There are few better illustrations of the contrasting risks and rewards for port operators in the region than the experiences of Singapore’s PSA Corporation and Netherlands-based APM Terminals, which embarked on a race to develop rival container hubs on the southern shores of the Arabian Peninsula in the late 1990s.
The two deals were part of a flurry of interest in developing trans-shipment ports in the -Middle East, spurred by a rise in the amount of cargo being shipped in containers. But while Oman’s Port of Salalah, which is run by APM Terminals, is today one of the GCC’s largest trans-shipment centres, PSA’s Aden Container Terminal has floundered.
In October 2003, PSA withdrew from its minority stake in Yemen Investment & Development International, the group redeveloping the port, after terrorist attacks on the USS Cole warship and a French-owned tanker sparked a flight of foreign capital from Yemen.
The Yemeni government has since tried to revive the port. Last year, it awarded a concession to Dubai’s DP World to relaunch the container terminal, hoping to boost its capacity from 700,000 20-foot equivalent units (TEUs) to 1.5 million TEUs by 2012, at a cost of $220m.
The experience of APM Terminals is the more common one in the region, and most international port operators see their profits from managing Middle East port concessions as far outweighing any risks. As a result, global port operators are today pursuing port management and development opportunities from Tangier in Morocco to Iraq’s Shatt al-Arab waterway, and most points in between.
Hans-Ole Madsen, vice-president for business development in Africa, the Middle East and India at APM Terminals, says that despite the downturn, there is a continued need for infrastructure investment in the region.
While international firms have been targeting the Middle East, some local companies have also been expanding rapidly. The most high-profile is DP World, which has grown through the two-pronged strategy of acquiring rivals and bidding for more port management concessions.
DP World spent nearly $7bn taking over port management giants the US’ CSX World Terminals in 2005 and the UK’s P&O Ports in 2006, and now holds a portfolio of 49 ports and terminals around the world.
The projects on which it is working include the new Khalifa Port in Abu Dhabi, a large new port at King Abdullah Economic City in Saudi Arabia, Rotterdam’s Maasvlakte 2 terminal and the UK’s London Gateway port.
But overall, the industry’s heady expansion of recent years has been replaced by a more cautious attitude as a result of the economic downturn, which has pushed down trade volumes around the world. Port operators are taking a long, hard look at what capacity they need and can afford in the short to medium term – a process that has led to a slowdown in -developments.
“The sums being thrown at regional port development in the past two or three years were out of this world”
Ammar Kanaan, International Port Management
“I am not sure how the mathematics of it worked out, but the sums being thrown at regional port development in the past two or three years were out of this world,” says Ammar Kanaan, chairman and general -manager of Lebanon’s International Port -Management Beirut, part of the consortium that operates Beirut Container Terminal.
“Future opportunities will depend very much on what model ports adopt. It will become harder for ports that adopt the Turkish concession model – demanding hundreds of thousands of dollars’ of investment, paid up front – to attract bidders. In future, pure management contracts will attract the most interest.”
Even DP World has been feeling the pressure of the downturn. The company reported a 10 per cent drop in container volumes and a 13 per cent drop in revenues in the first half of this year, compared with the same period in 2008.
In response to the tougher market, DP World has cut 5 per cent of its staff and trimmed its fixed costs by 12 per cent. It has also set up a team to review its expansion plans. Several of its projects, including the third terminal at Jebel Ali in Dubai, the London Gateway and Maasvlakte 2, are facing delays.
APM Terminals is in a similar position. After expanding aggressively in the Middle East over the past decade, it reported an 8 per cent drop in container volumes and a 6 per cent fall in revenue for the first half of 2009, compared with the same period last year.
As well as Port of Salalah, which serves the Gulf and Indian Ocean markets, its hubs include Tanger Med in Morocco, which is positioned to serve northwest Africa and Europe, and the Suez Canal Container Terminal in Egypt, which is the largest trans-shipment operation in the eastern Mediterranean.
In April, APM Terminals began operations at its largest port in the region to date. Khalifa bin Salman Port aims to become a trans-shipment hub for the markets of the upper Gulf, including Kuwait, Bahrain, Qatar and parts of Iran, Iraq and Saudi Arabia.
But the new port has yet to attract any trans-shipment traffic and all the ships calling into the port are carrying cargo to or from Bahrain’s domestic market. By the time the port opened earlier this year, the global recession had hit Arabian Gulf container volumes hard. While the port’s mid-term prospects may be solid, in the short term it will struggle to fulfil the role for which it was built.
APM Terminals is now reviewing all of its expansion plans and has withdrawn from the concession to develop and manage the third container terminal at Tanger Med in Morocco. It is also reviewing the schedule of the project to add three new berths to Port of Salalah – the only port expansion plan unveiled by a major operator in the Middle East this summer.
