With multi-billion dollar investments in transportation infrastructure, can Saudi Arabia successfully market itself as a land of opportunity to the logistics industry?The international focus on Saudi Arabia's logistics industry has increased in recent months, with the Kingdom offering a welcome solace for investors that have been crippled by the global recession. It's little surprise, therefore, that instead of tightening their purse strings, companies such as DB Schenker, TALKE Logistics and Kuehne + Nagel have continued to pump their millions into the local market.
Matching the private sector's enthusiasm, even the local government has entered a spending spree, funding the development of several warehousing and transportation hubs throughout the country, from the US$8 billion Prince Abdul Aziz bin Mousaed Economic City in the northern city of Hail to the $26.6 billion King Abdullah Economic City in the western coast of Rabigh.
Such levels of confidence were recently reinforced by the findings of a research paper - the Saudi Arabia Supply Chain Intelligence Report (SCIR) - which was commissioned by local player Hala Supply Chain Services to determine the opportunities and challenges that lay ahead for the logistics sector.
According to the report, approximately 88% of companies believe the importance of supply chain management is increasing, with logistics operations being considered the second most important business function after sales and marketing. There is, however, a traditional reluctance when it comes to outsourcing these operations, with a surprising number of companies willing to take risks with a Do-It-Yourself (DIY) approach.
"It's unusual that a number of companies with limited expertise in supply chain management are still intent to conduct these operations themselves," states Husam Al-Saleh, general manager of Hala Supply Chain Services. "On a global level, it's become normal to outsource the management of supply chain functions or even the whole operation in some cases. However, skills and capabilities are being tested in Saudi Arabia by higher volumes of business operations and increased diversity from oil-based activities, which suggests that the situation could be changing in the near future."
According to the report, a significant number of companies had experienced low-levels of success when implementing their supply chain operations in-house, mainly due to limitations in relevant skills and capabilities of the workforce. Al-Saleh therefore recommends that companies embrace a different approach, as the current scenario of internally managed improvements will only lead to further pressure on the supply chain and the perpetuation of challenges.
"One of the most important and revealing aspects of the survey is the low-level of collaboration, both upstream and downstream, that companies have between their suppliers, suppliers' suppliers, customers and customers' customers," he says.
"Collaboration is considered to have several fundamental advantages in overcoming challenges, particularly in the areas of planning, forecasting, coping with increased volumes and increasing the skills and capabilities pool. Companies in Saudi Arabia mostly collaborate upstream by only one tier - with their suppliers. The real strategic potential of collaboration is yet to be unlocked."
Participants in the Saudi Arabia Supply Chain Intelligence Report consisted of chief executive officers, managing directors, logistics managers, technology specialists and sales executives from a variety of different industries. Whilst the majority hailed from the food and beverage sector (23%), strong responses were also received from the construction (9%), automotive (9%) and logistics (5%) industries.
"In terms of supply chain objectives, respondents placed the improvement of services offered to customers as the most important. However, little emphasis was placed on redefining supply chain strategies, which could prove to be a major weakness as service delivery is directly related to the capabilities of the supply chain," continues Al-Saleh. "Interestingly, when it came to meeting these objectives, the greatest hurdle was seen to be the increasing volumes in supply chains. Other major challenges included a shortage of appropriate skills, the ability to accurately forecast, and the varied needs of customers."
Ultimately the first Saudi Arabia Supply Chain Intelligence Report demonstrates that the concepts of supply chain flexibility, visibility and responsiveness in a changing market place will lead to competitive advantage. The disconnect highlighted by the study between objectives and practices (such as low-levels of outsourcing, collaboration and skills and capabilities) requires strategic leadership and vision in order for companies to realise competitive advantage and secure an economic position within the Middle East and neighbouring regions.
Saudi company profiles
A road map of logistics companies operating in Saudia Arabia
With a focus on emerging markets in the Middle East, TALKE Logistics selected Saudi Arabia as the host country for its first warehousing centre in the region. The facility, which opened in the Port of Al Jubail last year, measures 100,000m2 in total and provides a base for the storage of petrochemical products, together with a range of value-added services for plastics in granulate or powder form. "We are convinced that our investment will play a positive role in the development of logistics in Saudi Arabia," says Alfred Talke, managing director of TALKE Logistics.
According to Riyadh Al-Saad, president of Saudi Arabia TALKE, the facility at Al Jubail supports the strong development of the petrochemical industry and the Kingdom's role in the global economy. Approximately 45 people have been employed at the warehouse, although the number is expected to reach 15 employees by 2010. "Our new facility is a major milestone in our strategy to support the local petrochemical industry with state-of-the-art logistical concepts, which will support the tremendous growth here in the Kingdom," he says. "This will help our manufacturers to bring their products to the global markets in a flexible and efficient manner."
Although TNT entered the Saudi Arabia market relatively late, the global operator has still managed to find opportunity in the Kingdom. "Since TNT enjoys a smaller market share, we can offer a more personal and engaging service to our customers," explains Martyn Wright, the company's Saudi Arabia director. "We operate a number of depots and warehouses in the three provinces and have more than 50 retail access points across the Kingdom to support the requirement of customers."
Almajdouie Group has developed a strong presence in logistics circles throughout the Kingdom, overcoming the traditional reluctance of companies to outsource their supply chain operations. "This year will undoubtedly be a challenge for everyone, however the government has taken a number of measures to minimise the impact of a global recession, which will benefit the logistics market too," says the company's president Abdullah Almajdouie.
