Expansion plans set to make Sharjah more competitive

As both a national and regional transport and logistics hub, Sharjah benefits from advantages such as its strong connectivity to other emirates and the wider world. It is the only member of the UAE federation that borders all other emirates, and it boasts the UAE’s only container port to be located outside the Straits of Hormuz. The importance of the latter facility and the emirate’s transport and logistics industry as a whole could be boosted in the long term by plans to develop a regional rail network, while its airport continues to see rapid growth, boosted by its status as the main hub for the region’s largest low-cost airline.

Deepwater Ports

Sharjah is home to a total of three deepwater ports: Port Khalid, located near the Sharjah City centre; Hamriyah Port, situated 18 km north of Sharjah City; and Khorfakkan Port, which is located in an exclave on the emirate’s Indian Ocean coast. Hamriyah Port, which has a draft of 14 metres, was inaugurated in 1986 and includes a number of terminals for oil and gas, including a liquefied petroleum gas berth and a general cargo berth.

The port is located adjacent to the Hamriyah Free Zone (HFZ), another of the emirate’s main industrial, hydrocarbons and petrochemicals hubs. Both Port Khalid and Khorfakkan host container terminals, known respectively as the Sharjah Container Terminal (SCT) and Khorfakkan Container Terminal (KCT).

Both are operated by Gulftainer, a unit of Sharjah-headquartered company Crescent Enterprises, which also manages facilities in Brazil, Iraq, Lebanon, Saudi Arabia and the US. KCT is the larger of the two terminals, with six berths, a 2000-metre quay, 20 gantry cranes and a 16-metre draft. In comparison, SCT has four berths, a 740-metre quay, five cranes and 12.5-metre draft. SCT, which was the first container terminal in the Middle East when it was inaugurated in 1976, has an annual container handling capacity of approximately 750,000 twenty-foot equivalent units (TEUs), while KCT’s has a capacity of 5m TEUs.

Trans-Shipment

While Port Khalid and Hamriyah are both gateway ports, Khorfakkan Port is an important regional trans-shipment hub, benefitting from its status as the only dedicated container terminal in the UAE that is located outside the Straits of Hormuz. The terminal’s capabilities received a boost in late 2014 through the acquisition of four ship-to-shore cranes that can deal with vessels larger than 18,000 TEUs and 12 rubber-tired gantries, at a cost of more than $60m.

A new terminal management system is also due to be introduced in February 2017. The system has already launched at SCT, in Port Khalid, in late 2016, a process that Iain Rawlinson, group commercial director at Gulftainer, said had gone very smoothly. “The new system will effectively boost capacity by improving efficiency at the port,” he told OBG, adding that the firm was also considering long-term plans to expand the KCT to accommodate such changes as the ever-growing size of large ships, though he said a decision on this had yet to be taken. Cruise ships also dock at Khorfakkan Port, and in 2015 the authorities approved plans for the construction of a dedicated cruise terminal there (see Tourism chapter).

Challenging Period

Rawlinson told OBG that 2016 was a challenging year for the emirate’s two container ports, particularly for trans-shipment activities at KCT, citing multiple reasons. “The slowdown has affected volumes globally, but more importantly container shipping has been in a difficult situation for several years because of a supply glut and lower-than-hoped for growth,” he said. “These factors have been pushing down prices and have led to a number of mergers and new alliances in the shipping industry, which in turn have given rise to less of a need for trans-shipment, as shipping lines that previously would not have worked together have started to cooperate.”

However, Rawlinson also said that the situation was beginning to improve. “The worst-case scenario for any terminal operator would have been to see all trans-shipment business move elsewhere as the shipping line alliances changed, but that now looks very unlikely for anyone, and while further shifts of this nature will continue to take place, it is likely that 2017 will see some growth,” he told OBG.

