Saudi Arabia - Country Commercial Guide
Transport and Logistics

This is a best prospect industry sector for this country. Includes a market overview and trade data.

Last published date: 2019-10-13

Overview

The Vision 2030 transformation program is based upon growing inward investment to stimulate and diversify the economy and transform the Kingdom into a global hub connecting Asia, Europe and Africa. Its geographical competitive advantage based on accessibility to major emerging markets and important marine passages will play a key role in this transformation. The transportation and logistics sector is large and strongly supported by state-led investment in rail, maritime, road, airport and logistics infrastructure. Economic growth, population maturation and rapid urbanization are all factors driving Saudi Arabia to invest in the expansion of its transportation networks. This includes the introduction of urban transport systems such as metros and buses, as well as inter-urban networks such as freight and high-speed railways, by working closely with leading global logistics companies via public-private partnerships (PPP). One aspect of the new approach is the increased promotion of special economic zones in parts of the country, creating industrial clusters with multi-modal freight links to a range of international destinations.

The Saudi Arabian government (SAG) is committed to developing the sector and has set aside considerable capital for expansion plans. The SAG 2019 budget includes a 28 percent increase in planned government expenditure on infrastructure and transportation, an increase from $14.6 billion to $18.6 billion.

Saudi Arabia’s goal is to strengthen the private sector’s role in transportation as it pushes to diversify its economy. Vision 2030 aims to make the Ministry of Transport projects 20% self-financed, creating a significant scope for private participation in ports, airports, rail, and road infrastructure.

Private entities are being encouraged to collaborate with the government as it develops the Kingdom’s transportation infrastructure. Partnerships for operating seaports, airports, and their related supply chains are in demand. Public-private partnerships (PPP) are being pursued to fund several key schemes, while several of the country’s publicly operated transportation facilities are preparing for full privatization. Under the Saudi Foreign Investment Law, foreign investors can now own 100% of businesses after obtaining a license from the Saudi Arabian General Investment Authority (SAGIA) and can then bid in PPP projects directly or through a local consortium. A draft law covering partnership between the government and the private sector is under discussion to attract fresh foreign investments. By 2020, the target is for private sector companies to be involved in the development and operation of at least 5 percent of roads, 50 percent of railroads and 70 percent of ports.

Leading Sub-Sectors

Aviation

The aviation industry is playing a key role in Vison 2030, accounting for 4.6 percent ($34 billion) of total GDP in 2018.

Over the last two decades, the aviation market has grown noticeably. Following a growth acceleration over the past five years, the Kingdom’s airports in 2018 handled more than 99 million passengers. The top four airports are Jeddah, Riyadh, Dammam, and Madinah. These four presently account for more than 80% of the passenger traffic. Approximately 90% of the Saudi population lives within a two-hour drive an airport, making air travel a popular option.

Several favorable factors have contributed to the growth of the market, including a Domestic Fare Cap. The General Authority of Civil Aviation of Saudi Arabia (GACA) took positive steps toward reforming the domestic fare cap in 2015, when it allowed domestic carriers to lift ticket prices within ten days of departure. More recently, consensus rests on less regulatory intervention and phasing out price controls so airlines have far more flexibility and freedom in how they set prices.

There are currently 46 airports in the Kingdom: 10 are international, four are regional and 15 are domestic. Aramco  has 11 airports and the remaining six are owned by the Saudi Air Force. The KSA connects to 81 airports in 45 countries, allowing for more than 1.2 million tons of cargo to be transported around the globe

To improve the infrastructure of airport facilities, the SAG has approved an expansion plan for both upgrading existing airports and constructing new ones. The planned expansion includes the redevelopment of the airports in Abha, Al Ahsa, Al Qassim, Arar, Hail, and Jizan.  There are also plans to develop new airports in Al-Qunfudah, Farasan Island, Taif, and in the north and south of the capital city of Riyadh.

The GACA would like to privatize all airports by 2020 to raise revenue, encourage best-in-class international operators, and manage passenger travel chains. GACA is seeking private sector investments to fund capital expansion plans. This will include transferring GACA’s air navigation and IT functions to the private sector. Each airport will be transformed into an operating company with its own board responsible for all operational and financial performance. GACA’s privatization strategy aims to transfer all Saudi airports to companies wholly owned by the Saudi Civil Aviation Holding Co., then transfer ownership of the holding company to the Public Investment Fund (PIF).

The process is underway with GACA imagining three different models as exemplified by the airport developments in Riyadh, Dammam, Jeddah, and Medina.  The first model transfers airport ownership to a company. At King Khaled International Airport in Riyadh, the Riyadh Airport Company (RAC) sold to private investors, forming an airport board of directors to manage the company. The second method privatizes operation and maintenance. King Abdul Aziz International Airport in Jeddah had used this method when it subcontracted operations and management to the Changi company, before cancelling its contract last year. In this arrangement, GACA bears the capital cost of establishing the project and shares profits with investors. The third method is the build, transfer, and operate (BTO) system. This system was used at Prince Mohammed bin Abdul Aziz Airport in Madinah, as well as airports in Taif, Hail, Qassim, and Yanbu. After privatization is complete, GACA will be the regulator and controller of the aviation sector in the next phase.

To achieve this strategy, GACA has created several state-owned companies to foster the aviation business. Examples include RAC, Saudi Aviation Information Technology Company (SAVIT), Saudi Air Navigation Services (SANS), and Dammam Airport Company (DACO).

