11 minute read
Country Report: Saudi Arabia
Saudi Arabia’s logistics sector set for major takeoff and the long haul ahead Thanks to massive infusion of capital and investment in roads, sea ports and airports infrastructure, Kingdom poised for the great leap ahead
Growth Trend Analysis by Trade – SAUDI ARABIA
Sharp decline observed in both exports and imports in H1 2020.
80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Significant contraction in oil and non-oil exports, Overall exports contracted by 40 % compared to H2 2019
Oil Exports Non-Oil Exports
Imports (Billion Riyals) 10 20 30 40 50 60 0
The Saudi Arabia freight and logistics market is currently estimated to be valued at US$ 22.95bn and is estimated to grow at a CAGR of 7.35% during the forecast period, according to Mordor Intelligence.
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 urbanization are the factors driving the Saudi Arabian government to invest in the massive expansion of the country’s transportation networks.
In January 2019, the erstwhile Saudi Arabian Energy Minister Khalid Al-Falih announced that the country is raising US$ 427bn in private sector investments, which may include roughly US$ 36bn 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 privatization.
Technology is improving the security, transparency, and control over the import-export process in the country. New measures are in place for better coordination between the Customs Authorities, importers and exporters, Port & Terminal Authorities, Road Transporters, Airport Operations and other stakeholders in the wider ecosystem to streamline operations and processes.
Gopal R.
heads Frost & Sullivan’s Transportation & Logistics Practice globally. He is responsible for developing the Transportation & Logistics consulting capabilities across regions as well as managing the business unit.
Mr. Gopal has worked on several strategic consulting assignments for local, regional and global clients. His expertise in the regional markets has helped in developing relationships with local and regional companies, augmenting networks, capabilities and research focus.
Covid-19 has severely impacted the manufacturing production due to lockdown measures and significant fall in demand in 2020.
Containment measures, global slowdown and lower business confidence had negative impact on the industry growth in H1 2020.
Machinery and equipment Clothing Furniture Rubber and plastics products Electrical equipment Coke and refined petroleum products Paper and paper products Basic metals Manufacturing Index Other non-metallic mineral products Food products Chemicals and chemical products Fabricated metal products Beverages -36.3 -33.4 -31.3 -30.9
-26.5 -25.4 -24.2
-19.7 -19.4 -18.7 -15.5 -12.7
-40.0 -35.0 -30.0 -25.0 -20.0 -15.0
Industry Growth (%)
-10.0 -2.9 -0.2
-5.0 0.0
Overall manufacturing declined by 19 %, Food and beverages performed better than overall manufacturing
Machinery and Equipment, Refined petroleum products declined by more than 25 % in H1 2020
Brief takes and observations from Gopal R, Global Vice President, Transportation & Logistics, Frost & Sullivan, on the changing and evolving logistics landscape in the region:
• There would be more alternatives sought in the medium term for the next two to three years in Supply Chain and Logistics (SC&L), to manage freight with minimal capital investments. At the same time, this will be an opportunity for investors willing to invest and offer assets for logistics services. • To capture and grow business opportunities in a post-pandemic business scenario, it is very essential to maintain a good forecast and demand planning system. Being able to foresee two-quarters ahead, with a deviation of not more than 20%, will be a key determinant for revenue growth and profitability in SC&L business in the region. • New business models and digital transformation should start with the end in mind, which is ‘The Customer’. Only then would it have the right business impact. • Logistics Service Providers (LSPs) need to understand changing client needs in PostPandemic scenario, so that they can tap new trade lanes that develop because of changes in sourcing, procurement as well as trade flow. • There are likely to be more local solutions and companies offering innovation and technology support for SC&L business in the region, postpandemic. Companies are sensing region-specific niche to suitably develop new products and cloudbased solutions for maximising SC&L efficiency and reliability. • Need for Supply Chain resilience will change thinking from ‘Just-in-Time’ to ‘Just-in-Case’. Expect some fundamental shift in thinking of SCM approaches by Innovators in the region. • Regional sourcing and procurement will benefit greatly due to near shoring. It is imperative for Logistics Solution Providers to capitalise using local capability. • Creating solutions for SME businesses will greatly enhance SC&L offerings and its growth in the region.
