BAHRAIN SHIPPING REPORT of BMI (Business Monitor International)

BMI has observed mixed fortunes across the big-three shipping sectors - dry bulk, liquid bulk and containers - so far in 2010. While 2009 was the year that container shipping plummeted while dry bulk outperformed, 2010 so far has seen the opposite. In the dry bulk sector BMI has witnessed a playing out of the 'China effect' in reverse, as there has been a notable retrenchment in Chinese imports of the two main materials involved in steel production - iron ore and coking coal - which fell in both April and May on the back of an increasingly cautious property and construction sector. This has been coupled with a growing oversupply of ships, which we believe will come to a head in H2. BMI expects conditions in the dry bulk sector to get worse before they get better.

Liquid bulk has so far performed better than either of the other core sectors in 2010. However, despite a strong H1, BMI cautions that the outlook for liquid bulk over the second half of the year is likely to deteriorate on the back of a worsening demand picture. At the forefront of our concerns is the likelihood of a slowdown in Chinese crude oil demand during the later months of the year and into 2011 as the economy slows from its current level of growth.

Container shipping has seen year-on-year (y-o-y) recovery across the globe, yet has still not reached its pre-downturn levels of 2008 in most markets. BMI's core view is that demand for container shipping will start to fall again in H2. This is because of the sluggish recovery of the US economy and the austerity measures being implemented in Europe. The US and eurozone are the two key markets for the container shipping sector.

The Khalifa Bin Salman Port (KBSP) has now been in operation for over a year and its effect on Bahrain's shipping sector is being felt. The port was conceived as a way to enable container lines to pull in to Bahrain directly, offering Bahraini shippers a direct route for imports and exports, rather than the kingdom being reliant on transhipped goods from ports such as the UAE's Jebel Ali. KBSP, which is operated by APM Terminals, the port-operating unit of A.P. Moller Maersk, is also hoped to become a transhipment hub in its own right.

Efforts to develop KBSP into a transshipment hub have started to be realized. The port's general director, Hassab al Majid, announced that Singapore's APL now operates a mother ship into the port. The ship is reported to have previously used the main Middle Eastern transshipment port of Jebel Ali as its transhipment hub.

BMI believes that as the effects of the downturn subside and container volumes return, more transhipment opportunities will be in the offing for KBSP. In 2010 we project that container volumes at the port will grow by 18.9% to reach 331,884 20-foot equivalent units (TEUs).

In its first year of operations the port handled 279,267TEUs, an increase of 3.7% from the 269,331TEUs that its predecessor, the port of Mina Salman, handled in 2008. This year-on-year (y-o-y) growth came despite a tough operating climate for the port, with a decline in global trade and a fall in Bahrain's trade. In 2009 our country risk desk reports that Bahrain's imports fell by 2% y-o-y, with exports dropping by 1.18%

Over the mid term we forecast continued y-o-y growth in box throughput at KBSP. By the end of BMI's five-year forecast in 2014 we project that KBSP will be handling 353,616TEUs.

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