Port developers in UAE search for a niche

13 October 2009

Despite the economic downturn forcing many port expansion plans to be put on hold, competition in the sector is increasing and operators need to focus on specialisation

UAE ports handled more than 60 per cent of the GCC’s 24 million container shipments in 2008. The federation is home to 24 ports, with each emirate operating at least one major commercial facility. During the boom years of 2003-08, the UAE invested heavily in infrastructure, and port development was central to the country’s expansion and modernisation.

MEED Projects lists $4.6bn worth of current port construction projects in the UAE, accounting for nearly 10 per cent of the $46.5bn total value of current and planned port investment in the Middle East and North Africa. Until October 2008, when the global financial crisis hit the region, ports across the GCC had been struggling for five years to keep pace with double-digit annual growth in container volumes. This year, however, financial analysts expect a 7 per cent drop in throughput at ports in the region.

When the downturn hit, UAE governments were already committed to heavy investment in new port capacity. Projects under way range from Abu Dhabi’s new port at Taweelah, valued at $2.5bn, to Kuwait-based KGL Ports International’s proposed $250m expansion at Mina Saqr in the emirate of Ras al-Khaimah. But now several UAE port expansion projects are slowing their pace.

Complementary operations

Over the past decade, Dubai’s state-owned port authority, DP World, has expanded through concessions and acquisitions from its home bases at Port Rashid and Jebel Ali Port to control an empire of 49 terminals and 12 port development projects in 31 countries. In 2007, for example, DP World was awarded a 25-year concession to develop, manage and operate Dakar Port in Senegal.

DP World has also expanded within the UAE. Its UAE portfolio now includes the container terminal concession at Fujairah Port, Abu Dhabi Terminals’ operation at Mina Zayed and, from 2010, management of Khalifa Port & Industrial Zone (KPIZ), which is under construction at Taweelah in Abu Dhabi.

Last year, DP World’s UAE division – Mina Zayed, Jebel Ali and Fujairah – handled 11.8 million 20-foot-equivalent units (TEUs), growth of 11 per cent on the previous year.

Before DP World won the Fujairah and Mina Zayed port concessions in 2005, each had tried to position itself as an alternative gateway to the UAE. But the port authority has since worked to make its three UAE ports complement, rather than compete with, each other.

The strategy has been to position Jebel Ali as the main container trans-shipment hub and Fujairah as the hub for bunkering (refuelling) and ship supply. When KPIZ opens in two years’ time, Abu Dhabi will upgrade from a domestic port into a key UAE hub for industrial cargo, and operations will move out of inner-city Mina Zayed to a new, dedicated site.

Built 5 kilometres offshore, KPIZ is one of the largest port development projects under way in the Middle East. Phase one is valued at $2.5bn, and subsequent expansion could take the project’s total cost to $10bn. The port is a cornerstone of Abu Dhabi’s 2030 masterplan for economic development, which commits the emirate to building an integrated transport system.

KPIZ covers a 2.2-square-kilometre site. Construction of phase one should finish in the autumn of 2011, and the port component is due to open for business early in 2012.

Key facts

$4.63bn - Value of ports construction projects in the UAE

24 - Number of ports currently operating in the UAE

6 million - Handling capacity for general goods at Mina Khalifa port

Source: DP World; MEED Projects

While Jebel Ali’s growth is driven primarily by trans-shipment, making it a hub rather than a destination for goods, Mina Khalifa will manage a mix of industrial cargo as Abu Dhabi diversifies its exports.

Mina Khalifa will have space for an initial 6 million tonnes of general cargo and 2 million TEUs of containerised goods. However, there may be a risk of duplication with Jebel Ali. Abu Dhabi currently ships much of its containerised traffic via neighbouring Dubai. Its own Mina Zayed port handled just 268,069 TEUs in the first half of 2009.

With the downturn in trade comes the risk of short-to-medium-term overcapacity in UAE container handling. DP World had planned to invest $1.7bn in a third terminal at Jebel Ali. But does the UAE still need both the new container berths at KPIZ and the new capacity at Jebel Ali?

In the long term, KPIZ could take pressure off Jebel Ali once the market returns to growth, say analysts at UK consultant Drewry Shipping. “It may well be that Jebel Ali finds it difficult to expand its landside infrastructure, creating bottle-necks,” says Neil Davidson, ports director at Drewry. “Developing container facilities at KPIZ will remove some of that pressure.

“Export volume also matters when it comes to new port development. The strength of new ports will depend on a country’s ability to expand into industries such as plastics and petrochemicals.”

DP World announced it had put Jebel Ali’s third terminal on hold after its half-year results to June 2009 revealed a 10 per cent drop in throughput across its terminals worldwide, and a 13 per cent drop in revenues to $1.4bn. It has since put together a team to review the pace of future expansion across its terminals.

