The United Arab Emirates is developing rapidly. In Abu Dhabi it is the oil and gas resources that are generating growth, but down the road in the neighbouring state of Dubai it is tourism and general heavy industry that are driving the economy. Dubai Aluminium, for example, exports all over the world. Trade, too, the historic business of the Emirates, still accounts for a huge amount of business in Dubai, as any visit to the massive Jebel Ali free trade zone reveals.
The demand for cranes in Dubai, therefore, comes from industrial complexes and from general building and civil engineering. New highways and high buildings alike seem to appear overnight. Tower cranes are everywhere, and mobile cranes are no less visible. There is massive investment going into developing five star hotels, and work has begun on the extraordinary Palm Island development.
There are certain features of doing business in UAE that are not universal. Firstly, companies have to be majority owned by a local national. Only 27% of the population of the UAE are nationals; the majority of residents come from the Indian subcontinent. Foreigners setting up a business in the UAE need a local partner or sponsor. Often these partners will not seek to become involved at all in the running of the business. Secondly, though the economy is in many ways liberal, a transport licence is required to get into the crane business. Thirdly, while it is reasonably straightforward to send Dubai-registered cranes to Abu Dhabi, which is only a couple of hours’ drive away, bureaucracy makes it difficult to move Abu Dhabi cranes into Dubai. For a start, operators need visas to work in the next country. Fourthly, while there is no certification process for cranes (a load test is all that is required), operators do require a licence and there is third party certification of operators. Training takes six months to a year and is a major investment of about $5,000 per operator, according to one rental company.
The safety regulations to be adhered to depend entirely on the client, not the state. There are many owner-operators plying their trade, often in beaten up old machines. But there are more and more customers who prefer, or even demand, more modern machines with a full service company behind them. Dubai Aluminium, for example, rigorously checks every crane that comes onto its site, even if that machine was there just the previous day.
Rental companies
One of the most remarkable stories in the Dubai crane industry is the rise of Hillary Pinto and his rental company Al Faris General Land & Transport. Pinto came to Dubai from India aged 19 to work as an erector in the oilfields. In 1990, aged 33, he bought his first crane, an 18t Grove RT 60S, and a Scania truck. Twelve years on, he says he has a fleet of 154 cranes plus about six truck loaders, 30 lowbeds, 20 flatbeds and 20 forklifts. Some 52 of the cranes are registered in Abu Dhabi, and 102 in Dubai. How did he get so big so quickly? The formula, as he describes it, is hard work and doing things properly. Whatever money comes in is reinvested in the business. His whole family is in the business and the company has financed its own growth, he says.
For cranes below 50t, Pinto has Tadano models which he buys second hand. Above 50t he buys mostly Liebherrs, and many of them new. In 2001 he bought an LTM 1500 (500t), and LTM 1300 (300t), two LTM 1160s (160t) and three LTM 1090s (90t) – all new. This year he has already taken delivery of an LTM 1100 (100t) and an LTM 1200 (200t). He also has orders placed for two more LTM 1200s, one of the new LTM 1250s with a 72m boom, and another LTM 1500, which arrives in July.
Liebherr’s regional manager in Dubai, Bernd Wittenberg, claims that Liebherr ‘owns’ the market for new all-terrains over 80t. The fleets of Dubai’s three biggest rental companies – Al Faris, Masters and Gallagher – are ‘all Liebherr’ over 100t, says Wittenberg. Last year he sold about 20 new machines and 20 to 30 used ones. The LTM 1160/1 has been particularly successful, he says. Wittenberg covers the entire Gulf region except for Saudi Arabia, but the UAE accounts for 75% of new sales. Oman and Kuwait are also good markets for used cranes, he says, with about 10 or a dozen used Liebherrs a year going to each.
Liebherr has also delivered two LR 1600s, 600t crawler cranes, to the US engineering company McDermott which has a large fabrication yard in Jebel Ali. Wittenberg regards this as something of a coup since the yard is otherwise dominated by Manitowocs. These units have 70m of main boom and 70m of luffer – fully equipped except for the self-erection system which is not needed as McDermott does not intend for them to leave the yard. (The appeal of the LR 1600, says Wittenberg, is that it can lift off the main boom without dismantling the luffer.)
Wittenberg has been in the Middle East for 30 years, initially selling Mercedes trucks, and has been with Liebherr since 1990. ‘When I started, people said we would never sell a Liebherr in the UAE. Too expensive. But that didn’t faze me because I was used to selling Mercedes trucks, which are also the most expensive.’ It was not until 1996, he says, that he was able to sell new rather than used equipment. That was the time that construction began to boom and rental companies had to improve their fleets.
