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Capacity at Middle East ports set to outstrip demand

Shipping port MSC MSC
Swiss container ship giant MSC has a relationship with the UAE's Khalifa port, and experts say this can be more appealing than older, non-specialist locations
  • Port capacity in Middle East to grow 3.5%
  • Demand only growing 2.3%
  • Saudi Arabia aiming to quadruple capacity

Ever since the success of Jebel Ali Port in the UAE – which was completed in 1979, but did not hit its stride until 1985 – Middle East planners have been faced with the dilemma of whether to add port capacity at scale, in the hope that it will eventually pay off, or to stand still.

According to Drewry Maritime Consultants, capacity at ports in the Middle East – defined as the GCC, Jordan, Yemen, Iraq and Iran – will grow at 3.5 percent in the five years to 2027, while demand will only grow 2.3 percent.

At 59 percent in 2022, Drewry forecasts Middle East ports’ capacity utilisation will fall to a multi-year low of 55 percent in 2025 and 2026, before rising to 56 percent in 2027. These figures are below what is generally regarded as an optimal regional capacity utilisation level of 70 percent.

Because greenfield construction takes a number of years, it is often difficult to identify the precise stage different build-outs have reached.

But major ports in the region that can expect capacity additions are Jeddah Islamic Port, King Abdullah Port, Dammam and Oxagon in Saudi Arabia, Duqm and Salalah in Oman, and Khalifa Port in the UAE.

Eleanor Hadland, senior analyst at Drewry Maritime, said overcapacity remained a concern at the regional level, but alignment by major ports with carriers could mitigate this risk. 

“Despite lower levels of utilisation in the region, many of the current investments in the Middle East port sector are coordinated with wider industrial policy – for example, free-zones or industrial zones – which can help mitigate market risks in the mid-term,” Hadland said.

Dean Davison, head of maritime advisory at Infrata, a London-based infrastructure consultancy, said that a new port that caters to the largest ships in service and that meets the specific criteria of a shipping line – such as Mediterranean Shipping Company at Khalifa – will appeal more than an older terminal in which a large-scale operator does not have a stake.

Mediterranean Shipping Company is based in Switzerland and is the world’s largest shipping container company by volume.

Terminal growth required

Davison said productivity and overcapacity were two separate issues.

“Strong productivity – by whichever criteria judged – does show an efficient operation,” he told AGBI.

“The fact that a port has a lot of unused space, or that there are other competing ports in the same region, shouldn’t impact the operation itself. It is a relevant factor, though, in terms of return on investment for an operator, as an empty terminal or port isn’t making money.

“I think it ultimately depends on the type of capacity and where it is located – there are existing ports in the Middle East not being used, but Khalifa Port has still been developed and it is proving highly successful, even though it could be argued that there is already some spare capacity in the region.” 

The case of Saudi Arabia is significant. New forays by the kingdom into aviation and logistics are predicated on robust port terminal throughput growth. 

“Saudi volume growth is strong, but then I think it needs to be if the aim of substantial growth is to be achieved by 2030. I’ve seen figures for Saudi Arabia’s goals [that year] as high as 40 million teu,” Davison said, referring to 20-foot equivalent units, a common industry measure. 

Davison said Saudi ports are processing volumes of around 10.5 million teu. So, the target of 40 million teu “looks like a very aggressive target and could be challenging”.

Vision 2030 infrastructure projects in Saudi Arabia were having a positive impact on Saudi demand in 2023, Hadland said, especially at ports such as Dammam, which handle negligible transshipment volumes. 

“For gateway traffic – export or import flows – then streamlining of processes will continue to be an area of focus to ensure gateway port productivity can continue to improve,” she said.

Davison said the Middle East remained an important link in the shipping line industry. Major ports are expected to invest in and develop their infrastructure but the outlook for smaller facilities was less certain.

“It is likely some ports will potentially become redundant – at least as major container facilities – so there may be a need to consider other cargo options,” he said.

“This is not an uncommon trend – as ships get bigger, then larger cranes, longer quays and deeper water is needed.”