United Arab Emirates Freight Transport Report Q3 2009

Kuwait-based finance company Kuwait Financial Centre (Markaz) is projecting that throughput at DP World, the world's fourth largest port operator, will fall by 14.5% in 2009, as global trade declines. BMI agrees that DP World is in for a tough year. According to our port throughput forecasts, container throughput at most ports where DP World has operations will decline in 2009. As reported by the Khaleej Times, Markaz predicts that the UAE-based port operator will handle 40mn twenty-foot equivalent units (TEUs) in 2009, down from 46.8mn TEUs in 2008. The decline will hit the company's earnings, with Markaz estimating that revenue will fall by 54% from US$572mn in 2008 to US$265mn in 2009. In January 2009, DP World announced it was expecting a tough year and in its annual report for 2008 stated that it had started to feel the impact of the downturn in H208. In a statement in January 2009 the company's CEO, Mohammed Sharaf, announced that DP World was engaging in a cost cutting strategy 'to focus on minimising the impact on margins and preserving cash, which includes reducing costs and taking a prudent approach to our working capital position.' In our latest UAE Freight Transport Report, BMI concludes that freight carried growth across all modes, measured in million tonne-km (mntkm), will average a 3.5% per annum in the 2009-2013 forecast period.

Various factors support this prediction. The current global recession will take its toll, with the UAE economy contracting this year, but we still expect the UAE economy to grow by an average of 3.2% per annum over the next five years, providing support for the freight business, albeit at a lower level than previously. Infrastructure investment will also remain high, with the emirates continuing to focus on a variety of ambitious transport projects in aviation and shipping. Overall, BMI believes the UAE freight sector will slow on the short term, but will remain well-positioned for the eventual recovery. The UAE economy is dynamic and now more diversified and shows evidence of robustness to withstand external shocks. Strong investment in transport infrastructure and the global ambitions of companies like Emirates Airlines and DP World will be positive factors.

We expect the fastest-growing mode of transport in the 2009-2013 forecast period to be air, with an annual average of 6.5% growth in freight carried, followed by sea freight and pipeline throughput both at 3.6%, and road haulage at 3.4% per annum, just ahead of GDP. With a score of 66.1 out of 100, the UAE's freight rating is one of the best in the Middle East and Africa (MEA) region. It scores particularly well in terms of political, economic, and infrastructure environments. The UAE has one of the most liberal business environments in the region and foreign investment is encouraged in many sectors.

For the forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole in value terms. It will achieve average annual growth of 3.5%, versus 3.2% for overall GDP. The total value of transport and communications GDP will rise to US$24.6bn in nominal terms by 2013, representing 6.8% of the UAE's GDP.