London Gateway is the most significant UK port development for 20 years; it's the first 21st Century major deep-sea container facility and prospectively Europe's largest logistics park, situated 25 miles from central London on the north bank of the Thames. As such, it intends to improve radically the movement of cargo to the key market of south-east England, but also to the whole country, a development that recalls London's past, historic economic role while pointing distinctly to future patterns in world trade.
Given the presence and plans of the existing major ports around the UK, such as Felixstowe and Southampton, how does London Gateway fit into the current picture? Isn't there a danger of overcapacity on a medium-term view?
We're doing two things at London Gateway. One is the logistics park, which really has no comparison in the UK in terms of capability - so that's a real game-changer. And there's very definitely a need in the UK High Street, particularly considering where the world economy has been in the last couple of years, to try to find ways to enhance their existing supply chains, to do something different and new that will take cost out of their system, and improve their carbon footprint (which is increasingly on everybody's agenda). By doing that here, we potentially are ticking those boxes.
Whereas about 70 per cent of the UK's imports come through south-east ports, only about 10 per cent of the country's warehousing capacity is in this region; that's a natural ‘disconnect'. The south-east of the UK is one of the largest economic zones in Europe. Giving companies the chance completely to re-engineer their supply chains is a fantastic opportunity, and really can't be replicated anywhere else.
A lot of our focus is with cargo-owners, who will be taking more interest in which ports they move their cargo through. Now that we have a hub port that's so much closer to the primary point of consumption, with a natural hinterland of some two million containers - which, again, can't be replicated by any existing UK port - in effect we have a natural market. I would stress, though, that we are a national hub port, and are best located to serve the whole of the UK, not just the very large market on our doorstep.
Turning back to the ships themselves, there's been a dramatic change in those physical assets, and continues to be, partly related to where the world economy has been in recent years, so that shipping lines are looking to take costs out of their particular systems. One way they've done that is to slow the ships down (‘slow-steaming') to reduce their fuel bills, and by increasingly achieving greater economies of scale by building ever-bigger ships. That's where we come to the issue of the UK as an island nation, and ensuring that we have the right physical capability to handle these increasingly large ships. It's a little bit like the Airbus A380 - if the runways are not long enough, and the landside infrastructure isn't there, then those aircraft simply can't come to your airport full.
So it's not just about trade itself (which in fact is still growing), but the physical assets moving that trade, and the interests of the cargo-owners themselves looking for cost-effectiveness in having their goods delivered to their end-users.
In some sense, then, this project during these times is not so much geared for market growth as towards responding to the requirements for efficiency within the softer economic environment which may prevail?
What's happened in the UK ports industry is not dissimilar, using the air industry analogy again, to a situation in which, if the UK had closed down Heathrow and Gatwick 40 years ago and your nearest airport was now 100 miles away, that's the one you would have to use, spending a lot of time on the road, at great expense and with an unhealthy carbon footprint. While the road infrastructure can cope with that, it works. But what if someone were to now build a brand-new hub airport just 20 miles from London? Would you still travel 100 miles on the road to go to an airport that was much further away?
London as a city originally built itself upon its port attributes, its trade. But the restrictions of the River Thames over time couldn't keep pace with the growth in the size of the ships, so the UK had to push ships away to ports in the corners of the UK, which is an inefficient triangulation, and as the docks closed down, put warehousing in the middle of the country. The one thing that hasn't changed is the south east of the UK is still the country's economic powerhouse. So in many ways we're going back to our roots.
That does seem very targeted to the value-added approach to economic growth as opposed to reacting to sheer volume, with a new offering within a given market.
It's very unusual within our industry to have this type of opportunity. Normally we are either trying to enhance an existing asset (like growing Heathrow with an additional terminal). The other way is to find another port location, just about without exception, where there is deeper water. That is usually further away from where the market actually is; that is exactly what happened in the UK 40 to 50 years ago. The world's most successful port cities - Hong Kong, Shanghai, Singapore, Dubai, New York - have managed historically to retain their ports where they were. It's very unusual to be building a brand-new hub port physically closer to the point of consumption. We can do that by sorting out the issue that has caused the problem in the first place, which is making marine access deeper and wider so we can bring in the biggest ships in the world. That's actually the most efficient way for us as a nation to trade.
DP World is in partnership in such ports as Southampton and Tilbury; you are the sole operator here. What's the key distinction?
We are committed to developing London Gateway 100 per cent ourselves. It is a very different proposition to other places where we operate under concession; here we are the landlord. A large element of the proposition here is Europe's largest logistics park; that's quite a different product.
