Ports of Call: How GCC Ports are Managing Hyper

Ports of Call: How GCC
Ports are Managing
Hyper-Speed Evolution
The computer game Ports of Call is a lot of fun—unless
you are a port owner or operator. Then, it is likely to
disappoint, as it does not account for the challenges
in the high-growth gulf countries.
Ports of Call: How GCC Ports are Managing Hyper-Speed Evolution
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For those yearning to be ship captain for a day, the game Ports of Call, where players navigate
harbors, load cargo, and map routes, is the next-best thing. Among real-life port owners and
operators in the high-growth gulf countries, however, the game is unlikely to cultivate many
devotees as it fails to reflect the challenges they confront.
Ports in the Gulf Cooperation Council (GCC) countries have experienced explosive growth
over the past three decades. Led by the United Arab Emirates’ port of Jebel Ali, which handled
45 percent of GCC throughput in 2010, the region’s volume of maritime traffic now far
outpaces that of its major global competitors. In fact, the UAE surpassed all Netherlands’
ports during a growth boom in which container traffic reached more than 15 million 20-foot
equivalent units (TEUs) (see figure 1).
Figure 1
Container traffic has been on the rise in United Arab Emirates ports
Total container traffic
(million TEUs)
UAE
16
Netherlands
14
12
10
8
6
4
2
0
1980
1985
1990
1995
2000
2005
2010
Note: TEU is 20-foot equivalent unit.
Sources: World Data Bank, International Transport Forum, Organisation for Economic Co-operation and Development; A.T. Kearney analysis
GCC ports are not alone. Other sectors in the region are experiencing similar growth rates—from
construction and process industries to retail and telecom. The rise in air-freight and air-passenger
transport has also been dramatic. What is interesting is that GCC ports are not only rapidly
growing, but also reaching their moment of truth in a far shorter time frame. Indeed, growth is
mimicking the global players. Netherlands’ port of Rotterdam, for example, was founded in the
14th century and became the world’s busiest port in the 1960s. It now lags Jebel Ali.
Ports of Call: How GCC Ports are Managing Hyper-Speed Evolution
2
Figure 2
Stages of hyper-speed evolution
Traditional growth
• Mature ecosystem
• Growth through iterative innovation
• Evolution over long periods of time
Hyper-speed evolution
• Growth triggered by specific catalysts
• Benefit from learning by others
• Accelerated time frame
3
Moment
of truth
2
Rapid growth
1
Launch
Growth over time
Source: A.T. Kearney analysis
We refer to this as hyper-speed evolution, and it is a phenomenon unique to this region,
often attributed to rising oil prices, government investment, and a growing population and
workforce (see figure 2).
Hyper-Speeding
Hyper-speed evolutions typically consist of three phases: launch, which occurs when catalysts—
such as favorable natural resources, competitively priced labor, and the ability to learn from
mature companies—trigger swift expansion; rapid growth, which happens as companies
capitalize on existing global networks, build competencies, and exploit gaps left by established
players to quickly catch the global leaders; and the moment of truth, which arises as companies
approach maturity and the strategic response determines if their rapid growth is sustainable.
GCC ports have been through the launch and rapid growth phases, thanks to several unique
global and regional factors. The age-old trade route between East and West is one factor. More
than 16 percent of the world’s container traffic flows between Europe and Asia, allowing GCC
ports to capitalize on the thriving global shipping business.1 Demand for international trade
coupled with the existing global ports network is another factor in the GCC’s marine transport
boom. Regionally, budding industries fueled annual 10 percent export growth rates, while local
economies continued to support demand for imports.2 GCC governments have had a hand in
the region’s success, building state-of-the art port infrastructures and introducing tax and tariff
incentives to spur development of special free zones near the ports.
Drewry, 2010
1
Freight on board (FOB) export of goods data, 1990-2010, International Monetary Fund
2
Ports of Call: How GCC Ports are Managing Hyper-Speed Evolution
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Moment of Truth
The industry is now facing its moment-of-truth phase and is being tested by the challenges of a
new business environment. The most pressing issues are rapidly developing local markets that
could face oversupply and increased competition as new ports come online. Over the next 20
years, planned infrastructure in the GCC will increase capacity by more than 200 percent (see
figure 3). Port expansions in neighboring regions such as Jordan and Iraq will also affect supply.
