x Abu Dhabi, UAETuesday 23 January 2018

Terminal stake speaks volumes for DP World

The Qingdao Qianwan Container Terminal is the fifth-biggest port in China. Its success means it may also soon eclipse the company's home port of Jebel Ali.

Amid the turmoil at Dubai World, one part of the empire is performing well. DP World, its port business, has a 26.1 per cent overall stake in Qingdao Qianwan Container Terminal (QQCT), which with 14 of its 20 berths in operation is well on the way to eclipsing DP World's home port of Jebel Ali.

The company's daring 2006 purchase of P&O, which had launched Qingdao's new port as a joint venture with the Qingdao municipal government in 2000, catapulted it into the position of second-biggest shareholder behind the local authorities. Cecil Lee, the DP World employee appointed as the port's general manager, says Qingdao is in the top three of the company's 49 port terminals. "During the P&O days we introduced technology and that's continued under DP World," says Mr Lee in his office at the port. "We bring to the enterprise knowledge of corporate and financial governance and we try to make sure it is run to international standards. We are very customer-focused. Because of its size and volume it is one of the most efficient in the world."

Qingdao, which translates as "Lush green island", is the capital of Shandong province, an economic and agricultural powerhouse halfway between Beijing and Shanghai and the second-biggest contributor to China's GDP after Guangdong in the south. The picturesque city of about three million inhabitants, a dwarf by Chinese standards - although its administrative area contains another 5 million people - was little more than a fishing village basking in the region's mild climate until the Germans seized it in 1898, dotting the growing town with Teutonic architecture and creating a port that soon flourished.

A century later, the Chinese government in Beijing instructed its provinces to create development zones. Anxious Shandong officials put the new port 70km away by road from Qingdao on the other side of the Bohai Gulf, beside a town called Huangdao. "The policies Beijing sends out sometimes contain ambiguous language, so provincial officials worry about getting things wrong. And the closer they are to Beijing, the more careful they are," says Mr Lee.

But the new port quickly proved its worth. The first and second phases of the port were made up of an oil terminal and a 768-metre quay that became busy thanks to its sheltered location at the mouth of the Bohai Gulf, which saved ships the extra day's travel to Tianjin, nearer Beijing. The quick success saw a further 2,400 metres of quay added in 2003, an US$887 million (Dh3.25 billion) investment making a total of 10 berths, with P&O now a 29 per cent shareholder and Maersk of Denmark and Cosco of China also on board.

Last year, the fourth phase was added, a $1.3bn investment comprising 10 more berths of which four are currently in operation. They are being used exclusively for shipping within China as they undergo the rigorous tests required before the quays can be used for international trade. The move also saw the arrival of a new shareholder, Pan Asia of Hong Kong, which with a 20 per cent stake bumped DP World down to 23.2 per cent of the new phase.

QQCT is the fifth-biggest port in China, says Yu Huangyan, an analyst with China Maritime Securities in Hong Kong. "It's a successful terminal and records good financial results," he says. DP World has operations at five other Chinese ports including Yantai, also in Shandong - where the company is in partnership with the Yantai Port Authority - as well as Tianjin, Shanghai, Shenzhen and Hong Kong. Further afield in Asia, DP World has operations in Indonesia, the Philippines, South Korea, Vietnam and Thailand.

"The volumes in China are the biggest in the world," says Mr Lee. China has already overtaken Germany to become the world's largest exporter, some analysts say. Ships docking at Qingdao's Phase Four can expect service that pushes at the limits of global port performance. The newest of the port's 51 quay cranes can load or unload up to 39 containers an hour 24 hours a day, their operators expertly manoeuvring the $8m, 2,000 tonne electric cranes to whisk containers on to ships of up to 400 metres in length.

Last year, 10 million containers passed through Qingdao Port, the 10th-highest volume in the world, with a total weight of more than 300 million tonnes, the seventh-largest tonnage in the world. So far this year, 8.5 million containers weighing 263 million tonnes have passed through Qingdao. About two thirds of the port's exports are bound for Japan, South Korea, the US and Europe. Two of the 119 international departures each week are bound for the ports of the Gulf in the Middle East.

The global financial crisis initially battered the port's earnings, but it has recovered sufficiently to be on course for 3 per cent growth this year. "This has been a very lucky year, but at the beginning things were looking very bad," says Mr Lee. "We shifted our strategy. Shipping lines were trying to get rid of their empty containers. At one point we had 170,000 of them here. Because of this our throughput was not affected but our income came down. Now we've noticed the empties are less and less, so things are picking up a bit."

Equally fortunately, the Shandong economy's cargo base was less affected by the crisis. Its output of foodstuffs - "you can't imagine how much garlic China produces," says Mr Lee - as well as the electronic goods pumped out by Qingdao's handful of powerful state-owned enterprises such as Haier and Hisense, continued to be in demand, although at reduced levels. The hundreds of thousands of containers passing through Huangdao have transformed what Mr Lee described as a "township" into a boom town. Established trading businesses shifted from Qingdao city to Huangdao, local manufacturers saw profits beyond their wildest dreams and the area's population exploded to about 600,000 inhabitants. A drive to the port reveals the continuing boom in the form of the sleekly designed China Petroleum University's indoor sports arena and marching tower blocks boasting architecture as smart or unusual as anything to be found in the UAE.

The port has also become a source of jobs for locals. Among its 3,000 staff are 1,700 "casuals" - unqualified people who the company is obligated by the Chinese Labour Bureau to employ. Mr Lee says Shandong's plentiful supply of willing workers is one of the fundamental reasons for the port's efficiency. DP World and its partners have improved customer service, insisted that every financial transaction down to the fees paid by lorry drivers must be electronic and have invested in a computer system that allows the port to provide shipping lines with detailed statistics about the service they receive.

The port is obliged to be extra-transparent, Mr Lee says, because it does not follow the western model of acting only as a landlord renting space to different companies competing with one another to offer shipping lines the best services. Instead, like Jebel Ali, it is what is known as a "one company terminal regime". So is DP World making a return on its sizeable investment in the port behemoth? "I can't say exactly how profitable it is" says Mr Lee. "But we are producing profits. The first investment is big because you need to put the port together but once you have enough cargo to cover that it becomes very profitable."