How are you interacting with the UK Government as to the local infrastructure which services the port, upon which you will both have an impact and a requirement, noting the motorway network from the coast, the pressure already on the London-circular M25, government plans for another crossing of the Thames, and perennial talk of another hub airport in the estuary?
One of the initial challenges we've had has been to ensure that both we and ‘UK Plc' understand the potential of this project.
It's not unusual to have to both appreciate the local challenges and set that against the national benefits. That's something we've worked very hard on, to ensure that central government understands the big-picture opportunity, which is Britain's biggest job-creation project (36,000 new jobs) and a very large inward investment from what is globally mobile capital, and that having a better located national hub port will actually remove significant road miles from our national road networks. We are working in tandem to ensure we arrive at the best-possible position.
How far does that effort have to dovetail with preconceptions of the broader regeneration ambitions of the government's Thames Gateway project, extending from London itself way down river?
We very much see ourselves as investing in the UK, and it happens to be here in Essex. Our investment will generate £3.2bn to the UK GVA (gross value added). We mustn't forget that when we get onto topics such as landside traffic generation, the majority of that is actually people getting to and from work. We hope that will mean local people having access to a world-class job close to their homes.
That's a net positive outcome for the UK. Thames Gateway is one of many projects across the UK, primarily a housing project. We are happy to see any infrastructure investment that will benefit this area and that will complement and support the broader government ambitions.
Can you place London Gateway in the context of the benefits of past experience?
In this country we understand our road and air infrastructure, but how our goods get to the shelves is a bit of a mystery. But trade has been one of this country's defining characteristics, and historically many members of parliament would have been associated with that business. These days, however, the topic of a ‘port-centric' approach to trade would not be well known. Roads as a subject are more of a comfort zone, because we all use them.
In terms of communication, we have had to find a point where ‘the penny drops' and [those in political power] have the right ammunition to say why this type of project is right for the UK from a national perspective. In terms of comparing the UK to other places around the world where I've worked, I would have to say that the most successful are those that are the most pro-active in their approach to national infrastructure - rather than being reactive - and can both think and deliver long term.
From the Dubai angle, considering that we have the biggest logistics park and a very successful port at Jebel Ali, we understand that combination, and how they work together economically. Now, when DP World looks at London Gateway (where we intend to be for a long time), our vision gets drawn back to Jebel Ali 30 years ago. Jebel Ali is the model for London Gateway. We know how to do this better than anyone else in the industry, and to make this type of opportunity work.
Is there a tendency these days to shift even more to port and maritime freight?
90 per cent of the UK's trade comes by sea. One big issue for us is whether we believe that will continue - and yes we do, since the UK is an island (until such point as it's physically attached to Europe!). Of that 90 per cent, 70 per cent is to and from Asia, and we believe that will continue too. That's important to us because that particular trade route is the only one allowing the most massive ships to operate (they can't get through the Panama Canal). We are looking at the viability of the UK's long-term connectedness to the main highway of world trade, an issue which is facing the UK's hub airports as well.
In the European space, what is the end-game in comparison with the dominant port of Rotterdam? Or is it essentially a UK story alone?
Our role and primary objective is to serve the UK, which is a big enough market and strong enough economically to justify direct calls by these big ships, as long as we have the right infrastructure alongside giving a 21st century product, in the right location. We will not be competing with Rotterdam, which has the Rhine as a massive artery of European trade. As Europe expands eastward, the hinterland for Rotterdam, effectively Germany's international port, and Antwerp naturally grows. In Europe there are land-locked countries which have to get to the North Sea, and Rotterdam is where that is. It's a once-in-a-lifetime opportunity to bring world-class infrastructure to the UK. We build a new port perhaps once a century; so let's get it as right as possible.
If you had a blank piece of paper and wanted to secure this attachment to world trade, (i) you would want to build [your facility] as close as possible to the principal point of consumption, and (ii) on the north side of the Thames (to go north), (iii) in an ideal world, you would want a large landbank for immediate warehousing, and (iv) also to give five-star productivity to your customers. What we're doing here will achieve all that.
Those locations that have been successful, including Dubai, have been very pro-active in meeting the future requirements of the market and providing the right infrastructure to make business happen and allow it to thrive.
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The background
London Gateway covers a 1,500 acre disused brownfield site, to accommodate a mixture of commercial and logistics uses. DP World acquired the site upon taking over P&O, with the advantage that the site is owned freehold, with no concession fee. It was announced this October that DP World has agreed a 20-year financing with a group of international banks, the company planning to invest $1bn on the project over next three years. An equal mix of debt and equity will finance the project - with plans to draw down on the debt by mid-2012 after completing equity investments. The EU is providing Euro 14 million.
