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Middle Eastern race for port capacity.

Ports were historically developed to handle exports and imports in a particular territory. Now, however, transhipment is becoming increasingly important in developing the world's biggest container terminals. The emergence of ever larger vessels means shipping lines are keen to offload containers at a smaller number of ports for redistribution to neighbouring ports by smaller ships. Located at the crossroads of international trade between Europe, Asia and Africa, Middle Eastern ports are particularly well placed to tap into the transhipment market and a string of modern, efficient container terminals are being developed in the region to take advantage of their geographical position.

In December, DP World announced it would expand its most important port, Jebel Ali, from z4 million TEU/ year to 19 million TEU/year. A TEU is a 20 foot equivalent unit, or a standard container size. DP World chief executive Mohammed Sharaf told journalists: "The IMF is forecasting GDP growth for the Gulf Cooperation Council region of around 4-5% per annum. Taking that, discussions with our customers and shipping analysts' forecasts into account, existing capacity at Jebel All will be full by 2014. Already utilisation is at record levels, with the port handling around 1 million TEU per month. The addition of 4 million TEU capacity from 2014 will therefore be very much needed to meet our customers' growing needs." To put this into context, any port with handling capacity in excess of 5 million TEU/year is of international importance.

At the end of January, DP World announced that it had handled 54.7 million TEU/year on its various operations around the world in 2011. This is 10% higher than in 2010 and cements the company's position as the world's third-biggest port operator. Turnover within the UAE increased by 12% to 13 million TEU, while the firm also recorded strong growth in emerging markets, including in South Asia, sub-Saharan Africa and Latin America. Sharaf said the long-term global economic outlook was uncertain but added: "We continue to remain confident about the long term outlook for our industry."

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Abu Dhabi Terminals (ADT) is seeking to provide competition to Jebel Ali by expanding away from its established Mina Zayed container terminal in Abu Dhabi. ADT chief executive Martijn van de Linde said "We are looking forward to moving to our new container terminal in Khalifa Port in Taweelah in the third quarter of 2012. This will allow us to grow the business and increase service levels to our customers." Joost Achterkamp, project manager for Abu Dhabi Ports Company, added: "We don't want to invent the wheel again, so Khalifa is based on a proven technology and performance. We have project challenges; the schedule is very tight."

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Phase 1 of the new terminal will have handling capacity of 2 million TEU/year and 12 million tonnes/year of general cargo but ADT hopes to increase this to a massive 15 million TEU/year and 35 million tonnes/year respectively by 2030. The Khalifa Industrial Zone Abu Dhabi (Kizad) is being developed around the project at an estimated cost of AED 26.5 billion ($7.1 billion), with the Emirates Aluminium (EMAL) smelter as its anchor tenant, although other export-orientated businesses are also being attracted to the zone. Another competitor could emerge with the development of a port on Kuwait's Boubyan Island by South Korea's Hyundai Engineering and Construction Corporation and Kharafi Group of Kuwait. However, as discussed below, the government of Iraq objects to the project on the grounds that it could affect sovereignty claims in the region and also access to the planned but long-delayed port project in Basra.

Iranian threats to trade in the Gulf could promote the fortunes of ports located outside the Strait of Hormuz, such as Sohar, in the north of Oman. Operator Sohar Industrial Port Company (SIPC), which is owned by Hutchison Port Holdings, the government of Oman, Steinweg of the Netherlands and a consortium of other Omani investors, manages the 800,000 TEU/year terminal, which is due to be expanded to 2.3 million TEU/year in Phase 2 and 5.3 million TEU/year in Phase 3. In January, Singapore shipping line APL announced it would launch two new services between Sohar and Pakistan and Indian ports, providing yet more yet business to the growing terminal.

Saudi investment

The government of Saudi Arabia is particularly keen to use its oil wealth and geographical position on the Gulf and Red Sea coasts to promote its credentials as a trading nation. Jobarah Al Suraisry, the Saudi minister of transport, said: "All ports are now subject to expansion. We are investing SR2.3 billion ($617 million) for projects in all the ports and we always continue increasing, particularly the industrial ports in Yanbu and Jubail. The next budget will be coming in five or six months and we will see more projects."

Last June, Saudi Ports Authority awarded PSA International and the Public Investment Fund (PIF) a concession to construct and operate a new container terminal at Dammam in Eastern Province. Phase 1, which is scheduled for completion in 2014, will provide capacity of 900,000 TEU/year from two berths. The provision of two additional berths in Phase 2 will double this to 1.8 million TEU/year. The two investors have set up their joint venture, Saudi Global Ports, to operate the facility, in what is the first investment by the PIF sovereign wealth fund in port projects in the country.

Dammam is already the biggest Saudi port on the Gulf and the government hopes the new terminal will help it to compete with other jumbo ports in the region. As in other countries, a large industrial zone is to be developed around the port but the new terminal is also being developed to reduce pressure on the port's existing container terminal. During delays last year, the chairman of the ground transportation committee, Abdul Rahman Al Otaishan, told journalists: "The procedures for the entry of goods, as well as their inspection and clearance, have been delayed considerably and hence the transportation prices have shot up 300%.

