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Logistics And Transportation

Logistics and Transportation

Sector Overview

Egypt unique geographic location combined with an expanding infrastructure base is enhancing the country position as a key global logistics hub for companies looking to do business in, or trade between, Europe, Asia and Africa. With over 8% of the world maritime shipping passing through the Suez Canal each year and an increasing number of international companies from India and China to Turkey and Spain using Egypt as a manufacturing base for exports targeted at the European market, Egypt  logistics and transportation sector is playing an increasingly vital role in international trade. Some 90% of Egypt foreign trade is shipped through ports, while the country logistics capacity continues to expand hand-in-hand with the volume of trade. Currently accounting for 4.1% of GDP, Egypt logistics and transportation sector encompasses more than 67,728 kilometers of roads, 6,700 kilometers of railways, globally ranked airports in all major urban centers, including an air cargo airport of five terminals in Cairo, 6 seaports on the Mediterranean and 9 on the Red Sea, six dry ports and an extensive network of Nile river transport facilities. There is plenty of room for growth in the sector. The local economy has rapidly opened up, with GDP in its fifth successive year of uninterrupted growth. Domestic enterprises are shifting their focus to export markets, while increases in per-capita income have led to increased demand for imported and locally produced goods. All of this has translated into a strong demand for efficient physical transport infrastructure and logistics services. Despite the extensive coverage of road and rail networks and significant development of port facilities, investment opportunities in Egypt abound. Some areas, such as Egypt rail network, are in need of significant infrastructural improvement. Other sub sectors, including ports and dry ports, offer investment opportunities in value-added services alongside large development projects. All facets of the sector are approaching maximum capacity, with major capacity shortfalls forecast over the coming five to ten years. In 2008/2009, the total implemented investments in the logistics & transportation sector reached over EGP 21 billion; of which 34% had been executed by the private sector. Recognizing the critical role of the private investments in ensuring future growth, the GOE has been encouraging PPP partnership by which road network is estimated to receive an investment of USD 5.46 billion through PPPs. The rail network will also receive 1.82 billion and the ports upgrades will receive USD 9.1 billion through the private sector Chinese & UAE companies involved in expansion projects

Competitive Strengths and Capabilities

Core Areas for Investment: Core Areas for Investment: Road terminals and transit points, rail line expansion, connections and terminals (road ,rail), value-added services around ports and dry ports, airport infrastructure.

Unique Geographic Position: Located at the crossroads of international trade between Europe, the Middle East, Africa and Asia, Egypt is positioning itself to become a major global logistics hub. Businesses are increasingly seeking to base themselves in Egypt as a springboard to Europe and booming regional markets.

Rising Domestic Demand: A growing domestic demand for imports and a rapid rise in export-oriented businesses are creating strong demand for logistics and transportation services in a market that is far from saturated.

Sector Snapshots Roads: Egypt road network comprises 91,173 kilometers of roads, divided into 67,728 of main roads and 23,445 kilometers of artery roads. Although 94% of freight is transported by road, there is currently no logistics provider in Egypt with a consistent distribution infrastructure; there is also a lack of services around roadbased transportation. If a network of transit points and connection links were established, an estimated 86 million tons per year (16% of internal freight moved by road) would pass through it. To meet projected usage, Egypt  roads will require an additional 11.4 million square meters and a total investment of USD 8 billion over the next five to ten years. Under the public-private partnership framework, the government is seeking USD 3 billion to construct Rod-El Farag 6th of October highway.

Greenfield Opportunities: Greenfield opportunities exist in subsectors such as the road network, which is the most-used means of transporting freight but currently has no logistics provider with a consistent distribution infrastructure. Almost all areas have reached capacity ceilings, providing rich opportunities for investment from infrastructure to specialized value-added services.

Air Cargo: Egypt  Air Cargo Airport, located in Cairo, currently has five cargo terminals mainly dealing with textiles and vegetables. There has been a steady increase of 9% annually in the volume of cargo. Some 60% of the total volume of cargo involved is exports. The volume of cargo is expected to reach 900,000 tons in 2025. While the capacity of existing facilities is currently sufficient at 400,000 tons per year, it will need to more than double to meet 2025 targets. This subsector offers significant infrastructural investment opportunities.

