Import and sales growth to the Middle East have been substantial in the past few years, particularly for high-and-heavy and commercial vehicle imports. Malcolm Wheatley discovers that, at least for the richest parts of the the region, port infrastructure is surprisingly developed.
From an automotive logistics perspective, as from a socio-economic one, the Middle East is a region of extremes: of relative wealth (and poverty), of quality of infrastructure, regulatory environments and logistics competencies. Impoverished Gaza and Yemen have little in common with oil-rich Qatar, the United Arab Emirates (UAE) and Saudi Arabia. It’s also a region in which–in some countries, at least–the female half of the population is barred from driving, either by law or by cultural norms.
Despite the Arab Spring and a sputtering world economy, however, manufacturers and shipping lines confirm that vehicle shipments to the region remain robust, if somewhat polarised around particular national markets. Not generally counted in the BRIC subset, the Middle East may not always receive the attention it warrants. Vehicle flows into the region, which number 220,000-250,000 per year, are small compared to other regions, but still represent a significant market for vehicle shipping and logistics. The bulk of volume is typically accounted for by the national vehicle markets of the region’s Gulf Cooperation Council (GCC), a political and economic union of Arab states bordering the Persian Gulf–the six, oil-rich Arabian Peninsula states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Ranked among the world’s leading economies in terms of GDP per capita, it is these GCC states that dominate the Middle East’s vehicle imports.
Jaguar Land Rover, for instance, reports that sales to the Middle East as a whole during October 2011 reached record levels: up 97% year-on-year, with volumes strong across both marques. The company’s top three Middle Eastern markets are the GCC states of Kuwait, the UAE and Saudi Arabia.
A booming region for high and heavy
What’s more, the Middle East is a region where high-andheavy shipments naturally form a significant proportion of overall shipments, as trucks, buses and construction equipment are vital to developing economies. In the happy position of manufacturing all three vehicle types, it’s not surprising that the Volvo Group views the region as an important customer. “The Middle East is a fascinating region, with a lot of business opportunities, and one to which we are very committed,” says Stefan Nilsson, international shipping manager at Volvo. “And with its large economy, Saudi Arabia is an especially significant market for us, particularly for crawler excavators.”
Logistics flows, though, are complex. Volvo has manufacturing plants in some 19 countries, he explains, and production output from many of them finds its way to the Middle East, often through logistics partner Volvo Logistics. “The main ports that we ship to are Jebel Ali in the UAE, Jeddah and Dammam in Saudi-Arabia, Port Sultan Qaboos in Oman, and Doha in Qatar,” says Nilsson. “In 2012 we will start to deliver machines from India, where the main exit port for our machines most probably will be Chennai.”
Of the six GCC states, it is undeniably the economies of the UAE and Saudi Arabia that are the most significant determinants of vehicle demand. Indeed, points out Niklas Holberg, head of Middle Eastern operations at Houmlegh Autoliners, roughly 70% of Höegh’s total vehicle shipments to the entire Middle East go to these two GCC nations.
Still a growth region
Vehicle demand in the UAE and Saudi Arabia has significant ‘knock-on’ effects for the entire Middle East region. Fortunately, despite the uncertain economic climate in many parts of the world, observers seem sanguine regarding the future of that demand. Local sources characterise vehicle demand in Saudi Arabia, for instance, as stable and expected to grow. The situation in the UAE is also expected to remain generally buoyant, although it is complicated by a twinfold change in local regulations.
On the plus side, strict road traffic laws regarding permissable types of vehicle customisation are expected to be reformed soon, according to an NYK Line spokesperson based in the region. Currently, many customisations either require permission or are prohibited. On the other hand, he adds, the UAE Central Bank has acted to throttle back demand, by placing a requirement on vehicle purchasers to make a down payment of at least 20% of the vehicle price.
That move has held back sales in the country to some extent, however it has not deterred the UAE’s recovery trajectory. Sales in the wider Gulf region and particularly in the UAE were hit hard during the 2008-2009 crash. Following some modest recovery in 2010 (and strong growth in the luxury segment, for which the UAE is the Gulf ’s largest market), automotive sales have seen recovery in 2011 in the UAE. IHS expected total sales to increase around 32% to above 25,000 units, as the wider regions benefits from higher oil revenue.
