Keeping things moving: Upgrading logistics infrastructure in line with demand

While construction teams can expect to be busy building railways across Saudi Arabia for the next few years, the vast majority of internal freight transport in the Kingdom is currently carried by road. Goods bought by companies and consumers, whether they be imports or domestically produced, are shipped along the country’s 59,000 km of asphalted roads, as are the materials being used to develop the country’s infrastructure.

According to the Central Department of Statistics and Information, 195,565 new trucks were imported into Saudi Arabia in 2012, compared to 89,582 in 2003, representing a 118% increase in less than a decade. In its report on first-quarter 2014 economic performance, Jadwa Investment said that the transport sector had grown by 6% year-on-year in the first quarter. “Transport growth stems from the need to move a high volume of goods around the Kingdom (both imports and construction materials),” the report stated. As new economic cities, airports and ports come on stream, the logistics industry will see growing demand for fast, efficient door-to-door shipments of goods.

INDEX: In Agility’s Emerging Markets Logistics Index 2014, Saudi Arabia climbed one place compared to the year before and was ranked third behind China (first) and Brazil (second). By way of comparison, the Kingdom came in ninth in 2010. The index is produced by Transport Intelligence and is based on scores for 45 countries in three sub-indices: market growth and attractiveness; market compatibility, which includes demand for logistics, the regulatory framework and ease of doing business; and market connectedness, which measures the country’s overall logistics infrastructure, its ports, airports and border controls.

Saudi Arabia’s market growth and attractiveness were its biggest strengths, but it also fared well on the other two measures, with GCC states taking five out of six of the top places under market compatibility and Saudi Arabia in fifth place. The Kingdom was also ranked fifth out of 45 for connectedness, a factor which looks set to improve once current infrastructure construction projects have been completed. The report included a survey of more than 800 logistics experts, which was used as the basis of a list of perceived major logistics markets of the future. Saudi Arabia was placed 11th in this assessment.

The index ranks the popularity of air and sea freight shipping lanes between the EU, the US and emerging markets. The air freight trading lane between the EU and Saudi Arabia was ranked seventh with estimated EU air freight exports to Saudi Arabia of 92,300 tonnes in 2013, up by 6.3% on 86,846 tonnes a year earlier. Meanwhile, Saudi Arabia’s exports to the US were ranked 13th among the 45 emerging economies, up 13% from the year before. When sea trade lanes between the US and EU and emerging countries are measured, Saudi Arabia’s imports from the EU place it fifth behind US exports to China, EU exports to China, EU exports to Turkey and EU exports to Algeria. Among the largest gains in terms of tonnage shipped, however, was from the EU to Saudi Arabia, which increased by 23.3% between 2012 and 2013. Agricultural products, machinery and transportation equipment were the most popular types of EU goods imported by the Kingdom.

KAEC: The newest port to start importing these goods sits on the Red Sea, 100 km north of Jeddah, and is part of King Abdullah Economic City (KAEC). In January 2014 King Abdullah Port (KAP) announced it was open for business, with officials from the Saudi Coast Guard, Saudi Customs, and the Saudi Food & Drug Authority ready to deal with freight. KAP is open to business from any shipping line 24 hours a day and also offers trucking services to and from Jeddah. The port has a depth of 18 metres and a quay wall. KAP opened with the capacity to handle 1m twenty-foot equivalent units (TEUs) per year and is expected to be able to handle 1.4m TEUs by the end of 2014. Expansion works will continue thereafter and capacity is set to reach 4m TEUs per year in the medium term.

The prospect of super-sized cargo ships docking at the port has attracted investors from multinationals and big Saudi businesses to KAEC’s Industrial Valley, a 55msq-metre industrial zone that covers a third of the total land area of the new city. KAEC boasts it has already attracted 70 companies, including Mars confectionary, French energy firm Total, packaging giant Greif and heating, ventilation and air conditioning company Petra, some of which have already begun operating from the Industrial Valley. Activities there are divided into six clusters: logistics, pharmaceuticals, fast-moving consumer goods, building materials and automotive.

INVESTMENTS: In February 2014, one of Saudi Arabia’s biggest private firms, Nesma Holding, signed a contract with KAEC to build a regional logistics centre with DHL International in the Industrial Valley. Nesma handles 4m containers a year. Fahd Al Rasheed, managing director and CEO of KAEC, told the local press, “Logistics are one of the main sectors that we have targeted for KAEC since logistic services provide essential support for almost all of the businesses operating in the city and the Industrial Valley.” Although logistics may not be the core business of all tenants in the Industrial Valley, access to KAP and the development of warehousing and distribution hubs for their businesses are key factors for most.

More than 2.5m sq metres of space in the Industrial Valley was taken by two tenants in December 2013, both with links to the automotive industry and requiring easy access to the Kingdom’s highway network. Abdul Latif Jameel Group is investing SR1.2bn ($319.92m) to build a 1.5m-sq-metre complex for the import, distribution, component manufacture and assembly of cars, the biggest single development in KAEC to date. Mohammed Yousuf Naghi & Brothers Group has secured a 1.1m-sq-metre site where it will be building centralised warehouses for Rolls-Royce, Jaguar Land Rover, Mini and Hyundai, as well as a spare parts warehouse. The company will also operate a distribution centre for leading international consumer brands.

In February 2014, plans were announced for Saudi Arabia’s biggest refrigerated warehouse. It is to be built by Mohammed Abdullah Sharbatly Company on a 160,000-sq-metre plot in the Industrial Valley where fresh fruit and vegetables imported through KAP will be stored and distributed throughout the Kingdom.

A similar-sized warehouse, logistics and distribution centre will be built by MASDAR Building Materials, which signed a deal on a 150,000-sq-metre plot at KAEC in May 2014. In August 2013, Toys ‘R’ Us secured a 35, 000-sq-metre plot, which it will use as its base to import and distribute its toys throughout the Kingdom.

The desire to improve the speed and efficiency of logistics in Saudi Arabia is not confined to KAEC and the Red Sea coast. Dammam on the Gulf coast is seeing the construction of new logistics hubs as well. In addition, the city is also hosting the 2014 Saudi Transtec Conference, to be held on December 8-10 at the Dhahran International Exhibitions Centre, which will bring together companies involved in logistics, distribution and warehousing from across the MENA region.

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The Report: Saudi Arabia 2014

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