Anchored in the New Reality Ports Perspectives
Anchored in the new reality Ports perspectives
March 2021
kpmg.ae Foreword
Accounting for more than 90% of the Through this publication, based on world’s commerce, maritime trade our research and our experience with is one of the most cost-effective clients in the industry, we examine and efficient ways of moving large the global and regional port industry volume of goods around the world.i outlook, outline the forces we believe While ocean trade has been driving will shape its future, explore trends global trade over the last few and dig deep into new and emerging centuries, containerization of cargo is growth areas. a comparatively recent phenomenon, We trust you find our first edition of dating from 1956. this report stimulating, informative Over the last couple of decades, an and engaging. We look forward to increasing trend noted for maritime hearing your views and discussing trade has been the growing share of the contents with you. containerization, fueled by growth in Please feel free to get in touch with consumer demand from China and any of the country contacts listed at other emerging economies. With the back of this report. increasing scale and complexities in modern trade over the years, the world’s major shipping lines, as well as the container port operators, have expanded their global footprint and are building presence across the supply chain to enhance their value proposition. Global trade in recent years has been impeded by trade tensions, which poses a major risk to maritime trade, Shahnawaz Nakhoda causing potential disruption to supply Partner chains. The combination of trade Ports and Logistics tensions between global economic KPMG Lower Gulf superpowers such as the US and China and the Covid-19 pandemic has contributed to significant pressure being exerted on the global ports industry. The role of port operators in these challenging times to keep the flow of goods moving is proving to be vital.
2 Anchored in the new reality Anchored in the new reality 3 4 Anchored in the new reality Contents
Executive summary 06
Global and regional outlook 10
Areas of focus and risks 20
Embracing technology 26
Current and future state 30
About KPMG 33
Anchored in the new reality 5 Executive summary
The spread of the Covid-19 virus, subsequent lockdowns and the economic downturn have disrupted global maritime growth and trade flow, reducing overall port activities in 2020.
Global outlook international routes. With the onset In the GCC, there is a trend of The last two decades had witnessed of the pandemic and the US-China increasing throughput capacity significant growth in containerized trade situation, focus on short-sea as the port operators continue to port throughput fueled by an increase trades using smaller ships rather invest heavily in port infrastructure, in global consumer demand. China is than mega vessels is an emerging expansion and technology. Currently, a significant contributor accounting trend resulting in improved port the region’s annual average capacity for 8 out of the top 15 global ports network and connectivity. Port growth is estimated to be 4.2% by throughput volumes.iii China’s operators are becoming trade which is double the global average dominance is however expected to enablers and are investing in capacity growth of 2.1% leading to a gradually slowdown as a result of the technology more than ever. drop in utilization across the ports.iv ongoing US-China trade disputes, Regional outlook GCC ports have higher average resulting in increased tariffs and Gulf Cooperation Council (GCC) vessel sizes due to being ultimately higher cost of trade. Some ports, due to their strategic location, transshipment hubs. However, multinational companies are currently have traditionally been large the average duration of stay for contemplating a manufacturing transshipment hubs. Container vessels in GCC ports is generally exodus from China, seeking penetration in GCC countries is more higher than any of the other major alternative production bases and than six times that of the world maritime geographies even in trade partners to escape potentially average and significantly higher than comparison to transshipment hubs higher tariffs and rising production that of major developed nations in such as Singapore and Hong Kong. costs. As global companies look the west. To improve port productivity, with to realign their supply chains and the help of public authorities, port decentralize their manufacturing To support manufacturing-led operators in the region are actively capacity, China is also focusing more growth and to attract foreign direct seeking solutions by adopting on technology-driven and high-value investment (FDIs), there has been innovation technologies and industries to power their next an emphasis on development of free establishing initiatives designed to growth cycle. trade zones (FTZs). Development overcome trade barriers and of port-linked FTZs has been one of Global trade patterns are gradually logistics inefficiencies. the success factors for the ports and changing, with regional trade logistics sectors in the region. replacing the traditional east-west
6 Anchored in the new reality Anchored in the new reality 7 Areas of focus and risks The pandemic has introduced uncertainty within the ports industry. We have identified several key points that port operators would do well to consider:
Area Focus
Port expansion and vertical integration, primarily funded by loans, resulted in Financial impact of a significant rise in net debt levels. Given the pandemic, the long-term sustainability of Covid-19 port operators’ businesses needs to be assessed.
Addressing port underutilization and congestion remains a key priority. Whilst Operational and operators continue to strive to find a perfect balance on port utilization which is largely business risks dependent on demand, they are implementing innovative solutions, mostly with the help of technology, to increase trade efficiency.
Global trade tensions were front and center in 2019, and with growing political Political environment tensions across the world as the Covid-19 blame game ramps up, this remains a key risk to global container port growth.
As the pandemic progresses, the priority of the leading industry players is to make Health and safety sure that the entire workforce is safe by adopting a no-harm approach.
