The war in Iraq is casting a shadow over U.S. commercial relations with the Middle East even as the countries in the region enjoy a continuing economic boom, driven in part by high oil prices, at levels last seen in the 1970s. The U.S., which has always been a favored trading partner among consumers and industrial companies in the region, may be losing favor as a result of the prolonged occupation of Iraq and a perception that the U.S. has turned against Arab nations.
Although U.S. exports to the Middle East as a whole and to the Persian Gulf states in particular are still growing, they aren't growing nearly as fast as the region's imports from the Far East and Europe. Arab consumers, who have traditionally favored U.S. brands, may be turning away because of what they regard as a series of "insults," including U.S. political opposition that blocked the takeover of P&O Ports' U.S. terminals by Dubai-based DP World, said David Hamod, president and chief executive of the National U.S.-Arab Chamber of Commerce in Washington.
Ironically, the possibility that the U.S. could be losing market share in the region is occurring just when many of the countries in the region have liberalized their economies, increased their legal protection for foreign investment and intellectual property, and joined the march toward globalization, Hamod said.
"The growth in U.S. merchandise trade with the Middle East is really lackluster, even though you would expect that there would be more growth with the buildup of petrodollars," said Philip Damas, research director of Drewry Shipping Consultants in London. "They have cut back on imports from the U.S. to some extent. They have loosened the relationship to some extent, possibly because of the war in Iraq."
Another factor in the trade is that more and more companies are relocating their heavy-manufacturing activities into the Middle East partly because the energy is so much cheaper there and also because it's a cheaper base for exports to Asia than from the U.S. or from Europe, Damas said. "Just as companies are outsourcing production of consumer goods to China, other companies are outsourcing petrochemical and chemical production to the Middle East," he said.
Poul Woodall, Maersk Line's Dubai-based area liner and operations manager, attributes the slowdown in the region's U.S. business not to political causes but to seasonal factors and to U.S. government decisions to route military cargoes in other directions. "A lot of trade with the U.S. is driven by U.S. government cargoes, mainly military, and they have their own reasons for routing them in other directions," he said. The U.S. trades are "very flat at the moment, but we are hoping we will see some growth again next year."
Woodall is bullish on the region's overall prospects: "We see strong growth when we look into 2007-2009, because there's a big increase in buying power, so there's a lot of money being spent on infrastructure products and consumer goods."
He said the biggest increase in the region's trade is with the Far East. "There's an influx of consumer goods, semi-manufactured goods for the construction that's happening in the Middle East," he said. "There are a lot of petrochemical exports, mainly to Asia, with a smaller amount to Europe and the U.S. market."
Woodall said Maersk Line has been "fine-tuning" its services to the region since the beginning of the year as it absorbed the P&O Nedlloyd network it acquired last year. The merger has slightly reduced overall capacity to the region, but Maersk still deploys the largest amount of container capacity to and from the region, followed by Mediterranean Shipping Co. Maersk is expanding its local feeder network in the region.
The growth of containerized trade between North America and the Middle East slowed to just 3.4 percent in 2005, according to Drewry's Container Market Quarterly of June 2006. Drewry said first-quarter 2006 imports showed no growth over the corresponding period of 2005, although they did not decline from the fourth quarter of 2005 and have remained relatively steady.
For 2006, Drewry is forecasting growth of North American exports to the Middle East in the 2 to 3 percent range, while it expects North American imports to be relatively flat compared to 2005. In contrast, it predicts that European exports to the Middle East will grow 10 to 11 percent in 2006, with imports growing in the 7 to 8 percent range.
Even as U.S. trade with the region has slowed, container carriers are beefing up their services to the region, and global terminal operators are competing for stakes in new and existing ports to accommodate the growth in trade. Carriers are launching new services that call at Middle Eastern ports, even though many of them are wayport stops on the way to India and Southeast Asia.
