Dubai Ports World (DP World) - Assignment Example

?Dubai Ports World (DP World) School Introduction Dubai Ports World is a leader in marine terminal management. Operating 60 terminals as part of a global supply chain efficiency network across six continents requires a strong strategic management focus. Like most port operators, DP World strives to ensure that it places the right people in the right jobs at the right time, keeping an eye in filling key jobs with people who possess the right competencies in order to ensure terminal operations run at an effective level and that customer service levels are sustained around the clock. Like most companies, DP World seeks growth and profitability through strategic initiatives, judicious financial management, and conducting routine internal assessments of its strength and weakness and understanding the industry threats and opportunities. In addition, positioning itself where it can take advantage of new market opportunities and grow is one thing. Coming up with new ways to conduct current operations is another. Modernizing its information technology infrastructure, sustaining a commitment to community projects in which it operates, understanding the political, social, economic and technological factors that influence its business and providing a work environment that DP world supports through training and development will position DP World to take advantage of opportunities to grow and expand into new markets. Core Industry Dubai Ports World (DP World) operates in the international marine terminal business (port operations) providing development and logistics services (DP World, 2010). Specifically, the majority of DP World management is in container handling services as part of an overall strategy of managing container, bulk and terminal cargo. In addition to containers, DP World also operates general cargo, bulk cargo, Ro-Ro vessel (such as car handling), and passenger terminals. DP World also operates P&O Maritime Services, DP World Cargo Services and DP World Intermodal. According to the DP World website, P&O Maritime Services is a ``specialist provider of maritime services to industry and government`` (DP World, 2010). DP World Cargo provides stevedoring (loading and unloading) services. These services include containers, bulk, general cargo, project cargoes, car carriers, reefer vessels and passenger vessel stores and baggage handling. DP World Intermodal operates what it refers to as ``outside the gate`` (DP World Intermodal, n.d.) services to help clients streamline their supply chains, specifically in the railway services industry. This service is more formally called Container Rail Road Services Private Limited, or CRRS for short (DP World Intermodal, n.d.). Its P&O operations are diverse and include government shipping services, cargo services, port services (including skilled crews, shore support staff and vessel maintenance), offshore specialized marine services to the offshore oil and gas industry, defence, chartering (including ship brokering and chartering for mining and bulk minerals) and agency services (including ship agency, chandlery and manning services) (P&O Maritime, n.d.). Chandlery services cover supplies and equipment. Key Substitute Products / Services According to an OAS overview (Rossignol, 2007, p. 7), companies in this strategic assessment include (with number of ports in operation, millions of TEU throughput): 1. HPH - Hutchinson Port Holdings (45, 33.2). 2. PSA – Singapore Port Authority (25, 32.4). 3. APMT - APM Terminals (40, 24.1). 4. P&O Ports (acquired by DP World). 5. DP World (42, 35.2 – when combined with P&O Ports). 6. Evergreen Marine Corp (240, 11.5). 7. Eurogate (10, 11.4). 8. COSC - China Ocean Shipping Company (34, 8.1). 9. SSA Marine (150, 6.7). 10. MSH - Mediterranean Shipping Company (215, 5.7). Global growth is a key vision for DP World and this variable could be used as one of the key strategic measures. Growth can be measured in terms of TEU units. TEU is short for twenty-foot equivalent units as this is the majority of the industry standard for containers. The output of a container port is normally measured by its TEU throughput or the number of TEU units that pass through a port (Talley, 2009). Key Competencies There is a multitude of key competencies required of any port operator in order for them to function effectively in the business of marine terminal management and logistics. Goods are to be delivered and received with the least amount of hassle. Often these competencies culminate in the achievement of specific certifications including the Master Foreign Going Certificate of Competency. Therefore, the following key knowledge, skills and abilities will augment an operator’s port management competency level (speedupcareer.com, n.d.): 1. Principles and Practice of Management 2. Managerial Economics 3. Financial Accounting 4. Port and Terminal Management 5. International Trade and Commerce 6. Quantitative Techniques for Business 7. Management Accounting 8. Economics of Sea Transport 9. Human Resource Management 10. Legal Aspects of Shipping 11. Port Economics 12. Research Methodology 13. Strategic Cost Management 14. Strategic Management 15. Logistics and Supply Chain Management 16. Port Pricing and Finance 17. Port Marketing and Services Key Resources DP World requires several resources grouped by categories to operate effectively. First, there is the infrastructure resources needed at the terminals themselves. The berthing area