For global ports and logistics providers, the security of supply chains is critical in keeping their people and trade operations safe. As hackers are taking advantage of Safety and lowered defenses during the pandemic, which could potentially compromise the cyber security security of the port’s operating technology systems, the role of digital transformation in changing the sector’s cyber risk profile is becoming increasingly crucial.
Climate change is emerging as the highest priority risk. Environmental concerns Sustainability dominate the top long-term risks.
8 Anchored in the new reality Embracing technology Adoption of smart port technologies and integration of the port value chain through digital platforms has accelerated due to the ongoing pandemic. Along with several emerging technologies, ports are leveraging trade and logistics platforms to facilitate the creation of a transparent trade ecosystem and access to new routes and services. Current and future state Port operators are evolving from traditionally being confined to landside operations to a broader concept of port- centric logistics, where ports are not seen merely as a thoroughfare for goods but as part of a larger and integrated ecosystem of global trade. Instead of being focused solely on the ports business, vertical integration between port operators and logistics service providers (both inland and by sea), either through alliances and mergers and acquisitions, is picking up pace, increasing overall presence in the trade supply chain. This trend may also encourage logistics service providers to differentiate or improve the services they offer.
Anchored in the new reality 9 Global and regional outlook
Container volumes have declined by 2.1% in 2020 but is expected to rebound by 8.9% in 2021.ii
Global maritime trends Container ports The last two decades witnessed The list of the top 15 container ports significant growth in containerized in 2019 highlights China’s dominance cargo, fueled by an increase in in global container shipping with 8 global consumer demand. A major of the top 15 ports located in China contributor of the global trade growth (Table 1). China contributed 27% of has been China, with the country’s the global manufacturing output in share in global merchandise trade 2019 and most of the containerized increasing from 3.8% in 2000 to volumes from Chinese ports 12.7% in 2019.v represent port-to-port (i.e. origin to destination) cargo. The Covid-19 pandemic resulted in an unprecedented contraction in demand leading to a slowdown in global trade in 2020. The World Bank forecasted a 5% reduction in global GDP and 20% contraction in trade volumes due to government-imposed lockdowns and lack of demand. The global port industry’s earnings before interest, tax, depreciation and amortization (EBITDA) for H1 of 2020 has reduced by 16% as compared to H1 of 2019.vi Container volumes have declined by 2.1% in 2020 but is expected to rebound by 8.9% in 2021.vii
10 Anchored in the new reality Figure 1: 15 container ports in 2019 based on throughput viii
TEU* (in millions)
* Twenty-foot – measure used for capacity in containerized transport Source: Lloyd’s List
With the recent US-China trade to diversify production and supply their supply chains, they will initially situation having been aggravated by lines. Other countries including India, find it difficult to replace China due Covid-19, a number of multinational Bangladesh, Mexico, Vietnam and to the challenges in replicating the companies are contemplating a Taiwan are emerging as suitable scale and quality of infrastructure. As manufacturing exodus from China alternatives. The shift will have a global companies look to realign their and relocating their production base detrimental impact on Chinese supply chains and decentralize their to escape higher tariffs and rising containerized volumes but benefit manufacturing capacities, China is production costs.ix The ongoing ports of the countries where the also focusing more on high tech and pandemic has expedited the shift trade shift will occur. However, high value industries to power their as it makes sense for companies while companies are reassessing next growth cycle.x
Anchored in the new reality 11 Port operators operators. In terms of geographical Since the 1990s, the world’s major footprint, DP World is the most port operators have expanded their diverse operator with terminals in global footprint, with four out of the 31 countries across six continents. current top five port operators (in Although APM Terminals is in terms of TEU) having throughputs the lead in terms of the number across at least five continents and of countries with existing port controlling more than 50% of the terminals, unlike DP World, it does global container traffic in 2019. not have a presence in the Oceania Emerging markets generally remain region (Table 1). the primary focus for major port
Table 1: Terminal operators throughput league table ranking and analysis (2019)xi
Throughput Operator TEU Global Global TEU Overview rank (in millions) Presence* share
– approximately 75% of activity generated from emerging markets – primarily port-to-port traffic, limited China Cosco Shipping 1 109.8 14 13.7% exposure to transshipment (CCS)- Beijing, China – large investment in One Belt One Road Initiative, 70% of volume from Mainland China market