Among the ventures under review is Fujairah Port, where DP World manages the container terminal. Fujairah is the world’s second-largest bunkering port, but its four container berths handle only small or medium-sized vessels, although some larger ships diverted to Fujairah when Jebel Ali was congested in the summer of 2008.

Increased capacity

When it won the container management concession in Fujairah, DP World said it planned to add capacity. But a deep-water terminal at the port is unlikely to be built in the short to medium term as the project has yet to be put out to tender. Instead, the government of Fujairah is looking to diversify its port activities. Its masterplan for the port aims to attract more heavy equipment and construction project cargo.

Fujairah is investing $200m in extending its southern breakwater by 900 metres to handle general cargo. Due for completion in 2010, the quay’s 15-metre draft will allow the port to handle large project cargo shipments. Fujairah is also targeting service and supply vessels, offering repair and maintenance services for smaller craft.

There are plans to build a new oil terminal at Fujairah. The proposed 600,000-cubic-metre facility will store and blend different types of bunker fuel.

Jebel Ali remains DP World’s flagship container port. But by the time its second terminal opened in February 2009, increasing capacity to 14 million TEUs a year, the market had gone from boom to slump.

The third terminal was to be built on reclaimed land at an estimated cost of $1.5bn, enabling Jebel Ali to handle up to 80 million TEUs a year. Land reclamation for the terminal has been completed, but Mohammed Sharaf, chief executive officer of DP World, says work on the project will not continue until demand recovers.

Announcing DP World’s first-half results in August, Sharaf said that the uncertain conditions of early 2009 would continue until the end of the year, although he praised the group’s UAE ports as “solid”. Internationally, DP World’s half-year results for 2009 show a 5 per cent cut in global staffing levels and a 12 per cent reduction in fixed costs since last year.

Meanwhile, there is uncertainty over the pace of expansion at Mina Saqr in Ras al-Khaimah. Five years ago, the emirate’s government awarded a 21-year concession to KGL to develop and operate the container terminal at Mina Saqr. Under the build-own-operate concession, KGL pledged to expand Mina Saqr’s throughput from 300,000 TEUs to more than 3 million TEUs a year, and to dredge the port to handle new-generation container ships carrying more than 12,000 TEUs.

The concession was the flagship project in Ras al-Khaimah’s proposed $1bn infrastructure revamp, part of a plan to boost the value of trade to the emirate, which already stands at 15 per cent of GDP.

Mina Saqr’s total annual cargo throughput increased from 25 million tonnes in 2007 to 30 million tonnes in 2008. But containerised throughput amounted to just 90,000 TEUs last year, and the government’s aim of more than doubling throughput to 200,000 TEUs this year is unlikely to be achieved.

“It isn’t necessary for every port in the region to go for maximum draft and maximum capacity”

Keith Nuttall, spokesman, Gulftainer

Having installed three ship-to-shore container cranes and six rubber-tyred gantry cranes at Mina Saqr in time for the spring 2007 launch, increasing capacity to an initial 350,000 TEUs, KGL has said little about further expansion at the port.

Several senior managers left after KGL axed its commercial department in the summer. The company had been due to complete the second phase of expansion at Mina Saqr this year, bringing capacity to 800,000 TEUs, and to launch into the third expansion phase, to deliver 3 million TEUs, by 2012. But the future of the project is now uncertain.

In Sharjah, the only emirate with ports on both the Gulf and Arabian Sea coasts, local port management company Gulftainer has developed Khorfakkan Container Terminal on the east coast into one of the world’s most efficient trans-shipment operations. Last year, Khorfakkan and its west coast sister port, Sharjah Container Terminal, handled 2.5 million TEUs, 15 per cent growth on the previous year. Gulftainer will open a new extension at KCT in early 2010, increasing the port’s capacity by 20 per cent.

“In recent years, regional traffic has grown consistently and ports have had to respond,” says Keith Nuttall, a spokesman for Gulftainer.

“New capacity is not put in for the sake of it. We have invested in Super-Post Panamax cranes and dredging so that the port can handle new-generation, high-capacity container ships. The only other ports in the region that can do this are Jebel Ali and Salalah. All shipping lines have ordered ships of this size .

“Although congestion was a temporary phenomenon – and not one we are likely to see any time in the near future – several ports were caught out in the summer of 2008, and most have since invested in new capacity.”

Nuttall says it is essential for UAE ports to trim growth to the needs of their respective niches when it comes to future investment.

“Worldwide, ports still need to cope with the increasing size of vessels,” he concludes. “But different ports need to adopt different strategies. It isn’t necessary for every port in the region to go for maximum draft and maximum capacity.”

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