Kingdom on the Move

Developed yet emerging, conservative yet enterprising, Saudi Arabia’s transport industry is very much at a crossroads. Robin Lyndhurst reflects on the new impetus within the Kingdom’s logistics industry and outlines the projects coming up designed to cement its reputation as the premier powerhouse of the GCC

You may have struggled to buy a red rose in Riyadh this Valentine’s Day, but there’s no denying the Kingdom is blooming, particularly in the logistics arena. Macro economic cities, major rail projects and ambitious new port developments are all coming up on the horizon in the GCC’s largest and richest market, with more than SR50 billion worth of transport projects now on the table.

The current wave of investment eclipses the previous modernisation programme during the 1970s and 1980s when high oil prices allowed Saudi Arabia to begin the process towards becoming a modern state with a well-developed infrastructure.

Today’s young, fast-growing population is a marketer’s dream, and logistics companies are rubbing their hands from the likely spur in spending across a range of sectors — none more so than telecommunications, where mobile phone penetration is expected to grow 130 per cent in the next five years. Internet penetration, while still small among the total population of 27 million, is growing with more than $3.2 billion spent online last year, according to the Arab Advisors Group.

Saudi Arabia’s healthy investment climate is supported by increased liquidity on the stock market, which has been characterised by significantly higher turnover.

The first car manufacturing plant is slated for the eastern city of Dammam, to meet a rapidly rising demand in the car-loving country. The UAE’s Gulf Automobile Manufacturing Company (GAMC) is to launch the plant in a $100 million agreement with the Saudi Authority for Industrial Cities and Technological Regions (SACTR).

Interestingly, Saudi’s booming economy has sparked a huge rise in the number of women buying cars, despite the fact that women are banned from driving. (we need to check this, there was a recent update on this)

Despite clear signs of diversification – Saudi non-oil exports to GCC states jumped 25 per cent in the third quarter of 2007 to SR6.3 billion ($1.7 billion), led by the UAE – there’s no escaping the centrality of energy to Saudi, the world’s biggest oil exporter. Income is expected to surge to its highest levels this year, with revenues of around $185 billion, as oil prices remain strong and crude output rises above nine million barrels per day. Saudi GDP up to 2011 is expected to record an annual average growth of 3.6 per cent, with oil and gas exports driving foreign trade.

Management consultancy Contax forecasts KSA energy infrastructure investments to exceed $119 billion over 2007-2009, providing considerable opportunities for all players involved in financing, delivering or supporting energy-related projects. Consultant Khalid Irshad says: “The biggest growth opportunities will be for refining and petrochemical projects, reflecting the Kingdom’s desire to diversify from a strong dependence on pure crude exports.”

Staff recruitment and retention remain thorny issues though, with the Kingdom facing challenges to attract an experienced workforce because the attractiveness of other countries continues to draw talent away from the country – which is compounded with the high levels of unemployment and the fact that firms need to increase their Saudi-born workforce by five per cent a year.

Arguably the most arresting statistic is that almost 1,700 managers and managing directors in Saudi Arabia are illiterate, according to one regional website poll.

Be that as it may, no supply chain manager worth his salt in the region can ignore the commercial opportunities.

Maher Kheder, Business Development Group Director, Pharma World Holdings

Healthy outlook Saudi Arabia accounts for nearly two-thirds of the $2.7 billion GCC pharmaceutical market, with the largest sectors comprising systematic hormones ($291 million), Alimentary T & Metabolism ($260 million), respiratory systems ($162 million), G.U.System and sex hormones ($145 million), nervous systems ($128 million), cardio systems ($121 million) and musculo-skeletal systems ($111 million).

New 3PL service provider Pharma World Holdings, a 50-50 venture between Banaja International Group and UAE-based Ithmar Capital Fund, is among the companies keen to drive growth in the Kingdom. It is establishing a 10,000 sq metre distribution and warehousing hub at JAFZA South free zone in Dubai, which will open towards the end of this year or early next, and envisages the move will open up the Saudi market to more manufacturers and improve profitability.