Logistics Industry Segments Growth in H1
Freight transportation declined sharply due to COVID related operational restrictions on economic sectors which affected the efficiency levels at port terminals and border crossing points
Logistics Industry: Industry Growth by Logistics Segments, Saudi Arabia, H1 2020
30 %
Domestic economic activities and global slow down have resulted in reduced demand for logistics services, most indicators bottomed out in Q2 but rebound expected start from Q3 2020 onwards
Freight Transportation Storage and Warehousing Freight Forwarding
25%- 30 % 20% -25 % 25 % - 30 %
Contingency measures restricted port operations and port throughput Restrictions on Transit goods affected road segment Air cargo benefitted from travel restrictions Food , Perishables and Pharmaceuticals supported growth Digitalization is leading significant industry transformation in driving innovative warehouse business models. In line with decline in freight transportation, forwarding segment is also expected to decline due to operational restrictions and congestions
Note: The decline estimates are average industry decline rates for whole of H-1 on value terms. Volume declines have been furthermore as Q-2 saw volumes drop to almost 30% of what it normally is. Increase in prices made up for the volume loss in most cases on cargo movement and storage and that is why the value impact is moderately better than volume impact.
COVID-19 Impact on Industries Non-oil economy is also seen to be coming under pressure, but ICT, Food and Pharmaceuticals are expected to support growth
Negative Impact
COVID-19 Impact on Industries, Saudi Arabia, 2020
Marginal Impact Positive Impact
STRUGGLING
Aviation Travel and Hospitality Automotive Hotel, Restaurant, Catering Construction and Real Estate (Material, Equipment and Services) Luxury Retail Chemicals and Textile Capital Goods Manufacturing Personal Services
SURVIVING
Agriculture Utilities Logistics Traditional Media and Entertainment IT Services Hi-Tech Manufacturing Traditional Retail Outlets Pharmaceuticals
THRIVING
Digital Media Telecom and Internet Providers Digital Services o Online Trading services o Video Conferencing services o Online Learning Digital Payment Portals Food and Consumables E-Retail and Doorstep deliveries Healthcare Services Healthcare Devices and Equipment
Global economic slowdown and low export demand Top 4 factors affecting demand across industries:
Downsizing and pay cuts causing cost-cutting and postponement of purchases Low investor and consumer confidence in the future
Changing consumer behavior: digital-ready citizens
Pandemic-related Challenges in the Transport and Logistics Industry
Congestion at Ports
The Dammam and Jeddah ports in Saudi Arabia are congested, and reduced staffing levels are increasing vessel turnaround time.
Supply Disruptions from China
Some 15% of GCC imports are from China. Supply disruptions will affect electronics and textiles trade volume.
Equipment Shortage GCC ports are facing dry and reefer container shortages as a large amount of intra-GCC cargo is shifted from road to ocean freight.
Warehouse Capacity Redundancies Lower trade volumes are resulting in excess storage capacities in key ports and major free zones in Saudi Arabia and the UAE.
Increase in Logistics Costs
Carriers in the GCC have announced peak-season and emergency imbalance surcharges on certain trade lanes resulting in increased logistics costs.
Last-Mile Delivery Challenges
Issues relating to the lack of a postal system is expected to increase costs associated with parcel delivery.
COVID-19 Responses in Source: Frost the Transport and Logistics & Sullivan
Industry—Respond, Recover, and Thrive
SET UP QUICK RESPONSE TEAMS
Employee safety should be the priority at such times. Quick response teams should be allocated to manage uncertainties related to demand and supply of logistics services.
RESPOND TO FULFILLING CAPACITY
With the maritime and air freight industry experiencing capacity constraints, logistics service providers in the region should strive for transparency by assessing “what-if” scenarios with customers to understand planned volume and strategic needs.
CREATE FLEXIBLE SOLUTION MODELS
As a transshipment hub, congestion at ports is expected. To mitigate risks and ease the process, advanced capacity bookings should be arranged for customers on emergency shipments.
