As food security becomes a significant concern for the GCC, Oman’s Sohar Port and Freezone is developing the region’s first agriculture hub. New CEO Mark Geilenkirchen says the facility will also help maintain years of consecutive double-digit growth.
For Mark Geilenkirchen, globalisation is a double-edged sword.
“[There is a] general level of financial uncertainty and volatility in the world today. On one side, it is globalisation that is the main driving force behind many of our port-related and logistics businesses at Sohar, but on the other hand, it’s a big challenge,” the new CEO of Sohar Port and Freezone says.
“Uncertainty in one part of the world can quickly affect another part.”
However, Sohar Port has been faring well against these headwinds. In December, it announced defiant growth in container cargo and general cargo tonnage. Container volumes increased 11 percent in the third quarter, compared to the same period in 2015, while overall tonnage at the port was up by more than 6 percent, reaching 13.4 million metric tonnes, equivalent to an average of more than 1 million tonnes of cargo each week.
The results contrast news that container volumes at Dubai’s Jebel Ali Port have taken a hit. The flagship facility for worldwide operator DP World handled 3.6 million twenty-foot equivalent units (TEU), down 5.9 percent from a year earlier.
“Sohar is one of the world’s fastest growing port and freezone developments and is really establishing itself as the region’s challenger brand,” Geilenkirchen says. “We’re well located outside the Strait of Hormuz with an adjacent freezone, which is the biggest key to our success.”
Sohar Port opened a new container terminal at the end of last year. Terminal C features remote-controlled quayside cranes equipped to handle the next generation of 20,000 TEU container vessels. Geilenkirchen says the expansion is in large part driven by the fact that, despite container vessels growing in size, the port is seeing more port calls. There has been a concern among port operators that larger ships and more alliances might lead to fewer ships bringing in larger consignments of cargo, putting port equipment under pressure spikes.
“From our perspective as a port authority, mergers like this make a lot of sense. They help to consolidate volumes, so [fewer] ships are sailing with bigger loads. In an industry that’s always been very price sensitive, that helps to reduce costs and increase competitiveness,” says Geilenkirchen. “Today, it can cost less than $400 to move a 40-foot container from Shenzhen to Europe, barely enough to cover the cost of fuel, handling and Suez Canal fees.”
It is for this reason that Sohar Port is focussed on growing its position as a food and logistics hub, not just a shipping hub. Former CEO Andre Toet said in 2015 that transhipment was not Sohar’s focus because it was too volatile in the face of changing shipping alliances and economic downturns in production markets such as China, and consumer markets such as Europe and North America.
“The port was originally based around three industrial clusters: logistics, metals and petrochemicals,” Geilenkirchen explains. “We recently added food as our fourth pillar, with the launch of Sohar Food Zone.”
The new zone is the region’s first terminal dedicated to agriculture. It includes facilities for sugar, rice and grain processing and space for downstream food manufacturing and logistics industries. UAE firm Essa Al Ghurair has heavily invested in the sector and will be facilitating infrastructure for food producing companies to start their businesses in Sohar, creating opportunities for fast-moving consumer goods’ (FMCG) third party logistics firms. Recently, Sohar Flour Mills also announced it would move ahead with a 500 tonnes per day milling facility in the Food Zone, due for completion at the end of the year.
The Omani government is attempting to develop itself into a global logistics hub, but a large part of this is in relation to food security. Sohar Flour Mills is a partnership between Atyab Investments, wholly-owned by Oman Flour Mills, and Essa Al Ghurair Investments based in the UAE. Oman Flour Mills is itself a branch of the Oman Food Investment Company, a state-owned organisation tasked with ensuring Oman’s food security.
During 2016, food imports into Oman fell 3 percent, according to data released by the National Centre for Statistics and Information (NCSI). Yet reducing imports is not how Oman and other GCC nations expect to create food security. Indeed it would not be feasible, given that 90 percent of all food consumed in the GCC is imported, while only 1.8 percent of land is used for farming and local agriculture contributes just 1.4 percent to gross domestic product (GDP). Instead, the Oman Vision 2030 document includes the creation of a national reserve of staple foodstuffs, such as grain.
