Suez maximises its potential

With traffic hitting new heights, operators are bidding for a share in developments, writes Gavin van Marle in Cairo

With the continuing strength of the Asia-Europe container trades, and capacity concerns at both the Panama Canal and US west coast ports, volumes through the Suez Canal – and at Egyptian ports located near and around it – have reached unprecedented levels. The widely held belief in shipping and transport circles in the country is that Egypt is finally making its position count for something, and the rapid increase in boxes going through its container terminals is changing the shape of shipping patterns across the Mediterranean and Black seas.

The APM Terminals-controlled Suez Canal Container Terminal (SCCT), located at East Port Said, has shown stunning growth over the last couple of years, although it has not been entirely organic. Its largest customer, sister company Maersk Line, shifted volumes away from the Italian port of Gioia Tauro and the Egyptian port of Damietta to consolidate Black Sea transhipment cargo at SCCT. To underline the effect that SCCT has had on the fortunes of Port Said, overall the port – including SCCT’s older neighbour, Port Said Container & Cargo Handling Company – showed the second largest growth in percentage terms in Cargo Systems Top 100 Container Ports 2007, and now finds itself the third largest port on the Mediterranean, smaller only than Algeciras and Gioia Tauro. Growth at the port was 72%, with a total of 2.69m teu handled, while volumes at SCCT went up by 135% to reach 1.68m teu.

Jens Floe, SCCT MD, tells Cargo Systems that the rate of future growth will in the short-term only be constrained by the terminal’s capacity: "We are operating at 70% capacity of the optimum 70% of a terminal’s total capacity. We hope to have that up to 100% of 70% next year. Our full capacity is 2.55m teu per year, and in 2007 we handled around 1.8m teu. In 2008, I expect this is be 2.3-2.4m teu."

As a result, the terminal has embarked on the second phase of its development and last month the Egyptian prime minister laid the first stone on SCCT’s Phase II, which will see a 1.2km quay built operated by 12 super post-panamax quay cranes. The development represents a first for the Egyptian port market, whereby a private operator has committed to entirely funding the construction of the infrastructure. Floe says the US$500m project will be financed by a mixture of debt and equity: "The existing shareholders have invested $64m into the company’s capital, and have also built up a profit over the couple of years that we have been operating that will be reinvested into the construction. The remainder of the money will come from both the international debt market, and the domestic one." The development will see SCCT’s capacity eventually raised to 5.1m teu, which in current circumstances will make it the largest single facility in the Mediterranean. The first 300 metres of berth are due to begin operations on 1 January 2010, with the remaining 900 metres added in 300-metre blocks every six months thereafter.

Floe believes it is the SCCT’s interest to fund the development itself: "That way we can build the quay and the yard together and bring capacity gradually in, whereas in the first phase of the port the quay was built in one go without any infrastructure behind it. In any case, I think the minister for transport wants to save this money for other projects in the country."

The beginning of construction came hot on the heels of the addition of a new shareholder. In late November, Chinese transport group, Cosco, acquired a 20% stake in the facility following earlier, unsuccessful attempts to acquire terminal capacity elsewhere in the region. "When SCCT started up, the Danish Development Bank (IFU) had a 15% stake. When the project was up and running, its statute force it to sell its stake and move on. So at least there was a willing seller, and Cosco was willing to pay the price the seller wanted. But we also got an investor that has significant base cargo. I hope that in the first quarter of next year we will start seeing Cosco calling here," explains Floe.

Apart from Maersk, the terminal’s other client is CMA CGM, which has also joined China Shipping and UASC in taking a stake in a new terminal at Dameitta. Construction began at the end of November and is being led by Kuwait-based operator, KGI Ports International. The project, Damietta Container Terminal, has been subjected to serious delays since an Memoradum of Understanding (MoU) was first signed between the port authority and KGL in 2005. However, the formal launch of the project has reportedly been held up by difficulties in arranging private finance – something Mohammed Al Mazeedi, chairman and CEO of KGL Ports, alluded to when he spoke at the recent Trans Middle East Conference in Cairo.

"Ports [in the region] simply aren’t adding capacity quick enough," he said. "Why? Well, on the one hand governments are very slow in making decisions, and there’s a tremendous resistance to change, particularly in the lower echelons of the state-owned port authorities. "Additionally there’s a real problem with transparency. The financing of these projects is complex, and because of this there’s a prerequisite for transparency. Aden is an example that comes to mind, which has been in limbo for two years because of these issues."

Damietta is an ambitious project, involving the initial creation of 1.5m teu of capacity, with a further phase taking that to 2.5m teu and finally 4m teu. The area covers 130ha and port construction will see a total of 2,360 metres of quay built in a U-shaped basin, which will have to be dredged in order for the facility to cater for the largest container ships afloat, as it intends to. The terminal will be operated by 14 quayside gantries and up to 33 RTGs, which Finnish manufacturer Konecranes is in a leading position to supply after it signed an MoU with KGL for technical and knowledge support.

