminals capable of handling the huge super-post-Panamax container ships entering the market.
“We are adapting our ports for the mega-vessels, so we have a huge investment in big trades and big facilities,” DP World Chairman Sultan Ahmed Bin Sulayem told The Journal of Commerce. “To be honest with you, we have not thought about coming back to the U.S.”
DP World, which operates 60 terminals in 30 countries, isn’t spurning the U.S., but there are no terminals for sale on the West Coast, the logical place for a U.S. expansion. “First of all, there is no ready place to invest in an existing terminal, and I don’t think you can enter the United States unless you can buy out an existing terminal,” Sulayem said.
He also ruled out building a new terminal from scratch. “We need deep-water ports in the states. To get in a port and dredge is possible, but it would take 10 years to get the environmental approvals. To invest in building a greenfield terminal is prohibitive. It would cost an arm and a leg,” he said.
DP World’s strategy underscores the steep regulatory and infrastructure hurdles U.S. terminals face in meeting growth in world trade, carried by massive vessels that soon will be capable of carrying 18,000 20-foot equivalent container units. The largest vessel serving the U.S. today is the 12,562-TEU MSC Fabiola, and that’s 50 percent larger than any other ship serving the country. Few U.S. ports — Los Angeles, Long Beach, Oakland, Seattle and Tacoma on the West Coast and Norfolk and Baltimore in the East — have the channel and berth depths and infrastructure in place to handle such giants.
DP World’s portfolio is dominated by terminals in Europe, with a single North American operation in Vancouver, British Columbia, where it has a big terminal in the city of Vancouver and just took over operation of several smaller facilities on Vancouver Island. It has terminals in Antwerp, Le Havre and Southampton, is investing $2.4 billion to build London Gateways Terminal on the Thames River, and is part of a consortium with four liner companies building a 4 million-TEU terminal at Maasvlakte 2 in Rotterdam.
Increasingly, however, it’s focusing on emerging markets served by the north-south trades. “The emerging markets are our base. We are expanding in Africa, Central and South America,” Sulayem said. The liner companies DP World serves also are following the growing north-south trades by cascading bigger ships on those routes as they take delivery of ever-larger ships too big to fit through the Panama Canal.
“They have a challenging environment at the moment in terms of their portfolio mix between emerging markets and the developed world in this two-speed world economy,” said Neil Davidson, senior adviser for ports at Drewry Shipping Consultants in London. “DP World is having problems in Europe because of the flatness of the growth, and Asia, Africa and Latin America are doing better in comparison.”
Terminal operators can’t switch gears when economic cycles turn because they commit billions of dollars to build facilities for up to 50 years of a lease. For DP World, its investment in emerging markets is both prescient and fortunate, because that’s where major future trade growth lies.
“DP World has a lot of facilities in the emerging world, in Asia, Africa and Latin America, markets that are much more buoyant and showing need for more capacity,” Davidson said.
Despite softening growth rates on the major east-west trades with Europe and North America and the losses ocean carriers are suffering, especially in the Asia-Europe trade, DP World isn’t discounting terminal fees. “If I cut the fee, am I going to get more business? No,” Sulayem said. “It’s like a supermarket. If you cut prices for a large customer, are you going to get more business?”
Instead, DP World has raised terminal fees several times in recent years, especially for its premium services in big ports for big ships. “The shipping lines didn’t like it, but they understood it,” he said.
DP World reaped almost $5 billion by listing 20 percent of its stock on the Dubai International Financial Exchange in 2007. Its $532 million profit was up 18 percent year-over-year, even though its revenue declined 3 percent to $3 billion on volume that slipped 1 percent to 27.5 million TEUs.
Container throughput increased 10 percent in the first quarter of 2012 to 13.8 million TEUs. “We did well in the first quarter, Sulayem said. But as head of a publicly listed company, he declined to predict what the rest of the year will hold.
DP World’s balance sheet was strong enough to repay a $3 billion revolving credit facility in April, six months before it matured. “We prepaid the loan, because we didn’t need the money, and that reduced our debt tremendously,” he said.
The repayment cut total debt by almost 40 percent to approximately $4.7 billion, leaving a cash balance of about $1.2 billion, so it has plenty of funds to finance future terminal investments.
To ensure its terminals are in ports with consistently strong container throughput, DP World focuses most new investment on countries that are big import consumers or export producers.
“We have positioned ourselves so that 76 percent of our portfolio remains in terms of our strategy in terminals that have origin or destination cargo,” Sulayem said. “That means ships are going to come to where the cargo is. These are bigger ships, and we are geared to handle the bigger ships.”
He thinks shipping lines will continue to deploy ever-larger ships that reduce their slot costs, so DP World will continue to build big, efficient ports to handle them. “Today we are talking about 18,000 TEUs and beyond,” Sulayem said. Will they get bigger than that? “Who knows? The airlines went to the double-deckers. They are more efficient. Like those planes, the big ships can only go to certain ports because it’s a huge investment.”