In 2016, Reuters reported that the Kingdom of Saudi Arabia (KSA) oil reserves were estimated to “last for another 70 years at the average production rate of 10.2 million barrels per day reported for 2015.”
The exact number of years is unknown, but while it is clear that while oil will remain a significant component of the country’s future trading activities, the concern about an over-dependence on a single commodity remains, especially as this industry does not create sufficient employment opportunities for the population.
The diversification of the economy away from oil and petrochemicals means the expansion of services and other commodities, many of which can be containerised. The competition of container ports in the country, and region, has grown more fierce to attract the already, and envisioned, increasing demand for container volumes
Crown Prince and Chairman of the Council of Economic and Development Affairs, Mohammad bin Salman bin stated that “Vision 2030 is a bold yet achievable blueprint for an ambitious nation” because it “Expresses our long-term goals and expectations and it is built upon our country’s unique strengths and capabilities.” Moreover, the initiative “Guides aspiration towards a new phase of development – to create a vibrant society in which all citizens can fulfil their dreams, hopes and ambitions to succeed in a thriving economy.”
The port industry in KSA has a key part to play to helping strategic objectives being met. Measurable objectives in infrastructure are where the role of ports becomes particularly important, because 15 – 20 million TEU of additional capacity is slated as need in the future, along with 6 million TEU rail additional capacity and the building of the third Jeddah Mecca highway, amongst other aims.
Developments in Jeddah
So, how are KSA’s West Coast container ports stacking-up in pursuit of the Vision 2030 initiatives, especially at the Kingdom’s largest facility, Jeddah Islamic Port (JIP)?
Well, an immediate impact can be seen in JIP, where the current three container terminals located at the port will be reduced to two facilities in 2020.
Red Sea Gateway Terminal (RSGT), located in the northern part of the port, is to be expanded as it will be merged with the existing Jeddah North Container Terminal (NCT) when the existing NCT contract belonging to Gulf Stevedoring Contracting Company (GSCCO) expires in 2020. GSCCO is a 51% subsidy of UAE-based terminal operating company, Gulftainer.
RSGT is a joint venture of the Saudi Industrial Services Company (SISCO), which has a 60.6% stake and MMC Corporation of Malaysia, which retains a 20% interest. The remaining shares are held by a range of smaller stakeholders.
RSGT has signed a new 30-year concession with the Saudi Arabia Ports Authority (Mawani), which will see the Phase I newly consolidated operation have 2,600m of berthing supporting a terminal of 150 hectares.
The second terminal at Jeddah, in the southern part of the port, is being retained by DP World. The Jeddah South Container Terminal (JSCT) is going to see its current container capacity of 2.4 million TEU per annum increased to 3.6 million TEU per annum, as part of DP World’s new 30-year concession in Jeddah.
The Supervisory Committee for Privatisation of Transport Sector in KSA approved the concession with DP World and RSGT in support of Vision 2030 and said that the project “will activate the Memorandum of Understandings (MOUs) that Mawani had signed in the presence of HRH Crown Prince Mohammed bin Salman bin Abdulaziz last February during the inauguration of The National Industrial Development and Logistics Program, one of Saudi Vision 2030’s major initiatives.”
In addition, the project will help “consolidate Mawani’s pivotal role as a key contributor towards transforming Saudi Arabia into a global logistics hub connecting the three continents.”
Sultan Ahmed Bin Sulayem, DP World Group Chairman and CEO, confirmed that the concession supported the 2030 Vision to “Transform the country into a global logistics hub” and said that there is a commitment to “Investing significantly to modernise the Jeddah South Container terminal, which will not only result in greater direct and indirect job creation but also deliver best-in-class efficiency and productivity to the Port’s operations.”
DP World confirmed that the planned infrastructure investment of US$500 million will ensure the port is a more efficient option to serve the largest container ships in service to/from Asia. Bin Sulayem added, “Beyond the terminal, our ambition is to develop inland connectivity across the Arabian Peninsula between Jeddah and Jebel Ali Port in Dubai, as well as to Saudi Arabia’s cities through smart technology-led logistics, which should support further growth in this strategic hub that connects East-to-West.”
Emergence of King Abdullah Port
The reduction of three operators to two company specialists at JIP comes at a time when recent volume throughput has been challenged, due to the emergence of King Abdullah Port (KAP).
Container volumes at JIP reached a recent high of 4.74 million TEU in 2012 but have since fallen back to around 4.1 million – 4.2 million for 2019. In comparison, the privately owned and operated King Abdullah port, a Greenfield development located approximately 100km to the north of JIP, has seen strong increases since opening in 2013. From handling just over 500,000 TEU in 2014, the port had seen throughput rise to more than 1.4 million in 2016 and by the end of 2018 total volumes had surpassed 2.3 million TEU.
There are substantial expansion plans for KSA West Coast facilities, with a high amount of new capacity to be added – overall, a 91% rise to 14.1 million TEU per annum from the current 7.4 million TEU per annum, which includes:
- JSCT – dredging to 18m depth, expansion potential for additional 500m of quay, introduced of automated equipment.
- RSGT – has expanded quay to 1,300m, could add up to 1,000m when gaining NCT.
- KAP – phase II plans, with 8 new quay cranes in 2020 due for delivery.
Mediterranean Shipping Co (MSC) is an advocate of King Abdullah port and the shipping line’s strong continued support means that estimated 2019 activity at the port will have seen further increases.
