Egypt's transport sector set for boost with multimodal and trans-shipment capacity

One major advantage of the $8bn expansion of the Suez Canal will be the scope for increased revenues, with the new shipping lane allowing for a sizeable increase in traffic transiting the canal.

However, the expanded waterway is only one component of a broader push by the government to use what remains – after 150 years – one of the world’s primary shipping routes as a platform for encouraging broader improvements in the country’s transport sector. Achieving this requires the building of trans-shipment centres, manufacturing zones, and stronger intermodal linkages, but if executed properly, it would allow Egypt to increase its share of the processing, repackaging, consumption and redistribution of world trade.

“The ambitious Suez Canal Regional Development project, the flagship of the government’s investment recovery programme, will provide many opportunities for investors as it sets the stage to enlarge and cement Egypt’s role as a global trading and logistics hub,” President Abdel Fattah El Sisi said as he welcomed the international investment community to the Egypt Economic Development Conference in Sharm El Sheikh in March 2015.

Land, River & Domestic

The value of using the expanded canal as a lever for improving inter-modal connectivity, supply chain infrastructure and logistical operations is clear, in light of the burden exporters face currently in Egypt.

In the 2014 Logistics Performance Index, published by the World Bank, Egypt ranked number 62 (out of 160 countries), behind countries such as Kuwait and Saudi Arabia, but ahead of Jordan and Kenya. Egypt scores especially low in infrastructure and Customs, but higher in logistics competence and tracking and tracing.

Infrastructure is also an issue. According to industry sources, 96% of transportation is by truck, 4% by rail and only 1% by river. This leads to high congestion and delays, while security risk is more elevated than in markets such as the UAE, leading to increased costs and insurances rates.

Fuel Subsidy

In addition, while efforts by companies such as Nile Logistics, a subsidiary of Qalaa Holding, are under way to expand the use of river transport, the current fuel subsidy makes it difficult to ensure cost-competitiveness.

If the price of diesel is allowed to increase to market rates, river transportation would be cheaper than truck transportation and the market share numbers would change considerably.

“With the increase in diesel, river transport will become the story”, said Mohamed Mashhour, chief operating officer of Nile Cargo.

Some improvements have been observed on the domestic side. While insurance rates increased during the political instability, they are now dropping as economic and social stability sets in.

Investments

Egypt Post, meanwhile, is becoming more active in logistics, especially in the delivery of goods that have been purchased online. And while many are staying away from domestic delivery due to the cost and complications, some private sector investment is being made.

Aramex, the Dubai-based international transport company, announced in 2014 that it was set to commit LE150m ($20.4m) to increasing its storage capacity in Egypt. The company will add a total of 28,000 sq metres of capacity to its storage capacity of 106,000 sq metres at 6th of October City and Borg El Arab. The company, which has been in the country for 30 years, said that it plans to make the investment in 2015 and 2016.

In 2014, DHL made a significant commitment, inaugurating a new facility at Cairo International Airport in late 2014. The investment totalled LE400m ($54.5m). The new facility has the capacity to process some 60,000 shipments a day. Because of the convenience of the location and the low cost of doing business in Egypt, DHL sees its facility in Cairo as a potential hub for North Africa and the Middle East, and it competes well with the likes of Dubai. Cairo could also begin to take some business from its European operation. The cost of storage is much less expensive in Egypt than at any European airports.

The key, the company says, is the support from the government and the priority that logistics has been given. “Egypt is in a prime location,” said Ahmed Elfangary, DHL country manager in Egypt. “We are looking at the country becoming a hub.”

Suez Canal Zone

As a result, the potential ancillary benefits of the new, larger Suez Canal are significant, in terms of reducing both cost and delays for Egyptian exporters. The expansion of the Suez Canal was achieved in record time, with the project wrapping up in around a year. However, based on the government’s proposed plans for the canal, that expansion is only one component of turning the region into a single integrated logistics system, with major ports at either end and opportunistic capacity built along the way.

