Full steam ahead
Partners in the evolution of trade
Over the last 22 years, the story of MSC Mediterranean Shipping Company’s (MSC) business in Saudi Arabia has been one of deepening ties, as the company’s growth in the country has closely tracked the evolution of Saudi trade.
Founded in 1970 and based in Geneva, Switzerland, MSC is the second-largest container shipping company in the world. The company runs 480 offices in 155 countries and employs over 70,000 people. Its 490 container vessels have an intake capacity of roughly 3.1m twenty-foot equivalent units (TEUs) and call at 500 ports via 200 routes.
MSC first began operating in the Kingdom on an agency basis in June 1996, and continued its activities as the country’s trade balance grew through the first decade of the 21st century. While Saudi Arabia’s total annual exports stood at just 0.6% of the world total in 1998, by 2011 this proportion had reached 1.6%, amounting to some $355bn. Although oil remained the largest source of trade income, it was also a period of great increases in non-oil exports, which rose from 1% of the country’s total exports in the late 1970s to almost 14% in 2011. In 2018 the IMF forecasts non-oil exports will make up nearly 24% of total sales abroad.
In late 2011, the same year that Saudi’s trade balance reached an all-time high, MSC applied for SAGIA license and entered into a local partnership. Today MSC Saudi Arabia’s operations in the Kingdom have 150 employees, spread across locations at King Abdullah Port (KAP), King Abdul Aziz Port in Dammam, Jubail Port and Riyadh Dry Port.
Committing to the port of the future
The fortunes of the company and those of the Kingdom’s trading ports became more formally intertwined in October 2014, when the operations of the country’s newest port, KAP at King Abdullah Economic City (KAEC), were handed over to National Container Terminal (NCT). NCT is a special purpose container facilities operator partially owned by Terminal Investment Limited, MSC’s subsidiary for global terminal operations. KAP opened in the fourth quarter of 2013 and has since handled almost 4.9m TEUs in cumulative throughput. Annual throughput growth of 21% in 2017 saw KAP become the Kingdom’s second-largest port, with 1.7m TEUs handled, and the world’s eighth-fastest-growing port according to an April 2018 statement by Alphaliner.
MSC has been quick to express its satisfaction with the port, which boasts more than 30 deepwater berths and direct, uninterrupted highway access day and night. Part of its advantage is down to its location on the Asia-Europe trunk line, which means it can reduce trans-shipment times by 5-7 days. Thanks to a program implemented in February 2017, by which a ship’s manifest is uploaded five days before the vessel’s arrival and the delivery order is released two days prior to docking, MSC is now able to clear its cargo at KAP within 24 hours. This delivers efficiency that equals the best ports in the world. Saudi Arabia’s Vision 2030 long-term development plan targets the reduction of average Customs times across all Saudi ports from 14 days to 24 hours, while the National Transformation Program (NTP) sets an interim 2020 target of five days in-port time.
MSC management say a lack of congestion is a further advantage of KAP, and plans are in place to forestall any future traffic issues by expanding port capacity. According to KAEC management, the port aims to keep pace with growth by expanding its capacity from 3m to 5m TEUs.
Designed to be fully integrated with the country’s expanding land, rail and air infrastructure, KAP is also the Kingdom’s first privately owned and funded port. The process of privatizing Saudi ports has been ongoing for the past 20 years, with the Saudi Ports Authority entering into the third phase of its port privatization program in 2017. This third phase is expected to result in lower shipping costs and reduced container time at ports. The NTP targets 100% privatization of the Saudi Ports Authority by 2020.
A hub for three continents
KAP is emblematic of the Kingdom’s ambitions to become an international trading hub, as summarized in its Vision 2030 objective to “establish a unique logistic platform across three continents”. Thanks to a geographic location on the main Asia-Europe trunk line, and with the Gulf benefitting from increased traffic due to the continued strengthening of Chinese and Indian trade, logistics and trans-shipment play a key role in the government’s strategy for economic diversification. As evidence of its progress in this area under Vision 2030, Saudi Arabia is targeting a substantial improvement in its ranking on the World Bank’s Logistical Performance Index, which measures Customs, infrastructure and service quality, from 52nd to 25th position by the end of the plan’s period.
To this end, the NTP 2020 outlined the allocation of $39.6m across various government agencies towards goals such as the professionalization of the logistics sector ($5.4m), the enhancement of import and export processes ($17.9m), the improvement of logistics regulations ($11m) and the establishment of a Global Logistics Centre ($5.3m).