Rail: The Egyptian rail network, 57% of which is concentrated in the Nile delta and along the Nile river valley, is the world  second-oldest national railway. It comprises 6,700 kilometers of railways and 820 stations. Currently, 28.4% of the railways are double track and 0.39% is four track. Under the PPP initiative, the GOE is planning for two projects with total investments of EGP 4.36 billion; the projects are intended to relocate Matrouh railway line to the south of the international road, and establish cairo-10th of Ramadan railway line. Despite reaching full utilization of the available 12 million ton cargo capacity   and being 40% more cost competitive than road transport   Egypt  railway system accounts for only 5% of total freight, leaving open a significant investment opportunity. The Egyptian government announced a four-year USD 1.48 billion rail refurbishment plan, and in 2009 The World Bank released USD 270 million in funding to support the scheme, which will be completed in 2011.

Ports and Dry Ports: Egypt has 15 commercial and 51 specialized ports (6 tourism, 15 petroleum, 9 mining and 21 fishing); six ports are on the Mediterranean and nine on the Red Sea. The four main ports include the multipurpose Alexandria Port, the largest in Egypt   handling over 55% of the country  foreign trade. Damietta Port is the leading Egyptian container handling port, with a handling capacity of 1.15 million twenty-foot equivalents (TEUs), contributing 40% of total containers handled in Egyptian ports. The East Port Said Port serves as a regional transshipment hub for container traffic, while the Suez Port plays an important role in both cargo handling and Suez Canal transit operations. The Egyptian government has focused on developing and upgrading ports to accommodate larger ships and to increase capacity and handling for a larger volume of trade. In 2008, the number of containers handled through Egyptian ports increased by 110% to 6.1 million TEUs, up from 2.9 million TEUs in 2004. It is worth mentioning that the number of containers handled between Jan-Oct 2009 recorded over 5 million TEUs. Offering storage, cargo handling, customs clearance and other import/export services, dry ports offer an additional method of bridging the expected gap between port capacity and demand that is likely to arise from a projected 4.8% increase in import/export volume over the next 20 years. The six strategically located dry ports in Egypt (all accessible by road and one to be accessible by both road and rail) require enhancements to their service portfolios to become integrated logistics centers with efficient operations at lower costs.

River Transport: Egypt  river transport network consists of 1,850 kilometers of navigable waterways, 11 locks, 39 private ports and five public ports. The potential for development is clear: Approximately 1.3 million tons of cargo, representing less than 1% of all inland transport, is shipped by river. The government of Egypt aims to increase this to 10% by 2011. River transport is one of the most promising opportunities in developing Egypt  multimodal transport network. The government is currently looking into developing four new routes totaling 1,790 kilometers. The barges  current capacity of 800,000 tons is fully utilized by existing demand, and this subsector offers significant investment opportunities as demand is projected to increase steadily by an annual rate of 4.8% to reach 2.1 million tons in 2026. Six river ports have been earmarked for development in order to handle future demand for passenger service and cargo shipments. The ports also require new service and storage facilities.

KGL PI: Kuwait and Gulf Link Ports International (KGL PI) is a subsidiary of Kuwaiti transport giant KGL. In 2006, KGL PI signed a 40-year concession agreement with Damietta Port Authority (DPA) to build, finance and operate a USD 1 billion container terminal in Damietta. The first phase is partially complete and operating, with a current annual capacity of 5.6 million tons of mostly grain, flour, other bulk goods and general cargo. By 2009, the terminal throughput will reach 2.5 million TEUs per year. Phase two, slated for completion in 2010, will see the addition of more stacking area to increase capacity to 4 million TEUs per year. Taking full advantage of and adding more benefits to Damietta  already strategic location, the new container terminal will give the Nile an inland container depot for barges and other container ships arriving as feeders to mother ships waiting at Damietta Port. Specialized in transport, off-loading, stevedoring and handling of various types of cargos, KGL PI has established relationships with its customer shipping lines, with ship owners recruited as shareholders and partners in KGL PI ventures and projects. The combined expertise of these partnerships allows the operators to maximize the terminal  efficiency and productivity. The new facilities are expected to handle some of the largest container ships traversing the Mediterranean, significantly lowering operating costs and sailing time for transshipment activities. KGL PI expects an internal rate of return of more than 15% per annum throughout the duration of the contract.