With container trades elsewhere showing little growth, carriers are looking to the Middle East as terminals invest in more capacity
There is little sign of the dramatic ramp-up of port capacity in the Middle East Gulf region abating, with new facilities at both brand new as well as existing ports under development, amid reports that container volumes into the region are set to rebound.
The first nine months of 2016 were not kind to the region’s major terminal operator DP World, which runs the flagship Jebel Ali container terminals in Dubai. Its facilities there handled 11.1 million teu in the first nine months of the year, representing a year-on-year decline of 6.7 per cent, one of the first volume drops the port has ever witnessed, and which the company attributed to “a reduction in lower-margin transhipment cargo”.
In the first nine months of last year it handled 11.9 million teu, while the quarter-on-quarter decline between the second and third quarters this year – down from 3,755,000 teu in the second quarter to 3,663,000 teu was just 2.4 per cent, indicating that there was little uplift from the peak season, which was far more muted than previous years.
Partly the absence of the peak season was due to the slowdown in the Asia-Europe trade on which Dubai acts as a major relay transhipment hub, but the decline in Dubai’s volumes it also shows is reflective of a wider trend whereby terminal operators are becoming increasingly picky about which cargo they choose to handle.
In some ways that is hardly surprising, as new research shows that after two decades of almost uninterrupted growth and sold financial returns, it is going to get harder to replicate those results in the future. A recent report from Drewry, Ports and Terminals Insight, outlines the challenges that are facing terminal operators in the era of ultra large container vessels (ULCVs), just three deepsea shipping alliances and a customer base that is rapidly consolidating.
“Terminal operators face a ‘perfect storm’ of rising costs due to bigger ships, greater business risks from larger liner alliances, softening global demand growth and pressure on terminal handling prices from cash-strapped carriers,” it says, and adds:
“Resisting downward pressure on terminal handling prices will be challenging, but not impossible, as much depends on local market conditions and the extent of choice for ever larger ships and alliances.”
However, for the Middle East and Indian subcontinent, the prospects are brighter, Drewry forecasts, with India the last remaining BRIC economy that continues to post stellar GDP growth, and the Middle East expected to benefit from a predicted resurgence in oil revenues.
“South Asia is set to be a star performer in relative terms, with its manufacturing industry likely to take some of the activity previously carried out in China. And in the Middle East, major infrastructure projects are expected to resume after a hiatus caused by the low oil price,” it says.
And there are signs from other ports in the region that Drewry is correct in its prognosis. The Abu Dhabi Ports Company (ADPC), which opened the vast Khalifa Port Container Port just a few years ago, reported its half-year results in September, which saw container volumes grow by 11 per cent year-on-year.
“Bolstered by rapid growth in polymer exports and transhipment activity across the Gulf, 699,776 teu were handled in the first six months of 2016, up from 629,941 teu in the same period of 2015,” it said.
It has responded to this growth with the decision to press ahead with development of a second container terminal depth of 18m on quay of 1,200m. The first phase of 800m is expected to begin operations in the first half of 2018, with the remaining 400m currently scheduled to be operating by 2020. On completion, the overall terminal will cover an area of 70 hectares serving as back up to three deepsea berths, and the facility will add 2.4 million teu capacity to Khalifa’s existing capacity of 2.5 million teu.
Interestingly for a region which has generally promoted the business interests of local port operators above international terminal operators, ADPC signed a joint-venture agreement in October with China’s Cosco Shipping Ports Ltd to develop the facility, and even handed Cosco the controlling stake in a company which has been granted a 35-year operating concession contract, with an option to extend for a further five years.
With Cosco set to be a member of the Ocean Alliance when it begins operating next April, that could mean significant deepsea volumes being diverted from Dubai to Abu Dhabi. The Ocean Alliance – which also includes CMA CGM, Evergreen and OOCL in its membership – will control around 30 per cent of the trade between Asia and the Middle East and is set to operate five dedicated services on the trade, all of which feature a call at Jebel Ali while two services will call at Abu Dhabi. Could this change once Cosco’s presence in Abu Dhabi is cemented?
The agreement with the joint venture also includes the option to build a further 600m of quay length which would take the terminal’s annual handling capacity up to 3.5 million teu, and the port’s overall annual capacity of up to 6 million teu.
