The economic downturn of 2008-10 forced governments in the Middle East into a reappraisal of their port expansion plans. Several construction projects have been shelved, among them Dubai’s plans for a third terminal at the region’s largest port in Jebel Ali.

Other states chose to press ahead with their expansion strategy, gambling that a swift recovery in global trade would absorb the new capacity.

Jeddah Islamic Port had little choice, but to press ahead with its third terminal. Construction of the new Red Sea Gateway was already close to completion when the recession struck.

The $443m facility opened early in 2010 and began operations in the third quarter. The terminal’s four berths added 1.8 million twenty-foot equivalent units (TEUs) to the port’s capacity.

Jeddah port’s pivotal position

The Red Sea Gateway occupies half a million square metres, bringing total capacity at the site close to 7 million TEUs. The third terminal cements Jeddah’s position as the second-largest port in the region after Jebel Ali and the pre-eminent facility on the Red Sea, ideally situated on one of the world’s major trade routes, between Asia and Europe, through the Suez Canal.

The terminal incorporates 10 Chinese-built post-Panamax cranes, capable of stacking 24 containers across a vessel.

Jeddah Islamic Port
Cargo throughput (million tonnes)
2006 2007 2008 2009 2010*
40.3 42.2 45.7 40.9 45.1
*=To end of November. Source: Saudi Ports Authority

The channel to the site also has an 18-metre draught, capable of accommodating the next generation of container ships, which carry up to 13,000 TEUs each.

The new terminal is coupled with a bonded re-export zone, the first of its kind on the Red Sea, to enhance the port’s credentials as a trans-shipment hub, with full logistics and warehouse facilities, and the most modern operating software.

We are working on the road problems with the Transport Ministry. There will soon be tenders out

Saher Tahlawi, Jeddah Islamic Port

“The last batch of major equipment – two gantry cranes – were mobilised within two weeks. By mid-October, the terminal was fully operational,” says Saher Tahlawi, the port’s director general. “Prior to this we were handling 75,000 TEUs a month and within a few weeks this figure rose to 100,000 TEUs. The terminal is doing well. Business is good.”

Despite the excitement at the terminal’s inauguration, the new capacity was long overdue. Handling 73 per cent of Saudi Arabia’s total container traffic, the kingdom’s marine gateway has been operating at or beyond its capacity for some three years and the port’s reputation has taken a battering as a result.

Container traffic (million TEUs)
2006 2007 2008 2009 2010*
2.9 3.1 3.3 2.2 3.5
TEUs=Twenty-foot equivalent units; *=To end of November. Source: Saudi Ports Authority

Plagued by delays and operational difficulties, the port has frequently come to a standstill during peak periods in the past three years, particularly around the Hajj and Umrah pilgrimage seasons and during Ramadan.

Some vessels have been left waiting up to a month for a berth, with perishable cargo rotting onboard or at the shipyard because it could not be moved into the city. Frustrated local merchants have been unable to move their exports as operations at the port ground to a halt.

King Abdullah Economic City will open with 1.5 million TEUs. This is small. We have plenty of business

Saher Tahlawi, Jeddah Islamic Port

As a result, some carriers began to ignore the port altogether. Despite its attractive strategic location, Jeddah has appeared close to throwing away that advantage in recent years as local authorities have struggled to cope with the congestion at the port.

Plans to hire hundreds of extra dock workers in late-2008 failed to ease the problem. As complaints mounted in early 2010, the Saudi Department of Customs and Saudi Ports Authority proposed forming an emergency committee to address the issues.

The new capacity and equipment at the port should go some way to easing the pressure, but Jeddah’s problems are more fundamental.

Transport concerns for Jeddah

The key difficulty is the port’s location, just to the south of the city centre. Unlike many of the other main seaports in the region, Jeddah has not moved its port facilities out of the city to allow for expansion and better intermodal transport links.

Dubai led the way in this, establishing Jebel Ali well outside the main city in the late-1970s, long before the emirate became the trade, business and tourist hub it is today.

As the city’s expansion has accelerated over the past decade, Dubai’s central commercial marine hub at Port Rashid has been steadily phased out and converted into a cruise terminal.

In recent years, other Gulf states have followed suit, with Abu Dhabi, Qatar, Bahrain, Oman and Kuwait all developing ports outside the confines of their capital cities. Aside from the operational benefits, most governments have decided that a large industrial port in the city centre is at odds with the modern image they wish to project.

