Economy, Business And Markets

BMI: Better Times Await Bandar Abbas Port

BMI: Better Times Await Bandar Abbas Port
BMI: Better Times Await Bandar Abbas Port

Iran’s premier container-handling port of Bandar Abbas is likely to enjoy a second consecutive year of growth, due to a recovery in Iran’s economy since the easing of sanctions imposed in the past few years mainly by the US and the EU over Iran’s nuclear energy program. However, throughput levels will remain far below previous highs.

Container-handling is expected to grow by 6.7% during 2015, rising to 1.68 million twenty-foot equivalent units (TEUs), a recent report by the Business Monitor International forecasts. This level of traffic in the port of Bandar Abbas is still a far cry from previous highs of 2.80 million TEUs, handled in 2011. But if it is realized, this will see the facility cement its return to growth. The nearby port of Shahid Rajaee is estimated to see a 5.6 percent growth in box handling in 2014.

A return to growth is a positive sign for the Persian Gulf facility after massive decline in throughput over the past two years. Container handling at the facility dropped 25 percent in 2013, according to official reports. This marks a second year of massive box throughput decline, as volumes dropped 29 percent in 2012.

BMI’s forecast for growth is based on both the improving macroeconomic picture in Iran and the port’s own infrastructures.

 Sanctions Anchor Growth

Bandar Abbas port operator Tidewater has had sanctions against it eased, resulting in the drop in throughput volume. Iran-based Tidewater Middle East Company, the operator of Shahid Rajaee Port, was allowed to resume its international container services at the port on 20 July. The move to resume operations came after EU sanctions against Tidewater were eased, which prohibited any EU person or entity from making direct or indirect payments in favor of Tidewater.

The Iranian ports sector was targeted directly when Tidewater was added to the US blacklist in the third quarter of 2013. Container shipping companies such as Maersk Line and Mediterranean Shipping Company were forced to use smaller Iranian ports which are not operated by Tidewater, such as the port of Bushehr, another main port in southern Iran.

Foreign shipping companies have expressed eagerness to cooperate with the port of Shahid Rajaee, according to Ali Jahandideh, deputy head of the Iranian Ports and Maritime Organization. International shipping lines have commenced loading and unloading operations following the partial lifting of western sanctions against the port and Iran’s shipping industry.

Foreign shipping lines find it difficult to operate in Iran due to international sanctions. Due to problems, such as opening of Letters of Credit, European shipping lines are yet to resume operations in Iran. China, South Korea, and India have announced their willingness to resume operations in Iran.

In addition to the removal of Tidewater from the sanctions list, improved relations with the West, more effective economic management under the presidency of Hassan Rouhani and low base effects have helped the Iranian economy return to growth in 2014, after two consecutive years of recession. GDP is forecast to expand by 2.8 percent, 2.9 percent and 3.1 percent in real terms in 2014, 2015 and 2016, respectively.

 Economy’s Unfavorable Winds

Yet, economic expansion will remain gradual over the coming quarters.

Uncertainty will still haunt the Iranian economy as negotiations between the P5+1 – the United States, Britain, France, Germany, China and Russia – and Tehran over its nuclear activities were extended by seven months. AN extension of talks was agreed upon in the hope of resolving the 12-year nuclear dispute.

Key oil and banking sanctions are expected to remain in place. Oil sanctions in particular will continue to negatively impact Iran’s shipping sector, through reducing throughput at its ports and reducing demand for its liquid bulk shipping companies.

Consumer spending will remain modest over the coming quarters, and is expected to expand by four percent in 2015. The slow recovery in consumer spending will prevent a rapid rebound in container throughput at Iranian ports.

The inflationary environment will improve, but persistently elevated price pressures will continue to hit purchasing power, BMI forecasts. “Consumer price index (CPI) inflation is expected to average 23 percent in the fiscal year ending March 20, 2015 and 21 percent in the next fiscal year. This is a sharp drop in the CPI compared with 35.6 percent in the fiscal year ending March 2014.

Moreover, the government will be unable to increase current spending significantly in 2015, as it seeks to improve its fragile fiscal position by cutting subsidies and limiting previously universal cash subsidies to only low-income families. “The failure to reach a breakthrough in nuclear talks will also somewhat temper confidence in the economy among domestic and international investors.”

 Coming Tides

This outlook would make the work currently being undertaken at the port look premature. The port’s capacity is being doubled to six million TEUs a year from the current three million. Given the pessimistic forecast over Iran’s economy, the BMI states, “the existing capacity is not expected to change for some time to come, let alone that a capacity of six million TEUs is warranted.” However, given the previous expansion record at the port, with consecutive years of double-digit growth, it is possible that this sort of capacity will be needed in the future.

Nevertheless, the outlook is far brighter than it has been for some time. There is some upside for the port.

Bandar Abbas is set to become the biggest cotton transit terminal for Central Asia, following the establishment of a private sector loading and offloading unit. The authorities have completed three kilometers of railway and work on the remaining three kilometers is 40 percent complete, according to Ali Estiri, the head of the Ports and Shipping Office in Hormozgan Province.

The cotton transit terminal is set to cost 280 billion rials ($22.44 million) and will have a loading and offloading capacity of 800,000 tons of cotton annually. Then goods, including cotton, minerals, mazut (heavy fuel oil), chemical fertilizers, oil derivatives and aluminum, will be transported to Southeast Asia and also to the Arab states of the Persian Gulf.