Access all areas: Growing cargo and passenger volumes and significant government investment are reshaping the sector

Located at the intersection of the Asian, African and European continents, trade has been a lifeline of Qatar’s economy throughout its history. To facilitate continued trade growth, the government has drawn up plans for substantial investments in transport infrastructure. In the past decade, work has been under way for a new airport, new port and new highways and bridges. Although these plans were in place years beforehand, the country’s successful bid to host the FIFA 2022 World Cup has added immediacy to these projects, giving a definite finish line for a large portion of upcoming construction.

BY THE NUMBERS: Rising trade activity is not a recent change, but a trend that has been gathering for most of the past decade. Overall imports have seen significant growth during this period, rising four-fold between 2001 and 2010 from QR13.6bn ($3.7bn) to QR57.2bn ($15.7bn), according to the Qatar Statistics Authority (QSA). Exports have increased as well. Between 2009 and 2010, the country’s total merchandised exports expanded by 55.4%, from QR170.5bn ($46.8bn) to QR265bn ($72.8bn), according to a report on Qatari exports released by the QSA in April 2012. Although trade eased significantly in the aftermath of the global financial crisis, imports of construction materials and bulk goods are expected to increase as the state prepares its long list of infrastructure projects in the lead up to the 2022 FIFA World Cup. These rising trade volumes are represented in the overall state of the economy. Transportation as a share of GDP spiked between 2005 and 2009, from 5.9% to 22.7%, according to the latest data available from the QSA.

Qatar’s unprecedented boost in wealth over the past few years has led to rise in demand for a wide range of imports – from construction materials to luxury goods. To ensure that trade volume would not outgrow current infrastructure, the government has devoted a significant portion of its budget to transport upgrades. In its 2011/12 fiscal year, the government allocated 41% of its $44.5bn national budget to public works and infrastructure projects.

Prime Minister Sheikh Hamad bin Jasim bin Jaber Al Thani announced in January 2012 that the boost was not a temporary measure, and that transport spending would either be increased or remain steady in the 2012/13 budget. The budget, released in May 2012, directs $11bn to the new airport, $5.5bn to a deep-water seaport, $1bn to a transport corridor in Doha and $20bn to roads, part of $95bn in public investment up to 2016. To coordinate growing trade activities and new infrastructure projects, the state has a number of institutions that are responsible for various aspects of the transport and logistics sectors, including the Urban Planning Department, the Public Works Department (Ashghal) and the Ministry of Municipality and Urban Planning. Other agencies that are heavily involved in transport and trade include the Qatar Ports Management Company, Milaha, and the Customs and Ports General Authority.

ON THE ROAD: The government is aware of the congestion that can arise during peak travel times, and plans are in place to continue expanding road capacity. To address the state’s public transportation needs, the government created the Transport Company of Qatar (Mowasalat) in October 2004. Since then, it has grown to include the public buses, school buses and Karwa taxi services; the organisation announced the addition of 250 new buses to its fleet on February 6, 2012. Mowasalat has also awarded licences to private sector operators Alijarah Holding, Petro Qatar and Al Million to compete with Mowasalat’s Karwa taxi services, a move that is expected to increase standards.

To boost the overall capacity of roads, meanwhile, Ashghal has a list of projects in the pipeline. In 2011 it produced an index of 13 bridges and tunnels in and around Doha to be examined and upgraded.

Highways have been undergoing an overhaul as well.

In October 2011 phases 2 and 3 of the North Road project, which started in June 2007, came on-line. Stretching north from Duhail to Madinat Al Shamal, the final value of the project came to $776m. In addition, Ashghal is working with the New Port Project to plan an upgrade on the north-south highway that will connect the New Port to Doha.

Meanwhile, work for the planned 45-km Qatar Bahrain Causeway remains stalled. The project, which has run into a number of delays, received a boost thanks to Qatar’s successful FIFA 2022 bid, but work on it has not yet resumed. Upon completion, the causeway is poised to connect the two countries by both road and high-speed rail links, creating the longest marine causeway in the world. The design contracts for the project, which is expected to take five years to complete, were awarded to the US-based KBR and the UK-based Halcrow. Meanwhile, construction contracts were awarded to France-based VINCI in a consortium with Qatari Diar.

