Introduction
Since international oil prices began their ascent in early 1999, several port development projects have been launched in the Arab countries. In Egypt, Oman and Yemen, these ventures strive to diversify the countries’ sources of revenues and have successfully attracted foreign investors.
The inauguration of new ports in Yemen and Oman has also had the effect of creating a rivalry with the undisputed regional port hub, Dubai. Nevertheless, this growing competition has not become a zero-sum game, as the new ports have generated new regional traffic by siphoning international trans-shipment cargo. Container traffic in the Middle East is projected to expand significantly this decade.
New Port Development Projects
Yemen
Yemen launched in September 1999 the first phase of the Aden Container Terminal (ACT), part of a planned free trade zone at its southern port of Aden. The goal of the ACT is to transform Aden into the premier regional service and distribution center and subsequently augment levels of valuable foreign currency income. In the first phase, which cost $188 million to complete, the port has a capacity to handle 500,000 twenty-foot equivalent units (TEUs). The project is a vital element of the Aden Free Trade Zone, a $580 million project designed to transform Yemen's commercial capital into a major trans-shipment hub through two phases. The zone includes six quays and a 16 meter-deep navigation channel with all the services and facilities to accommodate the world's largest container vessels. It will offer facilities and rapid turnaround for the largest carriers now utilizing routes from Europe through the Suez Canal and the Red Sea to Southeast Asia, Australia and the Far East.
Monthly TEU at Aden averaged around 15,000 for the fourth quarter of 1999, a sharp rise from the first four months when TEU levels barely reached 10,000. Still, port officials admit Aden is a long way from re-establishing its position as a major regional hub. Plans to augment capacity at Aden are unlikely to yield significantly more business without the presence of a major international shipping line at the port.
Aden's main comparative advantages are its strategic location, deep water, and shallow harbor with light currents. In the long-term, Aden may emerge as a legitimate competitor to Dubai's Jebel Ali port. Dubai currently controls roughly one-third of the estimated 7 million TEU regional trade, but Aden's geographical advantage over Jebel Ali could enable shipping lines on the main east-west route to slash up to three days off journey times by docking at ACT.
Yemeni authorities are also optimistic about ACT's prospects of grabbing a greater share of Red Sea trade. Officials at the Saudi Ministry of Commerce have held talks with their Yemeni counterparts regarding opportunities for diverting more traffic through Aden. Saudi Arabia’s largest hub, Jeddah Islamic Port, handles up to 1 million TEU annually and is Aden’s main rival. Saudi Seaports Authority is expanding capacity with a new terminal at Jeddah, although sources indicate that re-routing trans-shipment activity through Aden could be more cost-effective.
Egypt
New port projects at Suez and East Port Said exemplify major infrastructure developments, as this country has succeeded to attract foreign investment. Egyptian authorities hope that the strategic location of East Port Said (off the Mediterranean) could become the state's gateway to international commerce, with the potential of alluring even more foreign capital. The East Port Said container terminal is the first harbor built and operated in Egypt by foreign partnership. Australia's P&O Ports Company and ECT International of the Netherlands have both placed bids on the project.
An international consortium led by Jan de Nul of Belgium, which is implementing the $211 million dredging and breakwater construction contract, is carrying out work on the Port’s container terminal. Moreover, a joint venture of the local Arabian International Construction (AIC) and Italy's Rado are implementing a $60 million job for the Port's quay walls.
Meanwhile, work is swiftly progressing on the new Suez Port. Geneva-registered Archirodon Construction (Overseas) is building the quay walls for $60 million, and the European/US Great Lakes Group is carrying out the $105 million dredging contract. This government-funded port is focusing on the private economic zone northwest of the Gulf of Suez, with the aim of attracting more investment to the area and facilitating imports and exports.
Oman
1999 was the first full year of operations for Oman’s Salalah container terminal. Total activity through the year was 660,000 TEU, compared to its current annual capacity of 1.2 million TEU. Still, container handling increased steadily throughout the year and was running at an annualized rate of nearly 1 million TEU by the final quarter of 1999. Salalah Port Services Company (SPS), the operator of this container terminal, expects the terminal to run close to capacity during 2000. Once expansions are complete in November, the terminal’s annual capacity will hit 2.2 million TEU.