Over the longer term, ports in the Gulf region face growing competition as various GCC states move to develop their maritime infrastructure. “Qatar, Oman and Kuwait all have very ambitious expansion plans, for which there is currently little market demand, which could destroy value in the industry,” Rawlinson said. However, he added that the emirate’s facilities would to a large extent be insulated from this. “Sharjah is a gateway port and Khorfakkan has a lot of advantages, such as being located outside the Straits of Hormuz. Plans to expand Sohar in Oman will boost competition for KCT, but at the moment it does not look as if the port will have a great deal of excess capacity,” he said.

Logistics

Numerous third-party logistics providers operate in Sharjah, with major players including large regional and international firms, as well as the Sharjah-headquartered Momentum Logistics, which like Gulftainer is 50% owned and fully managed by Crescent Enterprises. In addition to its port facilities, Gulftainer also operates an inland container terminal on the outskirts of Sharjah City, near the emirate’s border with Dubai. Tom Nauwelaerts, managing director of Momentum, told OBG that, as in the case of ports and shipping, the local and regional logistics market had been challenging recently. “We have seen a drop in volume as imports and exports come under pressure, which has in turn pushed down prices,” he said, adding that there was over-capacity in the logistics industry locally and regionally, due in particular to lower demand coming from Saudi Arabia, which is still feeling the impact of the lower oil prices. “This has given rise to something of a price war in what was already a very competitive market,” he told OBG.

However, while this has put a downward pressure on prices, it has also presented an opportunity to raise standards in the sector. “The logistics and transport service providers consist of a very fragmented market with many players. Not everybody is focused on quality service or compliance with regulations, and a large number of customers are still mainly price buyers, focusing less on the quality of equipment, which leads to a lot of corner-cutting and possibly sub-quality vehicles on the road,” Nauwelaerts told OBG, going on to say that, “With the current over capacity in the market, this situation represents an opportunity to ensure full compliance with existing regulations and raise the bar even further. We have seen very positive initiatives taken in this field by the authorities, which we can only welcome,” he added. “Reducing the supply base with a strong focus on quality services will have some positive effects on pricing, which our transportation segment is already starting to see, and the overall logistics market is likely to begin recovering towards the end of 2017.”

Rail

The UAE’s Etihad Rail project, the Abu Dhabi-focused first stage of which became operational in late 2015, could eventually see Sharjah connected to a national and regional rail network – the proposed third stage of the project would see the network extended northwards from Dubai, connecting with Khorfakkan Port. “The main impact of the project will be that it will effectively shorten the distance between Khorfakkan and Saudi Arabia,” Nauwelaerts told OBG. “The impact within the UAE will be smaller, as people will still want door-to-door deliveries, but it will nonetheless be larger than is generally expected.”

The project is part of wider plans for a GCC-wide rail network, which could allow for imports through Khorfakkan Port to be cheaply transported by rail to the entire region, further boosting the dock’s importance. “The rail project could really be a game changer in terms of enhancing the efficiency of logistics within the UAE and the GCC,” Tushar Singhvi, vice-president for corporate development and investments at Crescent Enterprises, told OBG. “Sharjah, which shares borders with every other emirate in the UAE as well as Oman, would benefit strongly from that, given its location, and its status as a regional industrial centre would be further enhanced.”

However, the future of the project is currently unclear. Tendering for the second stage was suspended in early 2016 and the project as a whole is currently on hold – though Nauwelaerts told OBG there were signs that it was gaining momentum once again. However, even before this hold, a timetable for the construction and launch of the third stage had never been announced. The completion date for the rail project has been pushed back from 2018 to 2021.

Furthermore, a number of observers believe that the regional railway network could simultaneously boost competition for UAE ports, and Khorfakkan in particular, by allowing for imports into the country to be more easily conducted via Omani harbours also located outside the Straits of Hormuz. Rawlinson told OBG that it was not clear overall if the current suspension of the project was positive or negative for the emirate’s shipping industry.

