Despite their world-class reputation, the region’s ports may need to re-evaluate their offering. Stevie Knight reports
“If I had to sum up the Middle East's ports in one word, that word would be overcapacity.” Regional consultant Nivesh Chaudhary doesn’t mince his words when he considers the region’s prospects. Director of transport and logistics in ASCELA ADVISORS’ infrastructure advisory team, Mr Chaudhary has weighed up capacity versus throughput.
“Putting it in perspective, back in 2011 the average utilisation rate was around 75%, but it had fallen to 66% by 2017. That's not good,” he says.
Perversely, there's more on the way: Jebel Ali's T4 will soon bring its capacity to 22.1m teu and DP World has plans to expand the facility to 55m teu by 2030.
The situation is serious: “We are at a turning point,” says Giovanni Moscatelli of the Boston Consulting Group. “So far the common strategy of investing heavily in top infrastructure has paid off. But with the growing overcapacity it is essential for regional ports to consider how to consolidate their inland positioning to be able to truly differentiate their offerings.”
That's easier said than done, although certain facilities are looking to distinguish themselves through innovation. For example, Abu Dhabi Ports’ Maqta Gateway initiative aims to leverage both blockchain and interactive single window solutions to reach “seamless transaction handling”, according to GM Noura Al Dhaheri.
However, while Mr Moscatelli's list of successful attributes mentions customer services and digital solutions, it is topped by hinterland connections.
He says: “While inland connectivity solutions are generally regarded as having lower margins than port handling operations, they are worth considering on a case-by-case basis in the Middle East,” adding that ports should be able to take advantage of opportunities springing from the region's intertwined national economies and the relatively short distances between ports and significant inland markets.
Indeed, as Mr Chaudhary points out, “we already know that overreliance on transhipment is a dangerous game. This truism is highlighted by the plight of the UAE's beleaguered Khorfakkan, which suffered a sharp reversal in its fortunes when UASC shifted over from the Ocean Alliance to THE Alliance which meant that the port lost over 40% of its volumes to Jebel Ali.
Khorfakkan, along with Khalid and Hamriyah ports, will soon be strung together with Gulftainer's new industrial park at Saja'a via a road extension and a recent five-tunnel highway, promising to give the facility a better inland grip.
But while the roads have so far played a dominant role, Mr Chaudhary explains other “notable transportation projects” stand to influence ports' fortunes in the region, Khorfakkan among them.
Although the overarching Gulf Cooperation Council rail project foundered in 2016 amid falling oil prices and fractured relationships, the 1,200-kilometre $25bn Etihad rail is now back on the table. It is now forging ahead with its aim of connecting Abu Dhabi with both the Saudi and the Omani borders; at the same time, the project plans to link a swathe of ports along the UAE's coastline.
The Etihad rail project will not, however, level the field. Mr Chaudhary says: “Although the Etihad project will surely help Khorfakkan and Khalifa grow roots into their respective hinterlands ... Jebel Ali is likely to benefit most as a large proportion of the cargo currently handled there is actually transit traffic to Saudi.” The detour avoids Saudi ports' tediously slow customs checks.
Likewise, Jeddah Islamic Port stands to gain most from an ambitious 950-kilometre Landbridge project which will cross Saudi to link Riyadh and Dammam on the Gulf with the Red Sea.
At present, Jeddah's volumes are holding a steady 4.3m teu; Gagan Seksaria of Red Sea Gateway Terminal says that the Middle East has always been “the aggregation of a number of heterogeneous fragments” rather than just a single market, so the winners will be those that “allow carriers to combine their local market handling and transhipment needs in one call”. Despite its perennial congestion, in his view, Saudi Arabia’s Jeddah offers exactly that.
Certainly, its Red Sea Gateway and DP World terminals are secure enough to be intent on turning up the heat under the competition. The latter is transforming its South Container Terminal (SCT) into a semi-automated facility, increasing capacity from 2.4m to 4m teu and importantly, it's relocating its logistics depots outside the heavily congested port area.
Meanwhile, RSGT has recently invested in lengthening quays and supersized gantry cranes, raising capacity from 1.8m to 2.5m teu. But why attempt it at all in the present, overloaded market? Mr Seksaria admits that competition is fierce but says the expansion is “a direct response to the changing needs of our customers as consolidation in the carrier industry continues at a fast pace”. Consolidation favours larger vessels, so bringing in 20,000 teu mega ships is vital; this expansion means the facility can now handle three at a time.
Instead of building up a facility to serve a metropolis, the region has been attempting to wean economies off their oil dependency by creating new city-come-economic areas and ports together. However, outside the UAE's successes (which began with the Jebel Ali Free Zone) the results have been decidedly patchy.
Duqm, Oman, is one of a number of port and city duos rising from the dust. It has been handling a proportion of Qatar's cargo since its neighbour fell out with the Saudi Arabian block but while other traffic is growing, its box volumes are still small. However, it has recently gained Chinese investment in its Special Economic Zone (Sezad) which may soon spring a refinery, chemical and construction materials and car production plants along with homes for 25,000 people.
On the other hand, the privately owned and financed King Abdullah Port (which sits just 70 nautical miles to the north of Jeddah), is presently on a roll handling 1.7m teu last year, 21% up from 2016: this is partly down to modern infrastructure – it was only launched five years ago – tied together with an integrated port community system explains Mr Chaudhary. Despite the region's struggles it has big plans: KAP's present 3m teu capacity is rising to 5m, and it has room to eventually expand to 20m teu.
Problematically, though, its twin is lagging: King Abdullah Economic City has only 7,000 inhabitants and fewer than 150 tenants in its enormous economic zone after a decade of promotion. This, he says, puts the port's overall growth “at risk”.
Despite this, Saudi Arabia is once again trying to build 'the city of the future', Neom, which will come complete with AI and robots. If it goes ahead, it stands to boost volumes at both Jeddah and KAP, 850 kilometres away along the coastline.
It might not. The problem is that the project, part of a slew of public-private partnership initiatives, rests on capturing both local and foreign investment but the latter has been waning for some years along with Saudi's contracting economy. Sadly, at the moment the oil price and therefore interest seemed to be perking up, political issues - including the death of journalist Jamal Khashoggi - have cast a long shadow.
There is another threat sneaking up behind the megaports: according to Mr Moscatelli, more modest facilities may yet have their day as “to a certain extent, direct calls are becoming cheaper and more competitive”. He points out: “Transhipment accounts for 53% of all the throughput of Middle Eastern ports... [but now] the smaller destination ports are rising to end their dependence on transhipment hubs”.
PORTS BANK ON FUEL CHANGE
Given the problematic macroeconomic background and the UAE's recent 6.7% year-on-year Q3 fall, DP World's chief executive was forced to admit “the near-term volume outlook in Jebel Ali remains challenging” but followed this by saying, “we have taken measures to maintain profitability”. Interestingly, these 'measures' might well include a rather different, but very timely offering.
Ascela’s Nivesh Chaudhary explains that the fast-approaching IMO 2020 fuel regulation will be a game-changer for the Middle East, “as once in place, the ports the lines currently use for bunkering may no longer be able to support them”. Moreover, the 2020 sulphur cap will entail higher voyage costs, which will mean deviations are even less welcome.
Consequently some, like Fujairah and Jebel Ali, are looking at fuel-purification plants for producing low-sulphur bunkering fuel.
The availability of compliant fuel oils could reshape vessel calls - or consolidate them, says Mr Chaudhary. “If Jebel Ali manages to accomplish this, then I think that it will gain an even bigger share, putting it in an unassailable position.”