Local idiosyncrasies apart, the regulatory regime and environment within the GCC favour growing vehicle volumes, too. Volvo’s Nilsson, for instance, speaks highly of GCC states. “In contrast to other more challenging countries in the region, which have complicated import procedures, it is very easy to do business in the Gulf States,” Nilsson states. “There are no complicated import regulations and we have dealers in the region who can take care of any problem that might arise. “Financial services, too, are important for our business, and there are well-established financial institutions to support our partners and customers.”
Ports are well developed
In general, too, the GCC’s ports also pass muster with vehicle carriers and manufacturers–with a significant investment programme expected to raise standards even higher. “The major ports in the Red Sea and the Gulf are of a high standard, with a productivity competitive with other ro-ro ports in the world,” says Höegh Autoliners’ Holberg. “They provide the necessary equipment for handling different types of ro-ro, such as high-capacity tugmasters, forklifts and cranes, and have well-maintained storage yards that are in line with the relevant international ship and port facility security code standards. Yard capacity is sufficient and normally we do not face any storage space issues.”
Future development looks set to raise standards even higher. While acknowledging the adequacy of Doha’s existing port facilities, for instance, NYK Line’s local spokesperson draws attention to New Doha Port, a multi-billion dollar, deep-water development in Mesaieed, which will be completed in 2016. “The port will be completed in three phases,” he says.
“Following the first phase in 2016, the second will start in 2020 and the third in 2030. On completion of the third phase, the New Doha Port will have a cargo-handling capacity of 6m TEU, contained in an area of about 26 square kilometres.” Noteworthy, too, is Abu Dhabi’s $5 billion Khalifa Port and Industrial Zone, located at Taweelah, about 35km northeast of Abu Dhabi city, and due to open for business in late 2012. Intended as a state-of-the-art port, the associated industrial zone will allow foreign firms majority ownership rights: firms from outside the Gulf region are otherwise restricted to a maximum 49% shareholding in ventures in the country.
Deep- and short-sea services to the region
Eukor, Höegh Autoliners, NYK Lines and Mitsui OSK Bulk Shipping dominate deep-sea vehicle flows to the region. Eukor, for instance, runs direct scheduled services to the Middle East and the Red Sea ports from both Europe and the Far East. The Far East route to the region operates at a frequency of 2-4 deep-sea carriers a month, and primarily discharges in Jeddah and the Red Sea port of Aqaba at Jordan’s southernmost tip. The Europe to Middle East route, meanwhile, discharges at Aqaba, Jeddah, Port Sultan Qaboos, Jebel Ali, Abu Dhabi, Doha, Bahrain and Dammam.
According to Rudolf Luttmann, director for car and ro-ro freight at Mitsui, the shipping line delivers to a similar set of GCC’s main ports: Aqaba, Jeddah, Sharjah, Port Sultan Qaboos, Jebel Ali, Abu Dhabi, Doha, Bahrain and Dammam. Höegh’s Niklas Holberg says the company serves the region from both Europe and North America. From the US vehicle shipments from GM and Chrysler predominate the traffic, discharging in Aqaba, Jeddah, Port Sultan Qaboos, Jebel Ali, Kuwait, Dammam, Bahrain, Doha and Abu Dhabi. Those are the destinations that are served directly, he stresses. Other ports in the region are served through transhipment onto short-sea carriers : Umm Qasr in Iraq via Jebel Ali; Hodeidah in Yemen and the port of Djibouti, in the Gulf of Aden, via Jeddah. Transhipment through the ports of Jebel Ali and Jeddah is also how Höegh serves destinations of the periphery of the region, such as Dar es Salaam in Tanzania, Mombasa in Kenya, and Port Qasim in Pakistan.
From Europe, Höegh handles large volumes from BMW and Daimler that go to the same Red Sea and Gulf destinations including Aqaba, Jeddah, Jebel Ali, Bahrain, Abu Dhabi. The volumes are still relatively small, however. Holberg estimates the typical yearly total volumes shipped to the UAE and Saudi Arabia by Höegh to be approximately 150,000 vehicles, more than 60% of the total Middle Eastern volume, which is significant, although relatively small given the land mass and total population of the overall Middle East region. NYK, for its part, had delivered 43,000 vehicles to wealthy Qatar in the first nine months of 2011.
