Saudi Arabia: Logistics Sector Update
Saudi Arabia’s strategic geographic location at the intersection of Europe, Asia, and Africa positions itself to become a leading global logistics hub by promoting the ease of movement of people and goods across the Kingdom. Enhancing the financial sustainability of logistics development in part through attracting the private sector is a key objective of the National Industrial Development and Logistics Program (NIDLP). NIDLP aims to create 1.6 million jobs and attract investments worth SAR1.6 trillion ($427 billion) over the next decade. Of that total, SAR135 billion ($36 billion) is earmarked for a mix of government and private spending across a range of logistics development projects.
There is significant scope for private sector participation in the development of ports, airports, rail, and road infrastructure projects. Additional opportunities include the construction of new facilities including cargo terminals, customs bonded zones, industrial clusters, new shipping lanes, and expanded airport and seaport capacity. Furthermore, a cross-cutting digitization agenda has driven state-led and private sector logistics innovation in the areas of licensing, registration, passenger and cargo flow, import and export financing, and internet of things (IoT) technology that have boosted the sector’s operational efficiency.
The Saudi government’s budget for infrastructure & transportation has increased significantly since 2017, growing at a compounded annual growth rate (CAGR) of 12.5 percent through 2020. Despite the COVID19 pandemic, infrastructure & transportation spending is still set to outpace pre-2019 levels. Through Q3 2020, SAR38.4 billion ($10.2 billion) has been spent on infrastructure & transportation projects, including the development of more than 2,000 km of new roads and the continued expansion of local airports and seaports. By the end of 2020, the Ministry of Finance projects infrastructure & transportation spending will reach SAR56 billion ($14.9 billion). While these allocations remain high relative to past years, capital expenditures (CAPEX) are down 26 percent YoY through Q3 2020 due to fiscal consolidation stemming from the dual shock of the pandemic and lower oil prices. CAPEX includes allocations for various longterm investment projects in the infrastructure and logistics sectors, which have witnessed several project delays or cancellations.
‘Transportation, storage, & communications’, a sector that broadly encompasses logistics, warehousing, and cargo transportation activity has grown from SAR129 billion ($34 billion) in 2013 to SAR164 billion ($44 billion) in 2019, increasing its GDP contribution from 5.5 percent to 6.2 percent. The sector grew 4.2 percent YoY in the first quarter of 2020 before the impact of COVID-19, but declined 16.3 percent YoY in the second quarter, among the hardest hit by lockdowns that led to slowdowns in international trade and domestic travel.
However, there is early evidence of a bounce-back in the logistics sector as imports remain high and the value of non-oil exports has returned to pre-COVID levels in the third quarter. Jeddah Islamic Port (JIP), which handles the majority of cargo imported through Saudi ports, witnessed an 11 percent YoY increase in total throughput year-to-date in October 2020. The number of containers (TEUs) handled at JIP year-todate increased 5.5 percent from 3.7 million to 3.9 million TEUs over the same period. However, Saudi Arabia’s industrial ports are still recovering from the negative impact to oil and downstream petroleum trade. Jubail Industrial Port’s year-to-date throughput by the end of October is down 5.5 percent while
Value of Imports into Saudi Arabia
Yanbu Industrial Port’s throughput is down 10 percent over the same period. Liquid cargo, primarily crude oil, constitutes the majority of goods handled at both industrial ports.
While lower oil exports continue to put pressure on government spending, the Ministry of Finance’s preliminary 2021 budget statement indicated spending will be maintained at previously planned levels, totaling SAR990 billion ($264 billion). The budget statement also outlined the government’s continued pledge to pursue its Vision 2030 agenda, including industrial and logistics investment under NIDLP with plans to provide more opportunities for the private sector to participate in investment and infrastructure development projects.
Saudi Arabia was ranked as one of the world’s fastest economic reformers in the World Bank’s Ease of Doing Business report, jumping 30 positions to 62nd globally. The Kingdom demonstrated improvement on 9 of 10 Doing Business indicators, including gaining 72 places for ‘Trading across borders’ to reach 86th. The World Bank credited enhanced electronic trade platforms, enablement of risk-based inspections, upgraded infrastructure at Jeddah Islamic Port, and the launch of an online platform for certification of imported goods. On each subcomponent pertaining to the time, cost, and documentation for both the importing and exporting process, Saudi Arabia outperformed its MENA regional competitors.
According to the World Economic Forum’s 2019 Global Competitiveness Report, Saudi Arabia ranked 34th globally in transportation infrastructure with improved scores for road connectivity, quality of road infrastructure, efficiency of train services, efficiency of air transport services, liner shipping connectivity, and efficiency of seaport services. These improvements reflect ongoing efforts to address infrastructure, capacity, and efficiency challenges in Saudi Arabia’s logistics sector. The NIDLP agenda identifies several key challenges such as processing speeds, lack of e-platforms, and lack of relevant regulations that have been addressed by a range of entities including government ministries, funding vehicles like the Public Investment Fund (PIF) and the Saudi Industrial Development Fund (SIDF), as well as the public-private partnerships to enhance the competitiveness of the logistics sector.
