The Washington Diplomat / April 2006
By Larry Luxner
DJIBOUTI — The blue-and-orange gantry cranes working overtime at this East African container terminal are labeled "Port of Djibouti," but the brains required to run this port efficiently come from DP World, based in the United Arab Emirates.
Halfway around the globe, at Santo Domingo's Puerto Caucedo terminal, that same company oversees one of the biggest transshipment terminals in the Caribbean.
From Djibouti to the Dominican Republic, from Yantian, China, to Yarimca, Turkey, DP World has quietly become the world's No. 3 port operator, with 51 terminals in 30 countries across five continents. The total capacity of ports under DP World's management exceeds 50 million TEUs (20-foot equivalent units) per year.
Yet until a few months ago, hardly anyone outside the shipping industry had ever heard of DP World. What thrust it into the spotlight, of course, was the company's recent acquisition of London-based Peninsular & Oriental Steam Navigation Co. for $6.8 billion.
The deal would have given DP World indirect control of operations at ports in New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia — along with dockside activities at 16 other U.S. ports.
But congressional concerns over terrorism security and the United Arab Emirates' participation in the Arab League's boycott of Israel forced DP World to back away from its original plans. On Mar. 15, the House of Representatives voted 377-38 to formally express its opposition to DP World running any port terminal in this country.
The same day, the company announced it would sell all its newly acquired U.S. port operations within four to six months to an unrelated American buyer.
Michael Seymour, president of DP World's U.S. subsidiary, told the Associated Press there was "already significant interest in the sale from American buyers." Asked whether a foreign-owned company with its own U.S. subsidiary might quality, Seymour told AP "an American buyer is exactly what we say it is; it's an American buyer, and we envisage it will be a wholly owned American organization."
In the meantime, P&O Ports North America will continue to manage its U.S. operations independently, and DP World will redirect its efforts on Asia, Africa, Europe and Latin America — where it has been making a fortune turning inefficient ports into efficient ones.
DP's first project outside the United Arab Emirates was at Saudi Arabia's Jeddah Islamic Port, where in 1999 it collaborated with a local partner to manage and operate the South Container Terminal (SCT). In 2003, SCT was the first Saudi terminal to exceed one million TEUs.
DP then expanded into the East African nation of Djibouti, operating under a 20-year concession. Since taking over the port, DP says it has boosted efficiency from 10.5 container moves per crane hour to 23.
How much DPI is getting paid to manage the Port of Djibouti is unclear. There was no competitive bidding, and terms of the deal are unclear. But Djibouti's president, Ismail Omar Guelleh, has said his government has invested $50 million in the project, and that DPI is getting only $400,000 a year for its role in managing the port.
An official of DP World noted that while Guelleh's figure was on the low side, he couldn't be more specific because the agreement is strictly confidential. He did say that his company is capitalizing on its expertise in running ports, with new opportunities opening up in the Middle East, Latin America and Europe.
"Several ports have now recognized the gains that can be realized by employing a port manager that has experience with handling large volumes of port business in the region. There's always the possibility of business when a port is privatized," said the official, who declined to be named because of the sensitivity surrounding recent events.
"A lot of our shipping-line customers who we have very good relations with are used to the high level of service we provide in Dubai," said the DP official. "They've often said they wish they could get this type of service in other ports in the region. Through discussions with them and others, we decided to reach out and offer to other ports the type of service we provide, and also hopfeully bring more vessels to those ports. So it's a win-win situation for everybody."
In January 2005, DP World transformed its network with the strategic acquisition of CSX World Terminals. This acquisition gave the company a strong presence in Asia with major operations in Hong Kong and China as well as operations in Australia, Germany, Venezuela and the Dominican Republic.
"DP's strategy is to work with ports that can complement our existing services to the shipping lines that are already calling at Dubai," the official said. "We believe that this strategy of offering a continuity of management to the shipping line customers and cargo owners will enable our customers to focus on providing a higher level of service to their customers without having to deal with the uncertainity of how each port is structured or managed."
Robert Valdez, commercial manager of DP World Caucedo, said the Santo Domingo container terminal and free zone represents a $400 million investment on the part of its owners, a group of local investors. The brand-new port is located five minutes from Santo Domingo's international airport and across the highway from the Santo Domingo Cyberpark, a free zone catering to high-tech industries.
According to the DP World website, Puerto Caucedo covers 50 hectares and has a capacity of one million TEUs, making it one of the largest ports of its kind in the Caribbean. DP World also manages Venezuela's Puerto Cabello, where it's been averaging 40 container moves per hour.
Other places DP World operates container terminals are Constanta, Romania; Germersheim, Germany; Cochin, India; Shanghai, China; Hong Kong and Adelaide, Australia. DP was also recently on the short list to manage a bulk-handling facility at Jordan's Port of Aqaba, but negotiations have been stalled by King Abdullah.
"The king organized a ports commission, which started looking at the idea of making the city into a free zone and reassessing the whole management requirement for the Port of Aqaba. They put everybody on hold, but we fully expect they'll be re-issuing a new tender in the future," said the official, adding that DP would probably compete against German, French and other entities for the Aqaba contract.
DP World is hardly alone in going after this type business, though it seems to be the most successful. Some of its biggest competitors are Singapore's PSA Corp. and ICTSI of the Philippines.
PSA now operates 19 ports in 11 countries, from Belgium and Brunei to Portugal and Thailand.
"Our goal is to bring PSA's considerable experience and expertise in port management and operations to partners around the world to build world-class transportation and logistics hubs, and to extend our services to meet customers' needs outside of Singapore," according to Goon Kok Loon, president of PSA's international business unit.
Manila-based ICTSI, meanwhile, holds a 51% stake in the joint venture that since December 1997 has managed the King Abdul Aziz Sea Port in Dammam, Saudi Arabia. The container and reefer cargo terminal has an annual capacity of 600,000 TEUs. ICTSI says the venture "aims to be Saudi Arabia's leading port operator, providing services to all major business centers."
In addition, the Jeddah North Container Terminal is run by rival Gulf Stevedoring, a Saudi company.
At Jeddah South, around $25 million has been invested since the signing of the contract, which is actually between the Saudi Ports Authority and Siyanco DPA — itself an alliance between DP and Saudi Maintenance Co.
This includes the purchase of four new Hyundai super post-Panamax cranes, each capable of handling ships carrying containers 20 wide on deck. They have a maximum outreach of 55 meters and a twin spreader capable of handling 20-, 40-, 45- and 48-foot containers, including two 20-foot containers at a time. The new cranes join 11 ship-to-shore cranes already in use at the South Terminal, including a new Fantuzzi Reggiane crane commissioned by the Saudi Ports Authority.
One of the reasons Congress was so opposed to DP World managing U.S. ports was the company's alleged participation in the Arab League's longstanding boycott of Israel. Yet the chairman of Israel's largest shipping company, Zim Israel Navigation Ltd., went on record to support the deal.
Idan Ofer, in a letter to Sen. Hillary Clinton (D-NY), said "we are very comfortabling calling at DP World's Dubai ports. We have not experienced a single security issue in these ports." Yet the company gets around the boycott by running ships under other nations' flags.
Asked if DP's activities in the Arab world preclude the possibility of doing business openly and directly with Israel — a country with which the UAE is said to be quietly pursuing closer relations — the company official answered the question delicately.
"In the Middle East, there are a lot of factors affecting where we'd want to do business," he said. "As these issues are resolved, we would look forward to a relationship with all neighboring countries."