SCB Magazine - 2018 Annual Resource Guide
Logistics Will Drive Saudi Arabia's Post-Oil Era

As the Arabian Gulf region aims for a larger role in the global logistics market, which it is estimated will be worth $15.5tr by 2024, Saudi Arabia is upping its own logistics game and becoming a credible competitor to Dubai in the process.

Saudi Arabia is relatively new to the highly competitive game of logistics. But the country has some natural attributes that could help it compete with the top players in the region. For example, the Kingdom of Saudi Arabia, or KSA, is the largest economy in the Arabian Peninsula, Levant, and Iraq region — accounting for 38 percent of GDP and 21 percent of the population. It has a central location, which is optimal for distribution to the Arabian Peninsula, the Levant, and East Africa. And Saudi Arabia resides directly on the Asia-to-Europe trade route, through which 12 percent of container trade moves annually (Fig. 1).

 

Figure 1: KSA advantages to becoming a logistics hub

Since 2016, Saudi Arabia has made progress in improving its logistics services, infrastructure and traceability to meet world-class standards. Import and export processes are more streamlined and governance structures and regulations are being reformed — opening a path to markets and private-sector participants. KSA is also pursuing public-private partnerships both to finance its infrastructure and to acquire capabilities from other top logistics markets. The good news is that investment money is beginning to roll in. In a report by Al-Masah Capital, Saudi Arabia and the United Arab Emirates (UAE) are deemed the most attractive targets for logistics investments in the region and among the easiest markets to operate in.

Dubai: The current regional leader in logistics

The UAE, and Dubai in particular, is the preeminent logistics hub in the Middle East. The UAE has been in the logistics game for decades and now, as an established leader, is well ahead of KSA in most aspects of performance: On the World Bank’s 2016 Logistics Performance Index (LPI), UAE ranks 13 compared to Saudi Arabia’s No. 52 ranking.  And on the World Economic Forum’s Global Competitive Index, the UAE ranks 17 compared to Saudi’s 30.

Dubai’s main port, Jebel Ali, is the world’s ninth-largest container port with more than 90 weekly services to 140 other ports worldwide, according to the Oxford Business Group. Jebel Ali handled a total of 15.24 million twenty-foot equivalent units (TEUs) in 2014, up from 13.63 million TEUs in 2013. Container port traffic TEUs in Saudi Arabia, by comparison, were just 6.32 million in 2014, according to the World Bank

In air transport, Dubai International (DXB) is number one in the world for passengers and second in the world for freight. In 2016, DXB saw 83.6 million passengers (up from 78 million in 2015), and traffic is projected to reach 89 million in 2017.  By comparison, international airline passengers at Saudi Arabia’s King Abdulaziz International Airport are about 30 million.

KSA’s nine-point logistics transformation strategy

Recognizing the growth potential that its logistics sector can have on non-oil trade and investment — a key objective of its Vision 2030 — the Kingdom launched a nine-point logistics transformation strategy (Fig. 2). The strategy will be a major enabler for the country’s logistics success, and includes crown prince Mohammed bin Salman’s latest project, NEOM (see sidebar: NEOM on the Red Sea).

 

Figure 2: KSA logistics sector improvement program

The nine points are as follows: 

1.     Automate and reengineer the import/export process 

Becoming an international logistics hub begins with reducing the time, cost and variability of importing and exporting goods. KSA already has some nice wins in this area thanks to automation and ongoing efforts to reengineer the import/export process. For example, average declaration clearance times at seaports have been cut in half to just 2.2 days and at airports to just 1.2 days, and the amount of import-export paperwork is down by 75 percent (Fig. 3).

 

Figure 3: Early wins in customs process streamlining

Clearing customs is not just faster, but also more predictable and reliable, with 40 percent of customs declarations at seaports now cleared within 24 hours and 70 percent cleared within 48 hours. Many of the improvements are attributed to modernizing the declarations process and managing risk. “Declarations can now be submitted digitally and prior to arrival at ports, and customs is now open 24/7,” explains a customs executive.

2. Invest in digital

Digital technology has significantly improved KSA’s security, transparency and control over the import-export process. Today, importers track the status and progress of their shipments in real time. Customs brokers receive automated status notifications on their mobiles, and are prompted to create their declarations as soon as the shipping manifest is available online, i.e., prior to ship arrival. KSA recently launched two new digital initiatives: a port community system to guarantee secure and efficient exchange of information, and a digital payment platform to accelerate the payment process.