Saudi Arabia Logistics Sector Challenges
Logistics — Sea
The Saudi ports network consists of 9 ports, 6 commercial and 3 industrial, which handle more than 90 percent of Saudi Arabia’s trade. During August 2020, oil exports were down 33.8 percent YoY while nonoil exports grew by 5.7 percent YoY. The value of crude exports handled at Saudi Arabia’s main ports are expected to rebound in 2021, depending on global pandemic conditions and an OPEC+ decision over further supply cuts. Plastics, rubbers, and downstream petroleum products including petrochemicals have remained lower compared to last year while base and precious metals, machinery and mechanical appliances, textiles, and munitions have driven the rebound in non-oil exports. Over the long-term, port infrastructure investments will support an increase in Saudi Arabia’s manufacturing and industrial exports in line with broader investments in target industries such as mining and energy under NIDLP.
The Saudi Ports Authority (Mawani) is the primary government entity that oversees port operations in the Kingdom. Throughput at Saudi ports has grown at a CAGR of 3.6 percent since 2013, reaching 289 million tons of cargo during 2019, according to data from Mawani. The sector has seen substantial investments in infrastructure and capacity-building, including SAR1.6 billion ($427 million) in ongoing seaport construction projects. These projects include new cargo terminals, re-export zones, and a variety of public-private partnerships aimed at improving the efficiency of the Saudi port system. Mawani has also launched four new shipping lanes in 2020 to enhance direct import-export operations and broaden Saudi Arabia’s regional trade capacity. These new shipping lanes include:
1) Direct shipping lane to East Africa through King Fahd Port in Yanbu and Jeddah Islamic Port (Operated by France’s CMA CGM)
3) Shipping lane connecting Jordan’s Port of Aqaba and Egypt’s Port of Sokhna with Jeddah Islamic Port (Operated by Maersk)
2) Direct shipping lane to East Asia through Jubail Commercial Port, serving industrial companies in Jubail and Ras Al-Khair
(Operated by Hyundai Merchant Marine)
4) Direct shipping line connecting UAE’s Jebel Ali Port and Egypt’s Port of Sokhna with Jeddah Islamic Port
(Operated by DP World)
Jeddah Islamic Port is the busiest commercial port in Saudi Arabia, handling more than SAR110 billion ($29.4 billion) of non-oil cargo during 2020 while the King Fahd Industrial Ports, comprising Jubail Industrial and Yanbu Industrial Port, are the top industrial ports by total throughput. Jeddah Islamic Port handles about 60 percent of Saudi Arabia’s sea imports and serves as a strategic hub connecting global East-West cargo trade. Jubail and Yanbu Industrial Ports primarily handle liquid cargo such as crude oil, liquid gas, and petrochemicals. Liquid cargo throughput at Saudi Arabia’s top two industrial ports is down 7.4 percent YoY through October. Demand in China and the wider Asia region has provided support for Saudi Arabia’s crude exports as oil demand remains low in major economies in Europe and the United States.
Saudi Arabia Throughput by Seaport
In late 2019, Saudi Arabia announced the launch of Al Khomra Logistics Zone just south of Jeddah Islamic Port which would comprise primary and secondary manufacturing facilities, storage and cooling facilities, and constitute the largest logistics zone in Saudi Arabia. It would also offer a customs bonded zone, re-export zones, and offer 1-million square meters to investors for leasing. The Ministry of Transportation estimates the project will create 10,000 direct jobs and expects to attract business investments exceeding SAR3.8 billion ($1 billion), including strategic partnerships with the private sector to enhance Saudi maritime trade capacity.
During October 2020, Saudi Arabia executed the largest build-operate-transfer (BOT) agreement in its history to transfer development and operations of the container terminals at King Abdulaziz Port to Saudi Global Ports Company (SGP), a joint venture between Singapore’s PSA International and the Public Investment Fund (PIF). The size of SGP’s investment is an estimated SAR7 billion ($1.9 billion) and represents a major public-private partnership in the Kingdom’s trade & logistics sector. The deal follows similar BOT agreements such as the SAR1.9 billion ($500 million) agreement for Dubai-based DP World to replace Mawani as the sole operator of Jeddah South Container Terminal in December 2019.
King Abdullah Port, located at King Abdullah Economic City (KAEC), represents another notable development of Saudi Arabia’s logistics agenda as the first privately owned, operated, and developed port in the Kingdom. Opened in 2014, it now ranks as Saudi Arabia’s third largest import destination and one of the fastest growing ports in the world. King Abdullah Port became a top receiver of pharmaceutical and medical supplies during the COVID-19 pandemic due to its high-efficiency, refrigerated storage facilities. Leading international maritime shipping companies Maersk and MSC Americas chose King Abdullah Port in August as a logistics station on the Red Sea for two new shipping lanes connecting East Asia with 1) the United States and 2) Turkey and Greece through King Abdullah Port.
The ports sector has benefited from a plethora of regulatory changes that have enabled cost reductions including container handling fees, original tariff rates for empty containers, and an overall reduction in the total cost for exporters by 53 percent. Time reductions for average truck stopover time from 3 hours to 25 minutes and dwell time at ports from 14 days to 4 days reflect greater operational efficiency. Infrastructure improvements enabled an increase in transshipments and re-exports at Saudi ports, two additional berths at King Abdulaziz Port Dammam, one additional berth for container goods at Duba Port, and the first privately built and operated container terminal at Jeddah Islamic Port, Red Sea Gateway Terminal, which reported handling a record 265k standard containers in August as private sector participation in the ports sector has increased from 30 percent to 53 percent since the launch of Vision 2030.
Source: US-Saudi Business Council, By Albara’a Alwazir, Economist