– approximately 85% of traffic from emerging markets PSA International 2 84.8 18 10.6% – overall around 40% port-to-port traffic, (PSA)- Singapore significant transshipment – around 43% of volume from Singapore
– balanced portfolio - approximately 55% APM Terminals (APM)- of TEU is from emerging markets. 3 84.2 37 10.5% The Hauge, Netherlands – approximately 70% port-to-port traffic – no traffic in Oceania region
– focused on emerging markets but with significant presence in Europe Hutchinson Ports (HP) – 4 82.6 24 10.3% – mostly port-to-port traffic Hong Kong, China – 40% of volume from Mainland China and Hong Kong operations
– approximately 85% of traffic from emerging markets – overall around 40% port-to-port traffic, 5 DP World- Dubai, UAE 69.4 31 8.7% significant transshipment – approximately 21% of volume from Port of Jebel Ali – Dubai, UAE – global footprint across 6 continents
*Number of countries with existing terminals Source: Drewry Report and KPMG analysis
12 Anchored in the new reality Port infrastructure Four of the top eight port operators Short-sea trades Increased concentration in the (HP, DPW, PSA and Cosco) are With the onset of the pandemic shipping industry and the adoption considered ‘enthusiastic adopters’ and the US – China trade situation, of larger vessels has resulted in of automation – i.e. they deploy emerging trends include a focus demand for higher port productivity automation across a relatively high on short-sea trades using smaller and better infrastructure by the liners. number of terminals with some ships, resulting in improved port The use of mega vessels has led to degree of automation (second connectivity. With shorter distances, increased container handling per call, quadrant) while the rest are it may no longer be economically requiring higher crane throughputs considered as at an ‘emerging state’ feasible to deploy large container and increased productivity. To with a small number of automated ships, paving the way for feeder address these requirements, global terminals (third quadrant). services. The feeder vessels may port operators are increasingly not typically require modern port The first quadrant is where the port investing in automation technology. infrastructure, and hence could operators aspire to be in the future. potentially bypass the traditional Figure 2xii depicts the number of Currently, none of the top eight transshipment hubs in favor of local terminals and degree of automation global port operators are in the ports that are closer to customers. of the top eight global port operators. first quadrant. This could potentially be a game changer, necessitating port operators to seek customer alliances with Figure 2. Adoption of terminal automation feeder services rather than shipping lines. In 2019, DP World ventured into the feeder business through the acquisition of Unifeeder, having one of the largest short-sea networks in Europe, and subsequently acquired Feedertech Group, a Singapore-based feeder operator, in 2020. The acquisition increased DP World’s short-sea network connectivity by more than 100 ports, covering smaller ports that cannot accommodate larger vessels.
First quadrant – high Third quadrant – small 01 number of terminals with 03 number of terminals with higher degree of automation some degree of automation
Second quadrant – high Fourth quadrant – small 02 number of terminals with 04 number of terminals with some degree of automation higher degree of automation
Source: Extracted from Drewry and KPMG analysis
Anchored in the new reality 13 Regional outlook Trade in the GCC The GCC is making its mark in the The region accounted for 3.4% of world maritime trade due to the pace global merchandise trade in 2019, of infrastructure creation. Wealth at USD 1.3 trillion. The UAE and derived from oil has been invested to Saudi Arabia account for 77% of create state-of-the art infrastructure merchandise trade of GCC members over the last two decades. Countries (figure 3), with the UAE enjoying the including the UAE have invested highest trade value. heavily in building infrastructure such as ports and FTZs to attract FDIs.
Figure 3: Export-import merchandise trade split in the GCC region (in millions of USD)xiii
Export Import
Source: UNCTAD data
14 Anchored in the new reality Container ports overview The GCC member countries account for more than 3% of global container port traffic, with the UAE leading the containerized trade throughput, representing more than 50% of the region’s total in 2019.xiv The location of the GCC countries is advantageous as it is located at the entry to Red Sea and near the Suez Canal, and can be considered as gateway to Europe and Asia. This location maybe an ideal transshipment hub for container traffic on the Europe-Asia lane. The mix of transshipment volumes is generally higher than port-to-port volumes in the GCC region. However, tariff rates from transshipment are significantly lower than that of port-to-port. As a result, port operators need to find the optimal mix of transshipment and port- to-port volumes to maximise port profitability and productivity.
The GCC region has played “an important role in the development of the global maritime trade routes by virtue of its strategic location on the East-West trade lanes, enabling development of state-of-the-art infrastructure. This report endeavors to capture the evolving dynamics influencing the region’s maritime sector and the road ahead for regional maritime operators.