3. Develop and implement a transport infrastructure plan

The Kingdom recently launched an integrated master plan to improve the quality, safety and efficiency of the country’s transport infrastructure. The plan calls for development of several major assets, including the Saudi Landbridge railway to connect the east and west coasts of Saudi, and two new rail corridors, Ras-Al Khair-Dammam in the east and Yanbu-Jazan in the west. Next on the agenda could be construction of new multimodal logistics terminals to fill the increasing need for sea-to-air and rail-to-road connectivity.

4. Eliminate air cargo bottlenecks

KSA is moving quickly to modernize airports and expand air cargo facilities to eliminate infrastructure bottlenecks. The objective is to increase total air cargo capacity in the Kingdom from 0.8 million tons/year today to 6.8 million tons/year by 2030.

5. Meet international regulatory standards

If KSA hopes to attract more competition and private-sector participants, then its regulatory environment must be fully in line with international standards. It won’t be long before the customs broker profession is open to industry and logistics players, which is likely to trigger consolidation and a move toward more professionalism. Licenses for road transport providers and warehouse operators are under review in an effort to improve efficiency, quality, and safety standards.

6. Improve seaport quality and efficiency

Efforts are under way to identify and repair the inefficiencies of sea ports while simultaneously improving the quality of services provided. The initial focus is on growing port specialization, reforming governance and oversight, and updating concession frameworks. Ultimately, KSA wants to create a more level playing field by separating port regulations from port ownership and assigning a dedicated regulating entity. Concession frameworks are revised to become more transparent, fair and attractive to international terminal operators (many of which are already well established in the Kingdom, including PSA, DP World, and Hutchison).

7. Reform the rail sector

The rail sector is going through similar reforms. Last year, railway regulation was separated from railway ownership and assigned to an independent regulator (the Public Transport Authority). The government is consolidating and restructuring all railway operations, and planning to award operations and maintenance contracts for passenger and freight services to reputable international operators. In the future, new railway infrastructure could be financed through PPPs.

8. Engage the private sector

The Kingdom recently awarded a 20-year contract to Singapore's Changi Airport Group to handle operations at the new King Abdulaziz International Airport (KAIA) in Jeddah. Similarly, SATS, Singapore’s biggest ground handler, has agreed to develop and operate a new cargo terminal at King Fahd International Airport (KFIA) in Dammam. Similar schemes to increase private sector participation are being considered for the King Khalid International Airport in Riyadh.

9. Develop special economic zones

To support new growth, KSA is reducing the costs and barriers to setting up new businesses, signing trade agreements, and attracting foreign direct investment. Plans are under way to develop several new special economic zones that offer streamlined procedures for setting up new businesses, attractive taxation policies, customs-bonded areas, and efficient transport connectivity.

All eyes on the prize

KSA’s large economy and central location provide a unique advantage in the competitive world of logistics. But size and setting are not enough. Success will hinge on the Kingdom’s ambitious logistics improvement program to streamline processes, improve infrastructure, reform governance and regulatory systems, open up markets, and encourage privatization. Early wins have already been documented, including shorter and more predictable clearance processes, capacity expansions at key transport assets, and awarding several concession contracts to private sector operators. KSA will not stop here. As logistics continues to dominate this post-oil era, all eyes will remain on the prize.

NEOM on the Red Sea

The latest news flash from Saudi Arabia’s crown prince Mohammed bin Salman is a $500bn investment in a mega-city called NEOM. The name combines neo, Latin for new, and m, the first letter of the Arabic word for future. Saudi’s “new future” is one in which citizens reside in a city built on more than 10,000 square miles of land in northwest Saudi Arabia.

With falling oil prices, declining demand, and insufficient investment opportunities at home, NEOM will be Saudi Arabia’s place in the future. There will be a bridge to connect Asia with Africa, solar panels paired with wind turbines to generate energy, and mobility across land, air and sea. State-of-the-art technology and advanced manufacturing will join with media, technology and digital sciences to create an idyllic lifestyle. This city of the future will be an independent zone, with its own regulations and social norms created for its citizens and their well-being and in hope of attracting the world’s top talent.