Most often, truck drivers are forced to wait up to three days at the port, and they cannot leave the port without completion of clearance of their load."

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Jeddah remains Saudi Arabia's biggest port, handling 3.9 million TEU in 2010 out of total capacity of 5 million TEU/ year, including 2 million TEU/year at the new Red Sea Gateway Terminal (RSGT). The chief executive of RSGT, Said Aamer Alireza, says that the terminal is targeting transhipment trade for other Red Sea and East African markets. It has already served the new generation of 14,000 TEU vessels and could handle even bigger ships in the future. The chief executive added: "As trade demands increase, with it comes a need for more efficient ports. And as global shipping turns to the economies of scale to drive costs down, terminal and port operators will in turn need to invest in increased capacity and new infrastructure, as well as improved and more efficient operational solutions."

Jeddah faces increased competition from ports on the African side of the Red Sea. In December, Chinese construction companies completed the expansion of Port Sudan container terminal from 800,000 TEU/year up to 1.3 million TEU/ year for the facility's operator, state-owned Sea Ports Corporation of Sudan. The two dedicated berths have a depth alongside of 16 metres, meaning that they can handle very large vessels. The enlarged terminal has been designed to handle cargo for other countries in Eastern and Central Africa but it remains to be seen how much of a challenge it will pose in terms of the transhipment market.

However, Doraleh Container Terminal in the small state of Djibouti certainly will compete with Middle Eastern ports for transhipment traffic. DP World has announced that it will expand the terminal from 1m TEU/year up to 3m TEU/year. Djibouti is a very minor trading state and so transhipment containers comprise almost all the port's entire turnover. A total of $300 million will be used to fund the construction of a new 950-metre quay and $30 million spent on new cargo handling equipment. A DP World spokesperson said: "We see a bright future for Doraleh and with our partners will expand the terminal in line with market demand. No time line has yet been decided."

It is particularly interesting that such ports are able to expand at a time when Somali pirate activity is repeatedly striking at shipping in the Indian Ocean and in the approaches to the Red Sea. The risk of hijack has driven up insurance premiums for ships operating in the region and some shipping lines sailing from Asia to Europe have opted to divert their services around the much longer Cape of Good Hope route rather than through the Suez Canal.

Recovering from conflict

Conflict stemming from the Arab Spring has posed challenges to several ports in the region. Syria's ambitions of becoming a major regional entrepot have been put on hold as a result of its domestic conflict, but Libyan ports are now seeking to promote themselves in the wake of that country's civil war. Bollore Africa Logistics (BAL) signed a concession to operate the port of Misrata in December 2010, just before the war broke out.

The company is confident its contract will be honoured by Libya's Transitional National Council. A spokesperson for the company said: "Libya's Transitional National Council has indicated that all contracts signed before 17 February 2011 will be honoured, so there is plenty of room for optimism. However, we cannot say when the contract will begin, this being directly dependent on civil and economic life stabilising in Libya." Misrata was the only major town in western Libya to hold out against former president Muammar Gadaffi's forces during the entire conflict. However, its port was specifically targeted with heavy bombing and some reconstruction work will be required.

Neighbouring Egypt is set to reinforce its already substantial role in intercontinental trade. Possession of the Suez Canal ensures that a large proportion of global trade passes through the country and the construction of modern terminals at Alexandria, Sokhna and Suez should ensure more of that trade is actually handled by Egyptian ports. In addition, the government of Qatar has announced it intends to develop two new ports in Egypt at Alexandria and Port Said. Details of the projects have not yet been decided by the two governments but Doha is believed to be keen to create an export-oriented processing zone at Port Said.

The government of Yemen is coming under pressure to renegotiate the contract it awarded to DP World to operate the port of Aden in conjunction with partner Yemen Gulf of Aden Port Corporation. Critics argue the firm has not met its targets on investment and increasing handling capacity, although both pirate activity and civil unrest in Yemen have affected trade in the country since the deal was signed in 2008.

Outlook

It remains to be seen whether there is sufficient business to satisfy all the planned container capacity in the Middle East over the next few years. Competition should provide greater efficiency and improved services for shipping lines but not every new terminal will to attract new traders. One thing is certain: the Gulf and the rest of the Middle East are becoming more important pieces in the global logistics jigsaw because of the development of terminals with the latest technology in terms of cargo handling and IT.

The one fly in the ointment is insecurity. Tensions in the Gulf, particularly over Iran, need to be calmed if shipping lines are to continue backing ports inside the Gulf. At the same time, the Indian Ocean's pirate problem must be brought under control. Sailing around South Africa is a realistic option, while some vessels can sail eastwards through the Panama Canal, bypassing the Middle East altogether. The real test will come when the expansion of the Panama Canal is complete and Post-Panamax vessels can sail through the Isthmus of Panama. Efficiency is attractive but it needs to come with security.
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Title Annotation:SPECIAL REPORT
Comment:Middle Eastern race for port capacity.(SPECIAL REPORT)
Author:Ford, Neil
Publication:The Middle East
Geographic Code:70MID
Date:Mar 1, 2012
Words:2029
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