Facing up to an oversupply

06 July 2010

It is unlikely demand for shipping and aviation will increase to absorb new capacity in the region

The Gulf states have invested billions of dollars in aviation and ports projects over the past decade on the back of a boom in oil prices. As those schemes reach completion the inevitable question of where the customers will come from has to be asked. Previously, travellers to and from the GCC had limited options over which companies to fly with. Today, they can chose between several of the world-class airlines. Logistics firms are also finding their options increasing as each of the GCC states invest in new modern port facilities.

Dubai’s Jebel Ali port – construction of which began in the late 1970s – has long been the region’s leading port and major trans-shipment hub. An industrial freezone has grown up around the port over the past 25 years and today is home to more that 6,500 companies.

Other cities in the region are keen to emulate this success and governments have moved quickly to provide financial support for their ambitions. Since opening last year, Bahrain’s Khalifa bin Salman port has struggled to attract new business.

This is in large part due to the global financial crisis bringing about a downturn in the shipping industry. But it also suggests customers are unwilling to uproot and move to a new site, while their current location serves them well. The new Al-Maktoum cargo terminal was built to satisfy an anticipated long-term growth in cargo volumes to Dubai, but the change in the economic climate has left fewer than hoped for firms wanting to use the facility.

The shipping and aviation markets are expected to recover in the medium-to-long term. But in the short term, the GCC’s ports and airlines will find them having to compete among each others for business. This will certainly lead to reduced profitability for operators, but for logistics firms and other customers there is now a rare opportunity to drastically cut overheads.

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