Rerouting Palestinian transit trade could cut costs, boost savings, says new UNCTAD study

Israeli closure policy, security measures and control of the main borders and transport routes render Palestinian trade totally dependent on political and security developments. In a new study, UNCTAD shows that this situation will have to be overcome if the extremely high transport costs of Palestinian trade are to be brought down (Photo: Ronald de Hommel, 2002)

Even with the long seacoast of the Gaza Strip, the occupied Palestinian territory is effectively landlocked and almost completely dependent on Israeli transport facilities for participation in international trade. In addition, Israeli closure policy, security measures and control of the main borders and transport routes render Palestinian trade totally dependent on political and security developments. In a new study, UNCTAD shows that this situation will have to be overcome if the extremely high transport costs of Palestinian trade are to be brought down.

Building a seaport in Gaza, as agreed in the 1993/1994 Israeli-Palestinian accords, is the only strategic solution for integrating Palestinian merchandise trade with the region and the rest of the world, UNCTAD affirms. This would improve the competitiveness of exports and allow for expanding trade in a sustainable manner. However, the continuing conflict and political instability have meant repeated delays in the construction of the port. For this reason, the UNCTAD study considers alternative maritime and overland transport routes through Egypt and Jordan for facilitating the flow of Palestinian trade until Gaza Seaport is operational.

In late 2003 Israeli importers and exporters resorted to using the neighbouring ports of Port Said and Aqaba in an effort to circumvent the impact of port worker strikes in Israel, thus demonstrating the technical, if not financial, feasibility of these alternative routes. The study stresses, however, that alternative maritime transport routes for Palestinian trade are not a viable strategic substitute for the construction of a Palestinian seaport in Gaza. On the contrary, utilization of these alternative routes and the future operation of the Gaza seaport are complementary elements of connecting the new port with the regional port system and of integrating the Palestinian economy into the global trading system.

Orientation and volume of Palestinian trade

Israel accounted for almost 74% of the total value of Palestinian trade transactions, which reached $3 billion in 1999. While 71% of the $2.6 billion in Palestinian imports was either directly imported from Israel or indirectly imported from the rest of the world through Israel, 97% of the $372 million in Palestinian exports was destined for Israel. The study publishes the first-ever volume estimates of the composition and orientation) of Palestinian merchandise trade, showing that the $787 million worth of Palestinian trade with non-Israeli partners recorded in 1999 had an estimated volume of 3.2 million tons.

These goods are transported in four types of shipments: general cargo, containers, dry bulk and liquid bulk. The first type is the most important: while 67% of total non-Israeli Palestinian trade was shipped as general cargo in 1999, 80% of that trade, or some 2.7 million tons, came through Israeli ports. This is the potential amount that could be rerouted through alternative ports, to which an additional 2.6 million tons could be added if Palestinian indirect imports from the rest of the world through Israeli importers are included.

Cost of trade rerouting

The rerouting exercise implies three types of costs: maritime transport, port and overland transport. The analysis first calculates the cost of rerouting from the Israeli ports to Port Said in Egypt for goods destined for or coming from the Gaza Strip, and to the Port of Aqaba in Jordan for goods destined for or coming from the West Bank (with transshipment through the Suez Canal). An alternative set of calculations assumes that all west-bound trade (coming from or heading to Europe/North America) is rerouted to Port Said even if destined for or coming from the West Bank. The latter calculations eliminate the cost of transshipment through the Suez Canal to the West Bank but imply additional overland transport costs from Port Said to the West Bank, via Gaza and transit through Israel.

The study indicates that rerouting Palestinian trade from existing routes in Israel to Egypt or Jordan could involve some additional costs in the range of $59 million per year or $18.60 per ton. Rerouting without transshipment, by contrast, could bring rerouting costs down to below $35 million per year and the cost per ton to $10.80. Almost all of these additional costs are due to overland transport and more than 50% of them are attributable to Israeli closure and security measures.

Going further, the analysis shows that with a 15% reduction in the cost of land transport in Egypt and Jordan (through new transport arrangements and investments), the Palestinian trading community could achieve savings from rerouting in the range of $19 million per year, or $5.80 per ton of trade. Additional annual savings of $3 million could be realized through the use of the railway line in northern Sinai in Egypt and the future use of the new Port Said East Container Terminal. In this case, it would be worthwhile to consider additional rerouting of Palestinian indirect imports from Israel, which could double the estimated savings.

Subregional transit transport framework

While estimated savings are feasible and achievable, they require a framework through which all involved parties coordinate their interventions in the field of transit transport and trade facilitation. The UNCTAD study proposes a subregional transit transport agreement to provide such a framework, which would guide efforts aimed at developing port and overland transport facilities in the region and procedures related to the physical and institutional transport infrastructure and security arrangements.

Donor support

The study demonstrates that there are a number of measures that could be implemented even under present conditions. However, this calls for the sustained support of the international community. Besides the political situation, limited financial resources are the other major obstacle to the Palestinian Authority´s implementation of major transportation-related projects. Here again, the support of donors is imperative. An efficient transit transport sector is not only a requirement for expanding interregional and international trade but is also essential for the economic well-being and development of all countries in the region.

UNCTAD´s technical assistance activities for the Palestinian people cover a number of areas. Three UNCTAD staff missions are planned for this month, including a trade facilitation support mission, an investment retention and promotion advisory mission, and participation in a Palestinian public sector/civil society forum on creating a vision of Palestinian development.

Related Links

  • Transit trade and maritime transport facilitation for the rehabilitation and development of the Palestinian economy (PDF) UNCTAD (22 April 2004)