DP World moves further ahead into vertical integration
On 19 August 2020, DP World (DPW) announced the acquisition of Transworld Group’s three business units – Transworld Feeders FZCO (Middle East focus feedering business), Avana Logistek Ltd (including its subsidiary Avana Global FZCO – non-vessel operating common carrier (NVOCC) Middle East business) and Transworld Feeders Pvt Ltd (the containerised Indian coastal and EXIM feeder shipping operations of Shreyas Shipping and Logistics Ltd, excluding vessels and bulk operations).
The deal was made via Unifeeder (through its Indian subcontinent Unifeeder ISC platform), a majority-owned subsidiary of DPW. It is worth a mention here that DPW’s stock got delisted from Dubai stock exchange on 17 June 2020, as management believed that public trading was too beholden to short term returns.
Even though DPW did not disclose the amount, a close look into Shreyas’ fillings on the stock exchange reveals some numbers. Unifeeder bought Shreyas’ vessel operating business (Transworld Feeders Pvt. Ltd.) for an enterprise value of USD 19mn, whereas it paid USD 8.766mn for Shreyas’ 29.22% stake in Avana Logistek Ltd. Also in its filing, Shreyas’ management said that:
“The company gets to sell its entire stake of 29.22% which it holds in Avana Logistek Limited to Unifeeder at the same price per share and on the same terms and proportion as the price and terms on which Transworld Holding, the majority shareholder in Avana Logistek Limited would sell its remaining holding of 70.78% to Unifeeder.”
Backtracking the numbers, the value of Avana Logistek Ltd should be pegged at USD 30mn.
Background of the parties involved
DPW is the world’s fifth-largest container terminal operator by throughput, measured by equity twenty-foot equivalent unit (teu) and its operations encompass over 50 countries. In India DPW is the largest foreign-owned port operator running six terminals (Mundra, Jawaharlal Nehru Port Trust, Chennai, Cochin and Vizag) with a combined capacity of over 6 mteu, accounting for almost 25% of India’s annual container volumes shipped through its ports.
Transworld Feeders FZCO and Avana Global FZCO are leading independent feeder and NVOCC operators offering container feedering services and regional trade solutions, connecting a wide range of ports in the Middle East, South Asia and the Far East. The central hub port at Jebel Ali (UAE) run by DPW plays a pivotal role for a large part of the services. Both the companies have a strong presence within trade routes west of South Asia.
Present deal – A step forward in boosting DPW’s logistics services
DPW ventured into feeder operations in 2018 by acquiring Unifeeder (for USD 763mn), which runs feeder and shortsea services around North Europe and throughout the Mediterranean and Northern Africa regions. In December 2019, Unifeeder acquired a 77% stake in Singapore-based Feedertech Group which provides similar services connecting ports in South East Asia, South Asia and the Middle East.
DPW has now integrated both these acquisitions on a single platform, serving about 200 ports across the globe. DPW also owns P&O Ferries (a pan-European logistics business, owning 21 vessels connecting the United Kingdom with Belgium, France, Ireland and the Netherlands), which it bought back from its parent company ‘Dubai World’ in early 2019.
Furthermore, strong presence of Transworld Feeders and Avana Global within trade routes at the west of South Asia complements DPW‘s Feedertech and Perma Shipping network (Feedertech’s short-sea subsidiary), which have a strong market position in the trade routes towards the east of South Asia.
DPW – Transworld deal will change the competitive landscape in India
Feedering is emerging as the core of DPW’s changed strategy to become a global trade enabler. This gains further importance in the Indian context as about 25% of the country’s annual container volumes are transhipped through neighbouring or regional hubs such as Colombo, Singapore and Jebel Ali in Dubai. Hence, owning a feeder operator will have an added advantage for any port company operating in India. A feeder subsidiary can help its parent company gain more container volumes for its ports. For instance, Transworld shifted from Krishnapatnam and Kattupalli ports to DPW’s Chennai terminal.
DPW, with its feedering network (Unifeeder ISC, Feedertech, Perma and Transworld Feeders) stands to gain when compared with its immediate competitor ‘Adani Ports’, which is presently adding more ports to its network. Going forward, we believe Adani Ports to collaborate with other feeder operators that do not have good relations with DPW and calls at the Abu Dhabi terminal instead of its direct competitor (Jebel Ali terminal run by DPW).
Synergies with recent investments in inland logistics in India
With DPW’s foray into Indian feeder shipping industry, the group will benefit from its vertically integrated operations (‘sea transport – terminal services – land transport’). Its presence across the value chain is important, especially in the context of India, which has relatively fewer ports and terminals as compared with its vast population. Apart from operating six terminals in India, the group now has a majority share in Continental Warehouse Corporation (90% – operator of container freight stations, rail-linked inland container depots, private freight terminals and other integrated logistics solutions) and Kribhco Infrastructure (76% – Indian rail logistics company).
Diversifying away from core operation increases revenue and EBITDA but dilutes margin
The company’s foray into allied non-container businesses (contribution of non-container business increased to 55% in 1H20 vs 31% in 2015) is in line with its strategy to become a global trade-enabler (a marked deviation from its traditional marine terminals operator image). Although these acquisitions proved to be margin dilutive for DPW, the absolute level of both revenue and EBITDA has increased.
Feeder services to complement DPW’s ports’ capabilities
The vertical integration into feeder service will enable DPW in offering bundled services to its customers, allowing shippers and consignees worldwide to ship goods through DPW’s major ports to final destinations across the Middle East, South Asia, Europe and Africa, using its integrated land and marine logistics network. Finally, this will not only help in creating enduring relationships with the end customers but will also increase switching cost for the customers, adding to the resilience of the company’s its top line and operating profits.