The issue of food security in the GCC was elevated in priority following Saudi Arabia’s decision to reduce its domestic wheat production from 2008 due to water scarcity. The kingdom, which was once self-sufficient in the grain and even exported to the wider region, recognised that the local production of many agricultural products is unsustainable — a fact true across the entire Arabian Peninsula. As the preservation of dwindling water supplies trumps the idea of securing domestic sources of food, Gulf countries are now wrestling with the challenge of ensuring a stable and cost-effective supply of food from overseas.
Part of the answer lies in strategic reserves. According to Oxford Business Group, Oman’s $170m agro-terminal handling and storage facility at Sohar Port, which is expected to be able to handle 700,000 tonnes of grain and 1.5 million tonnes of raw sugar every year upon completion, is intended to guard against fluctuations in raw material supply and prevent price hikes.
Oman and other GCC governments are also attempting to gain some control of the food supply chain all the way to the point of origin. GCC countries have during the past several years purchased a third of the almost 20 million hectares of farmland that was sold globally, according to the International Food Policy Research Institute (IFPRI).
These factors mean that Sohar Port and third party logistics firms located within its freezone are well-placed to benefit.
“We have a great deal of experience from Rotterdam [in the Netherlands] when it comes to food, especially frozen and chilled foodstuffs, and we’ve been helping to ensure that all the necessary inspection requirements are in place and that our new food inspectors are thoroughly trained,” says Geilenkirchen, referring to the Port of Rotterdam Authority, which owns 50 percent of Sohar Port and Freezone, with the other half owned by the Omani government.
“I see huge potential in the business. We are sitting in the middle of a region that is very dependent on food imports, and because of the climate across most of the Arabian Peninsula that is not about to change anytime soon.
“We have the best location and infrastructure in place to service the major regional markets of Saudi Arabia, the UAE and Iran when it comes to food manufacturing and distribution.”
But with plans for the GCC Rail Network stagnating and uncertainty regarding its eventual rollout, how feasible are Sohar Port and Freezone’s future growth plans? A food production hub needs hinterland connections to keep it efficient.
“At no time was the GCC railway part of the decision-making process for the location of the port, or our other plans. So the answer is, yes, we have already seen phenomenal growth in Sohar and we will see plenty more, with or without a cargo railway,” Geilenkirchen says.
He adds that logistics companies in Sohar also will benefit from the development of a direct road link between Oman and Saudi Arabia, the largest consumer market in the region.
“The new highway will be a huge upside for the port and freezone businesses. We already have [Saudi logistics firm] WPL on board in the freezone as one of the leading Saudi [third party logistics] providers, and we are currently in talks with other logistics companies who plan to set up operations here,” he says.
“The new highway will cut 500km off the journey from Sohar to Riyadh. Furthermore, it avoids the congested UAE-Saudi border crossings, so it can easily reduce the actual journey time for a truck by three to four days.”
Efficiency can produce significant cost savings and is a key plank of Sohar’s strategy.
“The focus of our business as major port operators is changing across the globe. So instead of being really good at doing just one particular thing, today it’s more important that we’re really good at learning how to do new things — and doing that faster and better than ever before,” Geilenkirchen says.
“Ports don’t look very smart seen from outside the fence, but over the past ten years there has been a revolution in the way that they work. Behind the scenes, there has been huge investment in automation.”
While the port’s new Terminal C container terminal is not automated, it features advanced remote control operation similar to Jebel Ali’s Terminal 3, with quay cranes controlled by operators sitting in a central control room.
“Much of the loading and unloading process of our ships in Sohar is now automated and with that comes increased speed, reduced turnaround times and, resultantly, lower costs for our clients, Geilenkirchen says. “Our 6 million TEU terminal D, that is currently in its final planning stages will be almost completely automated.”
All these factors are being brought into play as Sohar strives to be the primary challenger to the region’s outstanding port, Jebel Ali, which is one of the busiest in the world.
“We have recorded double-digit growth every year for over a decade at Sohar,” Geilenkirchen says.
If the facility keeps sailing along at that speed it is sure to soon dock among the world’s busiest.