Dr. Steffen Wagner Global Head of Transport & Leisure- KPMG
Anchored in the new reality 15 Container penetration Figure 4: Container penetration across regions (TEUs/’000 people) As seen in figure 4, container penetration in GCC countries is more than six times that of the world average, and significantly higher than that of major developed nations in the West, indicating significant transshipment volumes. GCC port throughput Approximately 51% of container traffic in the region is handled by ports in UAE, followed by Saudi Arabian ports with 23%. The Port of Jebel Ali in Dubai is the busiest in the region, with 51% of the throughput of the top five container Note: Container penetration is a proxy for containerisation. It is defined as container throughput/ population in ‘000s ports (figure 5xv). This dominance Source: World Bank (2018), KPMG Analysis in container shipping is due to the UAE’s significant investment in port infrastructure and the logistics Figure 5: Top five GCC container ports in terms of throughput (2019) ecosystems, including FTZs. Other countries in the region have also TEU (in millions) announced significant investment plans in their vision documents. Saudi Arabia is planning USD 36 billion worth of investments in logistics, as part of its National Industrial Development and Logistics Programme.xvi Port infrastructure and investment Most ports in the region are owned and managed by regional port authorities, while terminals are directly operated either by the port authorities, or by major global port operators. Operators such as DP Source: Source: Lloyd’s List World and Gulftainer have expanded across multiple geographies. Abu Dhabi Ports, which operate ports, Table 2: Major container port operators in the region economic zones and logistics businesses in the region, have lofty Presence (No. of countries)xvii global ambitions and capabilities for rapid expansion across geographies. The industrial and logistics sectors are amongst the core pillars identified for economic diversification in the GCC region. To support manufacturing-led growth and to attract FDIs, there has been an emphasis on development of FTZs. Currently, there are approximately 100 FTZs in the GCC region with more planned. The development of port-linked FTZs
16 Anchored in the new reality has been one of the success Figure 6: No. of free trade zones within the GCC region factors for the ports and logistics segments in the region. For 49 United Arab Emirates instance, one of the key factors contributing to the success of Pthe Port of Jebel Ali is the linking of their operations with the Jebel 37 Saudi Arabia, Qatar Ali FTZ. Several other players in and Bahrain the region are adapting the same model, including Abu Dhabi Ports – Khalifa Industrial Zone, Saqr Port 11 Oman – Salalah Port, Salalah Free Zone, RAKEZ Free Zone, etc. Throughput, capacity 02 Kuwait and utilization Source: COMCEC, World Bank While the region is in a decent position in terms of demand growth, the rapid increase in capacities Figure 7: Port efficiency xx have fueled growth in the region’s ports, leading to a drop in utilization 2019 across ports, as supply growth has outpaced demand in recent years. The region’s annual average capacity growth is estimated to be 4.2%— United Arab double the global average capacity Emirates growth of 2.1%.xviii The region is currently in a state of excess capacity with a port Saudi Arabia utilization rate of 55%—the lowest in Asia by region and still far behind the global average of 62%.xix Port efficiency Singapore Another factor for consideration for authorities and operators in the region has been comparatively low port efficiency, as vessel turnaround time is generally longer. GCC Hong Kong ports have higher-than-average vessel sizes as they tend to be transshipment hubs. However, in the UAE and Saudi Arabia, the Global average duration of stay for a average vessel in the port is higher than any of the other major maritime geographies, even in comparison Median time in Average container Maximum container to transshipment hubs such as port (days) carrying capacity per ship carrying capacity Singapore and Hong Kong (figure 7). per ship A shorter time in port is a positive indicator of the level of port efficiency and trade competitiveness. Source: UNCTAD data
Anchored in the new reality 17 One of the major factors affecting vessel days in ports is the quality of port infrastructure. Based on the 2019 data from the World Economic Forum Opinion Survey, in terms of port infrastructure quality, Singapore and Hong Kong ranked first and fourth respectively, while the UAE and Saudi Arabia ranked 12th and 42nd respectively.xxi Another factor that contributes to Hong Kong’s low vessel days in ports is its keen focus on a ‘convenience and trade’ policy, which imposes minimum licensing controls on transported goods and an expedited customs clearing process.xxii To improve port efficiency, port operators, with the help of public authorities in the GCC region, are actively adopting innovative technologies and improving the customs clearance process to ease the movement of goods being imported and exported from the region. A recent initiative is the adoption of the World Logistics Passport (WLP) framework. The WLP framework is designed to overcome trade barriers such as logistics inefficiencies, that currently limit the growth of trade in developing markets. Benefits from the project include shared expertise and process developments among partner countries, resulting in cost and time savings and faster customs clearances. WLP connects government bodies such as customs authorities with logistics service providers to ease the process of commercial transactions.xxiii
18 Anchored in the new reality Anchored in the new reality 19 Areas of focus and risks
Key areas port operators may want to pay particular attention to are outlined in this section.
