Annual Report and Accounts 2013

Market Review

The growth in vessel size has resulted in an increased focus on sustainable operations and operational efficiencies, including the need for robust terminal equipment, systems and processes able to cope with the new ultra-large container vessels and the additional requirements of greater loads at peak periods.

For the global economy, 2013 was largely dominated by continued uncertainty. Many of the world’s major economies showed signs of start-stop growth, which continued to impede progress towards a more broadly supported growth trajectory.

Once again, emerging and developing economies provided much of the growth in 2013; however the pace was noticeably slower than in previous years. This was especially visible in the recently thriving BRIC countries8, evidencing that they are by no means immune to market volatility.

Whilst this played out, what became clear was the gradual emergence of a new and sizeable middle class in many developing countries that has begun to engage with the global market. With 90% of trade by volume transported by sea9, the growing purchasing power of this demographic provides an ongoing positive boost for the container shipping industry.

For the shipping lines, 2013 was another difficult year. 2013 growth in container shipments is expected to be lower than recent years at 4%10 implying a GDP growth multiplier of 1.4 times. Even with record removal of container vessel tonnage, shipping capacity additions have again outstripped growth in demand, a trend apparent in six of the past eight years. This has predictably led to an overall decline in freight rates for the shipping lines.

Importantly, the additions in shipping capacity in recent years have been greatly weighted towards ultra-large container vessels, which have been specifically designed for increasingly superior fuel economy and lower unit costs. The introduction of these new vessels onto the main east-west routes means older large vessels are cascaded onto secondary trades, sometimes doubling capacity on a service overnight. Whilst this is part of the natural evolution in revised networks, it has meant that many formerly profitable routes have also experienced large fluctuations in liner freight rates.

The shipping lines’ response in 2013 to the pressure on rates was consolidation through partnerships. The announcement of ‘P3’, a vessel-sharing agreement on the Asia-Europe, Trans-Pacific and Trans-Atlantic trades between the three largest container shipping lines in the world, led swiftly to the ‘G6’, a partnership between two of the three major alliances (the Grand Alliance and the New World Alliance) as well as ongoing discussions between the third alliance which comprises South Korea’s Hanjin Shipping, ‘K’ Line of Japan, Taiwanese line Yang Ming and China’s Cosco, known as CKYH, and the few remaining non-aligned major carriers.

Customer consolidation is leading to step changes in capacity utilisation rather than gradual changes because any gain or loss is across a partnership of several lines. Reduced economic growth, in parallel with the increased consolidation of business, has meant that competition amongst container terminal operators to gain new vessel calls has increased.

For DP World, the impact of these trends has been largely positive because of our geographical spread and ongoing investment in infrastructure and equipment to enable us to handle the larger vessels. Our terminal capacity utilisation continues to outpace the industry and with this evolution of the customer network we will aim to continue this pace.

We maintain a geographical advantage with our broad portfolio stretching across both developed and developing countries, primarily focused on the core origin and destination markets. This, aligned with judicious acquisitions, timely capacity developments and consistent investment in new equipment and technologies, has enabled us to grow gross volumes by an average of 17% per annum since 2004; more than twice the average annual growth in the market over the same period11.

our business - macro overview

Added value of ports and transportation

  • Contributes to a country’s GDP: by connecting markets, ports cut living costs and raise living standards.
  • Reinforces trade relationships: approximately 90% of the world’s merchandise and commodity trade is transported by container vessels12.
  • Supports economic diversification: the ports and transportation industry supports economic diversification by aiding the growth of other sectors.
  • Generates employment: for every job created inside a well-run port, up to five jobs are created outside the port.
  • Builds local knowledge and expertise: the ports and transportation industry builds local knowledge and expertise thereby increasing a country’s future competitiveness.

Trends driving growth

  • Container vessel transport: approximately 60% of the value of global seaborne trade (more than $5.6 trillion13 worth of goods annually) is transported by container vessels.
  • Globalisation: global increases in per capita income and reduced trade barriers promote an increase in tradable goods.
  • Rapidly developing economies: the emergence of new, faster growing markets, with young growing populations who have considerable purchasing power, is driving growth.
  • Urbanisation and emergence of mega cities: within a decade, 47% of the world’s urban population will live in cities with more than one million inhabitants14. Increasing port capacity and infrastructure will be required to handle this concentrated population and container volume.
  • Containerisation: the rate of containerised goods is increasing.
  • Customer demands: customers are demanding that ports achieve higher productivity levels and have the infrastructure in place to cater for larger vessels.

DP World business attractiveness

  • Stable and long-term cash flow: we focus on stable origin and destination cargo as it delivers higher margins and is less impacted by competition than transhipment cargo. We also operate our business through long-term concessions, enabling better returns as our assets mature.
  • Growth rates: a focus on faster growing emerging markets and more resilient origin and destination cargo enables us to grow volumes across our portfolio.
  • High barriers to entry: our long-term concession agreements provide high barriers to entry and support long-term relationships with port authorities, shipping lines and joint venture partners.
  • Global network, managed locally: our terminals are managed locally, and are supported operationally by the advantages of a global network.
  • World class operations: we are market leaders in automated technology with exceptional standards of operational performance and productivity.
  • World class employees: our dedicated, experienced and innovative team serves customers in some of the most dynamic economies around the world.
  • Recognised brand: we are a recognised brand for delivering excellent customer service, with a commitment to good corporate governance and corporate responsibility.
8 BRIC countries include Brazil, Russia, India and China. 9 International Chambers of Shipping – Sustainable Development IMO World Maritime Day 2013. 10 Alphaliner Monthly Monitor, February 2014. 11 Drewry Annual Review of Global Container Terminal Operators, 2006 and 2013 editions. 12 International Chambers of Shipping – Sustainable Development IMO World Maritime Day 2013. 13 World Economic Forum – The Global Enabling Trade Report 2012. 14 World Economic Forum – Capturing The Future 2012.