United Arab Emirates: Three Learnings From Dubai Maritime Agenda 2017

Following the initial Dubai Maritime Agenda in 2015, the second event was successfully held on 10 October at the Address Dubai Marina under the patronage of His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Executive Council. Moderated by the excellent Todd Benjamin, who is best known for his 26 years as a CNN anchor, the event brought together a wide range of industry actors. This article explores the variety of topics that were discussed at the event and highlights the issues that remain in an industry that struggles with its identity.

The UAE maritime industry in 2017: a rapid expansion

Dubai's rapid rise to become the main maritime hub in the Arabian Gulf and a key one worldwide is impressive. Nawfa Al Jourani's reminded us how the city became a global maritime centre, from having 400 ships in 1984 to now having a capacity of 18 million TEU at Jebel Ali Port.

Today, Dubai ranks as the 6th most prominent maritime centre on the planet, according to the Xinhua-Baltic International Shipping Centre Development Index 2017, behind Singapore, London, Hong Kong, Hamburg and Shanghai. Around 76,000 people work in approximately 5,500 shipping companies that operate in the United Arab Emirates and, although estimates differ greatly, the sector accounts for USD7.3 billion of Dubai's GDP.

Dubai and the Dubai Maritime Cluster Office (DMCO) are now pushing to further enable the country's successful maritime industry through the creation of a cluster, in a similar fashion to Hamburg, Hong Kong and Vancouver. But how will this cluster serve an industry that has traditionally struggled to keep pace with a changing world and will it be effective as other clusters that currently exist in Dubai?

Stepping into the digital age in a time of consolidation – opportunities and challenges on the horizon

Consolidation, consolidation, consolidation: if Mark Gijsbrechts, CEO of Maersk Line in West and Central Asia says it, it must be happening. Maersk's fresh acquisition of Hamburg Süd, CMA CGM's interest in Mercosul Line and MSC's takeover of terminals at Long Beach and Seattle, formerly held by defunct Hanjin, demonstrate just that. Consolidation is not only inevitable but essential. Hanjin's recent insolvency came as a surprise to some and sent shockwaves that resonated amongst some of the largest and most dynamic players in the industry. It has become a race for survival and in every race the opportunities are there for the winner(s).

The tech factor

One of those opportunities can, and is likely to be, a bold technological advantage over competitors. Mr Gijsbrechts and other participants highlighted the immense amount of paperwork that still plagues the shipping industry in an age in which 2.5 billion individuals possess smartphones and internet access has penetrated 52% of the world's population (above 80% in Europe and North America). In a similar manner to our very own legal profession, it is difficult to argue that the maritime sector has been at the forefront of global innovation since, well, the advent of containerisation. However this was in 1950s, fast forward 60 years and we now live in a fully established information age with the likes of Google, Apple and Microsoft rivalling the influence of state governments.

Digitalisation is coming to the maritime sector, whether it is prepared for it or not. Artificial intelligence, robotics, automatisation, blockchain, 3D printers and, yes, renewable energy; these are all on the table. On the basis of humankind's experience in other industries, we could naturally deduce that all this new technology will bring efficiency and increased productivity, but in the case of shipping this can also mean a potential reduction in the need for and volumes of maritime transport services. New-entry players can stand to gain but the traditional companies must adapt to the changing environment or suffer the consequences. At a time when the latter are licking their wounds, engaging M&A lawyers and battling with longstanding debt (which banking institutions are less likely to support going forward), the former, which are not equally affected by these challenges, may bring unanticipated disruption to the shipping arena.

Shipping giants leading the pack – what about the others?

Notwithstanding Maersk's announcement that a digital revolution is its first priority, Mr Gijsbrecht was not comfortable with detailing exactly how many resources are going into this project. One thing is almost certain; we all believe that Maersk, MSC and CMA CGM can do it if they want to, regardless of the challenges currently affecting the industry, but what about the smaller companies which comprise a vast proportion of the market? Ultimately, fragmentation has always been a defining characteristic of the industry and a partition between those who will embrace digitalisation and those who will not, will result in competitive advantages that cannot yet be effectively evaluated.

Dubai's maritime cluster

A maritime cluster is a good idea in theory: put all owners, charterers, bunker suppliers, shipbuilders, freight forwarders, bankers and lawyers in geographical proximity to each other and let them collaborate to advance the interests of the industry. It seems that we might be creating the perfect platform for them to fight one another but let's give them the benefit of the doubt and say that they will cooperate after all.

The emergence of the Emirates Maritime Arbitration Centre (EMAC)

One fundamental component of the cluster is the emergence of the Emirates Maritime Arbitration Centre (EMAC). Whilst many correctly question whether EMAC is the correct forum for all types of international maritime arbitrations, local disputes can and should be arbitrated locally. The reason was repeated over and over again by Mark Beer, Co-Chief Executive of DIFC Courts: enforcement, enforcement, enforcement. If the dispute involves two local companies, the winning party can seek to enforce the EMAC award via the DIFC Court, which should prove to be quick and effective due to the collaboration between EMAC and the DIFC Court. Furthermore, there is an element of truth in stating that the New York Convention is not as effective in the Arabian Gulf in light of the specific regional dynamics.

The law and jurisdiction clause tends to be one of the most overlooked provisions of a contract but it is definitely one of the most important if things go sour. For that reason, employing a commercial lawyer is paramount to ensuring such clauses are drafted clearly and effectively and in accordance with the parties' needs.

The unique selling point

The speakers all offered their different views on what was considered to be most important for a maritime cluster. For example, the representative from Hamburg's maritime cluster, Stephan Piworus, is a believer that clusters enhance productivity, innovation and market entries. Jos Standerwick, speaking for London's cluster, said that community was most important. Nawfal Al Jourani, Chief Officer of the DMCO was right in saying that each cluster has a distinct core that makes it what it is, a unique selling point. For Ferrari, it is being the best sports car manufacturer. For Rolex, it is being an impeccable watch maker. These are easy to identify after all. But what is it for the DMCO? You may scratch your head in awe and, even after attending the Agenda, you may still be unsure. You should, however, not be hesitant because the answer lies in the city itself. Dubai is indeed the unique selling point.

The city has already experimented and achieved success with other types of commercial clusters, such as the DIFC, Healthcare City and the Creative Clusters. Why would it not work for the maritime sector? Nawfal Al Jourani pointed out that regulation and tax are the potential downsides of clusters, but this would not be the issue in Dubai given that, from a commercial standpoint, Dubai has been consistently synonymous with (1) low tax, (2) lax regulation and (3) a forward-driven leadership. The main issue is the inherent flaw of the modern shipping industry: fragmentation. The maritime sector is intrinsically fragmented and a cluster will not enable and further the interests of such an industry if the latter does not correct this identity flaw. Digitalisation and clustering, especially when the two concepts complement each other, can actually be the springboards from which the industry relaunches itself. If the DMCO goes further in its push for a Global Council of Maritime Clusters, as Mr Al Jourani announced yesterday, the effects of such change may be even deeper. And maybe there will come the time when even the legal industry will see a revolution after all. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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