CASE STUDY: Abu Dhabi Ports looks to the East for growth

Abu Dhabi Ports bets on China for leverage in an increasingly competitive GCC port operations sector.
While securing Port Khalifas growth for the rest of the decade, the deal does appear to be an example of the risk to which Dr. Naser was referring.
While securing Port Khalifas growth for the rest of the decade, the deal does appear to be an example of the risk to which Dr. Naser was referring.

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Toward the end of 2017, Abu Dhabi Ports has made two major announcements regarding its plans for giving Port Khalifa a solid growth plan going into the new year. The first was the confirmation of an agreement with COSCO for the Chinese shipping company to shift its primary hub of Middle East operations from Jebel Ali Port to Port Khalifa.

The move will be made as part of the shipping giant’s plans to develop a huge container freight terminal at the port.

Abu Dhabi Ports and COSCO Shipping Ports Limited (CSP) held a ground-breaking ceremony for the CSP Abu Dhabi Container Terminal at Port Khalifa in November, marking the start of the shipping giant’s plan to expand Port Khalifa’s annual container handling capacity by 3.5-million TEU.

A new agreement between CSP, the world’s leading ports operator, and Abu Dhabi Ports was also signed during the ceremony for development of the largest container freight station in the region.

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The new Container Freight Station will provide Abu Dhabi trade with a state of the art facility offering bonded LCL/FCL consolidation and de-consolidation services, cross stuffing, cargo weight reduction, short term warehousing for de-consolidated cargo as well as easy connectivity with the container terminals in Khalifa Port.

“Khalifa Port is one of the fastest growing ports and an important gateway port in the region, with huge potential and prospect. COSCO SHIPPING Ports is marching another step forward in the port development project with Abu Dhabi Ports,” said Ning Jizhe, deputy director of China’s National Development and Reform Commission (NDRC), which is providing a significant portion of the funding for the project.

Zhang Wei, vice chairman and managing director of COSCO Shipping Ports Limited said during the event that although the growth prospects for Port Khalifa are promising, the vast majority of container traffic for the new terminal will come from COSCO’s transhipment operations in the region.

“There are two types of port, transhipment ports and gateway ports,” he said during a news conference. “COSCO will use Port Khalifa as a transhipment hub, and possibly as a gateway port in the future, but such plans must be undertaken carefully because the GCC ports infrastructure faces overcapacity.”

When asked if COSCO planned to move its freight operations from Jebel Ali Port to Port Khalifa, in order to funnel traffic into the new development, he said that it would happen gradually over the course of up to 24 months.

COSCO Shipping is part of the Ocean Alliance, which includes CMA CGM, Evergreen and OOCL, which is currently in the process of merging with COSCO. The alliance accounts for around 3-million TEU of the entire freight throughout in the UAE, the vast majority of it currently through Jebel Ali Port.

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An official at Jebel Ali Port, who asked not to be named, said COSCO’s freight operations in Jebel Ali currently account for around 5% of the total annual turnover at the port.

Captain Mohamed Juma Al Shamisi, CEO of Abu Dhabi Ports praised COSCO Shipping Ports on their decision to take Khalifa Port as a hub for their operations in the region.

“This marks a significant leap in the expansion of the Port, transfer of goods and reduction of costs. In addition to attracting investors from Eastern Asia, it will increase Khalifa Ports’ competitiveness and ease the way for more partnerships with companies and friends in China and East Asia, which will draw further investments into Abu Dhabi,” he said.

Under the agreement, COSCO Shipping Ports will operate the new 18m deep, 1.8km long Khalifa Port Container Terminal 2 as part of a joint venture with Abu Dhabi Ports called COSCO Shipping Ports Limited – Abu Dhabi (CSPL SPV), which will be a wholly-owned subsidiary of COSCO Shipping Ports Limited.

The first 800 metres of the quay length (and the corresponding Concession Area) is expected to commence operations in the first half of 2018 while the remaining 400 metres (and the corresponding expanded Concession Area) is expected to commence operations in 2020.

Once the expansion areas are occupied, the Concession Area will span an area of approximately 70 hectares with 3 berths, which will add 2.4 million TEU a year to the port’s existing capacity of 2.5 million TEU.

The 35-year agreement includes the option for a further 600 metre of quay length in the future to allow for anticipated volume growth, the nominal annual handling capacity will increase to 3.5 million TEU when all phases are complete, creating a new overall annual capacity of up to 6 million TEU.

“The signing of the concession agreement between Abu Dhabi Ports Company and COSCO Shipping Ports Limited will significantly expand trade between China, the UAE and the broader region,” said Dr. Sultan Ahmed Al Jaber, UAE minister of state and chairman of ADPC. “It will greatly enhance the UAE and Abu Dhabi’s role as a key logistics and trading hub, between East and West and will also serve to further diversify the UAE’s dynamic and growing economy.”

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“With the development of China’s “One Belt One Road” strategy, there is boundless potential for expanding the UAE-China relationship further. We look forward to closer collaboration with China and to creating even greater economic progress for both our nations in the years ahead,” added Dr Al Jaber.

Wan Min, president of China COSCO Shipping Corporation Limited, said Abu Dhabi’s Khalifa Port is a strategic hub along the ‘One Belt One Road’, with significant geographical advantage for the development of terminal and logistics businesses

“Khalifa Port Container Terminal 2 will be the second overseas terminal in which COSCO Shipping Ports holds the controlling interest,” he added. “With the strong support from the large container shipping fleet of COSCO Shipping Group, 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 liners.”

These developments will give Port Khalifa and the adjacent KIZAD free zone a solid footing for growth in the coming years as it increasingly competes with Jebel Ali Port and JAFZA. While Zhang Wei, vice chairman and managing director of COSCO Shipping Ports Limited, said during a media event that the port would be a transhipment hub for the wider region initially, he also added that he expects the deal to draw some Chinese firms away from JAFZA and to KIZAD instead.

In October, Dr. Naser Al-Tamimi, a UK-based Middle East researcher, political analyst and commentator and author, warned that the current political tensions within the GCC could negatively impact the ports sector. In a commentary for Arab News, Dr. Naser said 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.

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“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.”

While securing Port Khalifa’s growth for the rest of the decade, the deal does appear to be an example of the risk to which Dr. Naser was referring. While he did not mention the Abu Dhabi Ports-COSCO deal specifically, Mahmood Al Bastaki, CEO, Dubai Trade, mentioned this topic during his keynote address at the Leaders in Logistics Conference 2017 in November.

“What is happening now in ocean freight is a sea change and as players in the logistics market we need to think about how this will impact us,” he told delegates. “The new alliances are affecting ports, some are getting more port calls, others are losing out, this affects the end-user in the planning of your supply chain. Through alliances the shipping lines are also changing the routes of world trade.”

With Abu Dhabi Ports’ Port Khalifa now set to be a key link in China’s ‘One Belt One Road Initiative’, these are interesting times for the GCC logistics industry.