Contributed By: Supply chain and Logistics Practice, Frost & Sullivan
The Saudi logistics landscape is undergoing a profound transformation, driven by various factors such as economic diversification efforts, evolving regulations, and substantial investments in infrastructure from both governmental and private entities. With roughly 20% of global container trade passing through the Suez Canal, Saudi Arabia holds a strategic position for material sourcing and redistribution, particularly with its enhanced connectivity to Europe, North and East Africa, and Asia. Recognizing this advantage, the government is actively pursuing initiatives to bolster global connectivity, including the establishment of new shipping lines to major trading partners and the Air Connectivity Program, which aims to enhance both passenger and cargo air transport links.
At the heart of this transformation lies the National Industrial Development and Logistics Program (NIDLP), designed to elevate the contributions of mining, energy, industry, and logistics sectors to the GDP by 2030, while also amplifying non-oil exports. By empowering the Kingdom's supply chain sectors, the NIDLP is helping to position Saudi Arabia as a pivotal logistics hub, aligning with the Vision 2030 objectives. Moreover, the Global Supply Chain Resilience Initiative (GSCRI), initiated in 2022, specifically targets investments in Saudi Arabia's supply chain infrastructure. With a focus to support foreign investment strategies and expanding economic zones, the GSCRI aims to elevate Saudi Arabia's status as a key logistics hub for global export economies. These initiatives not only bolster domestic industries but also facilitate the export of non-oil sectors, reflecting Saudi Arabia's ambition to substantially increase the contribution of non-oil exports to the non-oil GDP, aiming for a remarkable rise from 16% in 2021 to 50% by 2030.
The government's development plans, industrial initiatives, and the Global Supply Chain Resilience Initiative (GSCRI) are anticipated to drive significant growth in industrial output, consequently increasing the demand for robust transport and logistics infrastructure in Saudi Arabia. Key expansion projects, such as those at the King Abdullah Port and the Jeddah Islamic Port, are poised to enhance the cargo handling capacities of seaports, facilitating smoother import and export container movements and storage. Furthermore, substantial investments are earmarked for the expansion of the aviation sector. By 2030, these investments are projected to elevate the country's air cargo capacity to over 4.5 million tons per year, thereby bolstering its logistics capabilities. The focus on railway cargo is also evident, with plans to add new railway lines and expand the existing 3,650-kilometer track across three lines. Specifically, the addition of 8,000 kilometers to the existing railway infrastructure, connecting industrial hubs like Dammam and Jubail ports, underscores the commitment to enhancing logistical efficiency.
These expansion plans are aligned with Saudi Arabia's economic, industrial, and trade growth objectives. A resilient supply chain is crucial to achieve these goals, and the bolstered infrastructure will undoubtedly contribute to the country's overall competitiveness on the global stage. Moreover, the increase in port capacity and the expansion of the aviation sector are expected to generate opportunities for warehousing space. Meeting the escalating demand for both local and transhipment goods necessitate adequate storage facilities, further stimulating economic activity and enhancing the nation's logistics ecosystem. Investments in logistics infrastructure, such as ports, airports, and railways, will improve connectivity within the country and with global markets. This increased connectivity enables a smooth movement of goods, reduces transit times, and lowers transportation costs, thereby enhancing trade efficiency.
Penetration of e- commerce which was estimated at 8.0 % in 2022 is expected to reach 23% of the retail sector as per Saudi Vision 2030. As a result, the number of fulfilment orders processed in the Kingdom is expected to grow in the range of 13% to 15 % between 2023 and 2030. Saudi Arabia is poised to emerge as a significant e-commerce hub, bolstered by governmental support and initiatives including the implementation of an e-commerce strategy, establishment of logistics zones, enhancements in customs clearance and tax collection processes, and the development of physical infrastructure such as bonded facilities. The rapid growth of e-commerce is expected to increase in demand for fulfilment space as warehouses are central hubs for storing, organizing, and processing inventories to ensure timely order fulfilment. Global and regional service providers are expected to expand their storage and warehousing capacities in major urban centers and port cities to meet the increasing demand from trade and cross border e-commerce. Companies and logistics service providers are expected to focus on developing modern warehouse infrastructure by embracing technology, to optimize operations and also to enhance their service offerings to stay competitive. Overall, the rapid growth of e-commerce presents opportunities for the logistics and warehousing market in the medium term.