Although the quantity of projects is unprecedented for the state, the government is paying very close attention to the quality of works as well. To that end, Ashghal has adopted a two-envelope system for the contractors bidding on projects: one envelope containing financial information and the other with strategic information. The idea is to judge projects on the quality of their planning before taking budget issues into account. To improve existing resources, Ashghal signed a contract for roads operations, repairs and maintenance with UK-based public services and infrastructure support firm Amey in January 2012. Amey is set to work with Ashghal on training and support on asset management and human resources as well as assist in the integration of more information and communications technology (ICT) in the department’s operations.

PORT UPGRADES: As Qatar works to improve connections within the country by building new roads, highways and bridges, it is also attesting to accomplish a major expansion of its connections outside of the country by upgrading its ports network. Currently the state operates three principal ports: Mesaieed Port, Ras Laffan Port and Doha Port.

Mesaieed is located about a 30-minute drive south of Doha, near the Mesaieed Industrial City. The port is primarily used to export the state’s industrial output and petrochemicals, including fertilisers, urea, ammonia and other goods made from hydrocarbon by-products. Ras Laffan Port, which is located about 75 km north of Doha, is the state’s prime oil and gas export centre. The port, originally built in 1994, has grown to include 56 sq km of facilities, seven operational liquefied natural gas (LNG) trains and six LNG berths, making it the world’s largest facility for the export of LNG. Expansion of the port is still under way, and by 2030 the port is on track to become the world’s largest man-made harbour.

The Doha Port, located in the city itself, is used primarily for imports of construction materials, consumer goods and other necessities. Although it has undergone significant expansion since its original construction in 1971, the amount of cargo processed at Doha Port is edging closer to the facility’s maximum throughput capacity, according to the Qatar Ports Management Company (see analysis).

To accommodate future trade growth, the state is already constructing additional ports to boost capacity. About 120 km north of Doha, near the northern tip of the state, construction at Al Ruwais Port has been under way since 2010. Set to be complete by 2014, the port is expected to process cargo and passengers from coastal trading vessels and ferries.

South of Doha, meanwhile, next to Mesaieed Industrial City, construction of the QR27bn ($7.4bn) New Port Project (NPP) began in October 2011. Upon completion of its three-phase construction process, the port is set to have an annual container capacity of 6m, a significant boost on Doha Port’s current rate of approximately 320,000. In addition to handling container cargo, the port will also cater to livestock, bulk grain, cruise vessels, general cargo and vehicle imports, among others (see analysis). Upgrades to ports infrastructure have the potential to improve the economy as a whole, since greater capacity could lead to lower demurrage costs, decreased congestion and greater efficiency along the state’s sea trade routes.

However, this will still only mitigate fuel prices, which remain a key cost for the sector. “Insurance on shipping has increased due to the rise in piracy but the main challenge when it comes to cost is the increase in fuel prices,” Francois Coron, the managing director of the logistical services firm Geodi Wilson, told OBG. “Office prices and warehousing are also very expensive and the industrial area is in need of some huge improvements,” he added.

ENVIRONMENTAL CONSIDERATIONS: The government is very aware that the expansion of its seaports could have an effect on the coastal ecosystems and is taking steps to mitigate the environmental impact of these projects. The NPP steering committee, for example, signed a QR26.4m ($7.2m) contract with COWI A/S, an engineering, environmental science and economics consultancy in February 2009 to study the project. The steering committee has also continued to work in cooperation with the Ministry of Environment to mitigate the environmental costs that the project will incur. As the project progresses, construction phases also include steps to moderate the damage to coastal ecosystems. Included in the tender for Middle East Dredging Company, for example, is relocation of coral, sea grass, mangroves and other wildlife displaced by the project.

STAYING ON TRACK: In conjunction with its port upgrades, the state has also embarked on a series of rail projects that are expected to transform the country’s logistics landscape, with railways set to provide more efficient ground connections both within Doha and between cities and industrial areas.

At the helm of these plans is the Qatar Railway Company (QR ail), which handles planning, execution and oversight of the project. Known as the Qatar Integrated Railway Project, the rail network includes four metro lines in Doha, rail links between other cities and ports, and two international connections, one with Saudi Arabia and one with Bahrain via the planned Qatar Bahrain Causeway. The project started to gain more momentum in 2009 when the state-owned real estate major Qatari Diar Real Estate Investment Company signed an agreement with Deutsche Bahn railway company to design both the metro and inter-city rail systems.

QR ail’s project timelines are expected to integrate with the state’s ambitions to host international sporting events. The current schedule sets the completion date for the rail network in 2022, just in time to shuttle incoming fans to and from stadiums for the 2022 FIFA World Cup. The timeline for the Doha metro was also moved forward by 18 months, which would have enabled it to be complete in time for the 2020 Olympics, which the state had put in a bid to host. It ultimately failed to make the list of candidate cities, however, Qatar announced in June 2012 that it would bid to host the 2024 Summer Olympics.

