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Mohammed Sharaf, DP World’s chief executive, answers your questions on the group’s controversial takeover of P&O, the question of port security and on the further prospects for consolidation in the maritime industry.
The response in the US to your takeover of six important ports there has been described as irrational, nationalistic and even racist. But didn’t you and your advisors anticipate this reaction when you were contemplating the takeover last year? Wasn’t it obvious that such a reaction would be stirred up to news that ownership would pass to a Middle Eastern government which, though stable and friendly now, could change in six months, a year? The opposition has ranged from obvious populists like Pat Buchanan to internationalists like Joe Biden, and including centrists like Hillary Clinton. Do you think now that you should have approached it differently from a political point of view?
Ray Robinson, London
Mohammed Sharaf: We are business people not politicians. We understood the sensitivities and so we sought and obtained all the necessary regulatory approvals everywhere in the world we needed to complete the transaction – and we did that early so the deal wouldn’t be slowed down. Since Dubai has been a close friend of the United States for three decades, and a staunch ally in the fight against terrorism, and since we at DP World had been serving the US Navy directly since 1990, the misunderstanding came as a real shock. I guess it was unfortunate timing to be doing the deal in an election year, but that doesn’t normally govern business transactions. Even with 20:20 hindsight, it’s hard to think what we could have done differently.
Mohammed, firstly congratulations on your rise to the top - you always had it there. My question is: despite deciding in the short term to sell on the US ports, should you not try and insert a clause in the sale agreement to take back control if you can subsequently convince the US Administration that the UAE is no threat to the US and has the competence to properly manage their ports ?
Mohammed Sharaf: Thank you for your kind words. With regard to the US terminals – we are selling them outright. It would take considerable time and resources to correct the misunderstanding that’s occurred in the States. Commercially it makes more sense to walk away. We’re business people – we make commercial decisions, and this is one of them.
It is clear that what made P&O an attractive takeover opportunity was its Ports portfolio. In press reports you are reported to have said that it was DP World’s intention to keep all of P&O’s business and indeed stated the intention to grow those business. I am interested in your views on the ferry branch of the business in particular the route from Portsmouth to Bilbao which does not seem to fit in with the stated strategy of P&O (prior to the takeover) to concentrate on the freight side of the business in view of the declining passenger numbers on their short sea and North Sea routes.
Mohammed Sharaf: The ferry business is a new one for me and I’m looking forward to learning more about it. We’ve said clearly that the plan the Ferries management have put in place to restore the business to profitability is a good one and we won’t be changing it.
The Global Institute of Logistics would like to ask Mr Sharaf for his opinion of the way ports operations and maritime logistics are likely to develop, worldwide, over the next few years. Also, if US ports become less competitive (whether through the loss of DP World’s investment or not), what might that mean for the US, and the global economy?
Stephen Tierney, Editor, Global Institute of Logistics
Mohammed Sharaf: These are big questions to answer in this brief space!
I think first that the biggest change we’re seeing in the wider shipping industry is the length and complexity of the supply chain. Manufacturing is happening far from consumer markets and to get goods to those markets requires a very high level of co-operation between providers. That’s a good thing – stronger relationships that look to the long-term will bring considerable benefits in terms of efficiencies.
The second big change is the consolidation we’re seeing across the industry – from shipping lines, to logistics providers, to terminal operators and other land based services. Again that allows for greater efficiency because of scale. But I also believe we will see the lines blur more and more between those different links of the supply chain. At DP World for instance, we offer integrated services in some regions, with free zones and logistics centres attached to the terminal. It’s a question of adding value for customers.
With regard to the US, the majority of the terminals in the US are operated by foreign companies. I think it would be very difficult to untangle those relationships and would add considerably to import and export costs. If transport costs skyrocket, the equation that says it’s cheaper to produce goods in China, for instance, than in the US also changes. In the end, unfortunately, as always, it is the consumer who pays. And that clearly would impact the US economy, and that then would have a knock-on effect throughout the world.
Which company are you planning to sell the US port operations to? How much money do you expect the sale to raise? What will you do with this money? Are you looking to make further port acquisitions? If so, where?
Rod Stone, Dow Jones
Mohammed Sharaf: We have no specific company in mind at this stage. We’ll sell to the US company that offers us the best deal! We expect to realise around US$750 million and, as we have consistently said, we are determined to grow our business to meet the needs of our customers tomorrow as well as today. That means investing largely in emerging markets and we are strongly focused on China and India, but also the Middle East and Eastern Europe.