Gallagher, whose depot is just a few hundred metres from Liebherr’s facility, appears as loyal to Liebherr as Al Faris. Its fleet has grown from about 12 to 36 cranes in the past 10 years. General manager Arty Wartanian says: ‘In the last six years we have bought only Liebherrs except for two Lorain RTs.’ In fact, Gallagher used to be the Liebherr dealer for the region before Wittenberg arrived. Gallagher buys some cranes new, but most are second hand. The average age of the fleet is 15 to 20 years old, Wartanian says. Gallagher’s biggest machine is a 400t LTM 1400. It used to have an 800t LTM 1800, previously owned by Baldwins of the UK. But there was not enough work for it and so Wartanian sold it to Brambles in Australia in 2000.
In neighbouring Abu Dhabi, Al Jaber has been buying big Demags, including one of the first CC 8800 crawlers (1,250t) and an AC 650.
Liebherr’s dominance of the large AT market in Dubai is now being challenged by Grove which has an association with a powerful newcomer. Johnson Arabia got its crane hire trade licence for Dubai in February 2000 and for Abu Dhabi in mid 2001. This company is a joint venture between South Africa’s largest crane hire company, Johnson Crane Hire, which has about 300 cranes in South Africa, and local company Kanoo Group. Kanoo, which owns 51% of the new venture, has been Grove’s distributor in the region for 35 years or more. Today it represents Grove in the UAE, Bahrain and Saudi Arabia. It also distributes a range of other machinery including Hyster forklifts, Bobcat excavators, Massey Ferguson tractors, and Perkins engines.
Bob Curtis, a Scotsman who is general manager-machinery for Kanoo and a director of Johnson Arabia, says that it is more than a mere marriage of convenience. Kanoo actually wants to be in the rental business and it is the intention that Johnson Arabia will expand to other countries in the region – perhaps Qatar, Oman and ultimately Saudi Arabia. He does not rule out acquisitions as a way of achieving this goal.
Johnson Arabia began with four cranes brought in from South Africa and now the fleet is 35 cranes, including a recent shipment of 12 new Groves up to the 200t-capacity GMK 5200. Grove has always been strong in the Middle East. Grove regional director Hamid Summers says it has sold 750 units in the last 10 years in the region. Aramco in Saudi Arabia has been a major customer, for ATs as well as RTs, and the contractor CCC (registered in Athens but active across the middle East) is also a large account. Kanoo itself sold about 30 Grove machines last year.
Johnson Arabia general manager Gerald Töpfer says there is no obligation for his company to buy only Grove cranes, just because it is majority owned by the Grove dealer. ‘We buy cranes that suit this market,’ he says. ‘We look at what customer needs are, what the long term maintenance needs are, and what service back-up there is.’ Given that Johnson Arabia operates out of Kanoo’s depot it is hard to imagine that anyone could beat Grove for service to this particular operation, but the Grove product is not always the most appropriate. For example, Töpfer says, he has 11 used Tadano rough terrains ‘and they are all fantastic’.
He explains: ‘For this market, they are better than the new Grove E series RTs because they are more versatile. The Grove E is an excellent site crane and robust at pick and carry, but you can drive RTs on the road here and the Tadanos are better for driving on the road than the Groves.’ Johnson Arabia also has Demags and Liebherrs in its fleet, but it seems likely the Grove will at least get the first call when further ATs are needed.
Johnson Arabia broke even after 18 months in business, though the strong early growth is not expected to continue indefinitely. In fact, Töpfer sees this year as one of consolidation. ‘We will maybe add two or three cranes this year. One of these will probably be a 400t or 500t.
We weren’t planning on a big machine so soon but we get loads of requests so we have been sub-hiring.’
Töpfer previously worked for Johnson in South Africa. How does business in the UAE compare? In Dubai, he says, orders can come in at very short notice. And the market is ‘more price sensitive than in South Africa’, by which he means that there is less loyalty to suppliers.
Another issue is the high number of owner-operators who have bought used machines cheaply from Southeast Asia in recent years. Töpfer says that it is impossible for the bigger rental companies to compete at the lower end of the market. ‘We don’t make any money on cranes below 50t,’ he says.
Rental rates are the biggest problem facing the major crane hire companies in UAE – as in so many countries of the world. It takes twice as long to get a payback on a crane than in South Africa, Töpfer says. Before setting up in the Gulf, Johnson spent three years studying the market. ‘When we did feasibility studies the market was very different. The market for construction was down in 1998 and only picked up in mid 2001. But the rates have not picked up again and are 40% to 60% down on what they were in 1997, Johnson says.
With Al Faris needing to maintain cashflow to pay off all those big new Liebherrs, with a powerful new player like Johnson entering the market, it is no surprise that competition is keen.