Alongside warehousing and distribution, the centre will boast a modern IT infrastructure and offer pick-and-pack services (pick up to 30 orders an hour, with each pick-up comprising 30 line items) and cross docking, and have 16-metre-high storage space with an emphasis on high pallet rotations, given the speedy nature of the market. The company, which is in talks with an Indian company about bringing a manufacturing component to Dubai, is pitching itself as “a complete, end-to-end logistics solution provider.”

Maher Kheder, Business Development Group Director, Pharma World Holdings, says, imports represent 80-85 per cent of the Saudi market, which is growing “astronomically”.

“The traditional model of distribution meant foreign manufacturers would supply products through distributors who place and receive orders directly from principal manufacturing facilities,” he says. “This model lacks flexibility and efficiency for principals and means they need to find a distributor with excellent regional knowledge to optimise the process. Pharma World aims to bridge this gap between global manufactures and Saudi health care organisations. We are providing economies of scale and this is something new to 3PL. In the long run, we reduce the average cost by increasing output.”

Kheder anticipates having an even larger operation within five years at King Abdullah Economic City (KAEC), once it is established, serving not only the local market but also the growing North African and Red Sea markets. Kheder says a lot of shipments to Saudi Arabia are currently diabetes-related, with one in four Saudis diabetics.

Banaja International Group is the affiliate responsible for the international associations and investments across the MENA region, including those ties with the Saudi Import Company. Banaja is one of the leading Saudi distributors with over 60 years’ experience in the local healthcare market.

KAEC is the single largest private sector-led project in the region and has six key components: the Sea Port, Industrial Zone, Central Business District (including the Financial District), Resort District, Educational Zone and Residential Communities.

The project, north of Jeddah, will create up to one million employment opportunities in the various industries and service-oriented companies and house two million residents.

In February, Emaar The Economic City, (CHECK) the Tadawul-listed company developing KAEC, awarded a SR115-million development contract to CEMCCO.

The work is part of the first phase of development of the industrial zone, which will eventually have an area of 63 million square metres of land dedicated to industrial and light manufacturing facilities.

Tracking growth Of all Saudi’s logistics projects coming up, few are as eagerly anticipated, or as wide-ranging, as its plans for rail.

A consortium led by Kuwaiti logistics firm Agility, US firms KBR and General Electric Company and Saudi’s Al Rajhi Bank is believed to be the front runner to scoop the $10 billion Saudi Landbridge rail project. Tenders for the 950km project were submitted on November 5 and the Saudi Railways Organisation is expected to announce the winning bid shortly. Three other consortia in the frame include Al Muhaidib/ACWA, Mada and Saudi Binladin.

The project involves building a 950-kilometre railway from Jeddah to link with the existing Dammam-Riyadh railway and a 115-kilometre line from Dammam to Jubail.
The new lines, due to be finished by 2010, could redraw the region’s trade flows with containers able to move from the Gulf to the Red Sea in 24 hours, avoiding a sea voyage round the southern Gulf peninsula.

State-owned Russian Railways won an $800 million contract to build a 520-kilometre rail line connecting Riyadh’s King Khalid Airport with the Al-Zabira junction on Saudi Arabia’s North-South railway project, which is being built to move minerals from the interior to an industrial complex to be built on the Gulf coast.

Other rail projects planned to add 3,900 kilometres of track to the existing network include a 450-kilometre high-speed line planned to link Jeddah with Makkah and Medina; and a 2,400km north-south railway, which seems likely to be the highest priority due to its importance to industrial development.

A $136.8 million contract was awarded to a consortium led by the US-based Louis Berger Group a little over two years ago, to design and construct this line, which will link from Al Jalamid and Al Zabira in the north to Riyadh, with another line branching off to Ras Az Zour in the Eastern Province.

The new rail links will provide vital transportation to the multibillion-dollar fertiliser plant and aluminium smelter to be developed at Ras Al-Zour by Saudi Arabian Mining Company.

Maritime expansion China Harbour Contracting and Engineering Company recently scooped a SR2.2 billion ($587 million) contract to build port facilities at Ras Al Zour. The new facility, located on the central east coast, will include dedicated terminals for general cargo, liquid bulk and dry bulk goods.

