Saudi logistics firms revenues race to $13.78bn

Saudi logistics firms earned revenues of $13.78 billion in 2010 and is expected to reach $20.54 billion in 2015, according to a report by research firm Frost & Sullivan.

The report analyses companies in the apparel and footwear, automotive, basic material and industrial products, cement, chemicals, electronic-electrical and communications equipment (EECE), engineering equipments, FMCG, food and beverages, metal, medical and pharmaceutical products, oil and gas, paper, and rubber and plastics .

The return-to-form of the Saudi Arabian oil industry and the country's active diversification into oil-based businesses are expected to cause a surge in exports of nearly $271.58 billion in 2010, creating opportunities for the nation's freight forwarding market, the study said.

The spectacular growth in export-import volumes, backed by a rise in the domestic uptake of major manufacturing and consumer-oriented industries such as retail, fast-moving consumer goods (FMCG), engineering, chemicals, food, and electronics, has catapulted the country ahead of other leading Middle Eastern countries in the logistics field, Frost & Sullivan said in a report.

In Saudi Arabia, the impressive performance of the industries and their strong expansion plans, despite the global economic downturn have opened up several prospects for logistic outsourcing. There has been an influx of global majors in all industries including food and beverages, FMCG, and EECE, as they are looking to expand their geographical reach and capture the highly lucrative Saudi Arabian consumer market.

The rising complexity in supply chains due to the frantic global sourcing and distribution practices has made it imperative for companies to outsource their logistic functions. The high value of items being traded is another reason companies are increasingly seeking the services of third-party logistics services.

"In addition, being the largest economy in the Gulf Cooperative Council (GCC), accounting for almost two-thirds of the council nations’ collective economy size, has made Saudi Arabia a happy hunting ground for logistics service providers (LSPs) in Middle East,” said Srinath Manda , Programme Manager, Frost & Sullivan Transportation & Logistics.

"The country's growing population of nationals and expatriates and its strong economy are further accelerating the growth of the local delivery services sector."

On the flip side, the expanding population causes traffic congestion on the national and international highways, which affects the industry’s performance and restrains logistic activities. The current road network in Saudi Arabia, particularly at international borders with the UAE, Yemen, and Oman, has posed capacity issues, resulting in long waits for load carriers.

Moreover, due to the restrictions on international traffic between Saudi Arabia and other countries, the road network between commercial areas is often circuitous, which, in turn, raises the transportation costs.

"At present, due to the lack of integrated multi-modal transportation service, Saudi Arabian industries depend on discrete single modes of transportation (primarily road) throughout their distribution network, which leads to high logistics costs," notes Srinath. "The Government has implied that it plans to invest heavily on infrastructure, thus enabling multimodal transportation and consequent cost savings."

Meanwhile, Saudi Railways Organization’s (SRO) ambitious project, The Saudi Landbridge, is expected to transform the existing rail network in the country into a world-class freight and passenger rail link across the country. Upon completion, the network is expected to facilitate the movement of large quantities of cargo over long distances at competitive rates, thus providing impetus to the logistics industry.

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