Figure 3
GCC port capacity will increase 200 percent over the next two decades
Million TEU per year
Kuwait
Bahrain
Port
Current
capacity
Future
capacity
Mubarak
al Kabeer
Planning
phase
1.3
Port
Khalifa
Bin Salman
Qatar
Current
capacity
Future
capacity
Port
1.0
2.5
Doha
Kuwait
Jubail
Dammam
Yanbu
KAECP
70 million TEU
expansion
Jazan
Port
Current
capacity
Future
capacity
Dammam
3.5
6.5
King
Abdullah
Economic
City
Construction
20.0
Future
capacity
Construction
6.0+
Port
Current
capacity
Future
capacity
Jebel Ali
14.0
30.0
Abu Dhabi
1.25
15.0
Port
Current
capacity
Future
capacity
Salalah
6.0
10.0
Sohar
0.3
5.3
Duqm
Construction
Unknown
UAE
Bahrain
Ras Al Khaimah
Doha
Sharjah
Sohar
Abu
Dhabi Jebel
Ali
Jeddah
Saudi Arabia
Current
capacity
Salalah
Hodaydah
Aden
Sultan
Qaboos
Duqm
Oman
Note: TEU is 20-foot equivalent unit.
Sources: Drewry, Oman Ministry of Transport and Communications; A.T. Kearney analysis
Other competitive threats for ports exist in the form of new transport links, such as the region-wide
rail network, while the eurozone debt crisis, piracy, and tensions surrounding Iran are having a
negative effect and increasing shipping costs. The following four actions will help ports capitalize
on and sustain growth, and overcome such challenges.
Choosing a strategic direction
During the rapid growth phase, GCC ports relied heavily on geographic location to maintain
profitability. Given today’s emerging oversupply and regional challenges, this is no longer
sustainable. And while the new regional rail system will help link ports (and exporters), it can
also mean less volume as rail allows exporters and importers more port choices.
Ports of Call: How GCC Ports are Managing Hyper-Speed Evolution
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To meet these and other challenges and avoid spiraling into value-destroying price wars, port
differentiation will be vital to gaining competitive advantage in the region. For example, Saudi
Arabia’s King Fahd Industrial Port Jubail, built to meet the needs of nearby large export industries,
specializes in liquid chemicals.
At the same time, ports are tailoring their services to meet specific needs and improving their
services to create competitive advantage. The recently opened Khalifa Bin Salman Port in Bahrain,
for example, built a bonded logistics zone to position itself as an attractive transshipment hub
for the northern gulf.
Other specializations hold potential:
• Offering added services, such as toxic-waste management, hazardous-material handling,
quarantine, warehousing, ship decommissioning, dry-dock services, and military vessel support
• Promoting low-cost, minimum service
• Providing access to demand and supply of cargo in a connected industrial zone through
bonded areas, pipe, and rail, or offering incentives
• Arranging for multimodal transshipments (sea to air and sea to rail)
The “intelligent” connections—
communications, logistics, scheduling,
and IT systems—are every bit as significant
as the physical connections of roads,
railways, and pipelines.
In addition, many GCC ports face costly import-export imbalances that cause empty containers
to either accumulate (import surplus) or disperse (export surplus) and then must be brought in
from other locations—either way, an expensive proposition. In such situations, giving importers
and exporters incentives will help the balance.
Improving capabilities
The benefits of strategic differentiation are often won or lost in operational efficiency. Although
GCC ports have expanded their capacity to address the growth, operational and logistical
shortcomings prevent them from realizing their true potential.
World Bank’s 2012 Logistics Performance Index, which rates ports on their ability to arrange
competitively priced shipments, included only one of six GCC countries in its top 40 for
international shipments. Consider this: It takes an average of 17 days to import goods into Saudi
Arabia, but it takes just four days to import into Singapore.3 IT integration, customs procedures,
processes, and availability of skilled personnel are all areas that GCC countries need to address.