A strategic location on one of the world’s most prominent economic arteries is destined to make NEOM a global hub for trade, innovation and knowledge.

Condensed from the website, Welcome to NEOM

Saudi Arabia is relatively new to the highly competitive game of logistics. But the country has some natural attributes that could help it compete with the top players in the region. For example, the Kingdom of Saudi Arabia, or KSA, is the largest economy in the Arabian Peninsula, Levant, and Iraq region — accounting for 38 percent of GDP and 21 percent of the population. It has a central location, which is optimal for distribution to the Arabian Peninsula, the Levant, and East Africa. And Saudi Arabia resides directly on the Asia-to-Europe trade route, through which 12 percent of container trade moves annually (Fig. 1).

 

Figure 1: KSA advantages to becoming a logistics hub

Since 2016, Saudi Arabia has made progress in improving its logistics services, infrastructure and traceability to meet world-class standards. Import and export processes are more streamlined and governance structures and regulations are being reformed — opening a path to markets and private-sector participants. KSA is also pursuing public-private partnerships both to finance its infrastructure and to acquire capabilities from other top logistics markets. The good news is that investment money is beginning to roll in. In a report by Al-Masah Capital, Saudi Arabia and the United Arab Emirates (UAE) are deemed the most attractive targets for logistics investments in the region and among the easiest markets to operate in.

Dubai: The current regional leader in logistics

The UAE, and Dubai in particular, is the preeminent logistics hub in the Middle East. The UAE has been in the logistics game for decades and now, as an established leader, is well ahead of KSA in most aspects of performance: On the World Bank’s 2016 Logistics Performance Index (LPI), UAE ranks 13 compared to Saudi Arabia’s No. 52 ranking.  And on the World Economic Forum’s Global Competitive Index, the UAE ranks 17 compared to Saudi’s 30.

Dubai’s main port, Jebel Ali, is the world’s ninth-largest container port with more than 90 weekly services to 140 other ports worldwide, according to the Oxford Business Group. Jebel Ali handled a total of 15.24 million twenty-foot equivalent units (TEUs) in 2014, up from 13.63 million TEUs in 2013. Container port traffic TEUs in Saudi Arabia, by comparison, were just 6.32 million in 2014, according to the World Bank

In air transport, Dubai International (DXB) is number one in the world for passengers and second in the world for freight. In 2016, DXB saw 83.6 million passengers (up from 78 million in 2015), and traffic is projected to reach 89 million in 2017.  By comparison, international airline passengers at Saudi Arabia’s King Abdulaziz International Airport are about 30 million.

KSA’s nine-point logistics transformation strategy

Recognizing the growth potential that its logistics sector can have on non-oil trade and investment — a key objective of its Vision 2030 — the Kingdom launched a nine-point logistics transformation strategy (Fig. 2). The strategy will be a major enabler for the country’s logistics success, and includes crown prince Mohammed bin Salman’s latest project, NEOM (see sidebar: NEOM on the Red Sea).

 

Figure 2: KSA logistics sector improvement program

The nine points are as follows: 

1.     Automate and reengineer the import/export process 

Becoming an international logistics hub begins with reducing the time, cost and variability of importing and exporting goods. KSA already has some nice wins in this area thanks to automation and ongoing efforts to reengineer the import/export process. For example, average declaration clearance times at seaports have been cut in half to just 2.2 days and at airports to just 1.2 days, and the amount of import-export paperwork is down by 75 percent (Fig. 3).

 

Figure 3: Early wins in customs process streamlining

Clearing customs is not just faster, but also more predictable and reliable, with 40 percent of customs declarations at seaports now cleared within 24 hours and 70 percent cleared within 48 hours. Many of the improvements are attributed to modernizing the declarations process and managing risk. “Declarations can now be submitted digitally and prior to arrival at ports, and customs is now open 24/7,” explains a customs executive.

2. Invest in digital

Digital technology has significantly improved KSA’s security, transparency and control over the import-export process. Today, importers track the status and progress of their shipments in real time. Customs brokers receive automated status notifications on their mobiles, and are prompted to create their declarations as soon as the shipping manifest is available online, i.e., prior to ship arrival. KSA recently launched two new digital initiatives: a port community system to guarantee secure and efficient exchange of information, and a digital payment platform to accelerate the payment process.

