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June 19, 2014 2:52 pm

China Wins Israeli Port Tender, Mediterranean Hub Poised for Growth

avatar by Joshua Levitt

A container ship docked at Haifa's Port.

A container ship docked at Haifa's Port.

Chinese national ports company China Harbour Engineering Company Ltd. on Thursday won the preliminary tender to build a new Israeli port, Israeli business daily Globes reported.

Globes cited unnamed industry sources as saying China offered to build the project – initially estimated at being worth about $1 billion – for substantially less than the four competing companies to cement its strategic foothold in Israel.

In March, China won a tender to build a $2 billion, 300-kilometer freight rail link, connecting Eilat, on the Red Sea, with Ashdod Port. The project, nicknamed the ‘Red-Med,’ was greenlit by Netanyahu’s cabinet, and construction, which is expected to take five years, will begin within the year.

Industry sources told Globes that China also has its eyes on the 25-year contract to operate the new port. In that tender, which is still in the pre-qualification stage, China made a last-minute bid in April, competing against Germany’s Eurogate, Terminal Investment, from the Netherlands, and International Container Terminal Services.

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“China is already exporting its goods to the whole world, via a constantly expanding fleet of ships – the largest of which can carry over 18,000 containers,” said Zvi Schreiber, CEO of Israeli start-up Frieghtos, an online, automated portal for shipping,  in TechCrunch for closing a new round of venture capital investment from Israel’s Aleph and ICV and via crowdsourced investors on Jonathan Medved’s Jerusalem-based funding site OurCrowd.

“As with every economy of scale, increased efficiency is the name of the game,” Schreiber told The Algemeiner.

Last month, China bought the majority of Israel’s Tnuva dairy giant for more than $1 billion, while Israel said that it would target a doubling of exports to China to $5 billion annually within the next five years.

In Jerusalem, Israeli Prime Minister Benjamin Netanyahu told visiting Chinese Vice Premier Liu Yandong in May: “China is Israel’s largest trading partner in Asia, and looking ahead, it seems it will soon become Israel’s largest trade partner in general.”

Trade happens via the $5 trillion dollar freight shipping industry, where Schreiber said Israel becoming a logistics hub is part of a global drive towards efficiency.

“Freightos compares millions of different shipping routes to assess viability and cost effectiveness for each,” Schreiber. In an industry where it used to sometimes take days to get a price quote, Freightos powers a transaction that’s almost instantaneous.

“The cargo industry will catch up with the automation and transparency already available in other industries, and Freightos hopes to lead this revolution.”

Beyond redistributed global production, the shipping world is eager for more efficient routes,” he said. “For example, many are now assessing the viability of new shipping routes around the Arctic or by rail across Russia.”

“Israel currently has no role as a cargo hub, but if the Red-Med train link was efficient enough it could perhaps compete with the Suez Canal,” Schreiber said.“Also in the advent of more open borders, Israel could provide transit for goods from the Mediterranean to Jordan and Iraq.”

As for the building of the new Mediterranean port, the initial specs described by Israel’s port authority estimated NIS 4 billion ($1.17 billion) worth of construction that could take up to eight years to complete, Globes reported.

The initial design called for capacity of a port large enough for 1 million TEU, 20-foot equivalent containers. But the Ministry of Finance recommended the scope of the port be scaled back, with the project finally reduced by 15% with shorter wharves to cut the overall cost, but with two new ports, one in Ashdod, south of Tel Aviv, and one in Haifa, in the North. On Tuesday, a Bank of Israel report agreed that two slightly smaller ports versus one larger one would improve competition and lower shipping costs.

China won first choice of the two ports, and the the second-place winner, which Globes did not name, will have the option to build the second.

Industry sources cited by Globes estimated that China may have bid as low as NIS 3 billion, even below the newspaper’s earlier reports of between NIS 3.35 billion to NIS 3.5 billion, to win the tender.

Two of the bids were believed to be above NIS 4 billion and two were at nearly NIS 5 billion, sources told Globes. The bids were ranked by the financial component, which accounted for 70% of the score, and by the technical component, worth 30%.

The other bids to build the ports were from Israeli firms Shapir Civil and Marine Engineering Ltd.Ashtrom Properties Ltd.Shikun & Binui Holdings Ltd, and Ludreco, a unit of Belgium’s Jan De Nul Group, Globes said.

Eytan Buchman, a former IDF spokesman who now works for Freightos, invoked the glorious reign of King Solomon, when he told The Algemeiner: “Three thousand years before Israel was known as the start-up nation, it was a global commerce hub.”

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