By Neil Halligan
Investment in ports in the GCC region is at a record high, as countries around the region look to copy the growing success of Jebel Ali
Growth in shipping ports in the GCC region is continuing at unprecedented levels. Current estimates put the investment in port facilities at $35bn.
Saudi Arabia has a five-year plan to expand its ports capacity with an estimated $30bn due to be invested and Egypt has recently raised $8.5bn for the expansion of Suez Canal.
The investment in ports is not just upgrading the region’s ageing facilities, but also about building new facilities on greenfield sites, as countries look to caplitalise on a growing level of sea trade.
First introduced in the 1950s, container shipping has become the most common method for transporting many industrial and consumer products by sea since the late 1960s.
In the Middle East, and GCC in particular, the industry has grown to become a cornerstone of economic growth, none more so than in the UAE, where Jebel Ali is the benchmark for others to follow.
Right from the outset, when the port was being developed in the early 1970s, the UAE brought in the best minds to devise a strategy to build on for the future.
“The early mover advantage is still helping it because when it started creating Jebel Ali in the 70s, 80s and early 90s, none of the neighbouring nations had any focus on transportation infrastructure,” says Srinath Manda, programme manager, transportation and logistics practice, Middle East, North Africa and South Asia, Frost & Sullivan.
“The good thing was the UAE tried to procure and implement the best port practices which are available anywhere in the world — from the Far East, from Europe and from the Americas region.
“So they got the best minds and put together policies and infrastructure that is very friendly and convenient for somebody wanting to grow a hub for shipping cargo,” he says.
Today, Jebel Ali port is the flagship terminal of DP World, which operates more than 60 ports across the world.
Mohammed Al Muallem, senior vice president and managing director DP World, UAE Region, says the success of Dubai as a city is strongly connected to the growth of the port.
“The vision and strategic thinking of the leaders of Dubai in creating Jebel Ali Port and developing other marine services has been the foundation of the success of the city and the port over the long term.
“Efficient infrastructure is the backbone of Dubai. It has supported and driven the Dubai we see today,” he says.
The port has maintained its place in the world’s top ten ports, with over 90 weekly services connecting 140 ports across the world.
With an average monthly throughput in excess of 1 million TEU (twenty foot equivalent container units) over the past two years, it serves as a gateway to the wider region and is a key enabler of economic growth in Dubai and the UAE, according to Al Muallem.
“UAE GDP and the volumes at our Jebel Ali Port have grown in lockstep with each other over more than 30 years. Dubai has ‘connected the dots’ to provide seamless people and cargo movement throughout the country, the GCC, the Middle East and the wider region of 2 billion people,” he says.
Jebel Ali was also the first to integrate the port with a special economic zone, or free zone. The port, along with its adjacent area, was made a free zone in 1980, which primarily meant a customs-free zone for promoting re-exports.
In 1985, an independent authority named Jebel Ali Free Zone Authority (JAFZA) was established to manage and promote the free zone.
According to Manda, the zone gives immediate and easy access to seaport with good infrastructure and efficiency and ‘one stop shop’ bureaucracy, with customs-free trading zone and no foreign ownership restrictions.
“In most cases, the neighbouring countries are trying to emulate or match the success of what the UAE has achieved with Jebel Ali and JAFZA combination.
“To an extent, we would see Saudi Arabia, and its large domestic volumes, and also having ports on Red Sea, has great potential to develop and achieve similar success,” says Manda.
Saudi Arabia has been pumping billions into developing its ports, including the $510m expansion project at Jeddah Islamic Port which will increase its capacity by 45 percent.
However, the game changer on the Red Sea, where 24 percent of global trade runs, is the King Abdullah Port.
Part of the King Abdullah Economic City (KAEC) project, the port currently has capacity for 1.3 million containers, and plans for 4 million in the next two years and 7 million by 2017. They are targets that would propel it towards the top 20 in the world, but according to Manda, it will be some time before it’s able to claim a lofty position.
“Probably because of the high reliance on the oil revenue, they did not need to look into any other industry to generate revenues and port development was put on the backburner,” Manda says.
“Only now they have they have started improving the ports. The industry believes that it may take a bit of time before Saudi Arabia will have an impact on the current sea model unless the development is done on a very aggressive scale of activity, with promotions and incentives to build the industry to come and invest,” he adds.