ADAPT DIGITAL AND IOT SOLUTIONS
Considering order backlogs, inventory stocking surfaces as an issue. Adoption of Internet of Things (IoT) technologies in warehousing and distribution operations would ensure the placement of the right products in the right place at the right time.
IMPLEMENT AUTOMATION
In the long run, AI-powered robotics systems should be considered to help mitigate supply chain risks and promote sustainability goals and operational efficiency for warehouse operations.
Risk mitigation strategies for logistics service providers
Service providers need to work towards redesigning logistics solutions to meet the requirement of changing business scenario with emphasize on improving operational excellence to mitigate COVID-19 related risks
Ocean Freight
Air Freight Road Freight Warehousing
Issues and Challenges:
Port Congestions, Workforce Safety, Restrictions on Crew members, Backlog of containers and space constraints
Strategies
Build advanced booking system for Air & Ocean Freight to foresee at least 2 quarters. Impose surcharges to remove large quantities of containers reposition containers to equipment-deficit regions. Impose demurrage charges for non-cleared containers to reduce congestion at ports.
Issues and Challenges:
• Shortage of Cargo capacity, high reliance on belly cargo, increasing demand for time critical cargo
Strategies
Airliners to optimize freighter capacity and temporarily convert passenger flights to freighters to accommodate demand for air cargo. Provide Intermodal solutions to address air freight capacity constraints Impose spot rates for Time Definite International (TDI) shipments. Prioritize transportation of essentials such as medicines and medical equipment.
Issues and Challenges:
Workforce safety, Driver shortages, Border delays, road-congestions are causing delays in pick-up and deliveries.
Strategies
Due to driver shortages on long-haul routes, continue to be operational on short-haul routes. Implement online booking systems to assess and serve future demands Create a dashboard to feature vital information such as border closure that would keep the customers well informed.
Issues and Challenges:
Capacity constraints,
Workforce safety, Shortage of workforce threatening business continuity, increasing demand for noncritical cargo.
Strategies
Accelerate investments in
automation of warehouse
operations, which would reduce the dependency on labour force. Provide agile and flexible solutions and Optimize operations for the service providers serving
healthcare, food beverage,
and eCommerce to handle surging demands.
Key growth opportunities for the transport & logistics industry
Warehousing space growth will be driven by Free Zones
Port modernization, expansion of cargo handling facilities and development free zones are the focus areas as the economic diversification initiatives are starting to yield results. Up-gradation of port in Jeddah, Abu Dhabi, Dubai and development zones specifically to handle e-commerce are some of the key projects
Digitalization of Supply Chain
COVID disruptions has emerged as key driver for technological disruptions which will lead the transformational changes Adoption of digital technologies is expected to drive sharing logistics assets resulting in optimization, reduced complexities, and lowered transportation costs..
Equipment and Devices will drive Healthcare Logistics
Short term spike in Air Cargo volumes reported for handling time sensitive cargo and medical supplies. GCC region is major transshipment hub for Africa and Central Asia. Volume of medical devices and pharmaceuticals are expected to increase as the Covid-19 spreads across these regions.
Non Contact Retail Sales
and Food Logistics
Growth opportunities & business models
Food logistics and online food delivery services are expected to have relatively stable growth. Lock downs and restrictions on movement are expected to increase online purchase of groceries and food items. E commerce logistics is likely to gather momentum during the rebound phase
Source: Frost & Sullivan
Technology Trends and Emerging New Age Business Models,2020
Shipping and Ocean Transportation Road Freight Transportation
Warehousing
Freight Forwarding
Courier, Express and Parcel
Logistics Outsourcing
Online capacity booking platform
Cargo management system services
Interface for customers
Digitized physical Digital freight brokerage
Crowd-sourced asset allocation
Customer/ Vendor
interface for revenue management Warehouse booking platform Shared warehouse model Fully automated warehouses Inventory Optimization solutions Digital Freight Platforms Digitalization of Forwarders Freight Matching and Market Analytics Digital supply chain network Automated sorting and fulfillment centers Delivery automation and last mile delivery solutions Lead logistics services Contract logistics services Multimodal logistics and endto-end supply chain solutions Online Freight Services