The financial impact of Covid-19 In recent years, port operators have run, underutilization of ports still Like most other sectors, the port put increased focus on expansion remains one of the risks faced by industry is enduring the financial and/or vertical integration, that are many port operators in the short to pinch of the pandemic. Rising primarily funded by loans resulting in medium term. Underutilized port debt levels, coupled with plunging a significant rise in net debt levels. equipment and terminals contribute earnings and deteriorating cashflows, A number of planned and ongoing little to the ports’ operating income has exposed the industry to funding, major port projects globally have and cashflows thereby increasing the liquidity, covenant compliance, and been put on hold as a result of the financial risk of impairment. even business continuity risks. pandemic and global trade volumes Port congestion are forecasted to decline in the short The advent of Covid-19 has raised Factors contributing to port term. Projects that are at an initial fears over shipping carriers’ congestion include low port planning stage are at risk of being liquidity positions, which translates productivity and scarcity of space. suspended or shelved, meaning the to increased credit risk for port Congested ports are at risk of time and resources expended on operators. Although the risk has losing potential customers and them so far would have been in vain. been mitigated to a certain extent revenue as a result of blank sailings. by the financial support extended Operational and business risks To address this, operators are in the form of state-backed gradually implementing innovative Port underutilization loans, guarantees, government solutions to increase productivity and Global containerised demand grants and subsidies, the long- storage capacity. In 2020, DP World throughput has declined by 2.1% due term sustainability of the carriers commenced the pilot phase of its the the pandemic but is expected and hence of the port operators new high bay storage system (HBS), to increase by 8.9% in 2021.xxv As a business needs to be assessed. As BoxBay. The project aims to provide result of the pandemic, the global described by Drewry: “The need a more efficient container handling port utilization is projected to decline for state support is an indictment system and increased container in 2020 to 62% from 69% in 2019.xxvi of the perilous nature of many storage capacity. Although the average annual carrier balance sheets that have not increase in demand is forecasted addressed the debt bubble arising to outpace the increase in capacity from the financial crash.”xxiv in terms of growth rate in the long
20 Anchored in the new reality Anchored in the new reality 21 22 Anchored in the new reality Political environment Qatar trade embargo Global trade tensions were front and In 2017, Saudi Arabia, the United center in 2019, and with growing Arab Emirates, Bahrain and Egypt political upheaval across the world cut diplomatic ties with Qatar which as the Covid-19 blame game ramps led to closures affecting the sea up, this remains a key risk to global routes between these countries container port growth. and Qatar.xxix US-China trade war The Al-Ula Declaration on 5 January The recent political tensions 2021 has put an end to the Qatar between the US and China under trade embargo which had limited the Trump administration, aggravated trade within the GCC region for by the pandemic, exposed the more than three years since 2017. risks of heavy reliance on limited, The declaration is expected to re- concentrated supply chain logistics. establish trade activities through There has been a shift in global unified markets and complete trade patterns with regional trading economic integration thereby replacing the traditional east-west promoting political stability and international routes. Operators economic growth in the region.xxx whose volumes rely mostly on Abraham Accords Peace U.S. and China related trades are Agreement especially at risk. Although the result On 13 August 2020, Israel and the of the recent US elections in favor of UAE formally agreed to normalize president Biden has generally been their relationship. The agreement expected to ease the tension, it is was signed on 15 September 2020 still premature at this time to and is expected to establish strong predict the direction of US foreign relations between the two sides trade policies. in areas such as economy, trade, Brexit medicine and technology. The The United Kingdom’s (UK) agreement is expected to not only withdrawal from the European Union boost the economies of the two (EU) was officially finalized on 31 parties but also the entire Middle January 2020, subject to a transition East region.xxxi period which ended on 31 December In a bid to capitalize on the 2020. Although both parties have opportunities presented by the agreed that no tariffs or trade quotas agreement, Abu Dhabi Ports, via will be implemented on goods being Khalifa Industrial Zone (KIZAD) and transported, border checks, including ZonesCorp, opened its industrial safety and customs declarations, cities and free zone cluster to would be applied to UK goods Israeli entities looking to expand their travelling to the EU and vice versa.xxvii operations in this region. As a result Tariffs would make UK goods more of these efforts, Israeli companies expensive and harder to sell in the will be able to exponentially scale EU while full border checks may their businesses in an efficient and cause traffic bottlenecks at ports, cost-effective manner by taking leading to significant delays causing advantage of the improved supply a decrease in port productivity and chain distribution channels and efficiency, and increased operating logistics operations. Abu Dhabi costs. A recent reportxxviii from the Ports will also benefit due to UK National Audit Office (NAO) diversified activities in the confirms the concerns over gaps free zone and through its in preparedness and potential collaboration with renowned Israeli ramifications. technology companies.
Anchored in the new reality 23 Health and safety The ports and logistics industry is exposed to a wide range of health and safety risks. These include people interacting with heavy loads, as well as moving equipment. The priority of leading industry players is to ensure the safety of the workforce by adopting a “no-harm” approach. The focus is heightened in emerging markets where fundamental safety frameworks may not be widespread, or operate with zero or minimum regulatory enforcement. For a large number of companies operating in the ports and logistics sector, health and safety has become a standing agenda item in board meetings. Most of these companies have established committees comprising senior leaders, whose primary objective is to ensure the accountability, effectiveness, and continual development of health and safety programs. Covid-19 precautions To mitigate the risk of Covid-19, ports have implemented a variety of measures to comply with health and safety recommendations. The protocols put in place included standardized sterilization procedures when receiving vessels, imposing travel and physical distancing measures for employees and segregating workforces into dedicated zones of accommodation. Many organizations introduced the mandatory use of personal protective equipment (PPE) by employees when interacting with customers, and sanitization of buildings, berths, offices and accommodation. Some port operators also mandated completion of questionnaires by ship crew members and health checks on arrival at the destination.