Turkey and Israel standout
The GCC, for all its economic dominance of the region, is but a part of it–and a relatively small one at that. While precise definitions vary, it is possible to see the region as comprising three distinct sets of countries. For a start there are the countries that lie at its heart: the GCC, plus countries such as Iraq, Iran, Egypt, Lebanon, Israel and would-be European Union candidate member Turkey. The latter is especially interesting, given not only that it has one of the highest GDP per capita levels of the region, but also a thriving automotive industry with a significant level of exports.
Some observers–such as Costantino Baldissara, commercial, logistics and operations director at Grimaldi Group–bracket Israel and Turkey alongside the GCC in respect of vehicle traffic, both import and export.
Israel, he points out, has an advanced economy and imports extensively from North America, Europe and the Far East, principally through the port of Ashdod. Meanwhile, the Turkish economy also drives a significant level of demand, including that met by domestic manufacturers Karsan and Tofas, and the vehicle importing ports of Gemlik, Derince, Yenokoy, Izmir, Evyap and Mersin are served by most of the major deep-sea carriers.
Turkey is also a manufacturing base for a number of global carmakers. Together, manufacturers as diverse as Ford, Fiat, Renault, Hyundai, Toyota, as well as Karsan and Tofas, collectively assembled almost 1.1m passenger cars and pickup trucks in 2010. Ford, Mercedes-Benz, Karsan and Isuzu, meanwhile, jointly produced almost 25,000 trucks and buses, many of which were exported.
“The Middle East is an important marketplace for us and we deliver trucks and buses to almost every country in the region–mainly from Turkey–for customers who include Volvo, Scania, Mercedes-Benz, MAN and DAF,” says Franz Blum, managing director of Vega International Car Transport. An annual contract, for instance, sees 300 buses dispatched to Saudi Arabia each year, having been constructed at the Istanbul facility of Mercedes-Benz Turkey.
In general, explains Blum, sea carriers are used where possible, but land deliveries are used where multi-port sea passages would take too long, or where the destination country is landlocked. Land deliveries are almost always quicker, he notes, especially to destinations such as Iran. “One of our mottos is that we don’t mind the distance,” he says. “Recently, we drove a demonstration bus from the Netherlands to Dubai–going by sea, it wouldn’t have got there in time.”
Where deep-sea lines rarely voyage
In any consideration of the Middle East, there are also the countries of North Africa to consider: Morocco (where Renault’s Tangiers plant is opening in January 2012), Tunisia, Libya and Algeria to the west of Egypt, for instance; and Sudan, Somalia and Djibouti to the south. For the main part, however, and with the exception of Israel and Turkey, the deep-sea shipping lines eschew most of these non-GCC countries, which are instead served by short sea carriers, either directly from the port of primary embarkation, or via transhipment. Short-sea ro-ro specialist United European Car Carriers (UECC), for instance, used to visit a number of Black Sea ports, from which markets such as Azerbaijan, Georgia, northern Turkey and northern Iran could be served.
These days it stops just short. “We visit the Turkish ports of Derince, Yenkoy and Borusan, and then turn the vessel around,” says Bjorn Svenningsen, the carrier’s head of car transport. “We no longer go into the Black Sea itself.” In terms of regular ro-ro scheduled services, the Syrian ports of Tartous and Lattakia, for instance, are served by Grimaldi and Van Uden Maritime; Israel’s Ashdod by Grimaldi, K-Line, and NYK; Egypt’s Alexandria is served by Grimaldi, Van Uden, and K-Line. As of November 2011, Grimaldi has resumed regular services from Antwerp, Bremerhaven and Immingham to the Libyan ports of Benghazi and Misurata. UECC operates a fixed schedule service to Algeria, taking vehicles originating from the Far East and Europe, but only delivers to Morocco when contracted to by either a manufacturer or a deep-sea line with transhipment volumes. In short, there is more to the Middle East than meets the eye. A period of political and social stability in the region would boost GDP, as would further recovery in the global economy to maintain oil prices. However, with ongoing violence in Syria and in Egypt, and the global economy uncertain, such stability could be as far away as ever.