$100bn: Estimated value of port development projects under way in the region in 2008

$85bn: Value of active port development projects in the Middle East currently

Source: MEED

Just a few years ago, regional ports were struggling to keep pace with cargo demand. In 2003-08, ports across the Middle East saw double-digit annual growth in container volumes. This put port infrastructure under strain, creating lengthening delays at hubs such as Jeddah and Jebel Ali, and bottlenecks at smaller feeder ports.

The Middle East was one of the last regions to be hit by the downturn and did not fall as much

Dinesh Sharma, Drewry Shipping

High oil prices boosted demand for construction materials, project cargo and consumer goods. At the same time, the boom in oil revenues made it possible for governments across the Middle East and North Africa to address decades of under-investment in port capacity.

In 2008, the region had an estimated $100bn-worth of port development projects under way. Ports that were limited to domestic feeder traffic were to be repositioned as hubs that could handle the largest container ships serving major trade routes.

Trade slowdown for ports in the Middle East

Few governments anticipated the crash that came in October 2008, when the financial crisis brought the global trade boom to a halt. Container volumes plummeted 20 per cent on the key Asia-Europe trans-shipment routes and 8 per cent in the Middle East in 2009.

If recession came later to the Middle East than to Europe and Asia, the downturn had an immediate impact on two of the three regional trans-shipment hubs, where core business comes from goods traded between Asia and Europe.

Middle East port growth
  2009 2010 2015f
Throughput 30.4 33.1 46.8
Capacity 40.4 41.6 48.6
TEUs=20-foot equivalent units; f=Forecast. Source: Drewry

Jeddah’s container throughput fell 7 per cent to 3.1 million 20-foot equivalent units (TEUs) in 2009. Dubai saw a 6 per cent drop in container throughput to 11.1 million TEUs. Only Salalah port in Oman bucked the trend, achieving an 18 per cent increase in throughput to 2.3 million TEUs after the US’ Maersk Line consolidated its global network at the port.

Across the Middle East, volume growth slowed to an average 0.8 per cent in 2009, according to France-headquartered shipping analysts Alphaliner. Despite the shock of declining trade after five years of double-digit expansion, the Middle East was the only region worldwide to achieve any volume growth in 2010.

Because the region came late to the downturn, Alphaliner expects Middle East ports to recover more slowly than those in other regions. Volume growth was less than 5 per cent in 2010.

Others are more optimistic. “The Middle East was one of the last regions to be hit by the downturn and did not fall as much,” says Dinesh Sharma, senior consultant at UK-based Drewry Shipping. “The indications are that the Middle East may recover quite quickly.

Middle East port utilisation (percentage)
  2009 2010 2015f
Utilisation* 75.2 79.5 96.4
* =Average utilisation levels, all terminals in the region including multipurpose facilities. F=Forecast. Source: Drewry

Shipping lines have trimmed their schedules to concentrate on ports that combine maximum volume with minimal handling times and costs. Global shipping lines continue to do all they can to hold down costs after a year when industry losses are estimated to have topped $30bn worldwide. In 2008, Middle East port utilisation levels averaged 79 per cent, creating a clear business case for new port capacity. Now, regional governments are taking a long, hard look at the planned pace of port development.

According to regional projects tracker MEED Projects, the Middle East still has $85bn of port development projects planned and under way. While many key projects are still going ahead, this is less than the amount of investment under way two years ago.

Port projects slow in the Gulf

Several of the schemes are megaprojects worth $1bn or more, but the biggest regional port projects are moving forward at glacial pace. Even the world’s biggest port management companies, which include DP World and Denmark’s AP Moller Terminals, have delayed or halted their expansion.

In recent years, governments across the region had come to see DP World’s fearless approach to expansion as the development model to emulate. Now, even DP World is retrenching. It has delayed the planned third terminal at Jebel Ali. The estimated $1.01bn project would have increased capacity to 80 million TEUs by 2030. But DP World only recently completed terminal two, raising port capacity to 14 million TEUs – more than enough to cope with projected short-term demand.

Average terminal utilisation 2009*
Region 2009
Middle East 75.2
Global average 62.9
*=Average utilisation, all terminals in the region/world, including multipurpose facilities. Source: Drewry

AP Moller Terminals has shelved plans to build a dedicated berth for Maersk Line at Tanger-Med terminal in Morocco. It would have handled up to 3 million TEUs a year.

