De­spite a spate of ma­jor new con­struc­tion projects in the UAE, the breakbulk sec­tor is fail­ing to see a trick­le­down ef­fect.

Logistics Middle East - - FOCUS -

The UAE’s con­struc­tion sec­tor should be brim­ming with op­ti­mism as ten­der­ing starts for the con­struc­tion of the next phase of Eti­had Rail project and pre­qual­i­fi­ca­tion opens for the es­ti­mated AED 10-bil­lion (US $2.7-bil­lion) sub­struc­ture for Con­course 1 and the West Ter­mi­nal at Al-Mak­toum In­ter­na­tional air­port. “Breakbulk and the project cargo in­dus­try are vi­tal to the in­fra­struc­ture devel­op­ment that the UAE and gov­ern­ments across the re­gion are de­liv­er­ing as they look to build more di­verse and in­te­grated economies,” says Ab­dulka­reem Al Masabi, ex­ec­u­tive vice pres­i­dent, Ports, at Abu Dhabi Ports. “This in­dus­try plays a vi­tal role in ac­com­plish­ing the in­fras­truc­tural devel­op­ment that gov­ern­ments in the GCC have en­vi­sioned.”

While new projects are cer­tainly pos­i­tive news for con­struc­tion com­pa­nies, the im­pact of ma­jor new projects is not as sig­nif­i­cant as it used to be, and as such breakbulk op­er­a­tors, which sup­ply the project cargo back­bone of the sec­tor, are los­ing out.

Over the past 15 years, the UAE has tur­bocharged its econ­omy with a raft of ma­jor projects. In Dubai, that in­cluded work on the world’s busiest in­ter­na­tional air­port, a metro sys­tem and sprawl­ing real es­tate de­vel­op­ments with off­shore is­lands and the world’s tallest build­ing. In Abu Dhabi, the work has en­com­passed oil and gas de­vel­op­ments, a nu­clear power plant, in­dus­trial zones and

a port, and an up­grade to the air­port.

With ris­ing prop­erty prices and gov­ern­ment cof­fers boosted by bumper oil rev­enues, project clients could af­ford to build the projects they planned and, cru­cially, could pay con­trac­tors to de­liver them with a healthy mar­gin.

Strained bud­gets

That is not the case to­day. Prop­erty prices are fall­ing and al­though oil prices have risen, they are still a long way way from the $100plus prices a bar­rel charged be­fore 2009 and be­tween 2011 and 2014. The re­sult is project bud­gets are strained and costs are un­der in­creas­ing pres­sure.

Client bod­ies them­selves have ra­tio­nalised in an at­tempt to be­come leaner and more ef­fi­cient or­gan­i­sa­tions. The largest and best ex­am­ple is Abu Dhabi Na­tional Oil Com­pany (Ad­noc), which has re­struc­tured its or­gan­i­sa­tion and merged op­er­at­ing com­pa­nies it felt were du­pli­cat­ing each other’s ef­forts.

Tighter mar­gins have meant that while com­pa­nies are busy work­ing on projects, in or­der to be prof­itable they are down­siz­ing to con­trol their costs. This means project cargo con­tracts are be­ing ne­go­ti­ated down, sig­nif­i­cantly. De­spite this, Al Masabi be­lieves that Expo 2020 will bring op­por­tu­nity to the coun­try and its var­i­ous eco­nomic sec­tors; and where there are op­por­tu­ni­ties, there is a need for the com­modi­ties that are clas­si­fied as breakbulk cargo.

“The event is an­tic­i­pated to bring in en­hanced eco­nomic ac­tiv­ity to the UAE, in­clud­ing con­struc­tion and in­fra­struc­ture growth, which again re­quires in­creased cargo,” he said. “We look for­ward to the im­pact such events will have on our in­dus­try and wel­come the chal­lenge to ex­pand hori­zons for the mar­itime sec­tor and our­selves.”

Long-term prob­lem

This phe­nom­e­non was high­lighted in the Au­gust data from the Emi­rates NBD Pur­chas­ing Man­agers’ In­dex (PMI) for the UAE, which found that “mar­gin pres­sures on firms mean that this growth in new work and out­put is not trans­lat­ing to job cre­ation or higher wages”.

The grad­ual im­pact of this has been damp­en­ing de­mand in the broader econ­omy as peo­ple em­ployed ei­ther di­rectly or in­di­rectly by the con­struc­tion sec­tor tighten their belts and curb spend­ing.

“I don’t think the (breakbulk) mar­ket is do­ing as well as it should be,” says Cap­tain Per Thörn­blom, group project lo­gis­tics man­ager at GAC. “The im­pact of the world­wide econ­omy down­turn and the lack of in­fra­struc­ture in­vest­ments is be­ing felt in this re­gion, as well as all over the world.”

With oil prices not ex­pected to re­turn to the bumper days of more than US $100 a bar­rel and a neg­a­tive out­look for prop­erty prices, this is a prob­lem for the UAE that is in­creas­ingly look­ing long-term.

The spate of new con­struc­tion con­tracts in GCC do not ap­pear to be trick­ling down to breakbulk sec­tor.

Ab­dulka­reem Al Masabi, ex­ec­u­tive vice pres­i­dent, Ports, at Abu Dhabi Ports.

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