The project, known as the Suez Canal Zone (SCZ one), will have an estimated 100 sq km of port and logistics areas. Overall, the SCZ one is expected to represent one-third of the nation’s economy in 10 years’ time, Ashraf Salman, the minister of investment, told local press in March 2015.

Increasing Efficiency

According to the paper “Suez Canal Logistics Hub: Competition and Challenges” by Professor Khaled El Sakty published in the Journal of Supply Chain Management, Vol 8, No 1 (2014), transforming the canal from a cargo gateway to a logistics hub will involve the creation of a number of systems, the improvement of processes and increased efficiencies. The canal will have to deal with complex transportation flows, while it must also lower transportation times, integrate supply chains and reduce waste.

The paper discusses six pillars that need to be developed in order to transform the Suez Canal region into an international logistics hub: transport, trade, tourism, renewable energy, human development and industrial complexes. Included in the SCZ one plan is East Port Said, which will act as a trans-shipment centre with multimodal logistics facilities, with a total of 1000 ha set aside for the relevant tasks. Further south, the city of Ismailia will act as the administrative centre for the zone. Dry ports will be located at Ismailia (120 ha) and at 10th of Ramadan City (210 ha) to aid in the import and export of goods. Three projects have been proposed in Ismailia: a tunnel under the canal, a technology valley, and industrial and logistical areas. Port Said East Port will have a double-track railway connecting it to the rest of the country, as well as ship repair, cold-chain logistics and a river information system. It will create intermodal chains and facilitate re-export and trans-shipment. The expansion will include fully integrated container terminals supported with a yard capacity of 15,120 twenty-foot equivalent units (TEUs), which will be boosted to 20m TEUs by 2050. Other planned additions include a general cargo and dry bulk terminal, a dedicated area for automotive products and a bulk terminal for liquids.

In addition, on the Red Sea, Ain Sokhna will have a 680-metre-wide entrance to the Gulf of Suez, an 18-metres-deep basin, a container terminal with a total length of 2200 metres, a 1.39-sq-km container yard and 22,000 TEUs of ground slots.

Considerable international assistance has been offered. In November 2015, the Port of Singapore Authority and the Egyptian Ministry of Transportation signed a memorandum of understanding (MoU) agreeing to work together on the development and operation of Egyptian ports. The goal of the MoU is to “transfer of expertise, knowledge and technology from Singapore’s ports to the various Egyptian ports like Alexandria and Damietta and the training of Egyptian cadres in this”.

Grain & Food

One facet of the efforts to improve distribution and supply chains within the country, and more broadly reduce costs and delays for the import and export of goods, is the expansion of logistics, warehousing and storage capacity for commodities. Egypt is also the world’s largest importer of grain and wants to leverage that position and turn it into a strength by becoming a global logistics centre for these commodities.

In late 2014 Khaled Hanafy, the minister of supply and internal trade, said that three international logistics parks for food are to be built in Damietta, East Port Said and Safaga at an estimated cost of LE13bn ($1.8bn), increasing storage capacity from 2.5m tonnes to 7.5m tonnes. Total capacity will hit 65m tonnes a year. The minister said that the facilities would be used for the import, export, manufacturing and storage of a wide variety of agricultural products, including wheat, corn, oils, soybeans, and raw and refined sugar. He noted that these logistics centres would work well with a planned commodities exchange.

International Interest

Egypt has been receiving international support in its efforts to become a logistics hub for food products. It has been meeting with Chinese officials to improve its relevant expertise, while the UAE has committed to financing a total of 25 wheat silos.

France-based Louis Dreyfus Commodities, a global trader and processor of agricultural products, announced in April 2015 that it is interested in investing in the Damietta logistics centre, which will handle and trade food commodities and grains. According to Amwal Al Ghad magazine, the company is considering the construction of a number of silos for wheat storage at the logistics centre.

Others are also interested in participating in the agricultural logistics centre. Mulmix of Italy has said that it wants to be involved in the project, in addition to entities from across Europe, Asia and North America, including Russia, Saudi Arabia, China and the US, according to Trade Arabia. Bulgaria, for example, has expressed an interest in the centre as well, and is looking to use Egypt as a hub for the distribution of wheat to African markets.

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