Transport and Logistics
Transport and Logistics

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Overview

Being at the crossroads of important international trade routes, amidst three continents: Asia, Europe and Africa, Saudi Arabia’s Vision 2030 aims at maximizing the benefits of its exceptional and strategic geographic position by building a unique transport & logistics hub in the region.

 

KSA government has already invested heavily in the construction of several transport & logistics infrastructure such as ports, railways, roads and airports. To take full advantage of these investments, Saudi Arabia is entering into a new series of international partnerships and working with the private sector to complete, improve and link its infrastructure internally and across borders. Transport and logistic infrastructure is also being unlocked with systems that can drive higher performance, including more rigorous governance, leaner processes and a more efficient customs system.

Facts & Figures

70 SAR Billion
Logistic market size
6
Number of container ports
27
Total number of airports
85 Million passengers
Number of air passengers in 2016
1.2 Million tons
Volume of air cargo in 2015
1,500 KM
Length of new railways
240 Million tons
Cargo handled by sea ports in 2017

Transport and Logistics Value Proposition

Whether by land, sea or air, Saudi businesses benefit from transport connectivity that rivals the best networks in the world. Located at the convergence of three different continents, Saudi Arabia’s transport sector enjoys a geographical competitive advantage with its accessibility to major emerging markets and important marine passages. This sector is about to experience unprecedented improvements that will take transport services to the next level. KSA sea freight already surpasses neighboring GCC nations in terms of capacity and usage, yet it’s set to significantly increase due to seaport expansion and technological advancement.

A new era awaits the aviation sector with 5 new airports in the pipeline, as well as key extensions to Jeddah and Riyadh and 17 other airports that are already underway. Ground networks are also considerable, spanning hundreds of thousands of kilometers of roads and thousands of kilometers of railways that are subject to major refurbishment and expansion. Exciting opportunities await investors who are keen to contribute to the new transportation model or to benefit from the additional access that it manifests.

 

 

Heart of a thriving region

Saudi Arabia’s strategic location puts it at arms distance from a vast array of global consumers. Most European markets are under 7 hours flight time away and Asian markets are generally just a 4 hour plane journey from KSA. Half the world’s population lives within a 5 hour flight from the Kingdom, connecting it to a regional market consisting of more than 3.5 billion potential customers over three continents. KSA’s central location also provides it with a cost advantage in the Arabian Peninsula, North Africa and East Africa. Cost distribution advantages of more than 10% exist for Greater Arab Free Trade countries (GAFTA) and to nations within the Arabian Peninsula, enabling favorable conditions for the movement of goods between the regions.

 

Robust transport infrastructure in place

Saudi Arabia has a landmass of more than 2 million square km and boasts a wide transport network with a particular strength in maritime transport, air transport and road transportation :

 

  • Maritime transport

Saudi Arabia’s maritime network is unrivaled in the Middle East, handling a capacity of approximately 8 million twenty-foot equivalent containers (TEUs) per year and receiving 11,000 ships annually. The network consists of 10 primary harbors for non-oil trade, 200 piers, 216 berths and 6 leading container ports located along a critical intersection of the East-West shipping routes.

 

More than 270 million tons of cargo move through the Saudi maritime network on a yearly basis, making it the largest within the GCC. KSA is also the home of the fastest growing port in the world, King Abdullah Port at King Abdullah Economic City (KAEC), which handles 4 million TEU annual capacity. Saudi Arabia’s ports dominate the regional transit market, handling more than 90% of Red Sea trade transits and 30% of the East African trade transits.

 

  • Air transport

Saudi Arabia’s aviation infrastructure is extensive, efficient and robust, comprising of 6 international, 9 regional and 12 domestic airports. Three of its airports are amongst the busiest in the GCC, transporting the bulk of the 80 million passengers who pass through the Kingdom on a yearly basis. KSA connects to 81 airports in 45 countries, allowing for more than 1.2 million tons of cargo to be shuttled around the globe. 90% of the Saudi population lives within a two-hour drive of the nearest airport, making air travel a popular transport option. In recent years, Saudi Arabia’s airports have experienced significant growth. 2016 saw Saudi airports receive 85 million passengers, which is a 4% increase on the year before. The number of flights was up 10% at 710,000 trips, while 7% more cargo was handled by the aviation sector totaling 1.5 million tons over the year.