Significant infrastructure costs will be incurred upfront, with revenue and margin contribution due from 2013 fourth-quarter, when volumes will ramp up. High utilisation is expected within 12-18 months of opening, with premium pricing compared to other UK ports.
The project will feature semi-automation moving to full automation, intending quick turnaround for shipping lines. It will have a dedicated rail terminal. There should be significant cost savings for cargo owners.
London Gateway is set to expand the UK's capacity for ultra-large container ships (ULCS) and become Europe's sixth-biggest port, based on 2009 rankings. The project claims the best tidal window access for deep-drafted vessels, and a capacity of 3.5m TEUs (20 foot equivalent container units) per annum, with six berths, 24 quay cranes, and a terminal area of 175 hectares. It was recently announced operations are to commence in fourth quarter of 2013.
In respect of the logistics park, outline planning permission has been obtained for over 9 million square feet for the distribution, manufacturing and high-tech sectors, and individual units offered of up to and in excess of one million square feet, designed to specification.
A central aim is increasing efficiency of the UK logistics supply chain, to take thousands of truck movements per day off the national highways - which DP World currently estimates will save over 60 million miles of annual lorry movements (equal to 148,000 tonnes of CO2 savings per annum). This concept of integration is known as PortCentric logistics. London Gateway will thereby offer global brands the opportunity to move away from conventional distribution methods. It is the closest port to 75 per cent of the UK consumer market, in London and the south-east, creating a more efficient and lower cost supply chain (63 per cent of unitized imports enter the UK through South East ports; 41 per cent of the total UK household income is within the South East, London and East of England - but only 10 per cent of large distribution warehousing is currently situated in London and the South East).
Studies have shown London Gateway could over the long term generate £3.2 billion of economic benefits a year for the UK, prospectively creating 36,100 permanent jobs. It will also help Thames Gateway, the UK's largest regeneration area either side of the Thames in East London, South Essex and North Kent.
The UK is dependent on sea-borne cargo - 95 per cent of all cargo movements to/from the UK, which handled 8 million TEU in 2010. The South East handles almost all the deep-sea container traffic, its share of cargo increasing from 55 per cent in 1999 to 70 per cent in 2009. Consultants Moffatt & Nichol forecast that, as a base case, the UK origin and destination (O&D) container market is set to grow from 8.7 million TEU in 2013 to 15.6 million TEU in 2030, a compound annual growth rate of 3.5 per cent. The volume of containerized cargo to the UK (22 per cent of North European volumes) continues to warrant direct vessel calls to the UK.
UK and Asia trade constitutes 70 per cent of deep-sea volumes. In 2010 71 ships over 10,000 TEU called at the UK; by the end of 2013 that number will have increased to well over 200.
The environment
London Gateway comprises the redevelopment of 750 hectares of the former Shellhaven Oil Refinery, on the north bank of the River Thames in Thurrock, Essex. Following the refinery's closure in 1999, Shell invested over £50 million in clearing the site, representing one of the largest brownfield reclamation projects in Europe.
Ports are, by their very nature, often located in areas of environmental sensitivity where archaeological assets occur, where birds and their principal feeding sites are located, and where coastal fisheries and the food webs upon which they depend may be of importance.
DP World initiated a thorough assessment of the environmental assets located in the lower Thames Estuary, including: (a) the dredging proposal and predicted impacts; (b) potential risk from contaminants; (c) wildlife, including internationally significant wading bird populations; (d) resources of historic and archaeological significance; (e) fish and surface-dwelling invertebrates; (f) the burrowing invertebrates, including those of the mud flats; (g) the impact on fishing communities.
The inter-tidal mudflats support important numbers of migratory and wintering water birds. Construction and reclamation works for the port will result in some loss of inter-tidal habitat, to be compensated for by a programme of ‘habitat creation'.
A team of 25 ecologists has collected thousands of animals from across the London Gateway site including water voles, Great Crested newts, adders, grass snakes and lizards. Already over 50,000 animals have been re-housed. New, sustainable nature habitats will accommodate a variety of wildlife.
The history
For hundreds of years London's port was one of the biggest in the world, with the Thames estuary a major artery for communication and trade within south-eastern Britain and the wider world.
The remains of boats, ships and their former contents are important evidence of past societies. From the outset of planning for London Gateway, it was recognised that construction would have implications for the historic marine environment.
In anticipation of the dredging needed to deepen the approach channels, an extensive programme of marine and archaeological work was undertaken to ensure that historic remains were identified, studied and protected.
A number of locations are considered so significant that the design of the channel has been amended to enable their preservation in situ.
The findings vividly illustrate past lives and events, from 17th century flagships to Second World War minesweepers.