The company, which beat off European, Asian and local firms, has partnered with the local Rafid Group to form the China Harbor Engineering Arabia Company. It is the second big contract win in the Kingdom for the company in recent months, and provides further evidence of the increasing influence of Chinese companies across the region. The $600 million port will serve nearby fertiliser and aluminum smelting complexes.

Meanwhile, the new Red Sea Gateway container terminal at Jeddah Islamic Port (JIP) will boost overall capacity by 45 per cent. The $429 million deepwater terminal, which will have an annual capacity of 1.5 million teus, should be ready inside two years and receive its first vessel late in 2009. The development will increase JIP’s importance as a regional logistics hub, particularly through its connection to the Saudi Land Bridge.

“The project reflects a major move in the Kingdom’s ongoing development to meet its growing challenges,” said Jabara Al-Seraisry, Minister of Transport and Chairman of Sea Port Authority. “In the past few years, the Kingdom’s seaports have witnessed big efforts to develop and modernise their working capability alongside the increased number of container ships.”

Saudi Arabia’s state-controlled National Shipping Company (NSCSA) said in December 2006 that it had secured SAR3.1 billion (US$825.6 million) in loans to fund 60 per cent of an expansion plan that would double its fleet of oil and chemical tankers. NSCSA owns nine double-hulled VLCCs with a capacity of 2.1 million barrels each and 14 petrochemical carriers.

GLOW buys stake in UTT Kuwait-based Global Logistics Services and Warehouse Corporation (GLOW) has bought a 75 per cent stake in United Technology for Trading (UTT) in Saudi Arabia.
The purchase of UTT complements GLOW’s specialised import and export business with Iraq alongside expanding its growing network in the Middle East.
UTT has developed an in-transit visibility and cargo tracking system that has proved useful for clients, particularly in support of the coalition’s Operation Freedom. The company was one of the first commercial trucks to operate from Kuwait to Iraq and has managed and tracked over 10,000 truck sorties.
GLOW isn’t finished in the Kingdom and is eyeing up a 75 per cent stake in another logistics company.

Riyadh in Saudi Arabia… the Kingdom is witnessing an unprecedented wave of investment

Hail opportunity Jafza International recently signed an MoU with Rakisa Holding for the development and management of Rakisa Economic City. The ambitious $8 billion project will see the northern city of Hail developed into a ‘logistical superhub’, complete with international airport, dry port, railway station and business centre.

Salma Hareb, CEO of Jafza and Economic Zones World, said the deal marks one more step towards its aim of setting up a global network of economic zones.

The project is being completed in seven phases over the next 40 years and will eventually house more than 300,000 people and provide 55,000 jobs.

New airport for Jeddah A SR256 million ($68.3 million) contract was signed between Saudi’s civil aviation regulator and international consultancy Dar Al-Handasah (Shair and Partners) in November, to manage the construction work of Jeddah’s new airport.

Under the five-year contract, the consultancy, which operates from Cairo and Beirut, will supervise the work at the largest airport to be built in Saudi Arabia, with construction starting early this year.

GACA is allocating 18 billion riyals ($4.8 billion) to develop the archaic King Abdulaziz International Airport in Jeddah into a regional hub.
The new development should take place in three stages, the first of which should be completed by the first quarter of 2011.

The new airport will have four new crescent-shaped passenger terminals, and a high-speed rail link that will connect the airport to the Islamic two holy cities of Mecca and Medina.

The expansion of the airport includes the construction of support services building, renovation of the existing South and North Terminals and upgrades to the existing runway and airfield systems to accommodate the double-decker Airbus A380s.

Beware regulatory approvals Aramex is warning shippers that, according to Saudi customs regulations, all express shipments including SHOP&SHIP shipments containing chemical, medical and telecommunication products cannot be shipped to Saudi Arabia before arranging the proper documentation and approvals from the relevant ministries.

Customers must seek approvals from the Ministry of Commerce and Industry for chemical substance shipments; from the Ministry of Health for medicine/supplements shipments; and Ministry of Communications and Information Technology for telecommunication products. Any shipment arriving without the proper approvals will be held at Saudi customs and re-exported immediately.