According to recent industry reports, GCC states are in the process of adding some 17m twenty-foot equivalent units (TEUs) of new container capacity to the Arabian Peninsula’s port facilities. While some of this will go towards meeting domestic demand, there is also significant regional competition. Yet this logistics race comes at a time of unprecedented consolidation in global shipping. Major players in the container industry are forming “super alliances”, and pooling their container traffic on ever-larger vessels, which make fewer calls. The result is a global decline in trans-shipment, with even established ports such as Hong Kong seeing rapidly falling TEU volumes.
Oman’s ports are increasingly turning to a new model to drive growth in the logistics sector. Rather than trans-shipment, improved trade facilitation and better access to onward land and air routes are seen as the key to future success. David Gledhill, CEO of the Port of Salalah, has seen container volumes fall 3% in 2014, and expects throughput in 2015 to fall still further, just topping 2m boxes. However, general cargo rose by 30% from 7.94m tonnes in 2013 to 10.31m in 2014. The opposing trends lead Gledhill to conclude that Salalah’s future lies in better exploiting its potential as an import/export centre. “Salalah Port has mainly been about trans-shipment, which is in decline globally,” Gledhill told OBG. “To replace that we need to refocus on the import/export market, which requires connectivity.”
Connectivity can mean a number of things. In terms of physical connectivity, Gledhill can already see a number of easy wins for the port, particularly in rail links. “Salalah offers Oman Rail one of the few opportunities in the Gulf to build a railway from scratch that will be viable from day one,” he said. “Currently, we’re sending two hundred trucks a day up and down the mountain fetching limestone and gypsum. There is huge demand in India for this product, and the quality in Oman is very high. We are exporting a million tonnes a month.”
While often built to serve a particular purpose, multi-modal links such as rail also tend to bring additional benefits. The economic rationale for the 93-km rail link from Salalah to Thumrait resulted in a lot of interest from international companies when the tender was floated in June 2015. However, as Gledhill points out, “Once you pass the mountains to Thumrait, it is cheap to keep going. It’s flat land to the rest of the country.”
Another segment where improved connectivity could bring benefits lies in better links between Oman’s own ports. Tarik Al Junaidi, acting CEO of Oman Shipping Company, is hoping to establish a feeder line that will link Salalah with Duqm in the centre of the country and Sohar in the north. “We are currently in talks to run a line, starting with a single multi-purpose vessel with a capacity of 350 containers, or 8000 tonnes,” he told OBG. “As it stands, we are not very integrated into the internal logistics market, owing to the fact that we grew out of export-focused liquefied natural gas shipping. There should be better integration, though, as there is a great deal of potential here that could be tapped.”
Beyond physical infrastructure, the other kind area identified by Gledhill relates to Oman’s regulatory environment. “A key objective for logistics must be to reduce bureaucracy,” he said. “The current biggest disadvantage when trying to compete with Dubai is Customs clearance, which can typically take up to a week.” In this regard, Gledhill and his colleagues in the logistics sector are all keen to see the nationwide roll-out of the Bayan single-window e-clearance system, which is currently under trial at Sohar port. “It’s extremely important for the logistics industry that all the different ministries and regulations are unified, so you only have one source to clear,” said Gledhill.
Further gains could also be made by improving links between logistics zones. “There is currently no way to bond cargo,” Gledhill said, “so getting it into the free zone can be an issue. We are competing with other free zones in the region, so better links will improve our competitiveness, and a successful free zone will generate cargo for the port.”
Indeed, it is in this latter category of connectivity, also known as trade facilitation, that the Omani authorities are making their biggest push. The Sultanate of Oman Logistics Strategy (SOLS) was launched in February 2015 by the Ministry of Transport and Communications (MoTC). The strategy, which aims to take Oman’s logistics sector through to 2040, foresees the creation of a new executive agency under the auspices of the MoTC, to be called the Oman Logistics Centre (OLC). The OLC will be responsible for driving through an ambitious reform agenda, which has identified trade facilitation as a top priority.
As the SOLS report notes, the key activities for the logistics sector – which must be executed within the next five years – include “structural changes of relevant government organisations and agencies, changes of legislation, rules, regulations and procedures, as well as the application of technology, human capital development, and internal and external marketing.” The report emphasises that “a complete refocus on trade facilitation by all government agencies, not only on paper but also in practice, is also a key prerequisite,” and that this activity “has to be regularly and closely monitored”.
This shift in focus towards enabling and facilitating trade at the regulatory level seems to have followed on from the realisation that, with everyone in the GCC investing simultaneously in investors and trade partners in the region will soon be faced with an embarrassment of riches from which to choose. In such an environment, trade facilitation will be the key factor that differentiates the region’s potential logistics hubs.
It is with this limited window of opportunity specifically in mind that the new strategy strikes a tone of urgency. As the report notes, if the above-mentioned changes are not implemented – specifically those for the next five years – “the role of the sultanate in logistics in the region will be marginalised and a large part of the billions of Omani rials invested in transport and logistic infrastructure will be sunk investments. The economy will not grow and jobs will not be created.”
For Oman’s ports the opportunity is there for the taking. Internally commissioned research for the MoTC on consolidation in the container shipping industry estimates that, on a benchmark voyage direct from Singapore to Suez, a weekly call at Salalah for an ultra-large container vessel would represent an annual cost of $4.47m, at Duqm $8.69m and at Sohar $17.09m. Dubai’s Jebel Ali, by contrast, would cost an estimated $24.62m. For this reason and others, Oman ranks relatively highly in the Logistics Performance Index (LPI) for international shipments, having improved from 77th place in 2012 to 31st in 2014. Indeed, in 2015 Salalah Port was ranked as the fourth-most-productive port in the world by JOC Group.
However, as the SOLS report points out, container lines do not just look for good handling times: they increasingly tend to focus direct calls on ports with “good intermodal connectivity, large accessible hinterlands and buoyant consumer markets”. Moreover, further flung ports such as Jebel Ali can sometimes gain back what they lose in distance travelled by facilitating a rapid disembarkation. In this respect, Oman’s recent performance in the LPI shows room for improvement: the sultanate’s ranking on Customs efficiency fell from 36th in 2012 to 74th in 2014.
Coordination & Willpower
The good news for Oman’s logistics ambitions, however, is that the kind of investment necessary to improve the sultanate’s ratings on these and other trade facilitation measures is a fraction of that currently being channelled into physical infrastructure. Achieving such goals is often largely a matter of coordination and willpower: creating a strategic body with a wide remit to shake up entrenched practices, streamlining bureaucracy and encouraging the private sector. The OLC will thus be integral to the future success of the SOLS. For Oman, the current watchword in logistics is opportunity, in the particular sense of potential coupled with timeliness. Gledhill said, “There is an opportunity for Oman to become the gateway to the rest of the Gulf – shipping lines would prefer not to go into the Gulf. The only thing lacking is connectivity.” The next five years will show whether the SOLS can fill that gap.
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