Port authorities across the Middle East are engaged in an investment race to capture shipping line handling contracts and establish themselves as hubs for regional trade and distribution.

With huge business and economic spin-offs at stake, the market for maritime transport terminals has become intensely competitive, sparking massive capital investment, particularly in container facilities.

Oman’s Sohar Port has been developed around three sector clusters: metals; petrochemicals; and logistics. The port has entered the container business with the opening of the Oman International Container Terminal (OICT), which replaces a facility in Mina Qaboos, Muscat. Like its rivals, it hopes to win transshipment business as a supplement to its role as a national gateway.

Strategic location

Sohar, like nearby Fujairah and Khor Fakkan in the UAE, aims to make the most of its location outside the Strait of Hormuz. Diverting a ship sailing between Asia and Europe into the Gulf adds many hours or even days in extra sailing time and, particularly at times of concern about security risks in the Gulf region, there can also be hefty additional insurance costs. Instead, containers unloaded at Khor Fakkan, Fujairah and Sohar can be trucked onwards to Gulf destinations or taken by local feeder ship services.

At Khor Fakkan, the second phase of a major expansion programme has equipped the port with 20 container gantry cranes. Quayside water depth is 16 metres, allowing the port to receive some of the world’s largest container ships.

Regional port capacity and investment
Location Port Capacity (TEUs a year) Capital investment (current or planned)
Umm Qasr   700,000 $130m
Kuwait  Bubiyan Island Not yet open $1.14bn (phase 1)
  Shuwaikh 850,000  
  Shuaiba 350,000  
Dammam   2.4 million $750m
Bahrain Khalifa bin Salman port 1 million  
Qatar Doha 750,000  
  New Port Project 6 million $5.2bn
Abu Dhabi Khalifa port 2.5 million  
Dubai Jebel Ali port 19 million*  
Sharjah Port Khalid 750,000  
  Khor Fakkan 5 million  
Sohar OICT 1.2 million $303m
Fujairah   1 million  
Salalah   5 million $120m
Jeddah   7.2 million  
Port Said SCCT 5.1 million  
Alexandria & El-Dekheila   2.5 million  
Damietta   1.2 million  
*=By end of 2015; OICT=Oman International Container Terminal; SCCT=Suez Canal Container Terminal. Source: MEED

At Sohar, the operator of OICT, Hong Kong-based Hutchison Port Holdings (HPH), is planning two further terminals to complement the existing facility. At least one will offer water depths of 18 metres. The two terminals will include 166 hectares of container yard area, since storage space is as important for the efficient functioning of a container facility as the cranes and quayside berths. Once the two new terminals are open, Sohar will have an annual container trade capacity of 5.3 million 20-foot equivalent units (TEUs).

Far to the south, Salalah also has a major container hub. Here the overwhelming focus is transshipment trade, although the port does handle some local traffic. Salalah is closer to the main trunk shipping route between Europe and Asia, and to routes serving the east African coast. Speed of turnaround time is key to its competitive appeal, and Salalah has installed advanced technology to smooth the berthing process.

A similar race for shares of the transshipment market is under way in Egypt, where rival ports seek to attract calls by ships passing through the Suez Canal on the Far East-Europe route, and dropping off cargo for destinations around the eastern Mediterranean.

The commercial stakes will increase once Egypt has completed in August its $8bn-plus expansion of the canal, which will allow two-way traffic along almost half the waterway’s 120-mile length and permit the passage of even larger ships.

The expected upsurge in trade flowing through the canal, including larger ships operating from Asia to Europe, dropping off cargo at intermediate distribution hubs along the way, represents a major opportunity for the country’s ports, which have already been investing to strengthen their position in the container market.

Suez terminal

As far back as 1999, the government invited bids for the development and operation of a container facility at East Port Said. A 49-year concession contract to operate what is now known as the Suez Canal Container Terminal was subsequently awarded to Netherlands-based APM Terminals, which has a 55 per cent stake, with a further 20 per cent held by Chinese shipping group Cosco and the remaining shares in Egyptian hands. The terminal has been steadily expanded, with a second phase of development taking its capacity to 5.1 million TEUs, followed by a third phase.

Competition comes from Alexandria International Container Terminals, an HPH operation, with facilities at Alexandria and El-Dekheila.

Damietta Port is also a serious player, with 14 metre quayside water depth and the capacity to handle three or four major vessels simultaneously. And there are ambitions to expand further. Ahmed Amin, maritime affairs adviser at the Transport Ministry, has just announced government plans to build another terminal at Damietta, with 17 metre depth, to accommodate the latest gargantuan ‘third generation’ container ships or even larger vessels.

As shipping lines seek to maximise economies of scale by using ever larger boats to operate their long-haul trunk routes, those ports with ambitions to act as transshipment hubs find themselves under pressure to adjust in order to defend their market share.

Despite the growth of the transshipment business, large numbers of ships still serve destinations within the Gulf, and ports along the coast from Sharjah to Iraq tussle for a share of this trade.