24 Anchored in the new reality Safety and cyber security decade took place at one of of maritime operations. One For global ports and logistics Antwerp’s largest terminals in example is the introduction of the providers, the security of the supply Belgium. A drug cartel seized control International Maritime Organisation chain is critical in keeping their of containers’ movement and (IMO) regulations to reduce sulphur people and trade operations safe. retrieved the data needed to collect oxides (SOx) emissions from ships. The security incident impacting it before the legitimate owners.xxxii Other possible measures include Beirut’s port in August 2020 the introduction of carbon taxes and In a recent survey,xxxiii 83 percent highlighted the risk of storing other mechanisms to curb carbon of business executives rate cyber hazardous and explosive materials in emissions. This has the potential to security threats as a significant risk the vicinity of the port. Accordingly, not only change the way ports and to organizational growth. However, port operators have initiated due ships operate, but also the types when cyber security is omitted from diligence and comprehensive of cargo that will be shipped if the the digital business value chain, a inventory checks to mitigate world moves away from fossil fuel to significant commercial opportunity potential risks. sustainable alternatives. is missed. The digital transformation revolution In parallel with these developments, Sustainability has led to a change in the sector’s investors are increasingly In 2020, the World Economic cyber risk profile. Increased focus incorporating Environment, Forum’s Global Risks Reportxxxiv on automation increases the risk Social and Governance (ESG) classified climate change as the top of cyber-attacks on ports’ operating considerations in their investment risk. Climate change has influenced technology. The pandemic has decisions and require more insight our lives more profoundly than many rendered systems particularly into the ESG performance of expected, with the last five years vulnerable to hackers. Since the companies and their exposure being the warmest on record.xxxv adoption of remote working, to risks associated with climate This has led to more intense and different and more sophisticated change. This is further reinforced frequent natural disasters. Global methods of hacking have been by legislation from governments temperatures are on track to observed. Cyber-attacks could also and stock exchanges. Organizations increase by at least 3°C towards compromise the port community are increasingly seeking to publicly the end of the century, twice system for manipulation or theft disclose their sustainability what climate experts warned is of data. performance, including their the limit to avoid the most severe approach to transparency, their Recently, CMA CGM experienced a economic, social and environmental environmental impact, and in the ransomware-like cyberattack which consequences, including loss of upcoming reporting cycle, their crippled its e-commerce system life, social and geopolitical tension response to Covid-19. Examples of for at least a week. The cyberattack and negative economic impact. For reporting and disclosure initiatives led to the paralysis of messaging the first time in the history of the that have recently gained traction services and online applications and Global Risks Perception Survey, are the Task Force on Climate-related functionalities like bookings, tracking, environmental concerns dominate Financial Disclosures (TCFD) that route finder, etc. The cyberattack the top long-term risks by likelihood supports companies with a set of has disrupted communications and where three of the top five risks by recommendations to identify their inconvenienced both CMA CGM impact are also environmental. exposure to climate change and and its customers, particularly the As a response to these related events. shippers and forwarders. environmental concerns, legislators One of the most infamous large- are introducing measures to scale cyber-attacks in the past restrict the environmental impact
Anchored in the new reality 25 Embracing technology
The industry is facing a set of emerging challenges including growing freight traffic, increasing pressure to address environmental concerns, and critical operational challenges while delivering services. To overcome these challenges, the past few years have seen an increase in investment centered on the adoption of smart port technologies and integration of the value chain with digital platforms. With the ongoing pandemic, the dependence on technology has grown exponentially.
26 Anchored in the new reality Anchored in the new reality 27 Adoption of smart ports are using Airobotics drones ports technologies for controlling aerial cargo transport, Leading ports are leveraging the monitoring ships, cleaning the Internet of Things (IoT) for live- local environment and tracking the tracking of cargo status; blockchain construction of ports. for supply chain optimization; High Bay Storage (HBS) system drones for operational oversight is an automated container handling and environmental safety; high system that stacks containers up bay storage systems for container to 11 floors high, delivering more handling; and data analytics for than three times the capacity of a deriving data-driven insights for conventional yard with enhanced internal/external customers. performance including significant IoT can be considered the gains in handling speed, energy cornerstone of this transformation efficiency, safety and reduced due to the clear need to digitize the operating costs. DP World recently delivery process for monitoring cargo commenced its pilot phase of and deliveries with the aid of smart BoxBay (a high bay storage system) sensors. The port of Hamburg, the to reduce by at least 70% the land third busiest port in Europe, initiated area needed to support terminal a strategic program in 2011 to evolve operations, and increase yearly yard into a “smart port” to optimize throughput per hectare by more than capacity and maximize efficiency. This 300% in comparison with a Rubber was achieved through the adoption of Tyred Gantry Crane (RTG) IoT technology in the port ecosystem container yard.xxxvi by installing sensors to monitor the Data and analytics applications use of physical assets (e.g. trucks, are allowing supply chains to adopt cranes, carriers, roads, warehouses, a proactive rather than a reactive etc.), using GPS, and geo-referencing response to supply chain risks. to monitor movement of traffic. Singapore’s Maritime and Port Blockchain technology has the Authority (MPA) established a potential to digitalize supply chains, data-enabled traffic prediction tool eliminate record-keeping efforts, to forecast vessel arrival times and promote paperless transactions, estimate potential traffic congestion and streamline the supply chains by using predictive analytics. The port of enabling real-time communication. In Hamburg in Germany uses analytics 2017, the port of Antwerp announced to aggregate various data points (i.e. a pilot project for more efficient and vessel positions, height and width of secure container handling leveraging bridges, etc.) to optimize internal blockchain technology in collaboration port operations. with NxtPort. The data utility platform Additionally, smart ports are being developed will collect and leveraging other technologies pool data from various stages in the such as artificial intelligence (AI) supply chain of the Port of Antwerp. to enhance predictive insights and Drones are quickly becoming a cloud computing, data management regular tool in the ports and logistics and data sharing amongst various industry. Ports are using drones in stakeholders. Robotic process their routine monitoring to improve automation (RPA) is being leveraged safety, reduce costs and enhance to automate processes across process efficiency. Around the world, several support functions (Finance, from the Netherlands to Vietnam, HR, and Supply Chain Management).
