Middle East container ports expand growth, investment opportunities

To:

Al-Monitor Pro Members

From:

Afshin Molavi 

Senior Fellow, Johns Hopkins School of Advanced International Studies

Date:

June 30, 2022

Bottom Line:

Middle East and North Africa container ports are rising rapidly, emerging at the top of global indices in terms of volume growth and efficiency. Competition and investment are accelerating, raising questions about possible over-capacity. Still, the region’s growing role as an emerging markets and global transshipment hub will accelerate, supporting economic growth and attracting investment as traditional powerhouses feel the pinch of competition. 

Background Facts:
  • Global merchandise trade has been remarkably resilient amid a pandemic and dizzying supply chain disruptions, hitting $22.4 trillion in 2021, according to the World Trade Organization. While Russia’s war on Ukraine has disrupted supply chains once again, the WTO still forecasts a 3% increase in global goods trade. Given that 60% of the value of global trade moves on container ships, the industry remains vital to the global economy. 
  • The recent World Bank and S&P Global Container Port Performance Index (CPPI) 2021 reflects the rise of Middle East container ports beyond the traditional powerhouse of Jebel Ali in Dubai. Five of the top six most efficient container ports worldwide are in the MENA region. 
  • King Abdullah Port in Saudi Arabia is the world’s most efficient container hub, according to the CPPI, followed by Salalah (Oman), and Hamad Port (Qatar). Two of the fastest growing ports in the world by volume — Khalifa Port in Abu Dhabi and Tanger Med in Morocco — rank at number five and six, respectively. Also in the top 15 are the Jeddah and Dammam ports in Saudi Arabia and Port Said in Egypt. The strong performance of MENA ports on efficiency reflects years of targeted investments in infrastructure, technology and capacity. 
  • The CPPI report noted that container ports are “critical nodes in global supply chains and central to the growth strategies of many emerging economies.” Tanger Med in Morocco and Dubai’s Jebel Ali are good examples of robust port ecosystems driving growth and attracting foreign direct investment.  
  • One of Canada’s largest pension funds, CDPQ, announced in June a $2.5 billion investment into DP World, the Dubai-based global ports operator. It will invest in Jebel Ali PortJebel Ali Free Zone and National Industries Park — key DP World assets. CDPQ said the deal will offer them “exposure to new fast growing markets and trade routes in Africa and South Asia.” 
  • While Jebel Ali remains a powerhouse, it is feeling the heat from the rise of Khalifa Port in Abu Dhabi, though it still remains by far the region’s largest port by volume (if not efficiency), handling 13.7 million 20-foot-equivalent units (TEUs) in 2021, more than four times Khalifa Port’s numbers. Jebel Ali remains a top global port, ranking 11th worldwide in terms of volume, according to Lloyd’s List. 
  • Khalifa Port has successfully attracted major container shippers MSC Mediterranean and COSCO Shipping as their regional hub, chipping away at Jebel Ali’s volumes. The Khalifa Industrial Zone Abu Dhabi (KIZAD) — a massive heavy industry free trade zone linked to the port — will drive future shipping growth as new tenants join established major industrial players like Emirates Global Aluminum and Borouge
  • Abu Dhabi Ports, the parent company of Khalifa Port, recently raised $1.1 billion in an IPO on the Abu Dhabi Securities Market, valuing the company at $4.4 billion. CMA CGM is the latest major shipping company to pledge an investment in Khalifa Port to operate its own terminal. This will boost Khalifa Port’s highly ambitious goal of reaching 15 million TEU of capacity by 2030, on par with Jebel Ali
  • Questions have emerged about over-capacity, as several of the top ports are far from full capacity utilization. Demand forecasting, however, can be notoriously difficult and global trade volumes have held up even amid the pandemic. Still, a process of natural selection and intense competition is in the cards over the next decade. 
  • Morocco’s Tanger Med keeps growing in strength. It’s the largest port in Africa as well as the busiest Mediterranean hub, outpacing Algeciras and Valencia (Spain) and Piraeus (Greece). Both Tanger Med and Port Said (Egypt) have benefitted from investments by APM Terminals, the Danish ports operator that is part of the shipping conglomerate AP Moller-Maersk. New investments in Egypt’s Damietta port by Hapag-Lloyd will add new capacity in the Mediterranean. These are all clear signs that major players see future growth in MENA shipping. 
  • The United Nations Liner Shipping Connectivity Index reflects the rise of Saudi Arabia and the growing strength of Morocco, nipping at the heels of traditional powerhouse, UAE, which is still ranked first. Rounding out the top five of the most shipping connected regional countries are Egypt and Turkey.
Alternative Scenarios:

Scenario 1: A combination of overcapacity, fierce competition and slowing trade could spark a race to the bottom, hurting existing ports operators and crimping new investment. This is less likely. Global compound annual growth for containerized trade is projected at 3.2% from 2022-2025, according to IHS Markit, and nearly 3% through 2030. Even amid the COVID-19 pandemic, trade flows only fell modestly. Shipping lines — bursting with profits — are actively investing in ports operations and logistics infrastructure in the region. Competition is rife in the ports sector worldwide, not just in the Middle East. Cutthroat competition is a way of life in the ports business. This will make the ports more efficient, though some may find insurmountable challenges. On the whole, the competition will improve the players.

Scenario 2: Carbon emissions regulations could crimp investment in shipping, while ports that fail to keep up with “green initiatives” could find themselves excluded from shipping lines. This is also less likely. The leading MENA ports are actively engaged in sustainability initiatives and well connected with global shipping trends. They are unlikely to fall behind. What’s more, Russia’s invasion of Ukraine and the attendant energy disruptions have slowed the rush to net zero and the world has become more willing to stretch out the energy transition. Yes, the world will continue to move to decarbonize, but the timelines are likely to be stretched further out. By then, green advances in shipping will likely have developed.

Conclusion - Most Likely Scenario:

The MENA region is blessed with strategic geography across key maritime trade routes. Geography — unlike fossil fuels — is not a depleting resource. The UAE, Egypt and Morocco have been the first movers in leveraging their geography by investing in maritime connectivity to become regional and global trade hubs. Other rising powers, most notably Saudi Arabia as well as Oman, have invested heavily in the ports sector and are reaping the fruits. Investments in air and rail connectivity in the UAE will ensure it retains a leading position as a multimodal hub, though competition will continue to be fierce. Rail advancements linking the GCC states over the next decade will make the region an even more attractive logistics hub. 

Given the vital role that shipping plays in our global economy, countries and regions that invest in sea trade connectivity will be well positioned to benefit from one of the oldest and most enduring activities of humankind: trade. While questions of capacity will always arise, it is worth remembering that Dubai’s ruler faced similar questions when he announced the launch of Jebel Ali in 1979. Today, it is one of the largest and busiest ports in the world and a vital driver of Dubai’s growth. 

Contributor Background

Afshin Molavi has nearly 25 years of experience covering the geo-economics of the Middle East and North Africa and broader emerging markets with postings in Riyadh, Jeddah, Dubai, Tehran and elsewhere. Currently a senior fellow at the Johns Hopkins School of Advanced International Studies in Washington, he has also held various research, reporting, analyst and leadership roles at Reuters, Oxford Analytica, the International Finance Corporation of the World Bank, emerge85 and the New America Foundation. His articles have also appeared in Bloomberg, the Financial Times, the Washington Post and the Journal of Commerce, and he is the founding editor of Emerging World, a Substack newsletter that explores the intersection of emerging markets, globalization and the key global trends shaping our future. 

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