By declining to follow this trend, Jeddah Islamic Port now finds itself hemmed in by the city around it. Road access to the site is constricted, which reduces the speed at which goods can be loaded and unloaded from vessels. The situation was supposed to have been relieved by the development of the Saudi Landbridge rail project, linking the port via Riyadh with the Gulf coast at Dammam.

The $7bn project offered the prospect of an integrated cargo network from coast to coast for the first time. Officials at the port in Jeddah spoke excitedly of moving cargo from the Red Sea to the Gulf by rail in a day rather than the week required by sea. Once the Landbridge was complete, they claimed Jeddah might even challenge Dubai as the region’s key trans-shipment hub.

Project shelved

Land has been set aside through Jeddah for the arrival of the Landbridge, but the railway itself is nowhere in sight. Financial concerns dogged the project even before the economic downturn and banks grew more agitated as Saudi Arabia slipped briefly into recession.

Shipping groups have made it clear that unless the railway is built on a colossal scale,
it could never handle the cargo volumes needed to persuade them to reroute their networks overland.

With the Landbridge now shelved indefinitely as Riyadh concentrates on other rail projects, Jeddah is examining more prosaic solutions to the congestion problems at the port. Port officials have put forward a $1bn road construction programme to improve access to the site.

Under a plan submitted in 2010 by Saudi Industrial Services Company (Sisco), 28 new bridges and numerous roads would be built to divert city traffic away from the port entrance, leaving clear access for cargo lorries to and from the site.

Sisco holds a majority stake in the Red Sea Gateway and is determined to see the port expansion succeed. A study into the project is already under way, with port officials advising alongside the Transport Ministry and the Jeddah Municipality.

“There are no congestion problems at the port itself. Hopefully they are history. We are working on the road problems with the Transport Ministry. There will soon be tenders out to build these new roads and bridges,” says Tahlawi.

The improvements cannot come soon enough, with port officials reporting a sharp upturn in cargo volumes in 2010 after the slump in 2009. Trans-shipment traffic is up by around 45 per cent and general cargo volumes have risen by 20 per cent.

“There has been a huge improvement in the market. In August, we had a 72 per cent increase in trans-shipment traffic,” says Tahlawi. “We expect to have 3.9 million TEUs of container traffic [in 2010]. [For 2009], it was 2.15 million.”

This upward curve can be expected to steepen as the global economic recovery grows in strength and Asian exports to Europe, the lynchpin of trade through the Red Sea, return to their pre-recession levels.

The Saudi domestic market is also predicted to expand rapidly. A young population and a burgeoning middle class demand consumer goods in ever greater volumes as the kingdom’s oil wealth trickles down to the wider population.

Port officials in Jeddah are already looking ahead to further possible expansion. Singapore’s PSA has completed a feasibility study for a fourth terminal at the site, that could increase total port capacity by up to 60 per cent.

Initial plans are for a 4 million TEU terminal, bringing capacity at Jeddah to 11 million TEUs. Port officials aim to begin construction by 2015, with the new facility fully operational by 2020.

“We will see how the port absorbs the new capacity, but that schedule is still in place. We will have to make a final decision in two or three years,” says Tahlawi.

“We expect to have about 4.5 million TEUs in 2011 as the market continues to improve.”

The absence of a credible rival in the Red Sea trans-shipment market has perhaps been one of the reasons Jeddah’s authorities never elected to move the port away from the city, as others in the highly competitive Gulf market have done.

Port competition in Saudi Arabia

However, Jeddah will soon face competition from within its own borders as the brand new port at King Abdullah Economic City in Rabigh nears completion just along the coast.

The new port will open with an initial capacity of 1.5 million TEUs and will be purpose-built, without a surrounding city hindering operations.

Shipping groups and port operators are known to be looking closely at the new site, acknowledging that Rabigh could offer a clear improvement in customs clearance procedures and portside operations.

The benefits need to be set against the cost and hassle of uprooting their current facilities in Jeddah and moving them up the coast. For all its faults, companies have made significant investments in Jeddah in terms of equipment and real estate.

Problems at the current port would have to increase dramatically for companies to seriously consider Rabigh as their principle hub in the kingdom and officials in Jeddah are confident of maintaining their position.

For now, it seems there is little prospect of a new port muscling its way into the elite group of regional trans-shipment hubs at Dubai, Jeddah and the Omani port of Salalah.

“King Abdullah Economic City will open with 1.5 million TEUs. This is very small. We have plenty of business, it is not a concern,” says Tahlawi.