Airport Infrastructure

Sharjah International Airport (SIA) was built in 1932 during British colonial rule to provide Imperial Airways, British Airways’ forerunner, with a stopover between Europe and India and was the first airport to be established in the UAE. The most recent substantial expansion to take place at the airport was the inauguration of a new 4060-metre runway in 2014, built at a cost of around Dh500m ($136.1m) to allow SIA to accommodate the largest passenger aircraft in the industry, such as Airbus A-380s and Boeing 747-800s.

The project also included the construction of eight new taxiways and two high-speed runway exits, as well as associated equipment and airfield systems that have been designed to be easily upgraded. The airport’s previous runway is now being used as a taxiway.

Further developments in the pipeline for SIA are currently focused on a phased expansion that will include the construction of a new terminal, allowing for arrivals and departures to be divided between two sections, which should boost capacity from 8.5m passengers per year to around 25m by 2025.

In early 2014 the emirate’s airport authority selected US construction and engineering company Bechtel to create a master plan for the airport’s expansion, though in April 2015 Dubai-based daily Gulf News reported that the Sharjah Airport Authority (SAA) requested a new plan and that the budget for the expansion be revised downwards. Then, in February 2017 the emirate’s government approved a Dh1.46bn ($397.5m) budget for SIA’s expansion, with construction set to begin in summer of 2017. In addition to the new terminal, the master plan includes blueprints for news roads around SIA, a hotel and a shopping mall, according to a Sharjah Investment and Development Authority newsletter. The authorities are considering a range of potential financing options for the project, including a public-private partnership (PPP) build-operate-transfer model. In April 2016 the emirate’s authorities also approved plans for SIA to begin charging a Dh35 ($9.53) exit fee, partly to help fund expansion plans, and which follows a similar decision by Dubai the previous month.

Air Traffic

Passenger traffic has been rising strongly at the emirate’s airport, which saw 75,967 aircraft movements in 2016, up from 71,426 in the previous year, according to SIA. Passenger movements stood at 11.05m for 2016, an increase from 10.04m in 2015. August 2016 marked the first month in which the facility saw more than 1m movements.

Cargo traffic, however, has been declining in recent years, despite Sharjah having previously been a regional centre for cargo. The trend continued in 2016, when the volume of cargo moving through the airport decreased to around 180,911 tonnes, down from 274,428 tonnes in 2014 and 213,348 tonnes in 2015. “Cargo has not been doing as well as it has in the past,” Faisal bin Saud Al Qasimi, director of the SAA, told OBG. “It is more of a macro issue than anything else, resulting from slowing global trade. However, the airport has also been affected by the expansion of other regional cargo facilities such as Dubai World Central, which is really focusing on cargo.”

Other factors reducing cargo volumes include local and geopolitical instability in traditional destinations such as Afghanistan, and the fact that low-cost airline Air Arabia, which is responsible for most traffic at the airport, does not operate large planes suitable for carrying major volumes of cargo. However, Al Qasimi said there was a great deal of potential for the facility’s cargo trade to develop. He told OBG, “The airport has the space for warehousing and is well placed to serve as a hub for cargo being sent to Middle Eastern destinations such as Iraq, Yemen and Iran.”

Efforts to develop the airport’s cargo handling facilities include the May 2016 launch of a pharmaceuticals and health care handling facility at the airport’s freight centre, the first facility in the MENA region to be in compliance with the International Air Transport Association’s Good Distribution Practice guidelines for the handling of medicinal products and drugs.

SIA is also an important regional maintenance site, and the main hub for Volga Dnepr Gulf, which carries out maintenance on Russian cargo company Volga Dnepr’s fleet, as well as those of other airlines at one of the largest privately owned maintenance facilities in the GCC region. In October 2016 the SAA also signed a memorandum of understanding (MoU) with the University of Sharjah to collaborate on research and study programmes that have practical applications for the field of aviation, with an emphasis on graduate studies, such as a master’s programme in aerospace engineering and space technology. The MoU also includes a strategic training plan for SAA staff in the areas of airport management, security and safety.

