We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Fri 19 Nov 2010 12:00 AM

Font Size

- Aa +

Kingdom coming

The logistics industry in Saudi Arabia is preparing for a complete make-over

Kingdom coming

Post-recession, the Kingdom of Saudi Arabia has been witnessing a surge in global business interests from a wide range of industries. With the government raising the stakes by pouring investment into the country’s infrastructure, Saudi Arabia looks set to be the one to watch for the logistics industry in the future.

According the recent analysis report ‘Saudi Arabia Logistics Market Overview’ by leading global analysts Datamonitor, much of this potential is due to the country’s strategic location between Asia-Pacific, Africa and Europe, with strong land and sea linkages between Asia and Europe making it ideal as a trans-shipment hub. “Saudi Arabia’s logistics market is the second largest in the Middle East and forms almost 7.5% of the GDP,” explains Prabaldeep Paul, managing analyst for logistics and express at Datamonitor.

“The county’s logistics market performance across segments such as road, air, warehousing, contract logistics and express has fared even better than the developed markets during the recent recession.” Over recent years, local demand from Saudi Arabia’s large and fast growing population of 28 million has further propelled the growth of the sector. “Efficient transport and logistics services are required to support the rapidly diversifying and growing economic sectors catering to this burgeoning population,” Paul says.

The Saudi economy itself has done remarkably well in light of the global crisis, posting a GDP growth of 0.6% in 2009. Paul believes that the main reason behind this growth was the government spending plans for its foreign reserves of over US$500 billion, amassed in 2008 due to high oil prices. “The government has used these funds for many public infrastructure projects in 2009 and to support the private industry in developing the non-oil and gas sectors that have kept the logistics industry rolling,” he says.

As a result, market optimism has seen leading global logistics players such as Agility, TNT, DB Schenker, TALKE Logistics and Kuehne + Nagel, to name a few, investing millions in the country hoping to reap the benefits once it returns to growth in 2010 and beyond. This promises to change the scenario of Saudi Arabia from being a difficult terrain in which to do business to one where the logistics industry can operate much more freely. Traditionally, this reluctance to welcome outside logistics providers with open arms has meant that the region has been dominated by in-house operations and any moves towards outsourcing have been protracted and painful. “Despite the skills shortages and inefficiencies related to in-house logistics, local companies have been very slow in outsourcing their operations to specialist logistics service providers,” agrees Paul. “As such, Saudi Arabia is currently far behind its Mideast peers such as UAE, Kuwait and Bahrain, as seen from the World Banks Logistics Performance Index (LPI).”

However, the Kingdom is fervently hoping that this will all change once the positive impact of its investments in infrastructure begin to pay dividends. At the heart of this change has been the government’s determination to step away from its dependence upon oil and closer towards economic diversification. “This has resulted in greater demand for logistics services, with local companies demanding express delivery solutions and integrated services from logistic service providers,” says Paul. “This has led to the internationalisation of the logistics space and many international players investing in Saudi Arabia.”

Timing wise, it was infact just before the recession that the government really turned its full attention to developing its weak logistics infrastructure. Saudi Arabia already has a strong port infrastructure to support oil exports and non-oil imports, together with four international and 22 domestic airports. However, other transportation infrastructures in the country remain considerably restricted. Together with a limited rail network between the capital of Riyadh and the eastern city of Dammam, the country’s road infrastructure - outside the network connecting Jeddah, Riyadh and Dammam - is relatively underdeveloped. Perhaps even more critically, the weak customs procedures continue to provide a real source for consternation, particularly amongst foreign companies wanting to break into the market – the very sector the country is keen to ensnare.

Not surprisingly, the government is taking proactive steps to turn this around. The Saudi Arabian General Investment Authority (SAGIA) announced hugely ambitious  plans to invest a staggering $100 billion in 19 projects over a period of 10 years in an effort to make Saudi Arabia one of the leading logistics hubs in the world by 2020. The projects include the development of five ports, three airports, three railway hubs, three road networks and an impressive total of five logistics hubs. As part of this, there are plans to not only expand the local rail network together, but to link it with the five members of the Gulf Cooperation Council (GCC), namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. – a groundbreaking development for the Middle East region as a whole.

Other exciting projects include the ‘Saudi Land Bridge’ (SLB) project to link Jeddah and the Riyadh dry port with the ports at Jubail and Dammam and the four upcoming economic cities set to crop up throughout the country, i.e. King Abdullah Economic City (KAEC), Knowledge Economic City (KEC), Prince Abdulaziz bin Mousaed Economic City (PABMEC) and Jizan Economic City (JEC). “The government of Saudi Arabia has gone ahead with a large number of projects that will lead to the development of several warehousing and transportation hubs throughout the country as well as improve existing ones,” Paul enthuses. “According to estimates from SAGIA, once completed, the economic cities alone can add between 86-129 million tonnes of cargo per annum.”

Accordingly, Saudi Arabian domestic cargo demand is expected to grow at a CAGR of 4-5% till 2020, while international air and sea cargo is expected to grow at a CAGR of 5 and 7-8% respectively. In the nearer term Datamonitor’s report forecasts that the logistics industry in Saudi Arabia overall will grow at a CAGR of 5.8% from 2010 to 2014, with airfreight and overall express showing the strongest growth.

Saudi Arabia has clearly invested heavily in its eagerness to shake off its unfriendly business reputation and reinvent itself as a modern and developed economic market. SAGIA is confident that the Kingdom is on track to achieve the goal of the ‘10 x 10’ programme to put Saudi Arabia in the top 10 of the world’s most competitive nations by end 2010. “The initiatives under the programme have made Saudi Arabia one of the top 10 most attractive countries in the world for Foreign Direct Investment (FDI) in 2009,” Paul adds.

With a promise to tackle the obstacles to doing business in the region coupled with a powerful ambition to change, the country certainly does appear to be a very attractive proposition for both the local and global logistics industry. “As the economic cities and other infrastructure projects continue and complete over this period, they will contribute substantially to the logistics industry as a whole,” agrees Paul. “Overall, I would say the next 5-10 years look very promising for Saudi Arabia’s logistics industry.”

The trade report ‘Saudi Arabia Logistics Market Overview’ is now available from www.datamonitor.com.

Arabian Business: why we're going behind a paywall

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.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.