Central Bank: Israel Needs Two New Ports

Israel will run out of port capacity as early as 2018, and two new private ports are the best solution, according to a Bank of Israel report.

Ilya Melnikov

Israel needs more ports, and they should be operated by private companies to increase competition and lower costs, the Bank of Israel says in a report published on Tuesday.

We need to begin immediately to expand capacity at the new seaports because demand for cargo services has been growing fast and developing a new terminal takes time (some six to eight years), a central bank researcher says in the study.

The report supports a recent decision by Transportation Minister Yisrael Katz and Finance Ministry director-general Yael Andorn to build two small private ports. Katz had favored developing two larger ports, while Andorn had preferred to start with one for fear of creating over-capacity. They compromised on building two ports with a combined 800,000 20-foot equivalent units (TEUs) of capacity in a first stage, instead of the 1.3 million originally planned.

There are considerable economic benefits to the decision to establish in the first stage the two small ports instead of one large one, and these advantages outweighed the downside, which is a higher direct cost, the report says.

One large port would cost less to build and supply the economy's needs until 2025, just one year less than two ports would, the report says. But two ports — one in Haifa and the other in Ashdod — would reduce overland transportation costs and create more competition, as well as giving policy makers more flexibility regarding future expansion options, the report says.

Slowing down port development would lower the costs the government is supposed to incur to fund infrastructure development at the private ports. But the central bank warned in its report that any such savings would be offset by higher costs for failing to meet demand. Among other things, insufficient capacity would increase waiting times for ships that need to unload goods.

The Israel Ports Company estimates that the volume of container handling and transshipments is growing 5.1% to 5.3% annually, which means the country will run out of port capacity as early as 2018. In the best case, the company estimates, the operations could begin at the projected Haifa port in 2020 and at the Ashdod port a year later.