Competitive Advantages

Al Qasimi told OBG the airport primarily sought to complement rather than compete with other facilities in the UAE, citing the example of it handling rerouted traffic from Dubai International Airport during a fire on the tarmac there in August 2016. However, he added that SIA also had a number of competitive advantages, and that it has significant potential as a hub for low-cost carriers (LCCs) in particular. “Processes are generally easier and faster in Sharjah than at other airports. At Dubai, for instance, because there is so much traffic, flights often have to hold in the air for 30 minutes or more,” Al Qasimi told OBG, “Taxiing, baggage handling and immigration also all take much longer, averaging together around an hour, compared to around 10-15 minutes here. In addition to the convenience for passengers, this also has important impacts on efficiency for the airlines, as holding patterns, for example, result in increased fuel burn, and direct costs for airlines such as landing fees, handling charges, slot prices and so on are also generally 30-40% cheaper compared to Dubai.”

Airline

Indeed, around 70% of traffic at SIA consists of flights by Sharjah-headquartered LCC Air Arabia, which takes off around 70-80 times per day from the facility, with most traffic growth also being driven by the carrier. The airline, both the first and the largest LCC in the MENA region, was established in 2003, and as of late 2016 had a fleet consisting of 44 Airbus A320 aircraft, with a further 44 planes of the same model on order. The largest shareholder in the firm is the emirate’s state-backed investment company Sharjah Asset Management, with a stake of nearly 18%, which is followed by Al Maha Holding Company at 9.21% and the Dubai-based Mashreq Bank with 5.93%. The firm is listed on the Dubai Financial Market stock exchange.

The airline flies directly to 68 destinations from Sharjah and over 120 destinations in total across the MENA region, Asia and Europe. Its route network is based around five hubs, including Sharjah; Ras Al Khaimah; Alexandria, Egypt; Casablanca; and Amman. The latter was opened following Air Arabia’s acquisition of a 49% stake in Jordanian LCC Petra Airlines in early 2015, and the firm continues to expand rapidly, with 23 new routes having been established in 2015.

In that same year the company improved its links to the Caucasus region with the launch of a route from Sharjah to Batumi, Georgia, which began in July 2016 and entails two weekly flights. In October 2016 the firm announced plans to launch a route from Sharjah to the Azerbaijani capital of Baku in March 2017.

Performance

According to the firm’s financial statement for FY 2016, the airline carried a total of 8.46m passengers by the end of 2016, an 11.6% improvement over 7.58m during the previous year. Air Arabia recorded total revenue of Dh3.78bn ($1.03bn) by the end of FY 2016, down slightly from Dh3.83bn ($1.04bn) during FY 2015. In 2016 profits fell by 4.1% from Dh530.6m ($144.5m) in 2015 to Dh508.8m ($138.5m), the second year of falling profits, although the drop was less than the 6.2% decrease recorded in 2015 from Dh565.8m ($154m) in 2014.

Air Arabia’s performance is in line with international trends, as companies operating in the MENA region faced challenges that were related to political instability and lower oil prices. Other airlines operating from SIA include Mumbai-headquartered Jet Airways, Air India Express and Airblue Pakistan. In November 2016 Jet Airways launched a third route to India from Sharjah to the city of Kozhikode; the airline also flew to Kochi and Mangalore from SIA.

Urban & Public Transport

A total of 98 buses operated in Sharjah City across nine city routes and carried 5.6m passengers in 2015, according to the most recent figures from the Sharjah Roads and Transport Authority (SRTA). An additional 130 buses operated 14 intercity routes, used by 5.7m passengers. The emirate also has a fleet of 5009 taxis, operated by four taxi companies, which made 36m trips in 2015. The combined number of bus passengers and taxi trips for 2015 was up 21% on 2014. Growth slowed in 2016, but remained high, with the number rising by 11% year-on-year in the third quarter of the year to 19m.