There are long-term development plans that will eventually see the current Phase I capacity of 3.0 million TEU per annum continue to rise, with Phase 2 adding a further 1 million TEU per annum, before Phase 3 brings the total to 6.0 million TEU annually. Subsequently phases will see 10.6 million TEU per annum developed by the end of Phase 6, although timescales are currently unknown and likely to be driven by demand.
Container Shipping in the Red Sea
The size profile of vessels deployed into the Red Sea suggests great potential for direct mainline large vessel calls at one or more deep water container ports in the region, with shorter feeder legs effectively replacing existing more distant transhipment operations. The ability to handle the ultra large vessels at the ports is therefore extremely important.
Container trades in the Red Sea, rely on the fact that the location of the terminals on the major Asia-Europe arterial trade route, allows the largest vessels being deployed by shipping lines to bypass Jeddah without significant deviation (8 nm) on their way to Europe via the Suez Canal.
This contrasts favourably with the Arabian Gulf alternative of serving the region, where there are far fewer direct calls available to the Upper Gulf. Although volumes are increasing, it is apparent that feedering of containers from Dubai and more remote hub ports such as Salalah is on the increase, together with the size of feeder vessels.
From a shipping line perspective, a call at JIP or KAP is preferable than feedering via Gulf ports. The very largest vessels are passing the port on a frequent basis, the lines are seeking to increase load factors by integrating regional ‘wayport’ calls and there is no requirement for feedering to a Saudi port. This form of “double dipping” gives lines an opportunity of loading cargo from Asia to Europe and Asia to Saudi Arabia, as well as from Saudi Arabia to Europe.
The increase of vessel sizes deployed increasingly means that lines want to call at a limited number of ports in order to turn vessels around quicker. This means calls are often used both for local cargo where there is a high demand as well as for transhipment volumes to a wider region.
Services calling into KSA continue to be concentrated on JIP, with 42 services being offered compared with around 20 confirmed regular services seen at KAP.
In terms of alliance activity, the Ocean Alliance concentrates its services on terminals at North Jeddah with GCT and RSGT being used until the former is phased out in 2020. THE Alliance use the DPW Jeddah facility in South Jeddah and Maersk Line undertakes its services at RSGT to protect its local market interests, in addition to 2M services calling at KAP.
The involvement of MSC (through Terminal Investment Ltd.) at KAP is seeing 2M Alliance services calling, mainly for transhipment opportunities, although Maersk Line also offer owned services to JIP facilities to handle local Saudi Arabian cargo.
Clearly, container port capacity in the Red Sea is going to increase, with both JIP and KAP already planning to raise capacity and efficiencies for the future to meet local demand and the largest container ships by-passing to/from the Suez Canal.
Mawani is also working in conjunction with the Kingdom’s own internal agencies to create new operating concessions at these two major container ports, with the focus of developments at JIP clearly stated as being in support of Vision 2030.
On a practical basis, serving Riyadh will remain a key objective of ports in KSA, although for JIP it is also an effective gateway for its own local Jeddah market and also for the City of Mecca.
Yet overall, location and shipping line strategies will be key influencing factors moving forward in terms of port choice, but the ability of the Kingdom to generate the economic demand for the Vision 2030 initiative that ports can serve will remain the overall challenge.
Serving the Jewel in the Crown – East vs. West Coast?
From a port perspective, population density and location remain an important consideration because the facility in a good geographic location supported by adequate access networks (of road and rail) will remain the preferred option for the movement of cargo.
Total population in KSA is estimated to be 34.8 million inhabitants and it has continued to increase slowly from the 31.7 million recorded in 2015. Annual increases are slowing from the 3.0% seen for 2015 down to 1.5% for 2020.
The Jewel in the Crown in terms of population and consumption demand has traditionally been the capital city of KSA, Riyadh. It has an estimated population of around 8.5 million people, so ports on both the West and East coasts will always target this location.
So, what about East Coast ports, notably Dammam, and the ability to reach Riyadh?
The historic position in terms of share of container traffic in KSA has shown that ports on the West Coast account for the majority of container traffic. In 2010, total volume shares were split to West Coast 70% and East Coast 30%, although for 2019 the figure is close to 65% (West Coast) and 35% (East Coast), with the increase in the East Coast share due to the growth in larger vessels arriving on direct services to/ from Asia and Arabian Gulf.
For example, according to information supplied by PR News, the size of ships on the Asia-Mid East trades has been rising, as follows:
- 2010: Typical deep sea ship was 9,000 TEU, largest was 14,500 TEU
- 2020: Typical deep sea ships now 18,000 TEU, largest at 20,000 TEU
This means a higher volume of cargo moving direct to the Gulf as opposed to a feeder service from one of the regional hubs, such as Jebel Ali or Khalifa Port.
In terms of competitiveness to serve Riyadh, distance is a factor because Jeddah to Riyadh is around 950km, while Dammam to Riyadh is 449km (direct) and Dammam to Riyadh is 556km (via Haradh).
However, the higher inland costs will be offset by significantly cheaper shipping costs. The advantage JIP can offer is that it is no sailing deviation to call for a ship en-route through the Red Sea than having to make a specific call to Dammam in the Gulf
Introduction of an intermodal rail service from Jeddah to Riyadh, as part of the US$7 billion Saudi Landbridge project, can also help to better serve the Riyadh contestable hinterland too for JIP.