 

  • Road transport

The Kingdom has one of the largest road networks in the world covering more than 200,000 KM of roads, including 66,000 km of roadways connecting major cities and providing access to railways, ports and airports. This vast and growing ground network benefits from 5,000 km of highways and 6,000 km of bridges, providing extensive means to transport passengers and goods in and around the Kingdom.

 

 

 

Government commitment to grow the sector

Economic growth, population maturation and rapid urbanization are all factors driving Saudi Arabia to invest in the massive expansion of its transportation networks. This includes the introduction of urban transport systems such as metros and buses, as well as inter-urban networks such as freight and high speed railways. The underlying aim here is to capitalize on considerably untapped potential and to transform the Kingdom into a global logistics hub.

The Saudi Arabian government is fully committed to developing the sector and has set aside considerable capital for expansion plans. The allocation of significant budget to KSA’s transport infrastructure is an essential prerequisite for the stimulation of growth. Hence the reason why the Saudi 2018 budget includes an 86% increase in planned government expenditure on infrastructure and transportation, increasing from SAR 29 billion (USD $ 7.7bn) to SAR 54 billion (USD $ 14.4 billion).

Furthermore, between 2016 and 2020, Saudi Arabia plans to spend SAR 200 million (USD $ 53.3 million) on improving railway cargo capacity and a further SAR 30 million (USD$ 8 million) on upgrading the rail network. Furthermore, the Ministry of Transport has been allocated SAR 174 million (USD $ 46.4 million) to improve the efficiency of ports, specifically targeting a reduction in the time that containers are tied up in port customs (from 14 to 5 days).

 

Major expansion initiatives are underway

Several expansion opportunities are underway in Saudi Arabia across the different transport verticals :

 

  • Air transport

The aviation sector in Saudi Arabia is booming and undergoing extensive improvements that will provide fantastic opportunities for investors. Expansion of King Abdulaziz international airport in Jeddah is already underway with an aim to host 43 million passengers by 2025 and 80 million passengers by 2035. King Khaled international airport in Riyadh is also undergoing expansion with the view to accommodate 25 million passengers per year. Moreover, Saudi Arabia is building five new airports in Taif, Jizan, Qunfudah, Farsan and Najran and adding terminals to its existing airports in Jeddah, Abha, Arar, Hail, Al Ahsa, Yanbu, Qassim, Wadi Al Dawasir, Al Qurayyat, Rafha, Al Jawf, Turaid, Al Qaisuma, Sharurah, Al Wajh and Al Baha.

 

  • Rail transport

The Saudi government is currently investing SAR 93.75 billion (USD $ 25 billion) in three mega projects as part of a combined 3,900km rail expansion plan. The North-South Rail Project is the largest railway in the region spanning a distance of 2,400 KM stretching from the capital city of Riyadh (in the northwest of the country) to Al Haditha, near the border with Jordan. The project is costing SAR 13.1 billion (USD $ 3.5 billion) and is projected to transport 4 million tons of commodities and 2 million passengers annually once it’s up and running.

 

The SAR 56.25 billion (USD$ 15 billion) Haramain High Speed Rail Project linking Mecca and Medina is also underway. Once complete it will span 450 km and cut transportation time between the two cities to a mere two hours. It also runs through Jeddah and Rabigh, shortening the trip from Jeddah to Mecca to a rapid half hour.

 

The third major rail program is the Saudi Land bridge Project providing the first direct link between the Red Sea and the Arabian Gulf. This impressive proposal includes plans to construct 950 km of new rail line between Riyadh and Jeddah and another 115 km of track between Dammam and Jubail, costing in the region of SAR 26.25 billion (USD $ 7 billion). In addition to the above mega-projects, the Saudi government envisions a further 10,000km of rail and metro tracks to be added to the network by 2030.

