Keys to the Kingdom

Whilst industry reports have forecast a bright future for Saudi Arabia's maritime industry, does the Kingdom have a suitable transportation infrastructure to handle unprecedented growth in cargo volumes?
Keys to the Kingdom
By Robeel Haq
Sun 09 Nov 2008 04:00 AM

Whilst industry reports have forecast a bright future for Saudi Arabia's maritime industry, does the Kingdom have a suitable transportation infrastructure to handle unprecedented growth in cargo volumes?

The growth of Saudi Arabia's maritime sector has continued at full pace in 2008, primarily fuelled by the Kingdom's numerous port developments and a sustained boom in the local consumer market.

As a result, the volume of cargo being handled at Saudi Arabian ports is hitting record highs, rising by 13.5% during the first six months of the year, from a combined tonnage of 11.4 million in January 2008 to 13.4 million in July 2008.

With such robust growth, it's hardly surprising that the Kingdom has established itself as an attractive proposition for both regional and international investors, all scrambling over themselves to capitalise on this continued economic boom.

In particular, Jeddah Islamic Port has emerged as Saudi Arabia's principal seaport, handling approximately 60% of the Kingdom's sea freight imports.

Although this success should be celebrated, the facility has almost become a victim of its own success, with traffic build-up becoming such a concern that shipping lines were reportedly skipping Jeddah Islamic Port and unloading their cargo at alternative, less congested facilities.

Taking action before the situation reached a detrimental and potentially critical stage, Saudi Seaports Authority (SSA) recently announced a US$140 million development programme, involving the construction of three additional wharfs in the northern container terminal, together with a series of infrastructure enhancements to speed the cargo handling process.

"Jeddah Islamic Port has experienced a record period of growth in 2007, with around four million containers being handled. This is a sizeable increase over 2006 and we want to reach six million containers in the near future," says Dr Khaled bin Ahmed Bubshait, SSA's president.

"Studies are currently underway for an expansion, which will increase the capacity to handle larger ships and containers. This includes the ongoing construction of the third container station in the north west of the port, which will cost approximately half a billion dollars, with a capacity to handle up to 1.5 million containers."

Investments have also been earmarked for the Kingdom's other leading ports, including King Abdulaziz Port in Dammam, which ranks second among the commercial ports in volume, and Jubail Commercial Port in the Eastern Province of Saudi Arabia.

Although smaller in size compared to a number of its counterparts, Jubail Commercial Port has received a significant amount of attention in recent years, helping to alleviate the burden on King Abdulaziz Port, which is 80 kilometres to its north, for both import and export shipments.

"Saudi Arabia has envisaged an investment of $8 billion on modernising its ports, which will be done with the participation of the private sector. The development of seaports is essential to future growth," admits Bubshait.

The development programmes have been heralded by traders affected by the congestion, many of whom have openly spoken about their concerns.

In particular, a proposed strategy to divert ships bound for Jeddah Islamic Port earlier this year received a lukewarm response from the local business community.

National Shipping Company of Saudi ArabiaThe National Shipping Company of Saudi Arabia (NSCSA) celebrates its third decade of operations in 2009, establishing itself as a leading name in the regional and international maritime industry.

Since launching its operations in 1979, with a focus on the transportation of general cargo and containers, the Riyadh-based company has diversified into the movement of crude oil, chemicals and liquefied petroleum gas, in addition to specialised ship management.

Among the major reasons for its success, according to chief executive officer Hamoud Al-Ajlan, is the foresight shown by its management. In 2004, when it became apparent that the global shipping cycle was about to take a downturn, NSCSA took a diametrically opposite view and planned for a boom in transportation requirements of oil, gas and petroleum products, especially from the Middle East Gulf region.

"A five-year strategic plan was developed for the period 2006-2010 and our resources were aligned accordingly," explains Al-Ajlan. "The expansion plan called for aggressive growth in our main business sectors, such as the transportation of crude oil, petrochemicals and general cargo. Fleet augmentation plans were drawn up for these segments, and newbuilding orders placed as per the forecast requirements. By 2011, we should have a fleet of 53 vessels, excluding future orders."

At the beginning of the plan, the company placed orders for a total of eight very large crude carriers, all of which are scheduled to be delivered before the end of 2009. The vessels will be operated on both time and spot charter. "We have also ordered 10 chemical carriers, all of which have already been delivered to our subsidiary company, National Chemical Carriers," says Al-Ajlan.

"Sixteen more chemical carriers have been ordered, and will come to us between 2009 and 2011. When all the vessels are delivered, NSCSA will become the undisputed market leader in this segment, and will be well entrenched as a leading shipping company, not only at the regional level, but also internationally."

The strategic plan also called for growth-oriented initiatives in operational, financial, administrative and technical areas, with Al-Ajlan stressing that the company has an excellent network in terms of reporting, which benefits from the latest in information technology. "We have all aspects of monitoring and support services well in place in our Riyadh headquarters," he says.

