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Brighter horizons.

AMAJOR HEADACHE for Gulf shipping lines is over-capacity. Many operators who had never dealt with Gulf traffic joined the melee following the 1991 Gulf war when container shipments to Kuwait leapt. This growth was not sustained when the boom predicted to occur with the reconstruction of the Kuwaiti economy failed to materialise. This has left freight rates depressed as low as $1,000 per 20-foot equivalent units (TEU) for European/Gulf traffic, with rates even more depressed in Far Eastern markets.

Nevertheless, new trends are emerging in Gulf sea trade -- partially because of the intensity of the competition -- which suggest a greater importance is being attached to the quality of services. This applies particularly to services designed for perishable cargo.

Developments are twofold. First, Gulf countries are showing a growing sophistication in the standards they set for imported goods, and therefore they (and the importers they regulate) require higher standards of service from shippers.

Many shippers have responded to this development by increasing the availability of temperature-controlled ships. For example, the Dubai-based CargoGulf groupage, the Taiwan-based Far East/Middle East carrier Uniglory, and Compagnie Maritime d' Affretement, the Marseille-based carrier, have all upgraded their temperature-controlled services to satisfy demand.

Second, consignees operating in today's harsh economic climate are attempting to reduce overheads. Moves away from the enormous stockpiling of goods in port warehouses before distribution to customers have been facilitated by improvements in the infrastructures of Gulf countries, creating an increased demand for a greater frequency of services to compensate. Shippers have scrambled to supply faster services, knocking days off transit times.

A further development is found in the large investment of Gulf countries themselves in both port facilities and national carriers. The National Shipping Company of Saudi Arabia (NSCSA) is in the process of finalising a contract with Mitsubishi Heavy Industries for five doublehulled supertankers worth some $400m. Meanwhile, Saudi Aramco has 15 VLCCs just entering service, or under construction in Denmark, South Korea and Japan. This is a direct result of Saudi Arabia's desire to diversify its involvement in all aspects of oil production and distribution, marking the beginning of a strong stake in crude oil transportation.

These substantial investments are mirrored in the expansion plans of the United Arab Shipping Company (UASC), jointly owned by the governments of Saudi Arabia, Qatar, Iraq, Kuwait, the UAE and Bahrain. The embargo on Iraq notwithstanding, UASC believes that trade will continue to grow, not only with Europe and the Far East, but also with South Africa and South America. It has therefore planned a $900m investment in new ships in line with its policy of ownership, as opposed to leasing.

Such investments dovetail with massive plans for port expansion in Oman, Qatar and Abu Dhabi. The Doha port project in Qatar estimated to cost $150m is set to open up Qatar to shipping that has previously been forced to offload in Dubai and then go overland to Qatar. Doha's shallow draft of eight metres will be deepened to allow larger ships entry, while new terminals and roll-on roll-off facilities will make the onshore infrastructure far better. At present, Doha only accounts for 33% of Qatar's imports and some 1.4% of exports. The project aims to revitalise direct sailings to the country and hopes are that it will be able to compete directly with other Gulf ports for trade.

Perhaps the most dramatic change to come in the near future is the likely doubling of the global LNG fleet by the year 2000. This will be in response to giant leaps in LNG production in the Gulf. Expansion is already proceeding.

For example, a much larger port expansion scheme in Qatar is the $800m project at Ras Laffan, which will provide the country's LNG industry with an export outlet. Contracts totalling $1bn are well under way for upstream gas production. Onshore gas receiving facilities were won by Japan's Toto Engineering Corporation in January. The Qatar Liquified Gas Company (Qatargas) is still in the throes of deciding whether to buy or lease seven LNG ships.

Similar plans are afoot in Oman to exploit the estimated 20,000bn cubic feet of gas found in central Oman. A five million tonne per year LNG development is underway. A liquification plant and loading facility is to be built at Bimma on the north-western coast of the country and, as in Qatar, it will be the government controlled company, Oman LNG, that will deal with transportation. It also remains unclear whether it will lease or buy the vessels.

The most advanced scheme is that of the Abu Dhabi Gas Liquification Company (Adgas) which ordered four LNG carriers at the cost of $1bn from the Finnish boatyard Kvaerner Masa-yards last spring. A further four carriers are under construction by Japan's Mitsui Engineering Company at the cost of $1.14bn. All will be used to service the Das island LNG project which is to produce gas solely for Japan. Abu Dhabi's major port Mina Zayed is already benefiting from Das island as it handles equipment for the $3bn construction project undertaken by Japan's Chiyoda Corporation.

Indeed, projections for the whole of the Asian Pacific region suggest that LNG will grow 10-fold by the year 2010. This bodes well for Gulf shipping since distances are too vast for pipelines to be feasible. Perhaps the boldest pipeline scheme is the deep-sea pipeline from Oman to India. But with LNG expansion so big, Gulf countries can be certain that LNG and spin-offs in port development for non-LNG traffic will be highly lucrative.

The lifting of the trade embargo against South Africa also represents new possibilities for Gulf shippers. A strong beneficiary is likely to be Iran, whose tradition of cooperation with South Africa lasted much of this century until the 1979 revolution.

Iran's decision in January to resume economic and diplomatic relations with South Africa following the UN's lifting of the embargo in December may yet have a direct effect on shipping. Iran is estimated to have had a $400m trade with South Africa in the 1970s. It has maintained its take in the Sasolburg refinery in the Orange Free State to which it supplied 70% of the refineries oil until 1979, and is likely to resume shipments (see page 18). Iran has vast oil and gas reserves which, if effectively exploited, could have a profound impact on Gulf carriers.

However, low prices for Iranian oil have continued to stunt investment, and internal political wrangling over oil price predictions and reductions in fuel subsidies have cast doubt over the ability of the National Iranian Oil Company to go ahead with its $30bn proposals for expansion announced in mid-January. The breath of fresh air that Iranian development could be to the Gulf shipping industry will, at least for the moment, have to wait.
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Copyright 1994 Gale, Cengage Learning. All rights reserved.

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Title Annotation:better business forecast for Gulf shipping industry in 1994
Publication:The Middle East
Date:Mar 1, 1994
Words:1132
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