3. Develop and implement a transport infrastructure plan

The Kingdom recently launched an integrated master plan to improve the quality, safety and efficiency of the country’s transport infrastructure. The plan calls for development of several major assets, including the Saudi Landbridge railway to connect the east and west coasts of Saudi, and two new rail corridors, Ras-Al Khair-Dammam in the east and Yanbu-Jazan in the west. Next on the agenda could be construction of new multimodal logistics terminals to fill the increasing need for sea-to-air and rail-to-road connectivity.

4. Eliminate air cargo bottlenecks

KSA is moving quickly to modernize airports and expand air cargo facilities to eliminate infrastructure bottlenecks. The objective is to increase total air cargo capacity in the Kingdom from 0.8 million tons/year today to 6.8 million tons/year by 2030.

5. Meet international regulatory standards

If KSA hopes to attract more competition and private-sector participants, then its regulatory environment must be fully in line with international standards. It won’t be long before the customs broker profession is open to industry and logistics players, which is likely to trigger consolidation and a move toward more professionalism. Licenses for road transport providers and warehouse operators are under review in an effort to improve efficiency, quality, and safety standards.

6. Improve seaport quality and efficiency

Efforts are under way to identify and repair the inefficiencies of sea ports while simultaneously improving the quality of services provided. The initial focus is on growing port specialization, reforming governance and oversight, and updating concession frameworks. Ultimately, KSA wants to create a more level playing field by separating port regulations from port ownership and assigning a dedicated regulating entity. Concession frameworks are revised to become more transparent, fair and attractive to international terminal operators (many of which are already well established in the Kingdom, including PSA, DP World, and Hutchison).

7. Reform the rail sector

The rail sector is going through similar reforms. Last year, railway regulation was separated from railway ownership and assigned to an independent regulator (the Public Transport Authority). The government is consolidating and restructuring all railway operations, and planning to award operations and maintenance contracts for passenger and freight services to reputable international operators. In the future, new railway infrastructure could be financed through PPPs.

8. Engage the private sector

The Kingdom recently awarded a 20-year contract to Singapore's Changi Airport Group to handle operations at the new King Abdulaziz International Airport (KAIA) in Jeddah. Similarly, SATS, Singapore’s biggest ground handler, has agreed to develop and operate a new cargo terminal at King Fahd International Airport (KFIA) in Dammam. Similar schemes to increase private sector participation are being considered for the King Khalid International Airport in Riyadh.

9. Develop special economic zones

To support new growth, KSA is reducing the costs and barriers to setting up new businesses, signing trade agreements, and attracting foreign direct investment. Plans are under way to develop several new special economic zones that offer streamlined procedures for setting up new businesses, attractive taxation policies, customs-bonded areas, and efficient transport connectivity.

All eyes on the prize

KSA’s large economy and central location provide a unique advantage in the competitive world of logistics. But size and setting are not enough. Success will hinge on the Kingdom’s ambitious logistics improvement program to streamline processes, improve infrastructure, reform governance and regulatory systems, open up markets, and encourage privatization. Early wins have already been documented, including shorter and more predictable clearance processes, capacity expansions at key transport assets, and awarding several concession contracts to private sector operators. KSA will not stop here. As logistics continues to dominate this post-oil era, all eyes will remain on the prize.

NEOM on the Red Sea

The latest news flash from Saudi Arabia’s crown prince Mohammed bin Salman is a $500bn investment in a mega-city called NEOM. The name combines neo, Latin for new, and m, the first letter of the Arabic word for future. Saudi’s “new future” is one in which citizens reside in a city built on more than 10,000 square miles of land in northwest Saudi Arabia.

With falling oil prices, declining demand, and insufficient investment opportunities at home, NEOM will be Saudi Arabia’s place in the future. There will be a bridge to connect Asia with Africa, solar panels paired with wind turbines to generate energy, and mobility across land, air and sea. State-of-the-art technology and advanced manufacturing will join with media, technology and digital sciences to create an idyllic lifestyle. This city of the future will be an independent zone, with its own regulations and social norms created for its citizens and their well-being and in hope of attracting the world’s top talent.

A strategic location on one of the world’s most prominent economic arteries is destined to make NEOM a global hub for trade, innovation and knowledge.

Condensed from the website, Welcome to NEOM