Port infrastructure and developments key to Saudi Arabia's wealth

In recent years Saudi Arabia has been on a drive to grow its network of ports, as part of what has become a period of transformation for the Kingdom’s port infrastructure. One of the main targets under the national development strategy, Vision 2030, is to replace oil exports with other, mainly petrochemicals, exports, requiring a substantial increase of seaport and logistical infrastructure for containerised exports. The government has been pushing, among other things, for the upgrading of ports to better handle the increasing number of ultra-large container vessels (ULCVs) travelling global shipping lanes.

The opening of King Abdullah Port (KAP) in 2014 has significantly expanded the Kingdom’s container-handling capabilities, and it is the largest private infrastructure investment in Saudi Arabia to date. In line with Vision 2030, the establishment of public-private partnerships and the encouragement of private investments in public infrastructure services is set to play a key role in development. With capacity of almost 3m twenty-foot equivalent units (TEUs), KAP handled 1.3m TEUs in 2015. Meanwhile, Jeddah Islamic Port (JIP), also on the west coast, remains the Kingdom’s largest container port, with 4.2m TEUs handled in 2015, according to the Saudi Ports Authority (SPA).

Economic Importance

Saudi Arabia is one of the world’s largest exporters of primary products. As such, port infrastructure is key to its national wealth. As a nation that also imports an estimated 70% of its domestic needs, it also relies on its ports for the sustainability of the economy. According to the latest available data from Saudi Customs, in 2014 the total revenue collected at the Kingdom’s seaport Customs reached SR20.2bn ($5.4bn) – 83% of the country’s total Customs revenue. Revenue collected at the Kingdom’s land port Customs, meanwhile, totalled SR1.5bn ($400m) over the same period, while SR1.9bn ($506.5m) was collected at airport Customs. The largest port by revenue generated was JIP, which represented 46.2% of the total, followed by KAP, with 28.2%. The Kingdom’s container port traffic has seen strong growth in recent years, increasing from roughly 5.3m TEUs in 2010 to 6.7m in 2014 – second only to the UAE – according to the World Bank.

The west coast accounts for 70% of cargo coming in and out of the country, according to the SPA and hosts six of the Kingdom’s 10 principle ports: KAP, JIP, Yanbu Commercial Port, Dhiba, Jizan and King Fahad Industrial Port Yanbu. The east coast is home to King Fahad Industrial Port Jubail, Jubail Commercial Port, King Abdulaziz Port in Dammam and Ras Al Khair.

King Abdullah Port

At the heart of recent developments on the west coast is KAP, located in King Abdullah Economic City. The port is the first to be run outside the control of the SPA and is a multi-user commercial port. Concessions for providing stevedoring services are granted by Ports Development Company to operators on an individual basis.

The port has a container capacity of 3m TEUs, set to rise to 4.5m in 2017. Overall planned throughput capacity at the port is 20m TEUs in addition to 40m tonnes of roll-on/roll-off, bulk and general cargo. This is 400% of JIP’s current capacity and is expected to cover the demand for the Kingdom’s seaport infrastructure at the Red Sea beyond 2030. To date, a total of SR8bn ($2.1bn) has been invested in the port.

Abdullah Hameedadin, managing director of KAP, told the Financial Times in June 2015 that the long-term goal is to create a twin-basin facility reminiscent of Thailand’s Laem Chabang Port but almost double its size, with a capacity of 20m TEUs. This would put the port on a par with Jebel Ali Port in Dubai – the busiest trans-shipment hub in the Middle East.

Go Large

KAP’s infrastructure is tailored to serve ULCVs, with electronic documentation used for Customs clearance to expedite the import/export process. In May 2015 KAP opened its fourth berth, raising its capacity to more than 2.7m TEUs. In October 2015 the MSC Maya – the world’s largest vessel, with a capacity of 19,224 TEUs – docked at KAP. Additionally, in 2015 the port signed a partnership agreement with NYK Group, one of biggest car shipping companies in the world. NYK Group will use KAP’s first roll-on/ roll-off berth, which is likely to be operational by the third quarter of 2016. The berth will have a capacity of 300,000 vehicles per year, and will be the first of its kind in the region operated by the group.