Vision 2030 also outlines investment in land, rail and air transport infrastructure, all of which will complement the appeal of the country’s trade ports. These include the establishment of a Red Sea bridge to Egypt and a GCC railway network, while a proposed GCC Customs Union will strengthen cross-border trade in the region.
A dynamic approach to Saudization
In terms of its employment policy, in June 2017 MSC began implementing an 18-month program to localize its workforce in line with the government policies for Saudization outlined in Vision 2030. With new Saudis being employed every week, the company’s documentation team is now entirely made up of Saudi employees, while the accountancy team is currently undergoing Saudization and expects to be fully staffed by nationals by the end of the year.
Given that there is not a tradition of shipping expertise within local labor markets, MSC’s employment policy has been to seek out recent graduates or talents in related fields and train them according to specific needs. It has also taken a dynamic approach to increasing the number of female staff by seeking to employ two women for every man hired.
Hisham Al Ansari, CEO of MSC Saudi Arabia
What do you think of Saudi Arabia’s potential as a trans-shipment and logistics hub?
Absolutely it has strong potential. The King Abdullah Port (KAP) on the Red Sea coast is operated with the purpose of becoming a trans-shipment and logistics hub for the region. We have based our services on connecting east to west and north to south via KAP. If you look at our operations there today, you can see that we can connect all the continents of the globe, taking in North America, Northern Europe, the Mediterranean, Africa, Australia, New Zealand and East Asia. We have direct services from all these places and we do hundreds of thousands of containers worth of trans-shipments at KAP every year. We also have live and hot connections, and offer a full range of trans-shipment methods at KAP. So while our intention for the future is to have more shipping lines coming into KAP offering more services and in greater numbers, much of the work has already been achieved at the port.
In terms of the country’s potential as a logistics hub, geographically it is very well placed between East and West. There are a lot of ideas in the pipeline in terms of transforming Saudi Arabia into a logistics hub. More and more opportunities are opening up in areas like distribution, directed deliveries, international land connections, and so on. KAP and the various new economic zones are all part of this bigger picture. It is an ambitious program that will create a lot of opportunities for investment.
What sort of evolution have you seen in terms of trade passing through Saudi Arabia’s ports?
The East in general and China in particular is a really dynamic trade partner for the Kingdom. Then there is India, which is growing ever-stronger trade ties. Trade between Saudi Arabia and South America is trending upward: we are now bringing in huge amounts of cargo from places like Brazil, Argentina, Ecuador, Colombia and Costa Rica. South-east Asian markets are also coming up. We’re trading with places like Bangladesh, Sri Lanka and Myanmar, in some cases for the first time. The Kingdom’s trade map is definitely dynamic at present.
To what extent is Saudi Arabia still predominately an inbound market?
You might be surprised to know that Saudi Arabia has also become a very strong exporter. Things are going extremely well in terms of exports, with numbers increasing month-on-month. Global export numbers are rising dramatically. Today at KAP, Dammam and Jubail we have a shortage of containers for export. The Kingdom exports a whole range of products, including petrochemicals, glass, household items, chemicals, furniture, flowers, vegetables, oil, aluminum, dates and foodstuffs. Exports are growing in almost all areas. One of my favorite examples is that we are now exporting flowers from Taif region in Saudi Arabia to Holland, which you could definitely not have imagined in the past. Our ships are full and there is more demand than we can provide ships for. So to reply to your question, the days when Saudi Arabia was predominantly just an import country are over.
What improvements are being made in terms of Customs procedures in Saudi Arabia?
The Saudi Customs authorities have been working on a Customs modernization program since February 2017. At MSC we have shown from day one that we are ready to play a part in this initiative. As part of the Vision 2030, the Saudi Customs program aims to reduce the clearance of goods to 24 hours. We have been working on it since March 2017. It has been quite successful in KAP, particularly because in KAP we don’t have very high levels of congestion.
The government has a vision of facilitating business for importers and exporters, and it is coming true. Over the years, Customs has changed quite dramatically in terms of making life easier for people and companies. Today we can clear goods in 24 hours at KAP, which would not have been possible a few years ago.
What opportunities do you see for prospective investors?
There has been a lot of investment in Saudi Arabia in terms of traditional businesses. I’m talking about everything from carpet manufacturing to real estate to petrochemicals and energy. But logistics has not been a strong area of focus for the private sector, especially in terms of logistics that goes beyond third-party logistics and builds technology into the platform itself. I think this is an area where the market is still very raw and has a lot of potential for growth. Most importantly, logistics hubs are being promoted by the government as part of Vision 2030, providing added benefits and incentives for investors.