Oman must continue to increase capacity and upgrade equipment at Salalah and its other main ports in order to remain competitive in the maritime industry. The Sultanate’s strategic position at the mouth of the Persian Gulf, its convenient access to the Strait of Hormuz and its historical experience of sailing the commercial routes of the Indian Ocean give it an important advantage. Oman has two other main ports in addition to Salalah: Sultan Qaboos and Qalhat. A fourth port is currently under construction in the southern city of Sohar.
Dubai
Dubai, which has historically been blessed with far less oil wealth than Abu Dhabi, undertook a major promotional campaign to attract more foreign investment and tourism. Its vast Jebel Ali Free Trade Zone now houses more than 950 international operations, most of which engage in the distribution of light to medium manufacturing for both domestic consumption and export. The Zone is built around the Dubai Port Authority’s (DPA) Jebel Ali Terminal and enables customers to take full advantage of the port’s ISO-certified container and general cargo operations.
The United Arab Emirates is by far the leading regional trans-shipment hub, handling two-thirds of all containers in the Gulf. DPA is the largest player in the coalition, accounting for roughly 60 percent of the Emirates handling activity. Last year, throughput growth did slow at the twin ports of Jebel Ali and Port Rashid to 1.4 percent from 7.7 percent in the previous year. Still, this level of activity exceeded expectations, given that DPA lost 25-30 percent of its trans-shipment from Maersk and Sealand to Salalah.
An even more significant statistic than traffic volume is the volume of containers destined for Dubai itself. An estimated 50 percent of all traffic handled at the two ports is now destined for the Dubai hinterland. This figure underscores the point that the port with the most hinterland traffic cargo in a region can also be its natural trans-shipment hub.
With a capacity of 3.25 million TEU a year, DPA is expanding its handling capability. In February, it received 10 rubber gantry cranes and two super-post cranes. Other plans under consideration include an overhaul of its information technology systems, the expansion of general cargo facilities, the purchase of additional bulk cranes, and the construction of new hazardous cargo facilities. Moreover, Dubai Ports International is expanding DPA’s presence overseas.
An Emerging Rivalry
For the Dubai Port Authority, expansion plans such as these are imperative given the growing challenge from other regional ports. The new container ports of Aden and Salalah, located on the southern coast of the Arabian Peninsula, are giving the more established ports of the UAE a run for their money. These new ports will have an impact on the entire regional trans-shipment sector. However, no single port is best positioned to serve all markets, and the older Emirate ports will likely protect their market shares. Aden and Salalah are also generating entirely new business for the region by luring traffic away from Colombo and serving as an integrated Mideast hub for the overlapping deep-sea services of Maersk Sealand.
Still, amplified competition forces all ports to constantly strive to raise efficiency. Some observers had expected Salalah to steal tangible activity from DPA, but its entry into the market has had less impact than originally feared. DPA’s volumes increased marginally in 1999 over 1998, with the effect of Salalah being restricted to wiping out growth in traffic that might otherwise have been expected.
What favors Dubai (for Gulf-bound traffic) over Salalah is the fact that an estimated 50 percent of Gulf cargo is destined for Dubai itself, implying that trans-shipment costs are half those of Salalah. Nevertheless, Salalah will be the preferred option for vessels serving East Africa and the Indian subcontinent. Due to its geographic advantage, Salalah is expected to produce the highest growth levels of any port in the world over the next few years. DPA officials remain confident that dynamic initiatives, such as the Dubai Internet City, will ensure that the international focus remains on Dubai and its port facilities.
Most likely, projected growth rates for container traffic will ensure sufficient activity for all efficient ports in the Arabian Gulf. Container traffic in the Persian Gulf and Red Sea region, which totaled 7 million TEU in 1998, is expected to reach 16.1 million TEU by 2015, of which just over half is expected to be trans-shipment activity. This growth is fueled in part by private sector investment in the region’s port.
© 2000 Mena Report (www.menareport.com)