NEW UNDERGROUND: The Doha metro project is set to provide more convenient, economical and sustainable passenger transport for Qatar’s largest urban area, in addition to relieving congestion by taking cars off the road. The project consists of phased construction process for four main lines totalling 358 km that will wind throughout the capital. The expected completion date of the full system is 2026. Phase 1 of the project focuses on segments of the Red Line and Green Line. The Red Line is set to link Lusail in the north with Mesaieed Industrial Area in the south, via the central West Bay district and Al Wakra Municipality. The Green Line, meanwhile, will connect Education City and industrial areas in the south with central Doha. Phase 1 includes a total of 49 km in twin-bored tunnels and 30 km of elevated rail. The first phase of construction is set to link the airport, south of central Doha, with the northern outskirts, while the second would expand the network farther out into areas in the north and south, Geoff Mee, QR ail’s deputy CEO, said at the conference.

The contracts, which include everything from station design and civil work such as utilities diversions, have been divided into five tunnelling packages ranging between $1bn and $1.5bn. The first tenders are for creating two tunnels and two subway stations, which are located at Education City and Musheireb. In August 2011 Qatari Diar VINCI Construction (QDCV), a partnership between Qatari Diar and France-based VINCI, won a €374m ($497m) contract to construct the Lusail Light Rail Transit (LRT) system, located about 15 km north of Doha’s city centre. The system will connect to the inter-regional rail system, according to VINCI. QR ail and QDCV signed the agreement in February 2012. Handover of the Lusail LRT is expected in 2016. Although they can be one of the most cost-effective and environmentally friendly ways to transport cargo and freight, train systems do not typically work well in isolation, and require additional infrastructure in order to be successful. The state is aware of this, and is working on a network of support infrastructure to help ensure maximum efficiency of the network. The idea is to minimise the obstacles between the station and users’ origins and final destinations. To that end, systems of feeder buses for train lines, pedestrian walkways and station access points are on the agenda.

HAULING FREIGHT: While the Doha metro will cover the greater Doha metropolitan area, a long-distance rail network is set to connect the capital to the rest of the peninsula’s cities, ports and industrial areas, including the NPP, the New Doha International Airport, the Economic Zones (1, 2 and 3), and Mesaieed Port. The project, designed by Deutsche Bahn, includes segments for freight and passengers. The freight network is designed to cover 325 km in total and link to the larger GCC regional railway network. Of the 325 km in freight lines, 270 km will be used for passenger services as well. Passenger train lines are set to include high-speed rail links to neighbouring Saudi Arabia to the south, and Bahrain (via the planned Qatar Bahrain Causeway) in the north. The Saudi connection will run at a top speed of 200 km per hour, while the Bahrain connection is expected to clock in at 350 km per hour.

COSTS & BENEFITS: The combination of the Doha metro and inter-city rail projects is set to cost between $35bn and $40bn, Mee announced to the international press at the MEED Projects Qatar Conference, in February 2012. Although the price seems daunting at an initial glance, the completion of a comprehensive rail network could unleash a multitude of benefits for Qatar and the region as a whole.

Train transport is less costly, according to the weight of the cargo, and in some cases it is faster than trucking freight. Thus, the rail network could do much to lower transport costs across the board. In addition to lower costs, trains require far less fuel for the amount of weight transported than trucks, buses and planes, meaning lower transport-related emissions. Moreover, the construction of rail lines has historically helped drive development by increasing accessibility of a broader range of areas and increasing property values around stations. This is part of a broader trend called transit-oriented development, which has the potential to help shape the growth of Qatar’s urban areas by providing opportunities to build high-density structures such as apartment blocks, hospitals and shopping malls with convenient and low-cost transport links.

Since both Qatar’s national and the GCC’s regional rail networks are set to follow standards and technical specifications written by the International Union of Railways in Europe, the project could do much to link the economies of the GCC, the Middle East and Europe. With work on the Marmaray Tunnel in Istanbul, which will create an underground rail link across the Bosphorus Strait, it would even be possible for the GCC railway to link up with Europe’s major rail networks directly. The prospect, still far off but not out of reach, of creating a new land link between the GCC and Europe could provide flexibility for moving goods and people to and from these regions.

Although the task before them is considerable, government institutions and their private sector partners have been working closely to execute project plans. A combination of the urban planning department, road network operators, the utilities authority and other agencies are cooperating to prevent bottlenecks that could delay completion and streamlining the execution of the project.

