Global trade has been on a rollercoaster. The Covid-19 pandemic heavily disrupted global value chains (GVCs) and accelerated their restructuring. The war in Ukraine added new challenges and further dispersed trade flows.

Inevitably, port operators have been in the eye of the storm. “In the 30 years I’ve been in the industry, I’ve never seen something like that,” recalls Tiemen Meester, the chief operating officer of Dubai-based logistics group DP World Ports & Terminals. The pandemic has accelerated the push of DP World, the world’s third largest container port operator after Singapore PSA International and Hong Kong Hutchison Port Holdings, into the provision of a diversified portfolio of logistics services on top of its traditional focus on ports.

Mr Meester discusses with fDi how global trade is reacting in the wake of the recent disruptions and how DP World is adjusting to the new world we live in. 

Q: How has Covid-19 impacted DP World’s strategy? 

A: I don’t think our strategy changed because of the Covid-19 years. The pandemic exacerbated some of the key challenges the industry was facing and gave us more confidence that we’re doing the right things to work on a diversified logistics platform that has been five to six years in the making.

Also, the pandemic was so exceptional that these 24 to 30 months were more about survival for the industry in terms of getting things moving because there was very little room for manoeuvring. But that is changing. We are back in a pre-Covid world in many ways.

Q: Give us the inside story. What do you mean that there was very little room for manoeuvring?

A: When Covid hit in March 2020, everybody was bracing: volumes dropped immediately. But then within six to eight weeks, bookings picked up. And before June, you could see a double-digit physical growth in transportation needs in the time span of a quarter.

Growth of that magnitude in a single quarter is unheard of. In the 30 years I’ve been in the industry, I’ve never seen something like that. And so, at that point, everyone was scrambling. In just two years we have lived a whole operational life. About 20 to 25 of our major ports were so full at the very peak, we couldn’t squeeze in one more box. All that means living a life on call just to make sure operations keep going. 

Q: Looking at the restructuring of value chains, are there any emerging trade routes driving new business? 

A: If we look at global shipping, which is a good bellwether of global trade, Asian volumes are actually doing quite well. There are still good inflows from and to China and Taiwan, but the trick is that because of the de-risking of supply chains, we see more and more sourcing changing to Bangladesh, India, Thailand, Malaysia, Vietnam, Indonesia — but not necessarily replacing Chinese volumes. 

There are a lot of basic components that come out of China and will continue to do so. But the assembly is moving into south-east Asia. As a total package, it’s actually more volumes for the whole industry to take care of.

Where the rot sets in is on the consumer end in mature markets, with Europe leading the pack in terms of retracting markets. That’s really the big change for us. This also comes from the very high volumes from when Covid-19 was peaking, so this reduction is also a result of an ongoing normalisation. But overall, we see less demand as a core in developed markets. 

Q: Can you elaborate on DP World’s diversification strategy? 

A: About five years ago, DP World was a port operating company, period. We simply decided around 2017/18 that we needed to get closer to the end customer, because the end customer has the biggest influence on what happens around your port.

That was the stepping stone to what we would call ‘a logistics strategy’. It doesn’t mean we’re not interested in the ports business; it’s inherently a strong business. With good partners, we have a good global presence, we are on each continent. We’ve just reached the maturity stage where, because our footprint is nicely balanced in most markets, we don’t need to grow for the sake of growth. We will still pursue new ports if they have high strategic value, good import/export fundamentals, good balance and a good community of beneficial cargo owners (end customers) that we could leverage.

So, we will continue to be a strong port company. But there’s a need to diversify away from it and make sure we control the end customer. And that’s the stepping stone into logistics.

Q: What is the role of free zones in this strategy? 

A: When we invest in a port and we get to operate it, we’re stuck in it for 30 to 50 years to be successful. One way to de-risk your life around the port is to actually build that free zone economic concept around it to create an ecosystem of companies that will trade and use your asset, rather than an overdependence on shipping lines that call or don’t call at your port. 

A free zone creates a market force that pushes the volumes back and forth. Specifically in emerging markets, where the concept is not proven or is new, we can actually help countries be more efficient through not only regulation, but also local physical assets there.

Q: Talking of global trade, do you see vessels continuing to get bigger and bigger? 

A: The big ships get the headlines, because they’re so big they’re unbelievable. And therefore, they come to mind. But the largest fleet is more around 12,000 to 17,000 20-foot equivalent units (TEUs), which offer more flexibility and a higher level of standardisation.

Do I see them becoming bigger? Maybe a little bit, up to 24,000 and 25,000 TEUs, but that’s not the story. The amount of ships at that size will always be limited because of their huge size, and the draft and height they need. The workhorses are the 12,000 to 17,000 TEUs ships. That’s the group that grows quickest.

Q: The Jebel Ali port and the Jebel Ali Free Zone (Jafza) were instrumental to the rise of Dubai as a global trade hub. What are the lessons for other port cities from Dubai’s experience? 

A: Jafza is home to more than 10,000 companies. There needs to be a high level of predictability and stability, in terms of its tax regimes and licensing — all the regulatory framework that the area provides its tenants with. Of course, we’ve also given these companies incredibly high levels of freedom to trade tax-free using sea or air connections, and so on.

Today, there are 14 million TEUs flowing in and out of the Jebel Ali port. That means that an incredible amount of containers is handled every single day. The shipping lines know they are going to get highly productive, highly stable, cost-competitive services. You put together these two elements and I think there lies the secret of our success. That, and the political stability that the UAE, and Dubai in particular, can offer. 

This article first appeared in the June/July 2023 print edition of fDi Intelligence.