The federal authorities are taking various measures to boost public transport, including increasing the frequency of intercity buses, which now run every 25-30 minutes during the day. Two new intercity bus routes were launched in 2016, including one from Rolla to Dubai International Airport and another from Jubail to Al Ain, bringing the total to 16. Seven new buses were also added to the intercity fleet in 2016, with plans in place to acquire 11 more.

Regulator

The UAE’s Federal Transport Authority (FTA) was established in 2006 and is today responsible for proposing and developing general policies, bills, laws and regulations for both marine services and land transport services at the national level. The authority is responsible for all federal-level decision making on issues of national concern, including dangerous goods, axel loads and border crossings, among other things. Furthermore, the FTA coordinates closely with the relevant authorities at the emirate level to supervise the policy implementation and ensures that all local officials receive the federal support necessary to carry out plans. Moreover, it is the FTA’s responsibility to link the master plans of each emirate, thereby ensuring that infrastructure is smoothly integrated nationwide, while local input is ensured by the presence of key players from each emirate on the FTA’s board.

Significant opportunities exist for private sector players in the nation’s transportation sector, particularly for companies operating in the maritime services, cargo and trans-shipment segments, while considerable opportunities also exist on the land side.

Major strategies are currently being updated within the FTA’s 2017-21 agenda, which is due to be finalised in the first half of 2017 and will provide further clarity on the specific areas being targeted for investment. A highly developed and integrated infrastructure system has been key to the UAE’s economic success over the last decade, and authorities recognise that although much progress has been made there remains room for enhanced connectivity going forward.

In The Works

The FTA has been responsible for overseeing various major projects in recent years. The recently completed Dh200m ($54.5m) Umm Al Quwain gateway project is set to open soon, with the project’s six bridges, each comprising two lanes in each direction, as well as two road tunnels, set to significantly enhance connectivity in the region.

Meanwhile, the Al Badea intersection project, which consists of three phases, is set for completion by the end of 2017 at an estimated total cost of Dh200m ($54.5m). The first phase will include a bridge for traffic flow from Dubai heading directly towards Sharjah to be directed towards the University of Sharjah campus, while the second phase will include an exit comprising three lanes for motorists coming from Sharjah to Dubai. The third phase will include expansion of the existing bridge over the Emirates and Mleiha intersection, and will include three to seven lanes. Another major upgrade is envisioned for the Emirates Road, also known as the Dubai Bypass Road. Addressing the Federal National Council in April 2016, Abdullah Belhaif Al Nuaimi, minister of infrastructure development and chairman of the FTA, outlined plans to expand the road by seven new lanes, in addition to adding multiple rest areas, flyovers and a lane dedicated to trucks. Al Nuaimi said the move was primarily aimed at addressing the congestion on the road during rush hours (see analysis).

Etihad Rail

Looking ahead the GCC rail network represents one of the most ambitious plans currently being worked on in the Gulf, with enhanced rail lines having the potential to boost connectivity in the region and cut down waiting times for the delivery of cargo and other goods in and out of the GCC. By linking ports on the Red Sea, for example, with the UAE and other GCC countries via rail, heavy shipping traffic in and out of the Strait of Hormuz can be reduced, while the network will also allow for multiple entry and exit points to the region, thereby fuelling the development of multiple transport and logistics hubs.

The UAE has made significant preparations domestically for the roll-out of the GCC-wide network, with a concerted drive under way to build knowledge capacity in the necessary engineering segments. Originally, the GCC member states envisioned unveiling the network as early as December 2018, although this has now been revised to 2021, with discussions under way to implement a phased roll-out for the network.

Outlook

The emirate’s transportation sector is set to see further growth in the coming years, driven by factors such as the ongoing rapid development of passenger traffic at SIA, which will be supported by the facility’s long-term expansion plans, as well as efforts to develop new tourism markets (see Tourism chapter). Following recent pressures on volumes and prices, both Sharjah’s shipping and logistics industries are likely to see something of a recovery over the course of 2017, while factors such as the emirate’s status as a national and regional industrial centre and Khorfakkan Port’s advantageous location will underpin continued growth in these transport segments in the long term.