Ports in Saudi Arabia defy domestic slowdown

13 March 2012

Riyadh is pressing ahead with Saudi port development, despite a forecast downturn in domestic economic growth in the short term

Key fact

Saudi Ports Authority plans to expand national container capacity to more than 15 million TEUs by 2015

TEUs=20-foot equivalent units. Source: MEED

Economists are forecasting a slowdown in growth in Saudi Arabia in 2012. Riyadh-based Jawda Investment expects to see the kingdom’s growth rates halved this year, falling to 3.1 per cent from 6.8 per cent in 2011, based on a drop in Saudi oil production as the political situation stabilises in Libya.

Although analysts expect a general slowdown this year, state spending will continue to drive growth in the economy. With the kingdom investing heavily in infrastructure, port development is at the forefront of its plans.

Filling the port shortfall

In 2011, the kingdom’s ports handled 165 million tonnes of cargo, based on solid annual growth of 7.1 per cent. But as the GCC’s largest and most populous country, Saudi Arabia has a shortfall in modern port capacity, both for industrial commodities and for the movement of containerised consumer goods.

While domestic cargo is a captive business, trans-shipment cargo is time sensitive

The government and, increasingly, the private sector plan to add new capacity to meet current and projected demand. In partnership with the World Bank, Saudi Ports Authority is drawing up a new development strategy for the country’s ports and terminals, which is due to be finalised by mid-2012.

The ports authority has already pledged to expand national container capacity from about 9 million 20-foot equivalent units (TEUs) in 2011 to more than 15 million TEUs by 2015.

The Gulf coast is the main gateway for Saudi oil exports. The kingdom is planning to increase its exports of petrochemicals, aluminium and other metal products, and minerals, as well as imports of containerised consumer goods.

Dammam port is the East coast container and general cargo gateway and is already moving to double its container capacity to about 3 million TEUs. In mid-2011, it awarded the concession to build a second terminal to PSA, a Singapore-based port management group.

PSA has partnered state-owned Public Investment Fund to build, operate and manage Saudi Global Ports, the second container terminal at Dammam, which will handle 1.8 million TEUs a year. The first phase will open in 2014.

Busiest Saudi ports in 2011
PortLocationTotal throughput (million dwt)
Jeddah Islamic PortJeddah5249.140.9
King Fahd Industrial Port of JubailJubail44.746.443.1
King Fahd Industrial Port of YanbuYanbu33.727.433
King Abdulaziz Port of DammamDammam25.923.619.2
dwt=Dead weight tonnes. Source: Saudi Ports Authority

Dammam is Saudi Arabia’s second-largest container port. Its existing terminal, whose concession holder is Hong Kong-based Hutchison Ports, handled nearly 1.5 million TEUs in 2011, up from 1.33 million TEUs in 2010.

The Saudi Global Ports terminal will help to position Dammam as an alternative gateway not only to the oil-rich Eastern Province, but also to the growing construction and consumer markets of Riyadh and the interior. The kingdom’s rail development programme will be central to that strategy. In October, the state approved plans to build a $7bn landbridge to carry cargo and passengers on a cross-country railway that will link the east and west coasts through Riyadh from 2015. Finance will come from the Public Investment Fund.

Phase one will carry up to 700,000 containers a year between Dammam, Riyadh and Jeddah. Dammam port, in particular, will gain from the project. Like all Gulf states, Saudi Arabia has seen a steady shift in trading patterns over the past decade, replacing goods once sourced from Europe with cheaper Asian imports.

Dammam could replace Jeddah as the kingdom’s leading domestic gateway, handling cargo carried on the growing Arabian Gulf-Asia trade routes either through direct calls or feeder services, which carry containers to and from Asian ports through regional hubs Jebel Ali in Dubai, Salalah in Oman or Colombo in Sri Lanka.

Rail links in Saudi Arabia

Today, an estimated 15 per cent of Dammam’s throughput is delivered by rail and Saudi Global Ports will build a railhead into its infrastructure from the outset.

On Saudi Arabia’s east coast, Ras al-Khair Minerals Industrial City is being positioned as an export gateway for bauxite from mines in the north of the kingdom. Ras al-Khair, previously known as Ras al-Zawr, is being built as a hub for 80 industrial projects, including the $4bn smelter being developed by Saudi Arabian Mining Company (Maaden) and Alcoa of the US.