Hong Kong-based Hutchison Ports Holdings, which has a base at Sohar Port in Oman, is also suffering. It reported an 8 per cent drop in global throughput to 30.3 million TEUs for the first quarter of 2009, and is now looking to cut costs and slow down projects.
Within the region, Hutchison also has oper-ations at Alexandria/Dekheila in Egypt and Dammam in Saudi Arabia, through International Port Services, a joint venture with the Riyadh-based Al-Blagha Holding Group. But it has also expressed interest in a partnership with Kuwait’s Al-Mal Investment Company, to develop the $2.2bn, 8 million-TEU deep—water port at Enfidha in Tunisia.
The problems affecting port operators in the Middle East and North Africa are part of a global trend. UK industry consultant Drewry Shipping expects 2009 to end with a drop in global container volumes of at least 10 per cent and annualised losses to the container shipping industry of $32bn. According to the firm, port management companies face the “toughest trading conditions since the inception of containerisation in the 1960s”.
The difficulties could lead to more consolidation in the industry. The five largest operators currently control nearly a third of the world’s container traffic, but smaller operators may decide to sell their interests in some terminals to improve their cash flow.
In particular, shipping lines that also operate ports could decide to sell their port assets to focus on their core businesses, according to Neil Davidson, port director at Drewry Shipping.
Not every operator will be in a position to expand, and any acquisitions that do go ahead are likely to be on the basis of a far more conservative approach.
Even so, there are some bright points in the region, where terminal operators are continuing to pursue new opportunities. Over the past couple of years there has been interest in port liberalisation programmes in Syria and Egypt, for example, and the return to political stability in Iraq has brought interest in its port development plans.
Among the deals that have gone ahead since the start of the economic downturn, Hutchison increased its stake in Alexandria International Container Terminals from 38 per cent to 50 per cent in December 2008.
In February, Marseille-headquartered shipping line CMA-CGM signed a 10-year concession for the Port of -Lattakia, in Syria. CMA-CGM has a 51 per cent stake in a new terminal operating company, working with the local Souria Holding. Together they plan to double Lattakia’s throughput from 570,000 TEUs in 2008 to 1 million TEUs by 2012.
It is the second major international ports company to enter the Syrian market in less than a year, following the 10-year deal Manila-based International Container Terminal Services (ICTSI) signed with Tartous Port General Company in the summer of 2008. In September, ICTSI took delivery of its first new cranes for Tartous International Container Terminal – part of a 10-year, $37m investment programme to increase throughput at the port to 450,000 TEUs a year.
In Iraq, port authorities have leased berths at the country’s only deep-sea port at Umm Qasr to CMA-CGM and Jordan’s GLFS.
So despite the gloom, global operators continue to pursue new regional opportunities, even if they are doing so less aggressively than in the recent past.
“Most countries in the region are still seeing some growth,” says Madsen. “But there has undoubtedly been a slowdown. What really matters is providing the right capacity in the right place at the right price.
“There is a new realism in what terminal operators are prepared to invest. This is no longer the bullish world in which everyone – port operators, private equity players and shipping lines – was throwing money around. These are tough times, and companies need to concentrate on core business.”
Major port operators in the Middle East
■ Tanger Med I, Morocco
■ Suez Canal Container Terminal, Egypt*
■ Aqaba Container Terminal, Jordan
■ Port of Salalah, Oman
■ Khalifa bin Salman Port, Bahrain
■ Tanger Med I, Morocco
■ Lattakia Port, Syria
■ Umm Qasr, Iraq
■ Suez Canal Container Terminal, Egypt*
■ Djazair, Algeria
■ Djendjen, Algeria
■ Sokhna, Egypt
■ Jeddah South Container Terminal, Saudi Arabia
■ King Abdullah Economic City Seaport, Saudi Arabia
■ Aden Container Terminal, Yemen
■ Fujairah Port
■ Jebel Ali Port, Dubai
■ Khalifa Port, Abu Dhabi
■ Khorfakkan Container Terminal, Sharjah
■ Sharjah Container Terminal
Hutchison Port Holdings
■ Alexandria Terminal, Egypt
■ Dekheila Terminal, Alexandria, Egypt
■ Oman International Container Terminal (Sohar)
■ International Port Services, Dammam, Saudi Arabia
International Container Terminal Services
■ Tartous International Container Terminal, Syria
International Port Management
■ Beirut Container Terminal, Lebanon
■ Jizan, Saudi Arabia
■ Umm Qasr, Iraq
KGL Ports International
■ Damietta Container Terminal, Egypt
■ Aqaba South Port, Jordan
■ Mina Saqr, Ras al-Khaimah, UAE
■ Shuaiba Area Container Terminal, Kuwait
■ Tanger Med II, Morocco
*Joint venture of APM Terminals and Cosco Pacific