Wednesday 5 October 2022

Industrial investments to drive Saudi Arabia’s dry logistics market

Saudi Arabia, September 17, 2020

Saudi Arabia dry logistics and warehousing market has shown a volatile growth trajectory during 2015 to 2019, according to a new report released by Ken Research.
However, the kingdom’s plans to pump investment into economic cities and other industrial projects will drive market revenue in the kingdom’s logistics and transportation sector, the research firm said in a latest market outlook of the dry logistics and warehousing sector. The kingdom is expected to invest SR327.9 billion within the various economic projects during 2019 and 2025, it added.
“The KSA government is highly promoting the integration of multi-modal hubs across the country. FDI within the logistics infrastructure development, constructing regional & international logistics service centres and improving the efficiency of trade routes can collectively help the country in becoming a logistics hub over long term,” noted the report titled “Saudi Arabia Dry Logistics and Warehousing Market Outlook to 2025 – Warehousing Automation and Investment within Transport Infrastructure to Drive Market Revenue)”. 
The kingdom’s dry logistics revenue declined at a CAGR of single digit  (-2.2%) during 2015-2019 due to oil price shock further leading to an economic slowdown during 2016-2017 period. Revenues from this segment are, however, expected to grow at a CAGR of 1.3% from 2019-2025, as per the projections made in the report titled “Saudi Arabia Dry Logistics and Warehousing Market Outlook to 2025 – Warehousing Automation and Investment within Transport Infrastructure to Drive Market Revenue)”.
Revenues of the kingdom’s freight forwarding market also have declined by -2.7% during 2015-2019. The sector is expected to contribute in the overall market of logistics with a CAGR of 0.8% in the period 2019-2025, the report forecasts.
Saudi Arabia’s dry warehousing market revenues have shown a CAGR growth of 2.8% during 2015 to 2019. However, these are expected to slowdown marginally at a CAGR of 2.7% during 2019 to 2025.
The report also covers cost component model for trucking industry in Saudi Arabia, warehousing investment and operation model; and container yard models in Dammam and Riyadh regions. The report concludes with future market projections on the basis of overall logistics and dry logistics revenue, by service mix and analyst recommendations highlighting the major opportunities and cautions.
Saudi Arabia is located at the crossroads of significant international trade route that connects Asia, Europe and Africa. This strategic location provides the Kingdom with a unique advantage over other nations thus, enabling it to become a leading regional logistics hub. In April of 2016, Saudi Arabia announced its Vision 2030 which includes transforming the Kingdom into a preferred logistics hub. It is making continuous efforts to make imports and exports processes more streamlined. Additionally, government is restructuring the regulations and structures logistics sector government and opening the way for market liberalization and private sector participation, the report pointed out. 
Expansion of industrial cities continues to offer opportunities for foreign investors towards developing the non-oil manufacturing base, warehousing & logistics segments. For instance, Pfizer opened a manufacturing facility in the King Abdullah Economic City in the year 2017. Non-oil manufacturing growth is facilitated by launch of National Industrial Development and Logistics Program (NIDLP) in Jan 2019 by KSA government. Various companies are investing in Special bulk trucks and heavy lift movements to diversify their revenue streams and operations. For instance, Bahri launched new dry-bulk carrier ‘Sara’ & increased their total fleet of dry-bulk carriers to six ships in KSA.
Dry Logistics Market Segmentation
By Service Mix (Dry Freight Forwarding, Dry Warehousing and Value Added Services): The industry is highly fragmented with few players offering complete end-to-end logistics solutions. The inability of domestic and international providers to offer nationwide end-to-end logistics is due to the lack of a capable and willing workforce, as well as issues around asset ownership, IT requirements, structural and legislative trade restrictions. The freight-forwarding segment of the logistics market is the biggest contributor to growth in this sector.
By regions (Jeddah, Riyadh, Dammam and Others): Jeddah has been dominated in terms of dry logistics revenue during 2019. The cities of Jeddah and Riyadh have been the most populous cities in the kingdom. These cities also account for most of the industrial areas and indicate a high demand for built-to-suit and automated warehouses therefore, driving revenue from dry goods storage. Lastly, value added services segment include packaging, labelling, inventory management, cross docking, and door-to-door delivery.
Dry Freight Forwarding Market
Freight forwarders offer a limited range of services depending on their size, number of personnel, and number of branches. Major flow corridors include the Asian region and European countries in terms of freight revenue during 2019. Saudi Arabia launched new logistics zone in 2019 which is open to private investors in the Red Sea port city of Jeddah therefore, diversifying the economy away from oil and creating more jobs for local Saudis. Road was observed as the most prominent freight mode in Saudi Arabia for dry logistics, followed by air, sea and rail in the year 2019. International freight had dominant share largely due to higher exports of F&B, white goods, textile, furniture & machinery, engineering products, industrial products and others. Asian Countries were observed to lead in terms of International Freight Movement. Major export destinations include China, Singapore, India, Malaysia, and Japan.
Dry Warehousing Market
Warehousing industry ecosystem is dominated by domestic companies in terms of warehousing space, followed by international companies. Ecosystem has underscored asset monetization deal with Real Estate developers purchasing the warehousing assets to generate current income under operating lease model to warehousing operators. Most of the warehouses are concentrated in Jeddah, Riyadh and Dammam in Saudi Arabia. The major Companies include LSC logistics, Almadjioue Logistics, Mosanda Logistics, Tamer, Agility, GAC, GSL and others. Construction Materials / Industrial end user dominated in terms of warehousing revenue followed by retail, healthcare, F&B, automotive and others in 2019.
During COVID-19 pandemic, large areas of warehousing lands are occupied by an aging supply of conventional warehouses. Market rents dropped by 10-15%, with an average lease rates for conventional warehouse dropping in 2020. Future supply is expected to be limited as developers delay development of new projects until market conditions progress.
Customs Clearance Market
Introduction to concept of E-filing of documents has significantly reduced the average time for customs clearance even before the docking of the vessel. Majority of Saudi Customs declarations are now cleared within 24 hours. Increased participation from local Saudi operators as they enjoy complete / full revenue sharing i.e. no regulatory constraints for domestic players and they can perform customs clearance operations on their own. Customs clearance revenue via air mode took a fall due to limited air freight movement leading to decline in shipments via air. It is further expected to go down in the near future as air freight mode is quite expensive compared to sea. 
Jeddah Islamic Port captures majority of total transshipment containers (discharged and loaded) in 2019 therefore, making it the transshipment hub of the Kingdom. With Red Sea on one side & the Gulf on the other side of KSA, both Jeddah Islamic Port and King Abdul Aziz Port are placed at strategic locations. Transhipment cargo volumes are driven by overseas ports in GCC region including UAE and Bahrain. Majority of containerized transshipment cargo was done via Jeddah Islamic port in 2019 and the remaining via King Abdulaziz Port in Dammam during the year 2019. --TradeArabia News Service


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