At the TOC Middle East conference in Dubai in December 2015 – an event for the various stakeholders in the container supply chain – officials from KAP said that a second terminal concession would be tendered in early 2016, although no further news was available at the time of publishing. “We are going to go soon to the market to see a second operator for the ports,” said Abdullah Hameedadin, managing director of Ports Development Company, the developer of KAP, speaking at the conference. “This year we are going to close [at] 1.3m TEUs. From zero [in 2013] to 1.3m TEUs. Our plans continue,” he added.

Jeddah Islamic Port

Even with the arrival of KAP, JIP remains the largest port in Saudi Arabia. Established in 1976 and located further down the west coast, the port has capacity of 6m TEUs. In February 2016 the SPA approved the expansion of the Red Sea Gateway Terminal at JIP, at a cost of SR510m ($136m) over two years. The terminal’s capacity will be raised by 40% to over 2.2m TEUs. The renovations will enable the simultaneous mooring of three mega-vessels.

JIP saw a 7.9% decrease in traffic in 2014, the first year that KAP was in operation, with traffic dropping from 4.6m TEUs in 2013 to 4.2m TEUs in 2014, according to press reports. In the first half of 2015, however, JIP saw a slight pick-up in traffic, as the total number of imported containers at the port rose by 1.1% year-on-year to just under 1m TEUs. “There is some competition now between KAP and JIP. KAP has more freedom in rules and regulations coming from the private sector. It can change faster. JIP can change, but it takes time,” Mussad Binshanar, director of the planning department at SPA, told OBG.

East Coast

The main port on the Gulf coast is King Abdulaziz Port, which is located in Dammam and also serves the capital Riyadh. The port’s Terminal 1 reported a rise in throughput of 15% during the first five months of 2015 to just under 780,000 TEUs. April 2015 saw the opening of a second terminal at the port – a joint venture between PSA International and the Saudi Public Investment Fund. The new $530m terminal has an estimated capacity of 1.5m TEUs and, once fully operational, will increase the port’s total capacity to more than 4m TEUs. PSA International has described King Abdulaziz Port as “a key gateway port on the Arabian Gulf”, and Abdul Rahman Mohammed Al Mufadhi, former secretary-general of the Public Investment Fund, characterised the second terminal as “commercially and strategically significant for the development of the Kingdom’s economy”.

Industrial Ports

The majority of Saudi Arabia’s ports are focused on industrial or bulk cargo. King Fahd Industrial Port Yanbu, alongside the smaller Yanbu Commercial Port, had a throughput, excluding crude oil, of 61.4m deadweight tonnes (DWT) in 2015, according to SPA data. This was up from 28.9m DWT in 2010. The industrial port at Jubail, meanwhile, has seen strong and steady growth, with throughput rising from 46.4m DWT in 2010 to 61.5m DWT by 2015.

Connectivity

As the Kingdom continues to grow its port infrastructure, it is increasingly important that inland transportation keeps pace. The establishment of industrial clusters around the ports has gone some way towards achieving this. “Road connectivity to the ports is still a challenge. They are very costly to connect and maintain,” Binshanar told OBG. However, the growth of the Kingdom’s railway network is a significant development in this respect – most notably, the 950-km Landbridge project. Expected to break ground in the next few years, the project will link the two coasts, improving the transit time and lowering transport costs between the Red Sea and Gulf coasts.

“The logistics sector is offering interesting opportunities for the private sector, Abdulaziz Al Babtain, president of investment firm Himmah Holding, told OBG. “Leveraging the country’s geographical location is one of the main focuses of Vision 2030. Having the right policies, regulations and infrastructure in place is necessary to make the Kingdom a launch pad for the region. Getting this right will also serve the local market, which is growing in several crucial sectors. For example, the shift of agribusiness outside of Saudi Arabia is increasing the need for import, storage and distribution capabilities.”

As Saudi Arabia continues to increase its oil production and refining capabilities, and develop its manufacturing base and other industries, ports will continue to play a significant role. Furthermore, with the government looking to invest up to $10bn in port infrastructure over the next decade, ports will become even more important for economic growth.

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The Report: Saudi Arabia 2016

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