28 Anchored in the new reality Digitizing the trade and logistics intelligent single window platform SeaRates.com, a digital platform that value chain for information exchange (the Port enables customers to transport cargo The new connected ecosystem of Community System) between worldwide at the click of a mouse. platforms is supporting the growth of governments and trade communities DP World has also created the Digital maritime trade across the globe. that would facilitate the creation of Freight Alliance, an online association a transparent trade ecosystem. that brings freight forwarders globally The single window platform onto one platform, giving them integrates multiple systems to Digital exchange platforms are access to new tools, routes and facilitate the exchange of information being rapidly deployed by leading services, and enabling them to do between port stakeholders e.g. port ports over the past decade. more business anytime. authorities, exporters, and importers. These platforms digitize the Countries such as Singapore and entire logistics supply chain by the Netherlands were able to creating a marketplace for various solidify their competitive advantage sub-segments of the market. over other key players by using an In 2020, DP World acquired
Anchored in the new reality 29 Current and future state Port operators are shifting their focus from traditional landside operations to being part of a larger ecosystem of global trade.
Current state of ports of Unifeeder, Feedertech and is a futuristic mode of vacuum and logistics Transworld to further boost its tube-based transport, resembling Over the past few decades, logistics and trade connectivity. a train but traveling at the speed port operators have shifted their of a jet aircraft. The projects are Recently, ADQ-owned Abu Dhabi strategies from traditionally being already in progress in the UAE, Ports announced its acquisition of confined to landside operations to India and the USA. If the project is MICCO Logistics, a local freight a broader concept of port-centric realized, it can deliver freight and management firm, expanding its logistics where ports are not move people from point to point logistics portfolio with the aim of seen merely as a thoroughfare at a top speed of 1,200 kmph – providing a fully integrated and for goods but as part of a larger giving rise to greater productivity holistic logistics solutions in the and integrated ecosystem of and efficiency in the logistics UAE and beyond. This acquisition global trade. DP World, for ecosystem. Systems are electric will enable Abu Dhabi Ports example, identifies itself as the and can be powered by renewable to manage all customer touch leading global trade solutions energy, creating a more sustainable points from contract sourcing enabler which views ports as solution for transport. In November and purchase order management central to its global integrated 2020, Virgin Hyperloop successfully to order fulfilment and handling operations, encompassing a completed its first ever human solutions via its strategically broad spectrum of supply chain transportation journey, bringing located network of distribution segments- from maritime and the technology a step closer to centers. Furthermore, Abu Dhabi overland terminals to marine, commercial use. Ports has partnered with one of logistics and ancillary services, the world’s largest maritime and Future state of ports as well as technology-driven energy consultant to undergo a and logistics commercial solutions. With this massive digital transformation Port operators and logistics service strategic focus, it has developed using blockchain technology, with a providers are integral to the global a range of other services for its focus on decarbonization. ecosystem of trade. They are customers, providing end-to-end part of an integrated supply chain services from intermodal handling Virgin Hyperloop, the first initiative where the action of one potentially and management of containers of its kind, was created through a affects the other, whether favorably and cargoes, to storage and partnership between DP World and or not. Port operators increasingly warehousing. It has also ventured Virgin to provide cargo systems see themselves as enablers of into non-port businesses such that will enable fast, sustainable global trade, and are venturing as the feeder and inland logistic and efficient delivery of palletized towards non-port businesses, services through the acquisition cargo around the world. Hyperloop including logistics and adoption
30 Anchored in the new reality of multimodal transport to streamline various services. Vertical integration between port operators and logistics service providers (both inland and by sea) either through alliances, or mergers and acquisitions, are picking up. This trend has port operators seeking logistics partners or businesses that would synergize with their existing processes and technology. Soon, the rapidly growing efforts of port operators to streamline the trade supply chain will put pressure on logistics service providers to differentiate and innovate their services. The weakest links in the trade supply chain will be removed or replaced. To survive, logistics service providers may either partner with port operators or form alliances amongst themselves. Eventually, those who cannot adapt, especially smaller logistics businesses, are at risk of not remaining competitive.