In terms of operations, NSCSA is competing well in the world's largest market, having increased the frequency of sailings to the North American continent. The USEC (United States East Coast) service, which has a 21-day cycle, completes a round trip in 80 days with calls at Dammam, Karachi, Mumbai, Jeddah, Livorno, New York, Baltimore, Houston, Savannah, Wilmington, Newport, New York, Halifax, Port Said and Port Rashid.

"There is a serious effort at NSCSA to provide the customer with an integrated service. Different business units and subsidiaries within the company are functioning in harmony, contributing to the growth and development of one another," concludes Al Ajlan.

That plan wasn't suitable because Damman and Jubail are also congested," a local newspaper was told by Saleh Al-Darwish, president of customs clearance firm Moayed Saleh Al-Darwish.

"The authorities have not been able to solve this problem because of the increasing volume of imports every year. All the players, from the seaport authorities to importers and transportation companies, are being stretched to their limits at major ports."

Although a section of the market is pointing the finger of blame at Saudi Seaports Authority, Bubshait believes a unified approach, involving all relevant parties, will help to alleviate the problem and allow the Kingdom to truly capitalise on its potential as a maritime hub.

"A lot of ports in the region are facing similar issues, especially during peak periods. Our development plans will certainly help, although a number of additional factors should be taken into account. For example, port operations have been impacted by a shortage of workers at the handling companies and we are coordinating with the Labour Ministry to address this problem," he says.

"Also, some traders are keeping their consignments at the terminal for two to three weeks, which has put unnecessary pressure on the port. However, we will assist traders to get their goods cleared as quickly as possible."

Defining a reasonable amount of waiting time at ports is fundamental to the recovery process, although judgment is clearly varied across the industry.

The Jeddah Chamber of Commerce and Industry (JCCI), which has recently been instructed by Jeddah Governor Prince Mishaal bin Majed to form a committee and propose ideas to solve the congestion problem, has provided a target for Saudi Seaports Authority.

"The reasonable time for waiting at the port is four hours for a shipping line because of its commitments to other ports. They have to leave Jeddah when the time exceeds the limit," reiterates Ibrahim Al Oqaily, head of the JCCI customs clearance committee.

"The crisis has led to the piling up of goods at the port, causing huge financial losses to traders. Port authorities should acknowledge the problem in order to solve it, instead of trading accusations."

With a turnaround in the situation likely to take place sooner rather than later, investors are still optimistic about future growth prospects for Saudi Arabia's maritime sector.

A host of regional and international companies have already established their base in the country, while industry experts have forecast continued growth, despite the global credit crisis.

"Companies in Saudi Arabia's logistics industry, including the maritime sector, have experienced a period of significant growth in recent years, with growing complexity and variation in demands from their customers," states Husam Al-Saleh, general manager of Hala Supply Chain Services, which recently published the Saudi Arabian Supply Chain Intelligence Report (SASCIR).

"Our research into the market has pointed towards continued growth in the future and we are making suitable investment to capitalise on this situation. By networking in the industry, we believe a large number of other companies are taking a similar approach too."

As part of the development package outlined by Hala Supply Chain Services, the company has invested in a shipping company and 60,000m2 of overflow warehousing space in Dammam, Riyadh and Jeddah, seemingly undeterred by recent market challenges such as port congestion.

"Our development plan is based on sound research," says Al-Saleh.

"I believe our ports are experiencing normal growing pains, but the clear vision of expansion by the Kingdom's leaders will turn our current challenges into competitive strengths in the future years to come."

Kuehne + Nagel Case StudyEarlier this year, Kuehne + Nagel became the first international logistics provider to operate a wholly-owned national subsidiary in Saudi Arabia.

The industry heavyweight, which previously operated in the Kingdom as a joint venture with E.A. Juffali and Brothers, recently took advantage of a change in domestic legislation to trade under the global Kuehne + Nagel brand.

"The establishment of a wholly-owned national company in the Kingdom of Saudi Arabia provides us with significant strategic and operational advantages," says Werner Kleymann, regional manager of Kuehne + Nagel in the Middle East.

"Customers can now fully leverage the quality and scope of our globally standardised business and IT processes, together with our complete portfolio of forwarding and logistics services. At the same time, with a professional management team now in place, we can pursue our development objectives in the Kingdom in terms of operations and staffing," he added.

Kuehne + Nagel, which currently employs 80 staff in Saudi Arabia, has headquarters in Jeddah and additional branches in Riyadh and Dammam. The company has reported a strong position in the local seafreight and airfreight markets and stands to gain substantial benefits from the ongoing expansion of the regional oil and gas sector. In addition, it plans to establish a contract logistics division later this year, which is receive to see considerable investment during the course of 2009.

Saudi Arabia is one of the major countries for us in the Middle Eastern region. A lot of efforts will be made in order to increase our market share in the future," concludes Kleymann.

"The sea freight sector has seen the biggest growth for our operations by far and we are experiencing particular growth in the import business from the Far East. Of course, there is room for improvement, but the authorities understand the requirements and corrective actions are being initiated, so I envisage strong growth for our activities in Saudi Arabia."

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