Part of the package you put together to fund the P&O acquisition was a loan and Islamic bond/CB for PCFC. The bond stipulates a mandatory exchange into the QPO for PCFC. What is the time scale you envisage before you list PCFC?
Mohammed Sharaf: It will be within the next few years. No definite time has been set.
Dubai and DPW have gracefully stood aside in this matter but the “Arabaphobia” behind this obviously remains unresolved. Ironically, it would be hard to find a more pro-American place in the Middle East than Dubai. Yet it has been shut out. What can be done to resolve the underlying dynamic that forced this issue in the first place?
Mohammed Sharaf: I don’t know what the answer to that is. The underlying dynamic is far from clear, with what began as a simple business transaction becoming transformed into something far more complex and opaque as time passed. I think it’s true in this instance as with so many others that communication and an open mind can resolve a great many differences.
Well apart from the obvious question of how this affects future trade with the US from an Arab perspective, I am interested in hearing if Mr Sharaf went into this knowing full well the deal’s very public failure was a highly realistic outcome given current relations with the Middle East. How much of the contingency plan accounted for this outcome? Was the deal just hubris and overconfidence in the Bush administrations ability to privately ram whatever it wanted down Congress’ throat or was this an attempt to expose US hypocrisy on trade issues possibly at the expense of the administration?
Dave Sinclair, Bond Analyst, Briefing.com, Chicago, US
Mohammed Sharaf: Actually it was none of those things. It was a business transaction that cleared the proper regulatory hurdles in all the countries it needed to in good time to complete the deal. The US terminals make up less than 10 per cent of the business we purchased and were not the focus of the transaction. (See also answer to the first question above.)
I would like to ask Mohammed Sharaf if he feels the Iran situation is something which the West is blowing out of proportion or whether it is certainly a threat which should be nipped in the bud?
Nicholas R M Chappell, Director, McLaren Asset Management, Marbella, Spain
Mohammed Sharaf: Clearly there is instability in the Middle East region as there is in a number of other regions in which we operate around the world and we watch that carefully so we can minimise the risk of any impact on our staff, customers and assets. Whether Iran is a threat that could or should be nipped in the bud is something that I’m not qualified to answer.
What do you think will be the effect on Arab investment into western markets, particularly with regards to investment in the US?
Mohammed Sharaf: The US was an isolated response, but very strong, and I think that foreign investors could well take a cautious approach to investment there until the legislation proposed is resolved.
1)Would the acquisition of port assets provide access to detailed non-public data on facilities and logistics that could also be used for the planning and execution of a terrorist acts?
And 2) If the answer to question one were yes, how would DP World secure that information from falling into the wrong hands? This concern is not only for current employees, but also for anyone who might come to be employed by DP World in the years ahead.
Knowing that extremism is not limited to the poor and uneducated (consider the profiles of those responsible for the 9/11 attacks) would DP World not become an attractive target for infiltration by extremists that might have professional credentials? I am not always happy with the level of public discourse in the US, but believe the deeper problem is the tenor of public discourse in the Middle East. I believe Middle Eastern business people like you may be the region’s best hope for positive change.
Eric D. Tucker, New York
Mohammed Sharaf: It’s impossible to say what information terrorist could use, but it seems that public information tells them more than enough. Those in London used tube and bus timetables; those involved in 9/11 booked airline seats and passed airport security as passengers with apparently no special knowledge of procedures.
With regard to infiltration, we do a proper security check on every one of our employees and have done for years. It makes good business sense apart from anything else. The world’s shipping lines will not come to a terminal that puts their cargo and their vessels at risk, and making sure we have trustworthy employees and having secure facilities is part of providing that security assurance.
When it comes to the work we do with the US Navy, it would be a breach of security in itself to share what security measures we have to protect information, personnel and assets – but suffice it to say that the US Navy has trusted us to protect their interests for more than 16 years and have spent the last month going on record repeatedly to say how happy they are with our services.
The United Arab Emirates earlier this month bowed to insurmountable political hostility in the US Congress and ordered state-controlled DP World to divest five US port terminal facilities it had acquired as part of its $6.8bn takeover of P&O.
The US ports facilities are only a small portion of P&O’s holdings, but their purchase by an Arab company triggered a storm of protest from both Republican and Democratic lawmakers, who said it could endanger US homeland security.
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Further reading on Mr Sharaf: