Complex Made Simple

UAE and Saudi’s ports are key to China’s Belt and Road plan

In the coming years, China’s Belt and Road Initiative will become a major player in the international economy. The UAE and Saudi will play a very important role in contributing to that plan’s success.

As it currently stands, the ports of these Gulf States have been underutilized. According to a report by The Loadstar, a UK logistics news site, “the Middle East Gulf region could be faced with substantial overcapacity of container terminal and air cargo infrastructure if all planned projects proceed, a new report from Transport Intelligence (Ti) warns.”

“An audit of GCC and Iran airport and port infrastructure reveals that the UAE remains the dominant location for both container and air freight traffic,” it says.

In fact, Ti’s research shows that significant underutilization of facilities already exists in several ports: Bahrain’s throughput in 2016 was around 300,000 TEU (twenty-foot equivalent unit), while its Khalifa Bin Salman port has an annual capacity of 1m TEU; Qatar handled just under 500,00 TEU, but has capacity to handle four times that, Loadstar explained.

According to recent Alphaliner data, the Saudi ports of Dammam and Jeddah and the UAE’s Khor Fakkann, were among the top ten largest losers of container volumes last year – Dammam saw volumes decline 11% to 1.6m TEU and Khor Fakkan was down 6% to 3.8m TEU, Loadstar continued.

The good news is that these ports will be able to support the forecasted demand coming from China’s belt initiative.

But, how can Saudi and the UAE mirror the success of their European counterparts such as being properly equipped and manned for what’s to come?

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How can Saudi and the UAE get peak port activities

Image: Stratfor

According to a recent report by Stratfor, a global intelligence site, the five biggest ports in Saudi and the UAE “are essentially stopping points along longer trade routes, offer even more economic opportunity than endpoint ports, where products are either offloaded or exported, because they allow for the development of businesses that provide insurance, offer import and export services, charge berthing fees and more.”

In fact, Saudi and the UAE upgrading their ports will serve more than just meeting Chinese requirements – it will in fact help diversify their economies, as the “shipping industry is a stable, year-round business.”

As it currently stands, most shipping jobs go to foreign employees, whether they are blue-collar workers or white-collar managers. As nationalization practices sweep the region, such as the Saudization-influenced fees on businesses hiring expats, it is in these companies’ favor to hire nationals, lest they incur unforeseen costs. Stratfor further elaborates by explaining that this hurts Emirati and Saudi nationals in the long run, with shipping wage revenues flowing out of the country.

Manual labor continues to be the major force driving these ports. As ports become more and more automated across the world, Saudi and the UAE will have to keep up, otherwise, they will be eclipsed by the more cost-effective ports abroad. An inclination towards a technological upgrade will only help cement these Gulf ports as major players in the East Asian maritime route.

With women finally allowed to drive, they could also offer an entirely untapped employee market that could revolutionize the shipping industry. It will be up to the major shipping corporations to train and hire the best female minds for the job.

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The 5 biggest ports in Saudi and the UAE

According to the Observatory of Economic Complexity (OEC), Saudi Arabia exported $163B and imported $131B in 2016, resulting in a positive trade balance of $31.8B. According to the Saudi Ports Authority, their 9 ports collectively handle 532 million tonnes and 13 million containers.

The UAE exported $174B and imported $196B during that year.

Most of those goods arrived at or departed from the two nations’ many ports. The biggest ports in the two countries are as follows, according to Stratfor:

Saudi: The King Abdulaziz Port in Dammam, Jeddah Islamic Port, and the King Abdullah Port.

UAE: The Jebel Ali Port in Dubai, and Port Khalifa in Abu Dhabi.

READ: UAE rolls out the economic red carpet for China

Other revenue streams

These ports have been witness to another activity: Transshipping. These 5 hubs witness import and export activities where they are the starting or ending points of transactions, while also serving as transshipment intermediaries, where products travel through them for a certain amount of time before continuing on to their final destination.

This is where the two countries will play the greatest role in the Belt and Road Initiative, and China’s latest actions confirm this.

It should come as no surprise then why China is pledging $20 billion in loans, and about $106 million in financial aid to the Middle East, now of all times.

The Middle East, and more importantly key countries such as the UAE and Saudi, is at an important crossroads for China’s planned maritime route. The route, which aims to connect China to Southern Asia, the Middle East, Africa and Europe, will need robust, effective ports at all the key points across its path.

Saudi and the UAE are the main economic hubs in the Middle East, and it is therefore crucial for them to be improved and up to par with China’s standards. As the saying goes, a chain is no stronger than its weakest link, and it is in the GCC’s favor not to be that link.

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