Anchored in the new reality 31 32 Anchored in the new reality About KPMG
For almost 50 years, KPMG Lower The goal is to help them achieve Gulf Limited has been providing success across 17 major Sustainable audit, tax and advisory services Development Goals (SDGs) and to a broad range of domestic and become more resilient and socially international, public and private conscious. sector clients across all major As we continue to grow, we aim to aspects of business and the evolve and progress, striving for the economy in the United Arab Emirates highest levels of public trust in our and in the Sultanate of Oman. We work. Our values are: work alongside our clients by building trust, mitigating risks and identifying business opportunities. Integrity: We do what is right. KPMG Lower Gulf is part of KPMG International Cooperative’s global Excellence: We never stop network of professional member learning and improving. firms. The KPMG network includes approximately 227,000 professionals in over 146 countries. KPMG in the Courage: We think and UAE and Oman is well connected act boldly. with its global member network and Together: We respect each combines its local knowledge with other and draw strength international expertise, providing the from our differences. sector and specialist skills required by our clients. For Better: We do what matters. KPMG is widely represented in the Middle East: along with offices in the UAE and Oman, the firm operates To meet the changing needs of in Saudi Arabia, Bahrain, Kuwait, our clients, we have adopted an Qatar, Egypt, Jordan, the Lebanon, approach aligned with our global Palestine and Iraq. Established in purpose: Inspiring Confidence, 1973, KPMG in the UAE and Oman Empowering Change. Our three employs 1,485 people across four pillars – exceptional quality of offices, including about 100 partners service, an unwavering commitment and directors. to the public interest, and building Our latest initiative, KPMG IMPACT, empowered teams – are the aims to help clients future-proof their foundation of our firm. businesses amid times of increasing focus towards issues such as climate change and social inequality.
Anchored in the new reality 33 Sources i http://apanews.net/en/news/90-percent- https://mawani.gov.sa/en-us/Pages/default. of-world-trade-is-by-sea-official aspx ii Drewry Container Forecasted 2020 Q4 https://www.mwani.com.qa/English/Pages/ default.aspx# iii https://lloydslist.maritimeintelligence. informa.com/one-hundred-container- xviii Drewry Global Container Terminal Operators ports-2020/port-data 2020 – pages 220-221 and KPMG analysis iv Drewry Global Container Terminal xix Drewry Global Container Terminal Operators 2020 – pages 220-221 and Operators 2020 – pages 220-221 and KPMG analysis KPMG analysis v The World Bank, Databank- World xx https://unctadstat.unctad.org/wds/ development indicators (Merchandise TableViewer/tableView. exports) and KPMG Analysis aspx?ReportId=170027 vi Drewry’s Ports & Terminals Insight 4Q20 xxi https://www.theglobaleconomy.com/ rankings/seaports_quality/ vii Drewry Container Forecasted 2020 Q4 (same as above) xxii https://www.freeportchina.com/the-worlds- three-major-free-trade-ports.html viii https://lloydslist.maritimeintelligence. informa.com/one-hundred-container- xxiii https://www.arabianbusiness.com/politics- ports-2020/port-data economics/438330-how-dubai-aims-to-play- key-role-in-boost-global-trade ix https://www.indiatoday.in/ business/story/how-coronavirus- xiv Drewry Container Forecaster 2020 Q2- will-fuel-manufacturing-exodus-from- page 103 china-1670330-2020-04-23 xxv Drewry Container Forecasted 2020 Q4 x https://www.cnbc.com/2020/05/14/ (same as page 10) china-is-producing-higher-value-goods- even-as-factories-shifting-from-mainland. xxvi Drewry Container Global Container Terminal html Operators – page 221 xi Source: Drewry Global Container xxvii https://www.bbc.com/news/ Terminal Operators 2020: pages 22 and explainers-55180293 85 to 130 xxviiiThe UK border: preparedness for the end of xii Modified illustration from Drewry the transition period, November 2020 Container Terminal Operators 2020 page xxix https://www.bbc.com/news/world-middle- 74 and KPMG Analysis east-40173757 xiii https://unctadstat.unctad.org/wds/ xxx https://www.oilandgasmiddleeast.com/ TableViewer/tableView. drilling-production/37573-gecf-welcomes-al- aspx?ReportId=101 ula-declaration xiv https://unctadstat.unctad.org/ xxxi https://www.state.gov/wp-content/ wds/TableViewer/tableView. uploads/2020/09/UAE_Israel-treaty-signed- aspx?ReportId=13321 FINAL-15-Sept-2020-508.pdf xv https://lloydslist.maritimeintelligence. xxxii https://www.bbc.com/news/world- informa.com/one-hundred-container- europe-24539417 ports-2020/port-data#portthroughput xxxiii KPMG Consumer Loss Barometer, 2019 xvi https://sailor.news/port-news/saudi- arabia-logistics-sector-update/ xxxivThe Global Risks Report 2020 xvii Drewry Global Container Terminal xxxv 2020 was one of three warmest years on Operators 2020 – page 123 record | World Meteorological Organization (wmo.int) https://www.gulftainer.com/ xxxvi Drewry Global Container Terminal https://www.adports.ae/core-business/ Operators – pages 75 and 116. ports-terminals/ports/
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