With the delays, many in the industry have questioned whether it will be ready to open on schedule at the end of this year, but Al Mazeedi insists it will. "Damietta will be completed in 15 months, even though the start of operations will be at the end of this year. The project has been funded by US$680m of private finance, of which $200m was paid equity and $480m arranged and underwritten debt," he says. Along with the shipping lines, two major finance houses – GE and Kuwait-based Aref Investment Group – have also taken stakes in the project, and Damietta Port Authority has retained a strategic 5% involvement, even though it is not providing any of the financing. While much of the sizes of respective shareholdings remain unclear, China Shipping has confirmed it has a 20% stake. If CMA CGM has a similar amount, its long-term commitment to SCCT must surely be questionable.

However, SCCT’s Floe is well aware that Egypt’s northern ports in particular should be braced for an extended period of intense competition for transhipment traffic, with both Port Said and Damietta, as well as Alexandria, all looking to attract customers. "Egypt has 12m teu capacity for the transhipment market committed, and the country is aiming to account for 70% of the east Mediterranean transhipment market by 2010. In that context, competition will be extremely tough and there will be overcapacity in the short term."

He adds that there are also other warning signs for Egyptian ports aiming for this cargo. "There are signs of it slowing down in the eastern Med, which is mainly related to two factors. Firstly, there is the development of infrastructure in less developed countries in the Black Sea, which has encouraged direct calls. Secondly, shipping lines are trying to bring down unit costs by going to bigger vessels, and a number of ports are trying to cater for this."

Including, it seems, other parties at work in Port Said, which recently released requests for proposals for a third container terminal at the port. Admiral Shireen Hassan, the outgoing chairman of Port Said Authority, says the full roster of international operators and carriers interested in operating terminals have requested bid documents. "Everyone is interested. DP World, Hutchison, K Line and PSA are among the 20 companies that have bid for the third concession. I really want to emphasise this – Port Said is not just about the Suez Canal Container Terminal. Around 35m teu per year passes through the Port Said area. Some 18,000 ships per year pass through the Suez Canal, and while the average growth in Mediterranean ports’ throughput is 20-23%, in Egyptian ports it is 26%, and in Port Said it was 72% last year."

However, cynics have questioned the timing of the announcement. "There’s no way that either the country or the port needs that extra capacity right now, and it seems pretty clear that Admiral Hassan is trying to build some sort of legacy before he leaves the job. This thing is really being rushed through and I can’t see it happening in the time-frame he wants," one source tells Cargo Systems.

But the rapid development of Egyptian ports neither starts nor finishes with Suez Canal-derived transhipment traffic. Two other ports, which much more geared towards gateway cargo for Egypt’s growing import/export trades, are also on the receiving end of substantial slabs of investment – Alexandria and Sokhna. At the beginning of September, Hutchison subsidiary, Alexandria International Container Terminals (AICT), officially opened its two new twin container terminals at the ports of Alexandria and El Dekheila. The facilities have been converted from general cargo usage to pure container facilities and respectively boast 380 metres of quay with an area of 11ha, and 510 metres of quay with 19ha. Both have 12 metres depth alongside and are operated by two quay cranes and five RTGs. Alexandria is the traditional entry point for the huge population centre of Cairo, and is likely in the short-term to continue that dominance because of the way Egyptian Customs is set up. "The local import and export market mainly goes through Alexandria, and changing that takes time because customs simply aren’t aligned for it to go through other ports," says one local source. He adds: "Sokhana is also a good gateway, and I would say it’s set to become a real player in the import/export market because of its proximity to Cairo."

Located 40km from the southern entrance to the Suez Canal on the Gulf of Suez, Sokhna is the closest container port to Cairo’s 17m population and is situated within the 90sq km North West Suez Economic Zone. Its potential as a gateway to the Egyptian capital was the driving reason behind DP World’s US$670m purchase in November of 90% of Egyptian Container Handling Company, which owns the majority stake in Sokhna Port Development Company.

Jamal Bin Thaniah, DP World executive vice chairman, and group CEO of Port & Free Zone World (P&FZ World), commented on the acquisition: "Sokhna is well located within an expanding free zone, which has attracted international interest, with over $2bn invested since it commenced operations in 2003. "The port is directly connected to Cairo via a six-lane highway and has direct rail links to the rest of Egypt. Together with its location at the southern entrance to the Suez Canal, these factors combine to make Sokhna the premier gateway for the Egypt-Asia trade, which has grown approximately 20% a year over the past five years. We believe the port and free zone have an exciting future." In 2006 Sokhna saw a container throughput of over 300,000teu, representing an increase of 22% over 2005. It welcomed Zim and China Shipping as new customers, and also began serving an additional APL service from India. Final figures for 2007 are expected to show a throughput of 450,000teu and, by the end of 2009, it is expected to have a capacity of 1.2m teu.cs