FLAGSHIP CARRIER: Qatar Airways has been leading an ambitious campaign to expand its fleets, broaden its route network and raise its international profile, despite unfavourable short-term forecasts for the airline industry as a whole.

In early 2012 the International Air Transport Association (IATA) downgraded its industry profit outlook from $3.5bn to $3bn in large part due to increasing oil prices, a major portion of airline costs. According to Tony Tyler, IATA’s director-general and CEO, “This year [2012] continues to be a challenging year for airlines. The risks posed by a worsening eurozone crisis have been replaced by an equally toxic risk – that of rising oil prices. Already the damage caused by expensive fuels is being felt through a downgrade in industry profits to roughly $3bn.” Although the IATA predicts stormy weather for the industry as a whole, it also believes the Middle East could be an exception to its gloomy forecast. Even as the organisation downgraded its estimate for overall yearly profits, the airline was able to upgrade its forecast of yearly profits from the Middle East, increasing the expected results from $300m to $500m.

It is not only the IATA predicting clear skies for Middle Eastern carriers. Airlines have themselves demonstrated their optimism for the near term with a set of fleet upgrade purchases. Qatar Airways, one of the three largest carriers in the Gulf region – alongside Dubai-based Emirates and Abu Dhabi-based Etihad – has been leading the way in fleet expansions. The flagship carrier currently has more than 250 new aircraft on order, carrying a total price tag of more than $50bn and including 80 Airbus A350, 60 Boeing 787, 14 Boeing 777, nine Airbus A320, 80 Airbus A320 Neo and 13 Airbus A380-800.

IN FLIGHT: To match its growing fleet, Qatar Airways has also been growing its route map. Several new services began in early 2012, including flights to Baku (Azerbaijan) and Tbilisi (Georgia) in February 2012 and Kigali (Rwanda) in March 2012. Other destinations scheduled to open before end-2012 include Perth (Australia), Zagreb (Croatia), Qassim (Saudi Arabia), Helsinki (Finland), Belgrade (Serbia), Erbil (Iraq), Baghdad (Iraq) and Yangon (Myanmar).

Qatar Airways’ growth as a carrier has the potential to offer significant advantages to the country’s tourism sector, as the expansion on the carrier’s route map translates to more visitors passing through. The carrier already has in place tourism programmes for passengers with scheduled layovers. Rather than wait for their next flight at the airport, travellers have a number of options, including a walk on the Corniche, a tour of the Souq or a trip to the Museum of Islamic Art. On a broader level, however, Qatar Airways’ growth could do much to lift the state’s tourism industry as a whole. With a hub located at the intersection of Asia, Africa and Europe, the state’s flagship carrier can court passengers from all over the world. This position should be particularly fruitful as high-growth tourism markets such as India and China reach their full potential. Indeed, outbound tourism in the world’s two largest countries by population is set to thrive in the next decade. The UN World Tourism Organisation predicts that India will account for approximately 50m outbound tourists by 2020, and China will account for 100m outbound tourists well before 2020. In light of Qatar’s proximity to these countries and Qatar Airways’ existing connections to North America, Europe and Africa, growth in the outbound tourism markets of Asia could spur more business for the state’s air travel sector.

NEW DOHA INTERNATIONAL AIRPORT: As Qatar Airways expands both its fleet and route map, changes are afoot for the facilities that will house its headquarters. The Doha International Airport is set to be replaced by the New Doha International Airport (NDIA), a project that has been ongoing for nearly a decade. Design and preparations started in 2004, and the groundbreaking ceremony took place in January 2005. The $14.5bn project is located on a site of approximately 22 sq km, alongside the existing airport on reclaimed land. It is expected to begin operations by the end of 2012.

NDIA DEVELOPMENTS: During this first phase, the NDIA will have a passenger capacity of 24m and cargo capacity of 750,000 tonnes, according to the NDIA’s website. Construction will continue to 2015, when the project will reach what the NDIA calls “ultimate development”. At this stage, the airport is set to have an annual capacity of 50m passengers and 2m tonnes of cargo, and will be three times the size of the existing Doha International Airport.

