Israel Freight Transport Report Q3 2009

Israel is pushing forward with plans to privatise its ports in 2011. In late April Israeli business news source Globes revealed that the Ministry of Finance was proposing to sell the government's holdings in the country's three main ports of Haifa, Ashdod and Eilat to the Ministerial Committee for Privatisation, 60 days after the 2009 Economic Arrangements Bill was passed. BMI notes that the government is keen to move the privatisation forward quickly to remain within the five-year timetable set by the 2005 Ports Reform Agreement between the Israeli government and the Histadrut (General Federation of Labour in Israel) over employment conditions. BMI notes that the privatisation initiative of Israel's ports has not been popular with dock workers and in August 2008 led to a nine-day strike over concerns that the 2009 Economic Arrangement Bill would allow the use of private contractors at Israeli ports. BMI fears that despite the 2005 Port Reform Agreement, further industrial action could follow the government's push to privatise the ports and will affect the ports' productivity, which will in turn affect shipping lines.

In our latest Israel Freight Transport Report, BMI concludes that freight traffic across all modes, measured in million tonne-kms (mntkm) is now likely to grow at a reduced annual average of 2.2% in the 2009-2013 forecast period. Various factors support this prediction. Because of the impact of the current global downturn, we forecast that Israeli GDP growth will average 1.7% across the five-year forecast period. Of key importance is the performance of Zim Integrated Shipping Services (Zim) because sea freight is so dominant in the freight transport industry. The company reported losses in 2008 and in early 2009 and has had to lay up ships. Despite short-term difficulties, however, we believe Zim will get itself back on to a recovery path within our forecast period.

In common with Israel's entire economy, the freight transport industry's future depends on the resolution of the long-term struggle with the Palestinians. Withdrawal from the Gaza Strip was only a start towards the eventual normalisation of relations, and as the new military operations in early 2009 showed, security risks will continue in the forecast period. Israeli action to cut off the Gaza Strip shows that the issue remains as volatile as ever. Tension has also been high with Iran, and political risk factors remain ever-present. After years of under-investment, the logistics sector appears to be getting more top-level support, despite continuing fiscal constraints. At the same time, the privatisation campaign and public-private partnerships have been pursued and may be given further impetus by the new government, partly to bring in outside capital and partly to engender more competition.

Although our road-haulage projection is based on estimates, we expect moderate expansion, rising by an annual average of 1.7% per annum in 2009-2013. We believe that freight carried by rail will grow by a lower annual average of 1.6%. Air freight will expand by 1.8%, a modest figure when compared with more general trends in global aviation markets. Israel scores above the regional average in the freight rating, with a composite score of 60.2 (out of 100). Its strengths lie in the regulatory and competitive environment and its transport infrastructure growth. In contrast to its peers, it is weak in actual freight growth and in the transport intensity index - a measure of the dynamism of foreign trade.

The total value of transport and communications GDP will rise to US$28.6bn in nominal terms by 2013, representing 12.5% of Israel's GDP. The transport and communications sector employed 486,000 people in 2008. We see this figure rising to 530,000 by 2013.