The humble beginning of Gulf Agency Company (GAC) in Saudi Arabia was marked with a single office in the Eastern Province of the Kingdom, where customers were provided with the basic amenities of supply chain management. However, with an economic boom following shortly afterwards, the company's operations have developed in leaps and bounds, encompassing everything from warehousing and distribution to ship agency and marine operations.
"GAC became a pioneer in Saudi Arabia's logistics market when we introduced freight forwarding to our service portfolio in 1985, which gave us the first mover advantage," says Sreedharan Lalithan, business manager of logistics services, GAC Saudi Arabia. "Over half a century of operational experience in the Kingdom has given us strong local expertise. We are optimistic about the future as there is still tremendous growth potential in Saudi Arabia." DB Schenker's
Saudi Arabia has been highlighted as a major component in DB Schenker's continued expansion throughout the Middle East. Although the international logistics company has previously been represented by a number of partners in the Kingdom, it established Schenker Saudi Arabia LLC as a separate trading company last month, supported by a central office in Riyadh and additional facilities in Damman, Jeddah and Al Jubail. "Schenker Saudi Arabia LLC is fully integrated into DB Schenker's worldwide network and offers a full range of logistics services.
A major focus of our activities lies in the global project logistics business and we can now offer high-quality integrated solutions from a single source in this important Arab country," says Dr Detlef Trefzger, board member for contract logistics and supply chain manager at Schenker AG. "There are also plans to set up cooperation agreements to deepen and expand the business."
WARID (Warehousing and Distribution Holding Company)
As a relative newcomer to Saudi Arabia's logistics industry, WARID (Warehousing and Distribution Holding Company) was established in 2008 to capitalise on the growing number of companies that were outsourcing their supply chain operations in the Kingdom. A joint venture between Construction Products Holding Company (CPC) and Zahid Holding Group, WARID has focused on developing its brand presence in 2009 and plans to establish a network of warehousing facilities throughout the Kingdom.
"There are many opportunities in Saudi Arabia's logistics industry and we intend to align our activities with the Kingdom's new economic cities and logistics hubs," reveals Faysal Alaquil, director of business development at CPC. "WARID will provide a range of warehousing, transportation and logistics solutions for a broad customer base in the construction, industrial and trading sectors, not only in Saudi Arabia but throughout the Middle East and North Africa."
Kuehne + Nagel
Kuehne + Nagel crossed an important milestone in 2008 after becoming the first international logistics provider to operate a wholly-owned national subsidiary in Saudi Arabia. "This development has provided us with significant strategic and operational advantages," says Werner Kleymann, regional manager of Kuehne + Nagel in the Middle East. "Customers can fully leverage the quality and scope of our comprehensive portfolio of forwarding and logistics services." SEKO
Back in January 2008, the US-based logistics company SEKO announced plans to increase its Saudi Arabian operations, with offices in Jeddah, Damman and Riyadh. "Saudi Arabia adds an integral element to our global network," says William Wascher, CEO of SEKO. "With increasing volumes of imports into Saudi Arabia and exports to worldwide destinations, the office is well positioned to take advantage of this flourishing trade zone and will greatly benefit from the country's growing infrastructure."
Compared to a number of developed markets around the world, Saudi Arabia's logistics industry has been relatively unscathed by the global recession, prompting a sharp increase in investment from warehousing and transportation companies. Agility, for example, has revealed plans to develop its network of storage facilities throughout the Kingdom, with warehousing being constructed in key cities such as Dammam and Jeddah. "We have a plan to establish a network of warehousing facilities and transportation assets across KSA that are capable of offering local, regional, and global solutions," states John Gould, the company's CEO in Saudi Arabia.
Hala Supply Chain Services
Emerging as a leading player in Saudi Arabia's logistics industry, Hala Supply Chain Services (HSCS) has helped to showcase the benefits of outsourcing warehouse operations. Indeed, despite the global recession, Hala actually claims to have benefited from current market conditions. "Looking for opportunities from the downturn is definitely possible because customers are looking to reduce their supply chain costs," says Pieter Spaarwater, business deployment manager at HSCS. "What sets Hala apart is a proud history that is firmly rooted in Saudi Arabia, access to global best practices and our team of highly skilled and experienced professionals."
DHL Supply Chain
DHL Supply Chain is taking a fairly conservative approach towards the economic slowdown and has reviewed variable scenarios for its Saudi Arabia operations. Although the company is still targeting growth, it has become more selective in the opportunities that it pursues, according to Nabil Khojah, managing director in Saudi Arabia.
"The local economy is still very strong and companies that may not have previously considered going into Saudi, have now changed direction and are trying to enter, because it is viewed as a market of great untapped business potential," he says.
Namma Cargo Services
With over 25 years of experience in Saudi Arabia, Namma Cargo Services can safely be considered a veteran in the supply chain sector, with nine offices throughout the Kingdom. "We are strong national company and have an exclusive agreement with DHL Global Forwarding," says CEO Wadeea Derar.
"Our workforce is well versed with the national market and we have a loyal and trusted customer base, with tremendous goodwill among our clients varying from project EPC companies and commercial clients to telecommunication, manufacturing and trading companies. This trust and goodwill came after exerting a lot of hard work with passion and sincerity."For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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