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Wed 5 Feb 2014 12:27 PM

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Investment needed to ease Mideast port congestion

US agribusiness giant Cargill sees port congestion in Morocco, Egypt

Investment needed to ease Mideast port congestion

US agribusiness giant Cargill Inc. sees a pressing need for more investment to relieve port congestion in the Middle East and North Africa to ease delays that make governments pay more for imported food.

On the export side, Cargill is interested in new ideas for investment to get more Black Sea region grain exports to the world market while overcoming limitations of space for new facilities there.

A 20-30 day delay to discharge goods is now commonplace in Morocco's Casablanca while similar problems face Egypt's Dekheila port on the Mediterranean, the managing director of Cargill in the Middle East and Africasaid on Tuesday.

"This is an interesting area that governments should look at, as many ports in the Middle East and North Africa today have very long line-ups of vessels as the port capacity to get the commodities into the supply chain is not sufficient," Johan Steyn told Reuters in an interview.

As well as holding up goods for longer at ports, the congestion ultimately pushes the price of imports higher because slow discharge rates are factored into freight calculations.

"It puts a time lag on the supply chain but it also raises the cost," said Steyn, who was in the United Arab Emirates capital Abu Dhabi for an agricultural innovation conference.

Egypt, the world's largest wheat importer, operates its ports at near full capacity, handling up to about 20 million tonnes of grain and oilseeds a year.

Port congestion has been particularly pronounced in Egypt since three years of political turmoil triggered a currency crisis that made it hard to finance food and fuel imports.

In the summer of 2013, before the army ousted former President Mohamed Mursi, the funding crunch triggered a stream of smaller grain shipments, clogging up ports, as traders purchased on a hand-to-mouth basis.

Since then, more than $12bn of aid from Gulf countries including Kuwait, Saudi Arabia and the UAE has made funding less of a problem but some ports remain backlogged.

"It is absolutely still a concern," Steyn said.

Port expansions should take priority over onshore storage projects that have attracted considerable investment since the 2008 food crisis pushed governments to stockpile more to increase food security.

The UAE expects within months to start operating new grain storage facilities at the port of Fujairah that can hold up to 275,000 tonnes. This will bring to 850,000 tonnes the total grain storage capacity of the country, which imports over 90 percent of its food needs.

But should the trend of increasing storage capacity for strategic reserves continue, it could lead to food price inflation as buyers import more than they need for consumption, Steyn said.

"You just create an artificial food price inflation due to that scenario," Steyn said.

Instead the focus should be on purchasing from the market more efficiently, allowing supply and demand fundamentals to work. "That way you can have faster access to food crops and at a lower cost," Steyn said.

"If you look at the geographic layout of Eastern Europe and Black Sea exports there is very little land available to put ports in to create export channels and people, including Cargill, are actively seeking investment opportunities in that origin," Steyn said.

"It's not a shortage of dollars for investments, it's more a search for ideas of how we can innovatively do that," he said. One area of interest was floating terminals, he added.

In December 2013, Cargill bought a stake in a Russian grain terminal to bolster its access to Black Sea export facilities.

The firm purchased a 25 percent plus one share of indirect interest in the Kombinat Stroykomplekt (KSK) terminal from privately held Russian firm Deloports Limited.

The Middle East and North Africa have increasingly shifted grain buying to Black Sea origins which are more competitively priced than traditional suppliers in North and South America.

"Eastern Europe will continue to increase in importance on the supply side of the global food and feed industry, it is present structurally now as an exporter and it won't go away," Steyn said.

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