Several reasons were cited for building a new airport in Doha, including increasing the city’s competitiveness as a transit destination, and introducing new airline management, passenger handling and security procedures. The most pressing reason for the upgrade, however, was likely the expected growth in passenger and cargo volume. Passenger numbers have been climbing in the past five years. Between 2007 and 2011, annual passenger numbers nearly doubled, increasing from 9.4m to 18.1m, according to the Doha International Airport’s statistics. Cargo figures rose at an even faster rate. During the same period, total cargo handled more than tripled, from 247,164 to 795,559 tonnes annually. Through its larger size and more advanced equipment, the NDIA is set to accommodate growth into coming decades. Indeed, as the state’s flagship carrier and major airport continue their respective expansion plans at a heightened pace, their combined investments could do much to further Qatar’s transformation into an international air passenger and cargo hub.

MORE OPTIONS: Investments in a larger airport could also herald a larger number of carriers and, as a result, more competition to win passengers. This growth could also make room for more low-cost carriers (LCCs) and private charter airlines. Indeed, Doha, along with the greater Middle East, is marked by a relative dearth of LCCs.

Currently four major players operate in the Gulf: Sharjah-based Air Arabia, Dubai-based FlyDubai, Kuwait-based Jazeera Airways and Riyadh-based Nas Air. Overall market share for LCCs has seen impressive growth in the past decade. From 2003 to the first quarter of 2012, their market share within the region has grown from less than 1% to 12%, according to the Sydney-based CAPA Centre for Aviation. During the same period, low-cost flights to and from the region have also grown from virtually 0% to just over 8%. These rates are about half of those seen in Europe, North America and Asia, meaning that there could still be room for growth.

As impressive as recent growth has been, however, LCCs still have challenges to overcome. Tough airline regulations and slowed tourism growth resulting from the Arab Spring are proving to be significant headwinds. While regional difficulties remain, however, domestic visitor numbers actually grew throughout period of political unrest, showing that Qatar is, to a certain extent, insulated from regional instability. Airport capacity is also set to rise dramatically as phases of the NDIA are complete. At the opposite end of the spectrum, demand for private charter flights from Qatar is on the rise, and a number of firms now compete with Qatar Airways. The uneven playing field can be a challenge to the state’s private aviation firms. There is plenty of interest in charter flights, but operators are carefully managing their costs because of the lack of fuel subsidies and Qatar Airways’ dominance in support services.

LOGISTICS: The state’s transport and logistics sectors are enjoying a major upswing thanks to government investment and growing demand. As freight traffic continues to rise, supply chain management is set to be increasingly important. The government has set out to reform Customs clearance procedures with a single-window Customs policy, the idea being that ICT can aid government bodies to provide all necessary services for international trade from a single office. Called the Qatar Customs Clearance Single Window, the system is being developed in conjunction with the Supreme Council of Information and Communication Technology (see analysis). Initial implementation has been gradual and has run into anticipated stumbling blocks, as Customs officers and international traders are adjusting to newly introduced procedures. As time passes and the changes become established routine, the value of an updated system is set to become more apparent as cargo clears in a more streamlined process.

THIRD-PARTY ASSISTANCE: Although more efficient Customs procedures are set to simplify international trade, the comprehensive knowledge of Customs procedures and international shipping offered by logistics companies is still likely to rise in value as demand for imported goods continues to rise. To that end, a growing number of firms are likely to outsource their supply chain management tasks to third-party logistics (3PL) firms. Perhaps the largest symbol of logistics growth is the Gulf Warehousing Company’s Logistics Village Qatar, a 200,000-sq-metre logistics campus set to provide specialised storage, repair and maintenance services for cargo (see analysis). The idea is to utilise a combination of storage facilities and Customs expertise to facilitate the most efficient movement of goods possible. That way, even if infrastructure comes under increasingly heavy use, the state’s existing resources can still be used to their full potential.

OUTLOOK: Although Qatar’s transport upgrades were planned long before its successful bid for FIFA 2022, the football tournament has provided an extra impetus for upcoming projects. Indeed, in the 10 years leading up to 2022, the state is set to invest a significant amount of its financial resources in virtually all areas of transport and logistics. Although challenges could arise – particularly in managing increasing cargo volumes while new infrastructure is still under construction – the government has been working to coordinate among the several relevant agencies to ensure that the currently available resources are allocated as efficiently as possible.

Once the initial phases of new projects kick in, growing capacity is likely to ease congestion.

The pursuit of infrastructure upgrades fits well with the economic diversification goals laid out in Vision 2030. An extensive network of highways, ports and airports could create opportunities for the logistics sector in its own right, in addition to lowering costs for other areas of the economy – including the industry, retail and tourism sectors. As economic prosperity and government investment continue to support infrastructure development, opportunities are set to rise for transport and logistics in the state.

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