BREAKBULK REMAINS UNDER PRESSURE DESPITE NEW PROJECTS
Despite a spate of major new construction projects in the UAE, the breakbulk sector is failing to see a trickledown effect.
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.
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.”
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.