But the Dubai-based global terminal operator insists strong cash flows and a robust balance sheet mean it has the “flexibility” to flick the switch of expansion on or off at a whim “in line with demand”.
DP World announced a profit attributable to shareholders of $608m in its H1 declaration to the Dubai Nasdaq Thursday, a 50.2% surge from $405m period-on-period.
However, it confirmed the “global trade environment remains challenging including for Jebel Ali port” where the 7.4m teu’s it handled in the six months to June 30 was down 6% on the corresponding period in 2015.
DP World invested $586m in capex in the first half of 2016 which included delivering 0.5m teu of new capacity at Jebel Ali T3. The remaining 1.5m teu would be added in 2017, it said, along with an additional 1m teu capacity at its London Gateway terminal which is “expected to be operational in 2H 2016”.
The new T4 at Jebel Ali, under construction on a reclaimed island north of the existing T2, will add an additional 3.1m teu when it is eventually finished. DP World had originally targeted 2018 for completion of phase one of the T4 expansion which will take overall capacity to 22.1m teu, increasing the mega port’s crane count to at least 110 and expanding its total quay length of 11km.
However, group chairman and ceo Sultan Ahmed Bin Sulayem attributed the decision to slow expansion in the UAE to factors such as the slowdown in China and container shipping’s well-documented oversupply glut.
“The issue is not with the Middle East, it is actually a world issue,” Sulayem said noting the record 15.6m teu handled in the UAE in 2015 was “unusual” and a number that would prove difficult to repeat due to the softer prevailing market conditions.
Jebel Ali continued to operate at high levels of utilisation, however, and DP World remain positive about medium term growth, particularly with the lead up to EXPO 2020.
“Terminal 4 we have not stopped construction, we are constructing the quay wall and all that, and we will be ready to react if the customers feel that there will be increasing business,” Sulayem said.
“The most dangerous thing for customers is when they see that the port they are in is committed with large cargoes…and there is no way they can expand, that is very dangerous. We slow down, we increase…it all depends on the market.”
Yuvraj Narayan, DP World’s group cfo, added that the slowdown at Jebel Ali was the “logical thing to do” in the current environment.
“More importantly is the fact we have the flexibility to either slow it down and at the same time speed it up if that is what the market needs,” Narayan said. “Quite clearly the fact that we have slowed down capacity is a reflection that the global economy in general and global trade in particular has slowed across the world. “
Seatrade Maritime News reported July 26 that DP World’s gross container volumes grew 2.5% to 31.4m teu in the first half of the year, driven by the robust performance its European and Indian subcontinent terminals.
Narayan said this proved DP World’s portfolio continued to deliver ahead of market volume growth and that its financial performance remained strong. DP World unveiled a 10.2% growth in revenue to $2.09bn in its half year report today, up from $1.90 billion a year earlier.
“We have still grown in throughput on a reported basis by 1.6% and you see the data coming out of the other major operators and they are all at minus 7 or minus 8%,” Narayan said.
DP World operates 77 marine and inland terminals across six continents. It added new capacity in markets such as Turkey’s Yarimca, Stuttgart in Germany, Prince Rupert in Canada and at its home port of Jebel Ali.
Without the addition of new capacity, on a like-for-like basis, its net profit was up 4.3% on the year and revenue grew 2.5% in the same period.
DP World’s share price has dipped in excess of 7% for the year to date. Narayan admitted “we are concerned but there is not a lot we can do about it” and noted the group remained confident of meeting its full year expectations.
Sulayem was more bullish. “Our share price compared to other markets around the world, we’re going good. We haven’t seen any great increases but we haven’t seen any great volatility either,” he said.
DPW was trading at $18.80 as of 1pm (UAE time) after opening at $18.63.
Meanwhile, Sulayem said a feasibility study into the possibility of Hyperloop One technology being used to move containers from Jebel Ali to an inland depot 29km away was likely to be concluded within 90 days.
Hyperloop One ceo Rob Lloyd said today the technology, which it hoped to expand to a passenger service across the UAE, could be is use at Jebel Ali by as soon as 2020.