Mohamed Juma Al Shamisi, ADPC chief executive, said, “the new synergy, Cosco Shipping Ports will bring additional volumes to the port – adding to Abu Dhabi Terminals’ on-going business in Abu Dhabi. It will also ensure that the Khalifa Port maintains a competitive environment in serving the shipping industry as well as local business. Along with the added capacity, the shipping giant will facilitate specialist expertise, experience, technologies, practices and knowledge transfer, increasing Abu Dhabi Ports’ competitiveness on a global scale.”
For Cosco’s part, the deal is also about the projection of Chinese economic power as part of its one belt road one policy, as much as it is its own attempts to develop a new regional hub.
China Cosco Shipping president Wan Min said: “Abu Dhabi’s Khalifa Port is a strategic hub along the ‘One Belt One Road’, as it has unique geographical advantage for the development of terminal and logistics businesses.”
He also indicated that the company would seek to leverage its relationship with its shipping arm to secure volumes.
“Its well-developed transportation and nearby ample supply of cargoes are conducive to Khalifa Port, to become the next hub port in the Middle East region. With the strong support from the large container shipping fleet of Cosco, Cosco Shipping Ports will dedicate its efforts to develop Khalifa Port Container Terminal 2 as a hub of the Upper Gulf region in the Middle East for international container shipping lines. We are confident that the project will stimulate the implementation of ‘One Belt One Road’ initiative, and will promote strategic cooperation between China and the UAE.”
This could spell trouble for the Gultainer-operated port of Khor Fakkan in Sharjah, which CMA CGM has used as its traditional Gulf hub. Khor Fakkan, which is one of the most productive ports in the world, has traditionally competed with Jebel Ai, as Drewry’s director of ports Neil Davidson explains: “As far as the location of Khor Fakkan vs Jebel Ali is concerned, I'd say it's swings and roundabouts. Khor Fakkan is closer to the main deep sea shipping routes and feeder locations like East Africa and India, but further from the Arabian Gulf feeder ports. Jebel Ali vice versa.
“Jebel Ali of course has much greater scale than Khor Fakkan – 15.6 million teu in 2015 versus 3.4 million teu, and scale and hence connectivity is a big factor in the transhipment business – and has the advantage of the huge freezone that generates captive volumes. Having said that, Khor Fakkan isn't small though, and Sharjah has the Hamriyah Free Zone,” he says.
The interesting thing is this challenge comes at a time when Gulftainer has embarked on a plan for significant international expansion, but it may find itself preoccupied with dealing with changes on its doorstep.
The factors Mr Davidson highlighted could put Jebel Ali into a leading position when it comes to the expected explosion in container volumes going to and coming out of Iran, following the relaxation in international sanctions earlier this year.
All major carriers have relaunched services into the country, but its port facilities are in desperate need of investment given the escalating changes in the size of container ships since the country was last part of the international trading network.
“Iranian volumes are already growing fast,” says Mr Davidson, “Bandar Abbas [Iran’s main gateway] is up nearly 14 per cent in the first nine months of 2016, for example, and should continue to do well. Initially this should be good for regional transhipment hubs like Jebel Ali but as the Iranian market grows, and port facilities are improved, more direct mainline services are likely.”
At the same time, new competition could also emerge in the form of Qatar’s new Hamad deepsea port, which is expected to open for business any day, following the creation of a joint venture between the state-owned Qatar Ports Management Company and private Qatari shipping firm Milaha to operate the new facility.
The first phase of Hamad will introduce 2 million teu capacity to the country, although it will be accompanied by the closure of Doha port, and shipping lines have already begun to notify customers of the switch.
Qatar Ports Authority’s director of corporate affairs, Dr Mohamed Briouig said in an interview with Container Shipping & Trade earlier this year: “We are trying to establish an alternative hub for the region, and the strategy is to attract foreign and domestic investment to diversify the economy away from oil and gas, and penetrate the hi-tech, downstream energy, petrochemical and metallurgical industries.
The US$7.4 billion into the project, which will eventually take container capacity up to 7 million teu will also see general cargo, grain and ro-ro terminals built, as well as two intermodal rail terminals.
“The vision is that initially the cargo will be gateway traffic for Qatar’s fast-growing domestic economy and the 2022 World Cup, and after a couple of years we will begin to target transhipment traffic.
“We are looking to act as a hub for upper countries such as Iraq and Kuwait – especially as Iraq develops – and could also act as a gateway for eastern Saudi Arabia,” he said.