World Economic Forum, 2012
3
Ports of Call: How GCC Ports are Managing Hyper-Speed Evolution
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Figure 4
A port community system allows information sharing
Port and maritime authorities
Freight forwarders
Shipping agents
Interoceanic shipping lines
Road operators
Container terminals
Railroad freight operators
Port
community
system
(PCS)
Container depots
Customs
Health and sanitary inspections
Regional shipping lines
Source: A.T. Kearney analysis
IT integration is a pressing need, specifically establishing a port community system (PCS) that
links all players in the shipping process and allows them to share information (see figure 4).
A tailored PCS combined with appropriate programs to train port personnel can reduce lead
times and capture the most value from expensive port facilities.
Choosing the right port operator is a good way to align the port’s strategic goals with its
operational capacities. GCC-based port operators such as DP World, Gulftainer, Gulf
Stevedoring, and the newly created Abu Dhabi Ports Company handle nearly 80 percent of the
region’s container throughput.4 However, international operators have become increasingly
relevant players in the region as they seek to capture a share of the new port capacity coming
online. Of the global firms, Netherlands’ APM Terminals (Salalah and Bahrain) has the strongest
presence in the GCC, while Hong Kong’s Hutchison Port Holdings (HPH) and Singapore’s
American President Lines (APL) operate ports in Saudi Arabia, Bahrain, and Oman.
Because port owners and terminal operators have shared interests, alleviating their operational
and logistical shortcomings may depend on getting both sides to collaborate in strategy
development and operational execution.
Engaging the regulators
Government regulations can also drive competitive advantage. For example, the Jebel Ali Port
and neighboring Jebel Ali Free Zone have a symbiotic relationship in that the government offers
tax and duty exemptions within the free zone, which gives industries exclusive port access to
export products and import supplies. This approach, successful around the world, is one GCC
port owners and operators could pursue, engaging in discussions with regulators and other
port authorities to establish rules that benefit all stakeholders.
Based on 2009 TEU, Drewry
4
Ports of Call: How GCC Ports are Managing Hyper-Speed Evolution
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Working with business
A final vital factor for success is for ports to integrate more closely with GCC business
communities. To this end, a new 2,000 kilometer rail network is under way to connect
countries from Oman to Kuwait, at a cost of roughly $100 billion, and road networks are
further developing to the tune of $18 billion.5 It is important to note that the “intelligent”
connections—communications, logistics, scheduling, and IT systems—are every bit as
significant as the physical connections of roads, railways, and pipelines. Logistics platforms
that act as intermodal facilitators between roads and ports will strengthen both the intelligent
and physical connections.
In the longer term, the GCC has an opportunity to become a center of trade with the emerging
markets of China, India, the greater Middle East, and Africa, a region collectively termed CHIMEA.6
Improved integration with ports and markets along the Indian Ocean can lead to further prosperity
for the GCC ports as they serve as a collective conduit for local industries to access the world’s
fastest-growing markets.
Charting a Course
Riding the wave of the hyper-speed evolution, GCC companies have enjoyed rapid growth and
substantial profits. However, as competition intensifies and industries approach maturity, each
country will face its own moment of truth. From this point on, new strategies and defense
mechanisms will be needed to avoid the pitfalls of fast growth. Success lies in more closely
aligning companies and cultures to their growth strategies while investing in forward-looking
initiatives fit for the next challenging era. As regional dynamics change, ports can act as
economic enablers, both to their countries and to the wider gulf region.
Authors
Bob Willen, partner, Middle East
bob.willen@atkearney.com
Maurice Zuazua, partner, Middle East
mauricio.zuazua@atkearney.com
Salvador Zarate, partner, Middle East
salvador.zarate@atkearney.com
Business Monitor International (BMI)
5
See CHIMEA: An Emerging Hub of the Global Economy at www.atkearney.com.
6
Ports of Call: How GCC Ports are Managing Hyper-Speed Evolution
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