Other megaprojects are also moving slowly. With limited scope to expand port capacity in Jeddah, Saudi Arabia has pledged to build Millennium Seaport, a new-generation container port on a 14 million square metre site at King Abdullah Economic City (Kaec) near Rabigh. It will handle more than 20 million TEUs on completion.

Saudi ports have proved relatively resilient to regional downturn. In 2009, they handled 4.4 million TEUs and 142 million tonnes of general cargo. Saudi Ports Authority said tonnage handled in all Saudi ports increased 8 per cent in 2010 to 154 million tonnes. Imports climbed 15.3 per cent and exports rose 3.3 per cent.

A new terminal opened in Jeddah in early 2010. The $443m new Red Sea Gateway Terminal began operations in the third quarter. The terminal’s four berths added 1.8 million TEUs to Jeddah Islamic Port’s capacity.

The Red Sea Gateway occupies half a million sq m, bringing total capacity at the site close to 7 million TEUs. It cements Jeddah’s position as the second-largest port in the region after Jebel Ali and is the largest facility on the Red Sea.

Jeddah’s dominance is likely to remain unchallenged in the medium term. Kaec developer Emaar, The Economic City (Emaar EC) is building the Millennium Seaport project on the Red Sea coast at Rabigh, but it is still several years away from completion. Other projects are struggling to secure funding.

Accessing credit for port developers

Securing capital is not as easy as it was for ports developers. Previously, ports were jostling to position themselves as regional gateways. Today, financiers require port expansion projects to match proven local demand.

It is particularly hard for developers to secure investment in trans-shipment terminals, which are prone to intense competition, as opposed to domestic port capacity built to service captive demand.

“Availability of credit has become a major issue,” Sharma says. “There is not enough credit in the market to finance new port development projects. Creditors are extremely cautious about the outlook for trade following the 2008 crisis and are anxious to scrutinise all projects more closely than in the past.

“Because of the scale of the downturn, everyone is being extremely careful. The speed at which the recovery takes shape will determine how quickly these projects become viable. A lot depends on the confidence of regional governments and terminal operators. Until the crisis, growth was so high across the region that all new capacity could be absorbed.”

Before the crisis, “every port wanted to be a trans-shipment terminal”, says Sharma. Now, ports are having to work harder to put together a convincing business case.

This is particularly true when it comes to port development inside the Straits of Hormuz, scene of some of the most frenzied expansion in recent years. AP Moller Terminals has capacity to spare at Bahrain’s Mina Khalifa bin Salman, the new 1 million TEU port that replaces Bahrain’s ageing inner-city port, Mina Salman. AP Moller Terminals has said it plans to position Mina Khalifa as a regional hub to fill its idle capacity. But the arrival of Jebel Ali Terminal Two and Mina Khalifa means that there is capacity to spare inside the Straits of Hormuz.

And more is to come. Abu Dhabi is developing Khalifa Port and Industrial Zone, which will deliver capacity of 2 million TEUs from 2012. Qatar’s New Doha Port will have the capacity to handle 2 million TEUs from 2014.

Sustaining capacity

While both Abu Dhabi and Qatar are launching vast new industrial projects that will generate significant volumes of both raw materials and finished goods, observers question whether the market can support projects where the cargo base is less clear.

Kuwait is also making progress with its port plans. In September, Netherlands-based consultancy and engineering firm DHV won a contract to develop nine ports in Kuwait. The Kuwait Ports Authority is planning to redevelop three existing ports, as well as building six new ports in the country.

Iraq’s planned $6bn port at Al-Faw near Basra remains on the drawing board. Plans have yet to move beyond design stage, but the proposals centre on a 7,000-metre container berth dredged to 17 metres to handle the largest tonnage on the market.

“The downturn has raised questions, particularly in the northern Gulf, about whether it is viable to try to target trans-shipment,” says Sharma.

“Jebel Ali, Jeddah and Salalah are the hubs for the Europe-Asia trade lanes. It was always questionable whether shipping lines would deviate their trans-shipment calls to terminals further north. It’s not really viable.”

The past couple of years have seen a shift in port development activity away from the region’s mature players towards emerging markets, driven by proven local demand.

Despite the concerns, Drewry predicts that the Middle East is poised for medium-term port growth. “The indications suggest that the Middle East may recover quickly,” says Sharma.

“When utilisation levels improve, we will see projects start to move forward. Drewry’s research suggests that the Middle East could hit utilisation levels of 91 per cent by 2015 – that’s among the highest utilisation levels in the world.”