 

  • Maritime transport

Saudi Arabia is heavily investing in its seaports to modernize its infrastructure and increase their capacity. Several projects worth SAR 6 billion (USD $ 1.6 billion) are already underway and are designed to boost the maritime transport sector by transforming it into one of the most technologically advanced and functional systems of the world. SAR 30 billion (USD $ 8 billion) has been set aside by the Saudi Ports Authority as a strategic investment for the equipping and modernization of all of ports.

 

With an estimated SAR 1 billion (USD $ 266 million) worth of projects still to be awarded, investors would be pertinent to watch this space.

 

  • Road transport

Ground networks in KSA are vast and growing at a rapid pace, providing a comprehensive means to transport passengers and goods inland. Land freight transportation is forecast to boom due to increasing industrial activity and the expansion of e-commerce throughout the region.

 

Under the current development plan, Saudi Arabia has allocated a substantial sum to the creation and renovation of the Kingdom’s roadways, particularly its heavily used inner-city roads, intersections and bridges. Plans are scheduled to build over 3,500 km of new roads, including 284 highways set to link the country’s main urban centers. Several ambitious projects are starting to take shape, such as the design and construction of Obhur Creek Bridge, located 20 km from Jeddah. Plans for construction include eight lanes of road traffic, footpaths and two lanes of rail transit. Also of grandeur is the 72 km Mecca-Jeddah Highway, designed to appease Hajj pilgrims by spanning 4 lanes in both directions. KSA road projects are in full swing and are showing no signs of abating with an additional 2,200 km of road construction planned for the next development phase beginning in 2020.

 

As the ground network expands, so will the opportunity to access new regions and connect businesses previously considered out of reach.

 

Pivotal role for private sector to participate in the transport

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 it develops the Kingdom’s transport infrastructure. Particular 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 readied for full privatization. By 2020, the target is for private sector companies to be involved in the development and operation of at least 5% of roads, 50% of the rail network and 70% of Saudi Arabia’s ports.

Several projects and initiatives are already underway with strong private sector participation. Examples include the 20-year build-operate-transfer agreement between Saudi Binladen Group and Aéroports de Paris Management for the Hajj terminal at King Abdulaziz International Airport.

Considerable investment opportunities await domestic and international organizations that are eager to participate in the development of Saudi Arabia’s transport sector.

Saudi Arabia occupies a truly exceptional geographical location in the world when it comes to logistics and international trade. It sits between three continents giving it a unique advantage when it comes to the Asia-Europe trade routes and distributing goods through the Arabian Peninsula.

It should come as no surprise that KSA is a freight-forwarding leader that holds the largest logistics market in the GCC. It’s a market that has consistently grown at a rate of 5% per year and that maintains a bullish outlook. The KSA logistics infrastructure is also well-established and is positioned to flourish with the largest maritime network in the Middle East, one of the largest road networks in the world and a new state of the art industrial city hub system about to open its doors.

Simply put, there are very few places on Earth with the logistics market potential of Saudi Arabia.

Favorable and strategic geographical location

Saudi Arabia sits right at the crossroads of a very important international trade route that connects Asia, Europe and Africa. This strategic location provides the Kingdom with a unique advantage over other nations, enabling it to become a leading regional logistics hub.

The country’s location is optimal for the distribution of goods within the Arabian Peninsula, the Levant and East Africa; an area with an aggregated GDP of SAR 9.000 trillion (USD $ 2.413 trllion) and 647 million consumers. Moreover, the Kingdom resides directly on the Asia-to-Europe trade route, through which 12% of global container trade moves annually.

 

Large regional market with excellent prospects for growth

Saudi Arabia’s logistics market is valued at SAR 67.5 billion (USD $ 18 billion), making it the largest among the GCC nations. It accounts for 55% of the total GCC logistics market and is ranked 3rd most attractive within emerging markets. It is also one of the fastest growing logistics sectors globally and is expected to reach almost SAR 94 billion (USD $ 25 billion) by 2020.