requires handling equipment such as quay cranes for the loading and unloading of vessels (Kim & Gunther, 2007). Physical space such as stocking areas in a yard is also needed. There is also the information technology resource which identifies and registers the content, destination, outbound/inbound vessel and shipping line (Kim & Gunther, 2007). There are specific cranes needed as well including, from smallest to largest, chassis, reach stacker, straddle carrier, rubber-tired cranes, and rail-mounted cranes (Kim & Gunther, 2007). Then there are the transportation resources like trucks and to support the delivery to the vehicles that will drive the goods into the inner geography includes a multi-trailer system, automated guided vehicles and automated lifting vehicles. Then there are human resources and professional who know about terminal layout, equipment selection, berthing capacity management, IT-systems and control software and overall administration. Naturally, there is the qualified workforce to carry out the operations that use the other resources (Kim & Gunther, 2007). Average Growth Rate & Profitability Projected growth in global demand is 6.5%. Between 2012 and 2014, however the world container trade volume expected to fall, coming in just above 5% in 2014 (Bingham, 2011). Profitability could fall in light of falling global output and demand, thus impacting all companies in this industry. Also, shifts in the flow of goods based on economic regions that are showing strong growth (like China and India) will impose higher demand for marine terminal services in those regions in order to accommodate the associated growth in container traffic. Companies that have a presence in these regions will most likely benefit from increased activity. Key Performance Measures The success of any company can only be determined by measurements of key performance factors. Below is a list of those factors. Key Measurement 2009 2010 2011 Share value $4.43 $10.46 $12.92 Profitability $333 million $450 million $532 million Growth 43.4 million TEU 49.6 million TEU 54.7 million TEU Market share 9% 6.8% 10% Sources: The Associated Press, 2012; The Economic Times, 2010; Lestrange, et al., 2009; DP World, 2010 Industry Forces Strategic management activities of a company like DP World will be complemented by Porter’s five forces analysis. Key components of the analysis include buyer power, supplier power, the threat of substitutes, the threat of new entrants and a competitive rivalry among existing firms in the industry (Ritson, 2008). The marine terminal industry offers qualified companies an attractive opportunity to operate because of the dynamic nature of the market. DP World itself will want to stay in the industry for two reasons: growth potential in emerging markets where it operates now and its significant potential to reach higher throughput via strategic alliances or partnerships in markets in which it currently does not operate. The industry can shield itself from threat of new entrants, for example, because of the high capitalization costs associated with establishing a business in the marine terminal industry. Threat of substitutes can be mitigated by practicing effective cost management and keeping the costs of putting containers in their ports lower than their competitors but also by providing superior customer service. Demand for goods is growing in developing countries, such as those in Asia like India and China. Demand is slowing in mature markets. Expansion in developing markets increases demand for products and means more business for companies that ship products by sea. This will create opportunities for port operators to make their services attractive to customers or acquire existing bases by entering into a merger or acquisition. The global economic slowdown is hurting demand in the West creating overcapacity in ports in countries like the United States, for example. DP World can manipulate the industry only as much as they have the power to do so. The extent of their ability to manipulate depends on how much power is in the hands of their buyers and suppliers. The level of concentration in the industry will also determine DP World’s influence in changing the marine terminal industry to satisfy their strategic intentions. With HPH, PSA and DP World holding a large portion of the global terminal market in terms of TEU throughput, the trio represents a low concentration ratio so in this case DP World’s influence could be a major threat if it decided to make some kind of strategic move. DP World will maintain their industry leadership by keeping to their mission of sustaining superior customer service, keeping costs under control and low, and entering into strategic activities that will allow them to not only grow their throughput capacity but also operate in more ports in the world, putting themselves in a whole new quadrant of the industry that nobody else seems to have been able to do. Principle Players in the Industry Besides DP World, there are eight other players in the industry including Hutchinson Port Holdings (HPH), Singapore Port Authority (PSA), APM Terminals, Evergreen Marine Corp, Eurogate, China Ocean Shipping Company (COSCO), SSA Marine and Mediterranean Shipping Company (MSH). Of interest to DP World is HPH and PSA, the two firms whose outpace DP World in terms of throughput. Successful firms are positioning themselves in markets where growth is high (such as in Asia, Latin America, Central and Eastern Europe). These