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ANALYSIS

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Filling in the missing links

Manama, July 21, 2013

by Martin Morris

Booming (and growing) Gulf Co-operation Council (GCC) trade with Asia - at the relative expense of the industrialised west - is a well-known narrative. Indeed, two-way trade between the GCC and Japan, for example, grew 12.3 per cent in 2012 to $182.13 billion ($162.2 billion in 2011), with a $132 billion trade surplus in the GCC’s favour, data from the Japan External Trade Organization (JETRO) shows.

Meanwhile, Chinese exports to the GCC have recently been growing at an estimated 30 per cent annually, according to a recent document from the Kuwait China Investment Company entitled ‘The New Silk Road: Asia and the Middle East rediscover Trade and Investment Opportunities’. Counterbalancing this, Beijing remains Saudi Arabia’s biggest customer in the all-important petrochemicals sector. Overall, 40 per cent of the GCC’s non-oil exports now go to Asia.

Increased trade comes at a cost though, as rising demand requires that GCC ports make the necessary infrastructure investments to boost capacities. Moreover, as world-class ports such as Jebel Ali in Dubai and Abu Dhabi’s Khalifa Port look to reinforce or establish their positions as regional hubs, they need to ensure they can act as enablers for companies looking to improve their own logistics and supply chains.

Regional governments have long realised this, of course. Saudi Arabia and the United Arab Emirates are ranked sixth and tenth respectively for anticipated infrastructure development in 2013, according to the ‘Top 100 Global Infrastructure Projects for 2013’ report by US-based consultants CG/LA Infrastructure.

Unsurprisingly, project cargo continues to be an important and evolving market for many Asian and international logistics providers serving the Middle East. Coupled with increased vessel sizes and associated operational costs, this means that fast tracking cargo movement whilst in port is a priority for international shipping companies. This, in turn, will drive a new level of terminal activity requiring capacity and operational maximisation.

In March, Abu Dhabi Ports Company (ADPC) announced an agreement with Abu Dhabi Terminals (ADT), Abu Dhabi Food Control Authority (ADFCA) and Abu Dhabi Customs Administration (ADCA) for the implementation of a new information and documentation system at its ports.

Intended to act as a “One-Stop-Shop” for the ports’ services the so-called ‘Ports Community System’ will integrate and accelerate the flow of trade-related documentation and information using a secure, centralised electronic system to manage the exchange of information between all relevant parties.

Previously, each company or agency would be responsible for liaising with others separately, leading to a high number of man-hours allocated for import/export procedures.

This latest initiative came less than a month after Etihad Rail - tasked with developing and operating the UAE’s national railway network - secured $1.28 billion in financing for Stage One of its railway project, comprising the route from Shah and Habshan to Ruwais in the west of Abu Dhabi.

When completed in 2018, the Etihad Rail network will extend approximately 1,200 km across the UAE, catering to both freight and passengers. It will also form a major part of the GCC railway network - linking the UAE to Saudi Arabia via Ghweifat in the west and Oman via Al Ain in the east.

Etihad Rail also intends to work with DP World in Dubai to develop an intermodal rail terminal in Jebel Ali.

The region’s transport and logistics sector had already received a major boost in December 2012 when Abu Dhabi’s $7.2 billion Khalifa Port, north east of the capital, became fully operational with the inauguration of the Khalifa Port Container Terminal.

The redirection of container traffic from Mina Zayed in downtown Abu Dhabi to Khalifa will also see handling capacity increase from 770,000 TEUs (twenty-foot equivalent units) in 2011 to an initial 2.5 million TEU annually (12 million tonnes of general cargo), with the potential for 15 million TEU (35 million tonnes of general cargo) by 2030.

Meanwhile, semi-automated cargo handling facilities will, in theory, not only make for quick loading and unloading of vessels, it should also speed up movement along the entire logistics chain, thereby increasing efficiency and providing improved access to global markets for local trucking companies and clearing agents.

Despite improvements being provided by ports such as Khalifa and Jebel Ali the shipping industry still faces a number of challenges in managing the supply chain - including variances and increases in freight costs; and periodic heavy port congestion. Noteworthy, though no means unprecedented, was the backlog last year at Saudi Arabia’s east coast port of Dammam, resulting in vessel berthing delays of five to eight days at one point.

A combination of 22 per cent and 18 per cent increases in container volumes at Dammam and Jeddah respectively, combined with labour shortages and customs delays, were widely blamed at the time.

Given the importance of the GCC’s petrochemicals industry, which exports 80 per cent of its output - much of this from Saudi Arabia - the need to develop an efficient, sustainable supply chain is essential to ensure that industry’s growth potential.

GCC petrochemicals output increased by 5.5 per cent to 127.8 million tonnes in 2012, despite a slowdown in global markets due to the recession in Europe, according to the Gulf Petrochemicals and Chemicals Association (GPCA).

Against this backdrop leading producer Saudi Basic Industries Corporation (Sabic) recently announced a number of measures aimed at improving its own supply chain, including raising fuel efficiency and reducing carbon dioxide emissions.

It also intends cutting the transportation time between plants and consumers; replacing 200,000 trucks with 2,700 trains to run on Saudi Arabia’s railway network with the support of Saudi Arabian Railways (SAR); using of larger and more sophisticated ships to transport products more efficiently to distant markets, including Asia; and using pipelines more for the transport of liquid products. Yet, such initiatives do not address the wider issue of periodic port congestion.

Aware of this issue Jeddah Islamic Port (JIP) confirmed in April plans to spend $267 million on upgrading its facilities to handle the increasing amount of cargo and reduce seasonal backlogs. The port, which handles more than 65 per cent of the traffic entering the kingdom by sea, handled 62 million tonnes last year, up 20 per cent over the previous year.

Longer term, improved communication is needed between supply chain participants; such that if a shipment is likely to be delayed it is essential the customer knows the precise situation as early as possible.

This can only be helped by more creative solutions to improve port-hinterland connectivity be it in Saudi Arabia, the UAE or elsewhere in the GCC.

The challenges are there and they can be - and are being - addressed.

This article appeared in the July 2013 issue of the The Gulf.
 




Tags: China | Asia | Ports | GCC trade |

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