Sharjah Seaports Authority is unusually well placed because the emirate has a coastline on both the Indian Ocean – where the authority operates Khor Fakkan Port – and on the Gulf itself, where it has embarked on work to deepen water depths at the five main container berths in Port Khalid in Sharjah city to 12 metres.

Such investment is essential for the emirate to maintain its market niche, given the proximity of Dubai’s extensive port complexes – which comprise arguably the most important trade hub in the Middle East.

DP World, which operates Dubai’s facilities, believes Jebel Ali to be the world’s ninth-largest container port, with 23 berths and 78 cranes, and equipped to handle the latest giant ships. Already, the port handles more than 90 weekly services, connecting to more than 140 destinations around the world, and an expansion drive will increase total handling capacity to 19 million TEUs by the end of this year.

Khalifa Port

Within the Gulf, competition is intensifying. Abu Dhabi has now developed Khalifa Port, a semi-automated container facility on a reclaimed island site at Taweelah, offering water depth of 16.5 metres. All Abu Dhabi’s container traffic, hitherto handled by Zayed Port on the fringes of the city, has now been transferred to the terminal, which has nine super post-panamax quay cranes and an annual capacity of 2.5 million TEUs. The long-term goal is to expand this to 15 million TEUs.

Qatar is also building a new facility, the New Port Project, south of Doha, which will have an initial capacity of 2 million TEUs when it opens in 2016. This is intended to support the drive to diversify the country’s economic base and will free up space within the capital itself, as it will replace Doha’s current port as the main trade gateway. The port will eventually have three container terminals, each with 2 million TEUs of capacity.

Kuwait is developing infrastructure to support a major new container port on Bubiyan Island. This would not only complement the country’s existing ports – Shuwaikh, Shuaiba and Doha – but also act as a gateway for Iraq. In 2010, South Korea’s Hyundai Engineering & Construction was awarded a $1.14bn contract to build phase 1 of the port, in partnership with the local Kharafi Group.

There are ambitious long-term goals to develop as many as 60 berths at Bubiyan, with plans for a rail connection too. However, the project was under discussion for many years before development work got under way, and Bubiyan has already missed the opportunity to handle cargo for the early phase of Iraq’s reconstruction. Instead, it will have to position itself as a gateway for longer-term mainstream trade with the country.

In doing so, it will face competition from Iraq’s own principal port, at nearby Umm Qasr, where a $130m  upgrade is already under way.

Saudi Arabia has a $30bn programme of port investment under way. Jeddah remains the kingdom’s leading maritime gateway, with capacity of at least 4.6 million TEUs; this is being complemented by the 2.7 million-TEU container terminal at King Abdullah Port at Rabigh. On the Gulf coast, Dammam has been growing too, with the original capacity of 1.7 million TEUs supplemented by a further 1.5 million TEUs.

All this paints a picture of an active regional port and shipping market in 2015, with the Gulf and Egypt playing a dominant role in securing more regional and global trade.

Sponsor’s comment: Investors watch egypt with interest

Egypt’s transport infrastructure is in need of an overhaul and will require billions of dollars of investment over the coming years. It is a task that presents both a wealth of opportunities and challenges for the country and international investors.

If handled effectively, increased investment in Egypt’s ports, railways, logistics, aviation and other related industries could help position the country as a major economic and trade hub in the region.

President Abdul Fattah al-Sisi has recognised the importance of attracting fresh investment into the transport sector as a means of generating economic growth.

In March, Al-Sisi told delegates gathered at the Egypt Economic Development Conference held in Sharm el-Sheikh that at least $200bn-$300bn-worth of investment in infrastructure would be required to get Egypt’s economy back on track, with transport being one of the major sectors of focus.

One of the largest and arguably the most important projects unveiled at the conference was the Suez Canal Economic Zone, a development intrinsically linked to Egypt’s ambitions to enhance its role as a trade and transport hub.

Requiring an estimated $50bn of investment, this project will see the creation of a 500 square-kilometre economic zone revolving around six ports located along the canal. It will house companies in shipping, logistics, energy services, and information and communications technology. It will provide a vital source of employment for Egyptians, and complements the deepening and widening of the canal itself, which is due to be completed in July.

Although the Suez projects are imperative to Egypt’s economic resurgence, there will be other opportunities for investors within the transport sector, given the underinvestment seen in recent years.

The Cairo Metro continues to be expanded, while plans to build a new capital city on the outskirts of Cairo will likely require investment in new transport systems.

The country will also need to improve its airports as it looks to drive growth in tourism. Egypt’s underinvested railways have been plagued with safety issues over the past few years.

The scale of the Suez project demonstrates the real momentum gathering in Egypt to drive growth in transport infrastructure. Investors will be watching with interest to see how this momentum translates into viable opportunities to do business in Egypt.

Kwabena Ayirebi, regional head of global trade and receivables finance, HSBC