positions are sustainable and dependent not only on growth prospects and economic conditions in those regions but also the financial position of major port operators and their ability to move quickly into those regions to set up operations. Rivalry is fierce because many companies look for a combination of fast and reliable entrance to local markets and this is facilitated by a strong customer service regime and low-cost positioning in those markets. Logistics Distribution and logistics play a significant role in marine terminal operations. Logistics helps DP World facilitate inter-port and intra-port management. Coordinating the vast inter-relationships, and sub-relationships, between ship docking, container unloading and storage, and intermodal transfer represents a complex process requiring an efficient control system supported by advanced information technology that help make operations run smoothly all with the continued purpose of sustaining quality customer service. Acquisitions & Mergers Mergers and acquisitions can change the ownership patterns in the industry. DP World acquired P&O for example and integrated P&O’s operations with its network as P&O Intermodal. They did this simply to acquire key assets and expertise in this particular logistical field. P&O already had assets developed in that area so DP World entered into acquisition talks in order to bring P&O’s assets into the DP World network. It is a faster method of acquiring strategic assets rather than building the network from scratch and requires less investment than it would if DP World was to build its own intermodal service. In 2001, HPH acquired 100% the assets of ICTSI International Holding Company (IICH) bringing four port interests to it inventory, three in Mexico and one in Argentina (Business News Americas, 2001). In 2006, PSA acquiring a 20% stake in rival HPH suggesting strategic moves between competitors (New York Times, 2006). Such acquisitions increased port operators TEU statistics, thus moving those companies up in the global rankings as such moves allow them to expand their business into areas they consider as strategically important. PEEST Analysis Successful port ventures are dependent on political, economic, environment, social and technological (PEEST) factors in specific market environments in which companies operate. DP World is sensitive to the environmental issues on the world agenda today. DP World is positioned to contribute to the preservation of coastal habitats and the mitigation of CO2 emissions. DP World plans its sustainability activities around specific themes including strategies for cleaner ports, HabitatH20 (protecting fragile marine habitats) and reducing its carbon footprint with a target to reduce CO2 emissions by 27% over the next 5 years (DP World, 2010). The company is also involved in community and infrastructure development activities in an attempt to address social and technological issues. Specifically, DP World is establishing projects for developing port communities, building a health infrastructure, investing in people, ensuring the safety of roads and safe driving programs. For example, DP World partners with local health agencies to provide basic medical services and clean water to people in regions where it operates. One example is its ROADS initiative with the government of Djibouti which consists of a network of hybrid clinics and rest stations along the Ethiopian-Djibouti corridor (DP World, 2010). DP World is also active politically, working with government for example to combat piracy and related government policy and regulatory frameworks designed to keep ports safe. In April, 2011, DP World helped create a Counter-Piracy Conference in cooperation with the United Arab Emirates (UAE) Ministry of Foreign affairs (DP World, 2010). The company also understands the importance of being prepared for shifts in the market. Its preparation includes honing the leadership skills of its management and staff in addition to developing innovative methods to help if employees find new and efficient ways of operating (DP World, 2010). Technological Developments DP World has invested in building a terminal infrastructure and related facilities. As of January 2012, the company has also included non-container terminals as part of its overall strategic management of the business. The company invests in terminals in both emerging and developed markets. It concentrates on “cargo destined for or originating from the market each terminal serves” (DP World, 2010, p. 12). The company designs their IT solutions according to how well it fits with the need of each terminal. To speed up container movements at ports, it has also invested in larger quayside cranes that can lift two forty-foot containers or four twenty-foot containers at a time. In Pusan, South Korea, they use wider cranes which allows for on-loading and off-loading of containers in one crane cycle rather than two. The impact of this is DP World ability double its crane productivity (DP World, 2010). In Pakistan, the company also invested in new information technology to allow it to handle larger vessels. For example, to enhance night navigation, it has deployed new buoys, beacons and lights in the approach channels for Pakistan’s Qasim International Container Terminal for ships up to 295 meters in length (Cuthbert, 2011). Demand pattern changes With energy costs rising, companies who manufacture goods in multiple regions around the world are looking for ways to shed