GCC $46bn ports expansion spending risk creating glut – report

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Qatar is spending heavily on the New Doha port project to streamline its economic development. Photo - Constructionweekonline.com

Gulf states risk creating a glut in container capacity amid multi-billion dollar spending on port projects, a report published by Bloomberg said.

More than 35 ports of the six Gulf states plan to add space for as many as 60 million standard containers in little over a decade, more than doubling capacity from the current 50 million boxes.

The sea port expansion plans come in line with an oil-funded infrastructure splurge that also includes the expansion of some of the world’s biggest airports. But lack of coordination between Gulf Cooperation Council states is putting efforts at risk.

“You have a fragmented group of nations each seeking to establish a large-scale port, and the danger is that there’s no overall coordination,” said Neil Davidson, senior adviser on ports at Drewry Shipping Consultants. “The key question is how robust demand will be over the next 10 years, and that really depends on oil revenue and the spending power it brings.”

Gulf ports are expanding despite shipping lines struggle with a glut of vessels that led to a price war and caused losses of at least $6 billion. According to Drewry estimates, capacity cuts prompted rates on Asia-Europe routes to more than double to $2,732 per 40-foot container in the week to 1 March.

Abu Dhabi’s new Khalifa port, scheduled to open in the fourth quarter, is leading the charge with a capacity for 2 million containers, increasing to 15 million by 2030.

The mega complex is built on a man-made island and with an industrial zone two-thirds the size of Singapore. It is situated just 40km south of Dubai’s Jebel Ali, the world’s ninth-biggest container port and the busiest outside East Asia.

Further west, Qatar, the top exporter of liquefied natural gas, is spending 19 billion riyals ($5.2bn) on a port with a planned volume of 6 million containers, due to open in 2016. Little over 160km away in Bahrain is the Khalifa Bin Salman Port which is run by Denmark’s A.P. Moller-Maersk A/S. Hassan Almajed, director of the country’s General Organisation of Sea Ports, says the capacity could be doubled to 4 million boxes in two or three years.

Abu Dhabi says it will spend $7.2bn on the first phase of Khalifa and focus on terminating cargo. The port wants to reduce any overlap with Jebel Ali, where goods are trans-shipped from one vessel to another.

Mohammed Sharaf, CEO of DP World Ltd, the world’s No 3 container-terminal company and the operator of Jebel Ali, says there’s room for both ports, even as his company boosts capacity at the Dubai site 36% to 19 million boxes by 2014.

“If anything, we’d like to see infrastructure built more quickly,” Sharaf said in an e-mailed response to questions from Bloomberg News. “We see the development in Abu Dhabi as complementary to what we’re doing. Shipping lines are ordering bigger and bigger vessels to achieve economies of scale and ports need to meet those new needs and meet them efficiently.”

Abu Dhabi Ports Co Chief Executive Officer Tony Douglas concurs, suggesting the Gulf’s economies and populations will grow quickly enough to sustain the expansion of its ports.

“At the moment there isn’t enough capacity in the region,” he said in an interview. “Unless economies in the region slow down, it’s unlikely there will be overcapacity.”

Nasser Saidi, chief economist at Dubai International Financial Centre said the expansion of ports is also being driven by the growth of Asian economies with India accounting for 11% of Gulf trade in 2010, versus 2 per cent in 2001. On the other hand, China’s trade with GCC countries was up 10% from 4%, according Qatar National Bank figures.

“Much of our infrastructure is based on what the old colonial powers wanted when the idea was ‘we sell you goods, you sell us oil,”’ Saidi said. “Today’s world has changed and we need to think of where we stand in the global supply chain.”

Future Plans

GCC nations’s plan to end their reliance on petrochemicals may soak up extra container capacity, the Bloomberg report said. Abu Dhabi aims to derive only 40% of GDP from oil by 2030 compared with 60% today, and Khalifa Port will be surrounded by enterprises including the Gulf’s largest smelter, spurring box traffic.

Arabian ports are also positioning themselves to meet future demand from underdeveloped neighbours Iran, Iraq, Pakistan, Afghanistan and East Africa when they come out from economic and political crises.

Oman has a short stretch of Gulf coast but it is focusing expansion on its southern coast that stretches more than 1,000km. According to the CEO of Salalah port, Peter Ford, the facility will increase capacity by 50% to 9 million boxes as early as 2016 if demand continues at the current rate. Part-owned by AP Moller-Maersk, it expects to handle 4 million boxes this year, a 23% gain on 2011.

“We’re ideally positioned to connect East African, Indian, Red Sea and Gulf markets with Europe and Asia,” Ford said in an interview. “But I do see developments where it’ll be difficult to fill the capacity. That’s a great risk for those countries.”

Kuwait, at the other end of the Gulf, aims to build a port that would be able to handle 1.33 million containers a year, part of its bid to tap a hinterland spanning Syria to Iran. The plans are currently on back burner as it created rifts with Iraq, which wants to develop its own facility.

Maritime consultant Juergen Sorgenfrei of IHS Global Insight Overall believes there is too much capacity, so much so that the Gulf risks repeating errors made in the Mediterranean 20 years ago, when ports such as Gioia Tauro in Italy mushroomed without ever becoming major centers for trans-shipment.

“Today it’s nothing, and we’re going to see the same thing in Arab states if they create overcapacity,” Sorgenfrei said. “There will be winners and losers.”

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