To support these plans, the kingdom is building a three-berth port to handle dry bulk, liquid bulk and general cargo. China Harbour Engineering Company (CHEC) won the $600m construction contract and set up a local subsidiary in partnership with Al-Khobar-based conglomerate Rafid Group.

Ras al-Khair port handled its first vessel in February 2011. The port is suitable for tonnage up to 70,000 dead weight tonnes and can handle a range of industrial commodities including aluminium, bauxite, construction materials and chemicals.

On the Red Sea Coast, Jeddah Islamic Port (JIP) is the country’s leading commercial gateway for flows of Saudi imports and non-oil exports. However, it is also a trans-shipment hub switching containerised cargoes between vessels on the world’s largest trade lanes. JIP handled more than 4 million TEUs in 2011, up from 3.8 million in 2010. Jeddah throughput is expected to top 5 million TEUs by 2015.

Cargo bottleneck in some ports

DP World management has turned Jeddah South Terminal into the Middle East’s second-largest container port after Jebel Ali. During the 2003-08 boom, however, the inner-city port became a victim of its own success, with bottlenecks at peak times that created serious delays for cargo transfers.

While domestic cargo is a captive business, trans-shipment cargo is time-sensitive. Hub ports secure trans-shipment volume by competing on productivity and efficiency, based on slot access to berths, time held in port and crane movements an hour.

Jeddah’s bottlenecks, therefore, threatened the port’s trans-shipment business. But JIP’s inner-city location limits expansion opportunities. Instead, the Red Sea Gateway Terminal (RSGT) was opened in 2009 and added 1.8 million TEUs to Jeddah’s capacity at a site north of the original port. By June 2011, it had handled its millionth TEU.

RSGT was Saudi Arabia’s first build-operate-transfer port project, estimated to cost $540m. It prepares Jeddah to adapt to a new era of container handling, including new-generation ultra-large containerships of 10,000-plus TEUs. The terminal’s chief, Aamer Alireza, says RSGT’s growth has been driven by ship-to-ship trans-shipment rather than domestic volume.

The Red Sea remains a conduit for container ships plying the world’s largest shipping trade between Asia and Europe. Saudi Arabia plans to increase its Red Sea capacity, partly to handle domestic trade flows, but also to target global trans-shipment as a way to diversify its earnings.

Four years ago, Jeddah South concession holder DP World signed a memorandum of understanding to develop and manage a $6bn megaport near Rabigh on the Red Sea to serve King Abdullah Economic City (KAEC).

DP World was to build one of the world’s biggest ports, with phased expansion increasing capacity to more than 20 million TEUs by 2030 on a site covering 13 million square metres. Since then, the deal seems to have stalled. DP World does not include the project on its website list of new terminal developments.

“We understand that it KAEC’s port is being developed but not on the size or scale originally discussed,” says one observer. “The port will open in 2013 with an initial capacity of 1.5 million TEUs and a further 1.5 million TEUs to come in the second phase. What happens after, and when, is not clear.”

Abhishek Tandon, an analyst with shipping consultancy Drewry, says it is now unclear who will develop and operate the new port for KAEC. Tandon believes recession led the parties involved to rethink their projections for demand growth, particularly when it comes to volatile trans-shipment volumes.

Port expansion requirement

In 2007-08, at the height of the global economic boom, ports across the Middle East were scrambling to add new capacity for trans-shipment, domestic imports and exports and to update ageing, 1970s-built infrastructure. Drewry’s figures suggest that GCC ports achieved compound annual growth of 13 per cent in 2004-08.

But in 2009, regional port expansions slowed and in many cases ground to a halt. Banks stopped lending, particularly to speculative trans-shipment-oriented projects.

Drewry’s data shows that regional container volumes recovered in 2010, when throughput across the GCC, Yemen, the Levant, Jordan, Iran, Iraq and Israel rose from 31 million TEUs in 2009 to 34 million TEUs. The rebound increased GCC container port utilisation to 85 per cent.

This is why, even though short-term growth prospects remain muted, Drewry says regional ports will need to expand to avoid a return to late-2000s levels of congestion. Drewry’s forecasts suggest Arabian Peninsula container volumes will double within the next five years.

Saudi Arabia will be one of those countries as investment in infrastructure and an expanding manufacturing sector begin to generate cargo volumes.

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