"It's a very attractive trade for carriers because they have plenty of empty slots going from the U.S. to Asia via Suez, so they can make wayport calls at the ports of Jebel Ali in Dubai or Salalah in Oman, because that's one portion of the U.S.-Asia trade where they have some outbound cargo," Damas said.
"There are two distinct markets for shipping in the main markets of the Middle East - the Red Sea and the Arabian Gulf," said Anil Vitarana, president of United Arab Agencies, which represents United Arab Shipping in the United States. "The Red Sea, especially the Port of Jeddah (Saudi Arabia), is the main wayport call (on the way to Asia), while the gulf is a detour of three or four days."
UASC operates the Middle East Express service (MIX) service to India that calls at Jeddah and Khorfakkan in Sharjah on the way to Pakistan and India with call at El Dekheila in Egypt on the return to the United States. UASC plans this month to launch a second service, SINA, between Singapore and the U.S. That service will call at Port Said and Jeddah on the eastbound leg.
"There are some infrastructure constraints in countries such as Qatar, Kuwait and Bahrain," said Ong Tuen Suan, Middle East regional vice president for APL, whose involvement in the region is mainly in the intra-Asia trades between the Far East and the gulf and Red Sea. "Most countries have formulated plans to upgrade their transportation infrastructure, but this will take some time to come to fruition. Dubai is the obvious exception. It is positioned to be the leading logistics and commercial hub for the entire Middle East region," he said.
The biggest new port development in the region is a project called Economic City at Ribigh, north of Jeddah in Saudi Arabia on the Red Sea, where a Dubai company, Emaar Economic City, plans to build the largest container port in the Middle East.
Jebel Ali, which DP World operates in Dubai now is by far the largest container port in the Middle East. Jebel Ali's annual capacity now stands at 9 million TEUs, and large-scale projects under construction will lift that number to 15 million TEUs. DP World, which also runs the container terminal in Jeddah, said it wants to expand in the region and take on more concessions.
APM Terminals, the terminal-operating arm of A.P. Moller-Maersk, has developed a network of container terminals in the region's ports, including Port Said in Egypt, Salalah in Oman, Aqaba on the Gulf of Aqaba in Jordan, and is the preferred bidder with the Kanoo Group to run a concession to operate the existing container terminal at Mina Salman in Bahrain. That concession will later be transferred to the new Khalifa Bin Salman Port that is under construction.
"The Middle Eastern economies expand rapidly, and there is a need for more and upgraded port capacity," said Morten Lund, regional marketing manager of APM Terminals' West & Central Asia Region, who is based in Muscat, Oman.
He said that while the countries in the region remain predominantly import-oriented, the gulf countries are developing exports, mainly based on the petrochemical industry, "where the countries are looking to keep more of the value creation locally but also the development of free-trade zones. As an example, a free zone is being developed right at the Port of Salalah, and it seems the first company will be operational shortly. All this is, of course, in addition to the general organic growth in the region."
Lund said the Salalah port's main business is transshipment for cargoes from the main east-west trade lanes. Its major customers include APL, Maersk Line and Safmarine, which use the port as their regional hub linking ports in the gulf, at the Indian subcontinent, Southeast Africa, the Horn of Africa and the Red Sea, as well as for interline transshipments.
APM Terminals built the Suez Container Terminal at Port Said because of Egypt's interest in taking advantage of its geographic position at the north end of the Suez Canal, said Philip Littlejohn, managing director of Port Said. APM Terminals has developed the terminal to "make it a hub of choice for container business between the eastern Mediterranean and the rest of the world," he said.
U.S. exporters and investors still enjoy an advantage in the Middle East because of the nation's long-standing ties there, said Hamod of the National U.S.-Arab Chamber of Commerce. He said those ties continue to grow on several levels, including in logistics, health-care and education, with U.S. universities establishing institutions in the region.
UASC's Vitarana said the Kuwait-based carrier is expanding its services to the region because "people in the area have a soft spot for U.S. goods." But he cautioned U.S. exporters against becoming too comfortable with the market. "If they don't compete, shippers from other countries will pick their pockets."