 

  • Freight forwarding  

The market for freight forwarding is expected to further increase at 6.4% CAGR to reach SAR 71.25 billion (USD $ 19.0 billion) by 2020. This surge is attributable to the expanding expatriate population, increases in fuel prices, rising industrialization and the advancement of the e-commerce industry.

The freight-forwarding segment of the logistics market is the biggest contributor to growth in this sector. The market size increased from SAR 40 billion (USD $ 10.6 billion) in 2010 to SAR 52.1 billion (USD $ 13.9 billion) in 2015. Freight forwarding by sea is the dominant means of transport, accounting for SAR 26.25 billion (USD $ 7 billion).

 

  • Third Party Logistics (3PL)  

Rising demand for 3PL logistics is forecast for several reasons. Trade relations between Saudi Arabia and other countries are improving, which is attracting significant interest in KSA export and import values. Strong FDI inflows (particularly in oil & gas) are also set to increase opportunities for 3PL providers, as will expanding industrial activity that stimulates the need for supply chain management services.

The 3PL segment of the logistics market increased significantly between 2010 and 2015, growing at 26.6% CAGR (vs. 7.5% growth globally) and reaching a total value of SAR 3 billion (USD $ 0.8 billion). Expectations are set for it to grow even further at 22% CAGR until 2020 to reach a value of SAR 8.25 billion (USD $ 2.2 billion).

Rising demand for 3PL logistics is forecast for several reasons. Trade relations between Saudi Arabia and other countries are improving, which is attracting significant interest in KSA export and import values. Strong FDI inflows (particularly in oil & gas) are also set to increase opportunities for 3PL providers, as will expanding industrial activity that stimulates the need for supply chain management services.

 

 

  • Warehousing  

As with freight-forwarding, cold chain and third party logistics, the warehousing market is expected to further grow at 9% CAGR to reach a market size of SAR 15.75 billion (US $4.2 billion) by 2020. Growth in this segment is expected to materialize as a result of increasing manufacturing activity, burgeoning international trade, rising domestic consumption and the easing of government regulations.

The warehousing segment has also witnessed substantial growth in recent years, expanding from SAR 7.1 billion (USD $ 1.9 billion) in 2010 to SAR 10.12 billion (USD $ 2.7 billion) in 2015. Industrial/retail warehousing leads this segment and accounts for SAR 4.1 billion (USD $ 1.1 billion) in revenue. CFS/ICD is in close second and accounts for SAR 3.75 billion (USD $ 1.0 billion), while cold storage warehouse facilities generate SAR 2.25 billion (US $ 0.6 billion).

 

  • Cold Chain

The cold chain segment of KSA’s logistics market is no different to the other segments in that it has also seen significant growth over recent years. This segment grew at 4% CAGR from SAR 2.92 billion (USD $ 0.78 billion) in 2010 to SAR 3.65 billion (USD $ 0.95 billion) in 2015. Growth is expected to reach SAR 6.15 billion (USD $ 1.64 billion) by 2020 as a result of active participation by the pharmaceutical industry and the increasing demand for fresh/processed fruits, vegetables, meat and dairy.

 

Government efforts to grow the sector

Saudi Arabia has an established and well-equipped logistics infrastructure that is in the process of modernization and adaptation to a rapidly expanding market. The government has directed considerable efforts towards the growth of this sector through regulatory reform and massive investments in logistics infrastructure.

Plans have been announced to invest SAR 112.5 billion (USD $ 30 billion) in upgrading facilities that will enable the Kingdom’s ports to compete at a global level. SAR 159 billion (USD $ 42.4 billion) has been set aside to develop KSA’s first private port; ‘King Abdullah port’, which is expected to handle 20 million TEUs by 2020. The Kingdom is also investing SAR 337.5 billion (USD $ 90 billion) developing its vast road and railway infrastructure.

Huge benefits will be felt across the region in terms of expediting trade, improving transportation and curtailing waiting times. Furthermore, Saudi Arabia is developing 6 economic and industrial cities that are designated to move cargo freely between one another. KSA’s industrial output already constitutes a share of 90% in non-oil exports, which means the logistics industry is about to receive a major boost when it settles into its new streamlined industrial city super-hubs.

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