Saudi Arabia Shipping Report Q1 2013

The Jeddah Islamic Port is set to hold the top position in Saudi Arabia's maritime sector in terms of bothtotal tonnage and container throughput in 2013 after demonstrating strong growth in 2012.

The government stimulus package continues to make itself felt through increased consumer confidence,which is driving up container volumes at the Kingdom's ports. Total tonnage volumes are also undergoingstrong growth, and will be supported over the medium term by the massive house-building programme thatis getting underway. The country is well supported by a growing fleet of dry and liquid bulk tankers whichcontinues to expand.

Two of the country's largest crude oil tanker operators are in the final stages of their merger, which resultsin the creation of the world's fourth-largest operator in this segment.

Headline Industry Data

2013 port of Jeddah Islamic Port tonnage throughput forecast to grow 8.8%; over the medium term weproject a 47% increase.

2013 port of Jeddah Islamic Port container throughput forecast to grow 8.5%; over the medium term weproject a 45% increase.

2013 total trade real growth forecast at 2.69%.

Key Industry Trends

Logistics Yard to Support Dammam Growth: BMI believes that a new logistics terminal opened at theKing Abdulaziz Port in Dammam, located on the Gulf, offers upside potential to the long-term containerthroughput growth of the port, as the facility will help facilitate Dammam's development as a logistics hubwhile supporting its already high growth levels. Globe Express Services (Overseas Group) has announcedthat its Dammam Terminal Yard, developed at a cost of over US$2mn, has opened. The terminal covers amassive 23,000 square metres and is located at the Dammam Sea Port Zone.

Strong Growth Outlook For Bahri: BMI believes that the Saudi Arabian shipping company Bahri, knownas the National Shipping Company of Saudi Arabia (NSCSA) until a change of name in April 2012, has astrong growth outlook over the coming years. The recent launch of its dry bulk arm Bahri Dry Bulk (BDB)and the upcoming absorption of fellow Saudi oil tanker operator Vela will help the firm maintain profitgrowth like that achieved so far in 2012.

Ground-breaking Ceremony Held for New Dammam Terminal: The ground-breaking ceremony for thesecond container terminal at the King Abdulaziz Port in Dammam was held in October 2012. The newterminal is being developed by Singapore's PSA International. BMI notes that the port appears well inneed of extra capacity given the growth in box throughput experienced at the facility in the recent years.

Although the need for the second terminal might not be quite so pressing once the boost to consumerspending generated by the Saudi stimulus package of 2011 dissipates, we note that Dammam was alreadynearing its nominal capacity in 2011.

Risks to Outlook

A major risk to our outlook would come from a sharper-than-expected downturn in the global economy. If itwas to translate into a substantial decline in oil prices, it would hit our macroeconomic forecasts for SaudiArabia.

Iran is the source of another threat to our outlook: if the pariah state were to go through with its threats totry and close the Strait of Hormuz, it would impact Gulf ports such as the Port of Dammam. Equally, wereIsrael to unilaterally strike against the Islamic Republic it could greatly increase regional instability, whichwould affect volumes through Saudi ports.

Risks to the upside for our forecasts come from Saudi Arabia's significant infrastructure investmentprogramme, the Landbridge in particular. This offers upside to our forecasts for the Jeddah and Dammamports. Jeddah's application to be a metals hub for the London Metals Exchange also offers upside potentialto the facility's tonnage throughput.