As part of the economic diversification initiatives and to strengthen the national logistics infrastructure, special economic zones are prioritized to stimulate trade growth. Saudi Arabia has approved 4 new special economic zones which will be established in main urban centers such as Riyadh, Jazan, Ras Al-Khair and King Abdullah Economic City. Investment incentives offered by special economic zones include tax relief and reduction in corporate income tax, VAT exemption, deferred custom duties on goods entered into the SEZ, which are expected to reduce the overall cost of doing business. Special Economic Zones will provide smaller players a chance to integrate with global value chains and increase inflow of foreign investment. King Abdullah Economic City Special Economic Zone aims for investments in automobile supply chain and assembly of consumer goods, ICT (Electronic light manufacturing), pharmaceuticals medical technologies and logistics. Ras Al-Khair Special Economic Zone aims to attract investment in shipbuilding, rig platforms and Maintenance, Repair, and Operations (MRO). Jazan Special Economic Zone (JEC) focuses on the development of food processing, metal conversion and logistics. Special Integrated Logistics Zone (SILZ) at the King Khalid International Airport focuses on the trade of consumer products, computer parts, pharmaceuticals, nutritional & medical supplies, aerospace spare parts, luxury goods, jewelry and precious metals. These zones are expected to support the growth of the non-oil sector which requires a smooth flow of both domestic and international goods. Hence, development of high-quality logistics and warehouse infrastructure is extremely important for the companies in these zones to integrate with global supply chain.
Economic diversification initiatives which are supported by other initiatives like GSCRI, privatization and infrastructure development is likely to increase the demand storage and warehouse space. To smoothen the flow of goods, government bodies such as customs and transport authorities are expected to collaborate to reduce administrative bottlenecks leading to the seamless flow of goods across transportation modes. The warehouse market is expected to undergo transformational changes due to shifts in demand pattern and accelerate automation of warehouses. Expansion plans of logistics service providers, e- commerce and distribution companies are likely to target international transit points, port cities and major consumption centers as part of their infrastructure development efforts.
Urban warehouses with increasing ceiling heights aiding optimized vertical storage: Multi-story warehouse structure in urban locations will aid rapid order delivery. Urban warehouses would play a bigger role in the e-commerce micro-fulfilment process, as direct-to-consumer/store would become a focal point in medium term. Retail and e- commerce companies are expected to benefit from these types of warehouses to meet the increasing demand for e-commerce and retail last mile delivery solutions. Mobile warehouses close to delivery points will enhance last-mile delivery. Trucks/container depots in urban locations would act as mini-distribution sites, and last-mile deliveries will be fulfilled using e-cargo bikes.
Smart warehouses connected with stakeholder systems for flexible operation will drive data sharing culture: Warehouses equipped with smart devices will ease workflow planning for resources such as Smart glasses for picking process. Warehouses will be equipped with more autonomous material handling equipment to fulfill orders with minimal human intervention. Furthermore, robotics systems are likely to be integrated with warehouse management system which will improve operational efficiency. The integration and analysis of data from sources such as warehouse management system, asset management system, and information technology (IT) platform with analytics solutions would help operators assess their supply chain environment more efficiently.
Future warehouse infrastructure would focus more on sustainable solutions: Labour and energy are the two major cost components of warehouse operations. While energy-efficient process automation with robotics solutions will address concerns of labour shortages, use of renewable energy sources like solar to generate electricity for the use of facility operations is likely to gain traction. Recycling of materials, reuse of pallets, implementation of waste recycling methods and use of recycled packing materials are other areas that are likely to part of sustainable warehousing solutions.
The future looks promising for the warehouse market which is expected to be reshaped by digitalization, industrial demand and e-commerce growth.
