Arabian Gulf states put oil money to goood use with port expansions

GCC states are using oil revenues to back enormous port expansion projects designed to take advantage of increasing export demand from Asia. Abu Dhabi and Dubai lead the way but Qatar also has a huge project planned ahead of the 2022 World Cup.

Arabian Gulf states are using their oil revenues to develop ports alongside free zones and industrial complexes as a way to create employment, drive trade and diversify income away from oil.

Big port projects are springing up to cater to increased trade between the east and the Gulf, which is becoming increasingly connected to areas such as west Africa. Gulf ports also service nearby countries such as Iraq.

“We expect that the volume to and from the region will continue to grow,” says Lars Nielsen, the managing director of UAE, Qatar, Oman and Iran for the shipper Maersk Line.

“And we do see it growing more than the average global growth for the industry.”

Many regional ports are congested and they are increasing their capacity to lift the strain on their facilities.

Qatar is investing US$7.4 billion on a new port, industrial zone and other facilities in Doha to help ease congestion on its old port.

The current facility cannot serve the economic needs of the world's biggest exporter of liquefied natural gas and its vast infrastructure projects, including the future demand on imports for hosting of the World Cup in 2022.

“Growth in Qatar is very much around exports growth due to investments in petrochemicals, and metals industries,” says Mr Larsen.

“However, import volume for the World Cup 2022 hasn’t really started to show yet on imports.”

The new Doha port will have an initial capacity of 2 million twenty-foot equivalent units (TEUs), when it opens in 2016 and there are plans to raise the capacity to 6 million TEUs by 2030.

Saudi Arabia, the world’s biggest oil exporter, is increasing capacity at a number of its ports, which are grappling with congestion due to the country’s rising petrochemical and industrial exports, as well as an increase in imports.

“At certain ports, for example Jubail in Saudi [pressure] is heavy on exports,” says Mr Larsen.

Due to the projected trade growth in Saudi Arabia, the UAE port operator Gulftainer acquired a 51 per cent in Saudi Arabia’s Gulf Stevedoring Contracting, which allowed it to take management control of three terminals in Jeddah and Jubail.

“We are talking with the port authorities to expand the areas we have there and developing new ideas on how to handle containers within the existing facility,” says Gulftainer’s managing director Peter Richards.

“Jubail is going to be a rising star within the ports industry in Saudi Arabia.

“It started off with low volumes, but because of the huge industrial areas being constructed around the ports of Jubail, it will become the major gateway on the east coast of Saudi Arabia.”

But all of these port projects risk creating overcapacity and competing with each other, particularly for transshipment business. Transshipment rates are lower than gateway rates, creating competition among ports, which could depress prices charged for using the facilities.

“There is going to be a tremendous amount of competition because all ports within the region are developing and I think there will be over capacity,” says Mr Richards.

“This is something that the ports should wake up to. The idea that this will actually cause a reduction of rates is the wrong way to look at this.”

Ports will have to try to differentiate themselves if they want to survive.

Oman, for example, is not just boosting capacity at two ports in the industrial zone cities of Sohar and Salalah, it is also building an industrial city in Duqm that includes a port focusing on transit-trade, which would create an alternative means of transferring cargo by land or rail.

Clever marketing, reliable ports and good GDP growth will be important as these Gulf projects take off, according to Jurgen Sorgenfrei, a maritime consultant at IHS Global Insight.

“If you have stable and continued GDP growth this is the best supportive factor,” he says.

“If there will be some new ports, whether in Oman, outside the Gulf or on the trade lanes from China to Europe or somewhere in the Far East, it will have a minor impact,” he says.

The shift in focus from west to east has been remarkable.

Ten years ago the United Kingdom, one of the most advanced countries in Europe and the world, was an integral component global shipping lines.

Today it is a feeder country, something few foresaw. But the develop ment of other European countries’ facilities, especially those of the Netherlands, hit the UK hard.

A mixture of clever Dutch government policy, especially regarding the two mega-ports at Antwerp and Rotterdam, led shipping lines away from Britain’s underfunded and ageing facilities, further heaping pain on the country’s already sick maritime industry.

Such a lack of development is not on the agenda for many Gulf countries.