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FOCUS: GCC port expansion could cannibalise traffic says analyst

The current Gulf crisis could negatively impact the ports sector in the GCC, according to Dr. Naser Al-Tamimi, a UK-based Middle East researcher.
Competition among ports in Gulf Cooperation Council (GCC) countries is expected to heat up as operators chase larger shares of the regions growing logistics sector.
Competition among ports in Gulf Cooperation Council (GCC) countries is expected to heat up as operators chase larger shares of the regions growing logistics sector.

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The current Gulf crisis could negatively impact the ports sector in the GCC, according to Dr. Naser Al-Tamimi, a UK-based Middle East researcher, political analyst and commentator and author of ‘China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?’.

In a commentary for Arab News, Dr. Naser says that with 37 major and minor ports across the GCC, and just ten ports accounting for 95% of all cargo traffic, there is a real risk that investment in greenfield and port expansion projects could take traffic away from existing logistics strongholds.

“Competition among ports in Gulf Cooperation Council (GCC) countries is expected to heat up as operators chase larger shares of the region’s growing logistics sector. Some estimates project that total GCC port throughput will grow to 35-million twenty-foot equivalent unit (TEUs) by 2020, with more than $36 billion of investments committed for greenfield schemes and port expansions,” explains Dr Naser.

“If that outlook coincides with the continuation of the Gulf crisis, it is logical to expect the negative repercussions to spill over to the ports sector. Indeed, without cooperation among GCC states to reduce risks, several Gulf ports may be subject to overcapacity and considerable pressure in the medium to long term.”

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The region’s logistics sector will see throughput across the GCC’s ports grow to 35-million TEU, yet the total capacity of the 37 ports is 50-million. According to Dr Nasser, more than a third of that capacity is contributed by Jebel Ali Port alone.

 “Yet the dominant position of Jebel Ali Port may be challenged as competition between Gulf ports and beyond is expected to increase. Importantly, the political differences, if they persist, may also hamper economic integration in the ports sector,” he writes.

Dr Nasser points to the growth of Port Khalifa as one example. The port has witnessed rapid expansion since its launch at the end of 2012. China’s Cosco Shipping Ports, one of the largest container terminal operators in the world, will complete the port’s second terminal next year, doubling its capacity to about 5 million TEUs annually.

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This could be expanded further to 6 million by 2020. Yet the Chinese lines Cosco and China Shipping are currently in the process of merging and Chinese companies operating in Abu Dhabi are likely to move some of their business from Dubai to Khalifa Port and the free zone there, or transfer a significant part of their future activities there.

“As a result, this development may increase competition between the two ports or others in the UAE, and may negatively affect their profitability in the long term,” says Dr Nasser.

Furthermore, King Abdullah Port in Saudi Arabia, part of the country’s Vision 2030 ambitions to modernise infrastructure and diversify the economy, could become a major challenger to Jebel Ali Port if the government’s plans to increase the port’s capacity to 10-million TEU are realised.

By 2025, Saudi Arabia plans to double capacity to 25-million TEU. Given its strategic location on the Red Sea coast, directly adjacent to the major Asia-Europe mainline routes, the port would provide a strong alternative to Jebel Ali Port, which requires a detour into the Arabian Gulf.

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“This figure, if achieved, puts the port in a strong competitive position against Jebel Ali Port.
The Kingdom also plans to build a 1,600-km-long railway linking the Red Sea with the Arabian Gulf. This project, if completed, is expected to give Saudi Arabia several competitive advantages,” according to Dr Nasser.

Then there are Oman’s ambitious logistics plans, including the Port of Duqm, which Muscat plans to make a major industrial center and a large port benefiting from the location of the area, overlooking the Arabian Sea and close to international shipping lines. The port is expected to be able to deal in the first phase with 3.5 million TEUs a year after completion.

Other major Gulf projects under construction include Mubarak Al-Kabeer Port in Kuwait and the $1.6-billion fourth terminal at Jebel Ali Port. In addition, ports in the UAE’s northern emirates and in Iraq are undergoing expansion. Apart from competition among GCC states, new challenges from ports in Pakistan, Iran and Djibouti, as well as Chinese projects along the new Silk Road, are increasing.

“If these developments take place amid the Gulf crisis, stalled GCC economic integration and the absence of intra-Gulf cooperation on ports benefit-sharing, they could lead to harmful competition,” says Dr Nasser, which would affect the long-term profitability GCC ports, and make some of them even less commercially attractive.

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