Growing pains

14 Nov 2013
Like so much of the Middle East, Khor Fakkan exists in a land of contradictions. Photo: BD Soufi. Photo: Basil D Soufi

Like so much of the Middle East, Khor Fakkan exists in a land of contradictions. Photo: BD Soufi

Does excess Middle East port development mark an eye to the future, or too much too soon? Stevie Knight reports

Middle East container ports are seeing flatline growth or even something of a drop and despite those flourishing oil receipts there is widespread poverty plus those much publicised conflict zones.

However, there’s a glut of port expansion on the cards, begging the question, how much is pride up against reality?

Daniel Richards of Business Monitor explains that DP World’s flagship, Jebel Ali, can’t lose. As the largest facility between Rotterdam and Singapore, it has an assured audience but there’s more to it than that: “DP World can’t let its regional transhipment crown look like it is up for grabs so it has recently added 1m teu to its second terminal and dusted off plans for its third terminal, raising Jebel Ali’s capacity from 15m teu to 19m teu.”

Pushed into competition with the Jebel Ali behemoth, other transhipment-focused operations “are scratching around for what’s left”, says Mr Richards. For example, after boxes were transferred to Bahrain's Khalifa bin Salman Port (KBSP) from the old Mina Salman facility, there wasn’t that much new traffic: “Although recently KBSP saw an upturn from Saudi congestion this boost can’t last, as of course Saudi Arabia has its own expansion plans at Yanbu, Ras Al-Khair and upgrades at Jeddah Islamic Port and King Abdulaziz, Dammam.”

Further, there’s a new box and petrochemical operation at Duqm in Oman. Its location close to the main Asia-Europe trades means it could add to the region's total transhipment contest, although Salalah remains its nearest competitor. 

 

Limited options

So, many ports would seem to be relying on the inherently more reliable gateway traffic: unfortunately at the moment this remains limited. “You need to look at the figures to get the true picture,” Mr Richards explains.

He points to Doha in Qatar which hasn’t got the domestic pull to support quadrupling its capacity to the announced 6m teu. “It’s a small country,” he says. “Even though there’s a boom which is making some demands on the port there’s simply not going to be that kind of gateway requirement for a while yet. So it would seem to be looking at transhipment to fill up.”

Despite this snowballing capacity, “the last thing that this area needs is a rates war”, says Peter Richards, group managing director of Gulftainer. “Yes, there will be overcapacity here in the next five years, with Bahrain, Qatar, Kuwait, Dubai, Oman and Abu Dhabi and all putting their oar in. But performance is the key issue, not price. You can keep dropping rates but that doesn’t serve anyone; quite quickly you don’t have enough money to move forward.”

However, the rivalry doesn’t end at port level.

Kuwait’s Mubarak Al Kabeer (MAK) port, now under construction on Boubyan Island, is due into operation in 2016. Plans include deep water docks, a free trade zone, rail network and a residential area along with a 36km causeway linking it to Shuwaikh Port.

 

Playing catch-up

In comparison, Iraq’s Gran Faw venture is lagging behind and it seems the finance deals for the $5.95bn project have taken some time as foreign investors are still nervous about the political landscape. Unfortunately Iraq needs both economic and infrastructure reform to help it make the most of its crude oil production and ameliorate the woes of its population which is struggling with an 11% unemployment rate. Of course this means Iraq is going to be more than ordinarily upset by a port competitor on its doorstep which might spike investment in its new project and further, impact volumes going through it’s established deep water facility at Umm Qasr.

“Frankly, I can see Iraq getting upset about this. Kuwait’s MAK port is a direct rival to Iraq’s Gran Faw which is only a stone’s throw away and Kuwait, with a population of only 3m, definitely wouldn’t be able to support this kind of venture without landing some of the cargo meant for Iraq.”

Daniel Richards points out that it’s not only Iraq that’s beating a path to diversification as outside Saudi and the UAE much of the area is trying to climb on to a broader economic platform from the foothold that oil and gas brings. However, he adds: “Many are aware that it’s not going to be easy as fundamentally they are looking to change a whole economy.”

Abu Dhabi’s Khalifa Port, for example, is working in tandem with its nearby industrial zone (Kizad) to generate 15% of the emirates non-oil GDP by 2030. So, Khalifa Port Phase One has capacity for 2.5m teu and 12m tonnes of cargo but other phases aim at 15m teu and 35m tonnes of cargo, “making it one of the very biggest ports in the world”, says operator ADT.

The weak point is resting these visions on increased short or medium term traffic. Daniel Richards remains doubtful whether the volumes will be enough to support schemes in their entirety: “Competition will limit return on investments, and this means that while the first phase of a project might get underway, there may be problems financing the next one,” he says, adding: “Although wealthier populations bring in imports I don’t see it really being sufficient to warrant all these port projects in the near term.”

 

Skills shortage

There’s a related issue which has the potential to undermine a number of developments. “Generally the whole Gulf region is heavily reliant on unskilled labour, and the construction industry especially throughout the GCC has many migrant workers with low educational levels,” he says. This skills shortage can’t be fixed by a couple of ‘strategic’ project managers: “You need a whole skill set reaching right though the workforce. It’s enough to hamper development even if finance is available.”

Meanwhile, outright conflict has led cargo to abandon Syria in favour of Haifa and Beirut, but any political instability still makes shippers nervous and Tripoli hasn’t benefited – so far – as much as it might.

Despite this, some operators seem to be thriving, proving that ‘problematic’ scenarios can be a way to show their mettle. Gulftainer's Peter Richards explains: “You have to look beyond the immediate issues to see the potential. And if you are in for the rough as well as the smooth people will be more likely to trust you – no matter who is in power.”

It’s a useful attitude: although Gulftainer’s was the only bid left in the ring for the Tripoli concession, its willingness to rehabilitate the port may have delivered a bargain. Peter Richards explains: “Beirut is bursting at the seams so a deep water terminal in Tripoli will help alleviate congestion and provide an alternative to the fraught Syrian operations at Latakia and Tartous.”

Further, this acquisition will allow Gulftainer's logistics division to join the last dots on a route that avoids the bottlenecks - and politically vulnerable - Suez Canal and Straits of Hormuz. The Mediterranean and the Gulf could potentially be connected by a rail link across the Arabian Peninsula between Tripoli and Iraq’s Umm Qasr.

Jeddah and Jubail are also under Gulftainer’s wing as it has recently acquired a 51% stake in state-owned Gulf Stevedoring. Though Jeddah is well known, its sister promises a lot: “Jubail is underutilised at present, but the associated free trade and industrial zone growing up beside it stands to be the largest in the world so far.” Although he accepts that it takes time to build up a population, he makes the point that “the containers go where the money flows”, adding between this and the booming petrochemical industry, “Jubail will see a rise from 250,000 teu to 1m in two years - and it won’t stop there”.

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