expenses related to shipping distance. It is common for companies to consider shifting manufacturing activities back to regions like the United States and Europe as a strategy for escaping the high costs of energy, shorten the distance to ship products to key markets, and realign the value chain to meet these new economic realities. Shifts of this nature will benefit those port operators who operate now in the US or Europe and hurt those who operate in regions that used to be manufacturing locations. The demand for shipping could be reduced and the throughput in regions where DP World operates could decline. Such thinking is augmented by the recent slowdown in hot markets like China and India. Slower demand means overcapacity and a reduction in goods manufactured, putting pressure on port operators to effectively forecast and plan their activities if not suffer from declining productivity. Financial Strategies With global debt concerns prevalent, many banks are taking a risk-averse approach to financing port projects. Such positions force industry players to develop innovative financial strategies. Debt-financing of port projects may not be a viable option so cash becomes a critical factor. Increasing a cash position of a company becomes a crucial initiative. Ports are good investments and private equity financing is becoming a source of cash for many players in the industry (Port Strategy, 2011). Companies can turn to asking more from existing investors or seek new investors, particularly institutional investors. They can also restructure their share offerings by splitting stocks. Conclusion Given the current world economic climate, high energy costs, and instability in global markets, growth in the container terminal business could be stagnant underscored by inertia in throughput and a reduction in productivity at ports. This would put pressure on companies to cut costs and seek streamlined operations. However, growth in emerging markets could create new growth opportunities and higher container movements, increased market share and higher returns. The most likely scenario see’s companies implement innovative methods in both operations, processes, and technology to keep costs low and sustain strong customer service in existing terminal projects as part of their ongoing effort to competitive based on positioning in the marine terminal industry. Works Cited Bingham, P., 2011. Trade and Economic Trends: Implications for Marine Terminals, Washington: Wilbur Smith Associates. Business News Americas, 2001. HPH Closes US$400mn IIHC Acquisition. [Online] Available at: http://www.bnamericas.com/news/infrastructure/HPH_Closes_US*400mn_IIHC_Acquisition [Accessed 14 April 2012]. Cuthbert, J., 2011. DP World improves navigation systems at Pakistan port. [Online] Available at: http://www.arabiansupplychain.com/article-6746-dp-world-improves-navigation-systems-at-pakistan-port/ [Accessed 14 April 2012]. Dalgaard, F., 2012. DP World: Nomura Transporation Conference. [Online] Available at: https://www.nomura.com/events/transport-conference-2012/resources/upload/dp-world.pdf [Accessed 13 April 2012]. DP World Intermodal, n.d.. Welcome to DP World CRRS. [Online] Available at: http://www.dpworldintermodal.com/ [Accessed 12 April 2012]. DP World, 2010. Welcome to DP World. [Online] Available at: http://webapps.dpworld.com/portal/page/portal/DP_WORLD_WEBSITE/Media-Centre/DP-World-Brochure/DP%20World%20Brochure%20v11.pdf [Accessed 12 April 2012]. Kim, K. K. & Gunther, H.-O., 2007. Container Terminals and Cargo Systems: Design, Operations Management and Logistics Control Issues. 1st ed. Berlin: Springer- Verlag. Lestrange, A. d., Nassif, K. & Manley, J., 2009. DP World Ltd.. [Online] Available at: http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245193605416 [Accessed 13 April 2012]. New York Times, 2006. PSA Completes Hutchinson Ports Acquisition Financing. [Online] Available at: http://dealbook.nytimes.com/2006/06/23/psa-completes-hutchinson-ports-acquisition-financing/ [Accessed 14 April 2012]. P&O Maritime, n.d.. P&O Maritime Services. [Online] Available at: http://www.pomaritime.com/Services.asp [Accessed 12 April 2012]. Port Strategy, 2011. New-fashioned financing. [Online] Available at: http://www.portstrategy.com/features101/finance-and-investment/investment/emerging-ports-should-think-outside-the-square-for-finance [Accessed 14 April 2012]. Ritson, N., 2008. Strategic Management. s.l.:Neil Ritson & Ventus Publishing ApS. Rossignol, M.-H. l., 2007. Global Terminal Operators: An overview. [Online] Available at: http://www.oas.org/cip/docs/areas_tecnicas/1_reformas_portuarias/15_global_terminal_operators.pdf [Accessed 12 April 2012]. speedupcareer.com, n.d.. Shipping and Port Management Courses. [Online] Available at: http://www.speedupcareer.com/articles/shipping-and-port-management-courses.html [Accessed 12 April 2012]. Talley, W. K., 2009. Transportation Research Forum. [Online] Available at: http://www.trforum.org/forum/viewabstract.php?id=275 [Accessed 12 April 2012]. The Associated Press, 2012. Dubai port operator DP Word sees 10 percent growth in business at its ports in 2011. [Online] Available at: http://ca.news.yahoo.com/dubai-port-operator-dp-world-sees-10-per-060710377.html [Accessed 13 April 2012]. The Economic Times, 2010. DP World becomes third-largest ports company. [Online] Available at: http://articles.economictimes.indiatimes.com/2010-09-06/news/27578273_1_dp-world-ports-apm-terminals [Accessed 13 April 2012]. Read More