SAUDI COUNTRY FOCUS
Mordor Intelligence LLP analyses the Saudi Logistics Market
Saudi Freight and Logistics Market - Growth, Trends, and Forecast
The Saudi Arabia freight and logis- tics market is estimated to be valued at US$22.95 billion and is estimated to grow at a CAGR of 7.35% during the forecast period.
- The Saudi Arabian freight and logistics industry is a large and dynamic industry, strongly supported by state-led investments in rail, maritime, road, logistics, and airport infrastructures. Economic growth, population maturation, and rapid urbanisation are the factors driving the Saudi Arabian government to invest in the massive expansion of the country’s transportation networks.
- In January 2019, the Saudi Arabian energy minister Khalid al-Falih announced that the country is raising US$427 billion in private sector investments, which may include roughly US$36 billion for logistics infrastructure. The investment may be used to develop Saudi Arabia into a gateway for the trade supply chains of Africa, Asia, and Europe.
- Saudi Arabia is determined to broaden the role of the private sector, as it pushes to diversify its economy. Private entities are being encouraged to collaborate with the government, as they develop the country’s transport infrastructure. Partnership is being sought for the operation of seaports, airports, and their related supply chains. Public-private partnerships (PPP) are being pursued to fund several key schemes, while a number of the country’s publicly operated transportation facilities are being prepared for full privatisation.
- Technology is improving the security, transparency, and control over the import-export process in the country. Currently, importers track the status and progress of their shipments in real time. Customs brokers receive automated notifications on their mobiles about the status of their shipments and are prompted to create their declarations as soon as the shipping manifest is available online, prior to ship arrival.
Key market trends: King Abdullah Port is witnessing huge growth in maritime throughput
Saudi Arabia has the largest seaport network in the Middle East, with nine major ports and around 200 piers that handle more than 90% of the country’s trade. Out of the nine major ports in the country, six are commercial and the three are industrial ports.
The seaports in the country have gradually developed over the years. The number of berths for vessels increased from 33 in 1976 to 224 in 2017. The Saudi Arabian ports have an overall cargo handling capacity of around 600 million metric ton. Under the national development strategy, Vision 2030, one of the main objectives of Saudi Arabia is to replace the exports of oil and related products with the exports of other products. This objective requires a substantial increase in the seaport and logistical infrastructures for containerised exports. Additionally, the government is boosting the upgrading of ports to better handle the increasing number of ultra-large container vessels (ULCVs) that are travelling across the global shipping lanes.
In addition to the existing nine ports in the country, the King Abdullah Port (KAP) opened in 2014, and it significantly expanded the country’s container-handling capabilities. Additionally, it is one of the largest private infrastructure investments in Saudi Arabia.
The KAP makes the country a linking point for the three continents, namely, Asia, Europe, and Africa. All the countries in the region are planning to become logistic hubs for trans-shipments into Africa.
The King Abdullah Port was ranked the second-fastest growing port in the world in 2018, according to Alphaliner, the global leader in analysing maritime transport data, port capabilities, and the future of vessels and shipping route development. The port was ranked eighth in 2017. Out of the 100 largest container ports in the world, the port was ranked 83rd in 2018 and was ranked 87th in 2017.
In 2018, the annual throughput of the King Abdullah Port increased to 2,301,595 TEUs, which represented an increase of more than 36%, as compared to that in 2017. Thus, the KAP maintaining its position as the second-largest port in the country, in terms of container handling. The annual increase in throughput in 2018 was primarily achieved in conjunction with an 8% increase in imports and exports, as compared to those in 2017.
Use of logistics in the distributive trade sector is anticipated to witness highest growth
The Saudi retail sector supplies a population that is expected to reach around 35 million by 2021. With recent economic reforms, the sector has been affected mainly by subsidy cuts that have increased utility costs, and by the new Saudisation law that has increased labour costs by 15%. Furthermore, seeing stagnation in their real disposable incomes, consumers are increasingly cutting back on spending and looking for ways to save money.
With these reforms and changes, there are retail trends that will influence the industry’s future growth, including
offering more budget goods, e-commerce, implementing omni-channel strategies, and artificial intelligence (AI) among others.
The government aims to increase the contribution of ecommerce to 80% of the retail sector by 2020. The success and anticipated pace of growth of the Saudi e-commerce market can be attributed to the fact that 70.49% of the population used the internet in 2017, and this figure is projected to grow to 73.45% in 2022. According to the Saudi Communications and Information Technology Commission (CITC), by 2020, the e-commerce market in the Kingdom is expected to grow to US$8.35 billion.
Wholesale and retail sector (16% of non-oil GDP) recorded growth of 0.8% in 2018, slightly better than the 0.6% registered in 2017. The improved level of growth in 2018 was achieved despite the introduction of VAT and rising costs related to expat levies.
Competitive landscape
Shipping and logistics activity relies heavily on road transport services. The market is heavily fragmented and in Saudi Arabia only a handful of large trucking companies providing services, such as Crescent Transportation, Almajdouie Transport, and Saudi Land Transport Company, which compete head-to-head with leading regional and global logistics providers in the Middle East. The warehousing and distribution segment of the transportation and logistics sector is growing rapidly. Several international logistics companies, such as Agility, have been able to penetrate the growing market and win government contracts. Still, there remains significant and increasing demand for experienced providers of logistics, in support of both the transportation side of the sector and the distribution of retail products, throughout the country. It is observed significant number of international players are present in the market. International companies are partnering with local players to form joint ventures. This provides an opportunity for local players to exploit the global network of international companies.