Saudi port operator expects 18% volume boost this year

RSGT expects volumes to increase by 18% this year. Credit: RSGT
RSGT expects volumes to increase by 18% this year. Credit: RSGT

Red Sea Gateway Terminal, one of three operators located at Saudi Arabia’s leading west-coast gateway to Jeddah Islamic Port (JIP), expects to see volume at its 2.5 million teu capacity facility to rise by 18%, but this will mainly be due to superior infrastructure, rather than general market growth, its top official told IHS Markit.

Its CEO, Jens Floe, said, “The import-export market [in Jeddah] is 21% down compared with the peak in 2016. Everyone has been trying to fill up with transhipment. The transhipment market is volatile as always and may be even more so at the moment. There is also the situation with Abu Dhabi, and MSC and Cosco investing there will further impact the volatility for Dubai, Salalah and Saudi Arabia.

“When you look at the western part of Saudi Arabia, total volume has grown, but import-export volume has declined. [Earlier], it was mainly the oil price. Now we have seen a large exit of expatriates, which has reduced the consumer base by almost 2 million people.”

He said a number of big infrastructure projects were coming to an end, leading to smaller amounts of project cargo. “The next big projects have been announced, but they are still in the masterplanning phase, so they are not generating business yet,” he said.

“We are keen on transhipment and the total market has increased a bit. Transhipment is very volatile and there have been problems in Djibouti and Salalah. The two new ownership structures coming up in Abu Dhabi will presumably negatively impact the transhipment market in the whole region.”

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“If you look at the western part of the Saudi market, there are two ports: King Abdullah Port (KAP), which is 80% transhipment, driven by a shipping line being part of the ownership structure, and JIP, which is predominantly import-export driven. You have two different market segments. Down here in Jeddah, you have a cargo base for import-export. You have all the traders, the manufacturing, the deconsolidation. Up in KAP, you have mainly transhipment.”

RSGT shares Jeddah operations with DP World Jeddah’s South Container Terminal and Gulf Stevedoring and Contracting Co, a unit of Gulftainer of the UAE, which runs JIP’s North Container Terminal. Both are expected to see their JIP concessions expire in the next 12–24 months.

“Even if you look at just transhipment and you take KAP versus JIP as whole, the same amount of transhipment is handled in both ports. In KAP, the absolute majority is for one shipping line and related services, while in JIP it’s all the major shipping lines with a working ITT setup between the three terminals, which in our opinion has a significant advantage as a transhipment hub.”

The transhipment market — but not RSGT — was 21% down, in terms of import-export, from the first half of 2016 to the first half of 2018, Floe noted. “This is, of course, a significant decrease in a market where capacity is being added.”

Floe said the drive for larger vessels in the wake of last year’s consolidation into Ocean Alliance, THE Alliance, and 2M, had favoured RSGT. “RSGT is a new and modern build-operate-transfer development. We can handle the latest generation of vessels. This is clearly where the growth is. The largest vessels are all part of the Asia-Europe service, where we are well positioned.

“This year, at RSGT, we expect to see 18% volume growth. This is unfortunately not a reflection of market growth. … We are taking market share [from other operators] based on superior efficiency, customer service, and being the only terminal in the main Saudi import-export location that can handle latest-generation vessels.

“The structure in Jeddah means you have some old concessions — and then ours, which is relatively new. We have a 40-year concession. We started operating eight years ago. Other concessions are expiring soon, [causing] insufficient investment. This is leading to lack of new deepwater berths, as the major investments will only take place after new concessions have been awarded,” he said.

Jens Floe. Credit: RSGT

“RSGT are proud of offering superior infrastructure and processes and our efficiencies, based on moves per hour, are around 40% faster than the other operators in Jeddah.”

While conceding KAP was Saudi Arabia’s biggest transhipment facility, he added, “Because of its position and truck restrictions, it is not very competitive [in] local import-export. It is too far away, which of course adds to the trucking costs. The import-export business is Jeddah-driven. You want to do the transhipment where you have the import-export business, just to save costs. Jeddah is, in our book, the natural hub, because you have capacity in the place where you have the local consumption.”

According to Floe, Saudi Arabia’s 2030 Vision and 2020 National Transformation Plan involves very specific targets around the logistics industry and making Saudi Arabia a hub. “For these plans, Jeddah is the natural place. You cannot easily move your base to somewhere else,” he said.

“We do 60–65% import-export and the rest is transhipment. We are always in the top 20 and often in the top 5, globally, for productivity. We have dredged a sperate channel now and have a draught of 17 m.”

RSGT is majority-owned by local business Xenel Industries through a listed entity. Floe said RSGT had originally invested USD600 million in the port and an additional USD80 million the past 15 months.

He conceded said that Jeddah was not an easy place to do business because of the expiring concessions and consequent unwillingness to invest. “While that might have a negative impact JIP’s position in the market with all the vessels upgrades, RSGT, with its recent expansion and willingness to invest, will help JIP remain competitive in the market.”

RSGT has embarked on an international growth strategy. “We are negotiating for concessions in a couple of countries. We are trying to match locations with our core competencies to optimise our ability to succeed … mainly [in] emerging markets. We ended up number-two in the Port Sudan concession award. The Middle East is very crowded. Africa and southeast Asia are where we are working at the moment.”

Shipping line alliances are getting larger and terminal operators need to match their size and cater to their future growth, Floe said. “We have as RSGT two choices: either consolidate in Jeddah or extend further into the water. We will move with one of the options that allows us to cater for our customers.”

He said this could even mean bidding to take over terminals run by RSGT’s competitors at JIP. “We would be tendering for the existing terminals as consolidation seems to be the best option for the port authority and the private investors using the already built capacity. The Saudi Port Authority is evaluating how they will manage the process and I believe the procurement law allows them to extend existing concessions for a short period.”

The largest vessels to visit RSGT of late have been CSCL Globe at 19,000 teu and Triple-E Michaela Maersk at 18,200 teu. “We have seven calls a week for 14,000-plus teu vessels. These calls cannot fully load at any of the other terminals at Jeddah because they simply don’t have the infrastructure for it. Our investment ahead of time is paying off,” he said.

“I think transhipment will keep moving around and be volatile. You have so much capacity that is being built in this region specifically. It is being built based on individual countries and places wanting to position themselves as a hub.

“The lines will continue to have the upper hand in negotiations. If you look at the publicly listed terminal operating companies, [if] profits go down, you will see less capacity being delivered. At a certain stage, the dynamics will change again. The large consortia will have very few choices of where they can move that larger amount of transhipment in one go, [meaning that] a more balanced negotiation position is likely to return.”

Floe underlined the overcapacity problem in the region. “Qatar has just built a new port. Import-export into Qatar will never fill this facility. It is a big port for a very small consumer base. The same thing with Salalah: almost no consumer base for a very large port. It will never be import-export driven. Jeddah port can be import-export-driven, making it the natural home for transhipment,” he said.

“Dammam and Jeddah to a large extent are import-export-driven. KAP is a little more like Salalah, a little off the map when it comes to local import-export competition. I would say that for Saudi ports, import-export is the bread and butter — and will always be. It is definitely the more attractive segment to be in. Transhipment is very volatile and has limited ability to add value.

“The UAE has the free zone cargo … Saudi Arabia has a transformation plan to go more into industry and non-oil related cargo. When executed, that will add to the local cargo base. If you look at the Middle East as a whole, for the local cargo base, Saudi Arabia is by far the largest market.”