Manda says Oman’s main port of Salalah, where a $75m fuel storage facility comes into operation next year, is strategically positioned to increase growth.
“Within this region, the one country that has a higher advantage over the others is Oman, with its Salalah port. That’s already good for container trade by the liners. It’s very convenient on the Arabian Sea side, someone doesn’t have to go all the way into the Gulf and so the transit time is reduced,” he says.
“Its volumes have been increasing year after year, the future looks good for this port,” he adds.
Much of the significant port investment in the country, following the closure of the Port of Muscat, has been in at Sohar Port, an hour's drive north of the Omani capital. The freezone started operations in 2009, attracting more than $15bn in investments.
The infrastructure is also attracting investment, with a $130m upgrade set to double the terminal capacity at Oman International Container Terminal in Sohar.
Sohar Free Zone CEO, Jamal Aziz says Sohar is the most important link in Oman’s commercial logistics industry and a ‘vital contributor’ to the diversification and globalisation of the economy.
“In just six months we have expanded almost every aspect of our operations, including the $130m relocation and expansion of the Oman International Container Terminal and a $2.5m investment to connect infrastructure that has cut turnaround times at Oiltanking Odfjell’s oil and gas storage facilities,” says Aziz.
“Cargo volumes continue to grow at a rate beyond the 50 million tonnes per year that we have witnessed in recent years, and we are also seeing growth in industries beyond those that were originally set up when Sohar was launched as a joint venture with the Port of Rotterdam back in 2002,” he adds.
Oman Oil Refineries and Petroleum Industries’ $6.5bn refining and petrochemicals project, located next to the port, is the start of an overall five-year development plan that will see two more developed in the same location.
Other ports in the region have been developing their operations. Abu Dhabi opened a 2 million-TEU container terminal at Khalifa Port and adjoining Khalifa Industrial Zone Abu Dhabi (KIZAD). The port ranked fifth on The Journal of Commerce’s 2013 Europe, Middle East and Africa Port Productivity list in its first sucessful year of operations.
“Once all phases of the development of Khalifa Port and Kizad are complete, both sites will have the potential to contribute 15 percent of the UAE’s non-oil and gas annual GDP (gross domestic product),” Mohamed Al Shamisi, CEO of Abu Dhabi Ports Company was quoted as saying last month.
Qatar is building a $7bn New Doha Port,which will have capacity of 2 million TEUs when the first phase of the project is completed in 2016.
With all of this new development, the question is what effect will it have on Jebel Ali?
“There is a need for new and upgraded facilities in the region,” says Al Muallem.
“At Jebel Ali, we are still operating at high utilisation, despite the 1 million TEU capacity opened in June 2013 taking capacity to 15 million TEU.
“The 4 million TEU capacity Container Terminal 3 to be added in 2014 -2015 will not only alleviate capacity constraints and enable more efficient running of the port, but importantly will also service future growth of Dubai and the region,” he adds.
He said the growth in the region pointed towards sustained growth for all ports in the years to come.
“Each country has its own needs and requirements. The region is growing rapidly both in terms of their economies but also population demographics.
“According to reports from the IMF and [shipping consultants] Drewry there will be sustained growth over the coming years in the GCC, Middle East and the wider region, assisted by international events such as the World Expo 2020 in Dubai,” says Al Muallem.
The ports industry could possibly see a seismic change by 2018, the year when all GCC countries are expected to have completed their rail projects, and will be linked by a 2,177km-long rail network.
The $200bn network will run down the Gulf coast from Kuwait, through Saudi Arabia, to the UAE and Oman, with branches linking Bahrain and Qatar.
Designs have included connections to ports and for Jebel Ali, and like locations across the region, Al Muallem says it will provide even greater access to market.
“We have appointed an international consultant to set up a plan for the connecting of the hinterland with Jebel Ali port. They are helping us assess the best way of connecting landside services to Jebel Ali for the benefit of customers, including the new rail connection.
“The opening of the Etihad Rail terminal in Jebel Ali Port will provide another mode of transport for business and provide even greater access to market, facilitating trade,” he says.
Having first devised the blueprint for a successful port, Jebel Ali continues to provide other ports in the region with a guideline on how to grow even further.
“For the supply chain, the future will see even greater multi-modal connectivity with the Etihad Rail development underway, and the further development of the Dubai Logistics Corridor and Al Maktoum Airport. This linkage of sea, air, road and rail is unique in the wider region,” Al Muallem says.