Israel Freight Transport Report Q2 2009

In March Globes newspaper quoted sources in Israel Railways (IR) saying that the company was planning a further budget cut of ILS30-40mn (US$7.3-9.7mn) because of a sharp drop in cargo revenue.

The company carried 6.8mn tonnes of freight in 2008, a drop of 14% on the preceding year. Much of the decline was attributed to a reduction in business from one of IR's main freight customers, Israel Chemicals, which uses rail to haul bromine and fertilisers from its Dead Sea Works and other factories in the Negev. Israel Railways' chief executive, Yitzhak Harel, had already imposed earlier austerity measures, including a ban on performance bonuses for senior managers (which had been set at 5-10% of salaries) and cancellation of planned salary increases.

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 1.9% 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 1.5% 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 has had to lay up ships. Despite short-term difficulties, however, we believe Zim will get itself back on 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 current 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 publicprivate 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 2.1% per annum in 2009-2013. We believe 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 to 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$28.3bn in nominal terms by 2013, representing 12.5% of Israel's GDP. The transport and communications sector employed 480,000 people in 2008. We see this figure rising to 498,000 by 2013.