The King Khalid International Airport in Riyadh opened its new, multi-billion-dollar Terminal 5 two years ago. The expansion is the first privately run terminal in Saudi Arabia, managed and operated by the Dublin Airports Corporation. King Khalid International Airport was the first asset to be privatized based on a master plan developed by the Kingdom. In 2016, Swissport won the second license to offer ground services across the Kingdom’s airports. Similarly, SATS, Singapore’s biggest ground handler, will develop and operate a new cargo terminal at King Fahd International Airport (KFIA) in Dammam.

Work is also underway to open to global competition commercial real estate investment in airport properties based on the “airport city” model. There are also plans to privatize the Saudia Private Aviation Company, Prince Sultan Academy for Aviation Sciences, Saudia Real Estate Development Co. Ltd., and Saudia Medical Services Co. Ltd.

Saudi Arabian Airlines (also known as Saudia) is the national carrier and main commercial airline in the country. It has a fleet of 119 aircraft operating on 89 routes, including 62 international destinations across four continents. The airline has been renovating its fleet in recent years and has announced plans to increase the number of aircraft to 200 and add more routes by 2020. The second largest airline is Flynas, a low-cost carrier founded in 2007. The airline has a fleet of 31 aircraft. Nesma Airlines has a total fleet of ten aircraft. Gulf has a fleet of four aircraft and has announced plans to expand internationally. Flyadeal, the low-cost subsidiary of Saudia which started operations in September 2017, has already announced that it expects plans for ordering 50 new aircraft soon.

Events:

Saudi Air Show, February 15-18, 2021

Logistics

A key pillar of Vision 2030 is transforming the Kingdom into the go-to logistics hub for the region, capable of efficiently linking trade across Asia, Europe, and Africa. A strategic location provides the Kingdom with a unique advantage over other nations, which could enable it to become a leading regional logistics hub.

Saudi Arabia’s logistics market is valued at $18 billion, making it the largest among the GCC nations. It accounts for 55 percent of the total GCC logistics market and is ranked third-most attractive within emerging markets. It is also one of the fastest growing logistics sectors globally and was predicted to reach almost $25 billion by 2020.

The government aims to raise Saudi’s global ranking in the Logistics Performance Index from 49 to 25 and increase its capacity to welcome Umrah and Hajj visitors from eight million to 30 million a year. Import and export processes are being streamlined and governance structures and regulations are being reformed to open a path toward market liberalization and private-sector participation. In addition, there are hopes that public-private partnerships will help finance the infrastructure and bring capabilities from the top logistics markets. By 2030, Saudi Arabia plans to be among the foremost logistics hubs in the region.

KSA has managed to reduce the time, cost, and variability of importing goods through process re-engineering and automation. Average declaration clearance time at seaports has been cut in half to 2.2 days and at airports to 1.2 days, and the amount of import-export paperwork has been reduced by 75 percent.

The predictability and reliability of the clearance process has also improved, with 40 percent of customs declarations in seaports now cleared within 24 hours and 70 percent within 48 hours. These results have been achieved by enabling declaration submission prior to arrival, digitizing declaration processing, making customs operate 24/7, reducing the level of manual inspection through enhanced risk management, and enhancing the collaboration and integration among all government institutions involved in the import/export process.

KSA is modernizing its airports and expanding its 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 million tons/year in 2030.

Technology is improving security and control over the import-export process in the Kingdom. Today, importers can track the status and progress of their shipments in real time. Customs brokers receive automated notifications on their mobiles about the status of their shipments and are prompted to create their declarations as soon as the shipping manifest is available online, i.e., prior to ship arrival. The Kingdom recently launched a port  system to guarantee secure and efficient exchange of information among all parties involved in the import/export process, covering vessel and terminal operations, digital payment, and truck management.

The logistics market is expected to grow at 22 percent Compound Annual Growth Rate (CAGR) until 2020 to reach a value of $2.2 billion. Consequently, the warehousing market is expected to further grow at 9 percent CAGR to reach a market size of $4.2 billion by 2020. Growth in this segment is expected to materialize because of planned increases in manufacturing activity, international trade, rising domestic consumer consumption and the easing of government regulations.

The cold chain segment of the logistics market has also seen growth in recent years. Growth is expected to reach $1.64 billion by 2020 because of active participation by the pharmaceutical industry and the increasing demand for fresh/processed fruits, vegetables, meat and dairy.

The Saudi government has announced the establishment of a special economic zone (SEZ) in Riyadh, which is the first of its kind and will provide some degree of support for growth in the road freight sector in the coming years. The SEZ will focus on integrated logistics, with those situated in the zone enjoying special rules and regulations aimed at attracting more multinational companies.

The new zone is set to be opened at the King Khalid International Airport in Riyadh, as a part of Vision 2030 plans to attract foreign investment and develop manufacturing by creating special zones that receive financial, trade and visa derogations. The focus will be on integrated logistics at the new SEZ (called Integrated Logistics Bonded Zone - ILBZ), which has been assigned to the GACA and Saudi Arabian General Investment Authority (SAGIA). All goods at the zones with a pending status or those that are moved temporarily for maintenance or repair will be exempt from VAT.

Event:

Saudi Supply Chain Conference, October 13-15, 2019, Riyadh

Railways and Metros

Railway sector governance is composed of multiple stakeholders. Among the main stakeholders are the Ministry of Transport (MoT), the Public Investment Fund (PIF), the Public Transport Authority (PTA), the Saudi Railways Organization (SRO,) and the Saudi Railway Company (SAR).

The MoT is mainly responsible for transport sector strategy, infrastructure and overall sector development while the PTA is responsible for coordinating the development of public transport services within and between cities.

SRO is a state-owned public railway entity under the MoT and currently operates a 1,400-km railway network between the city of Dammam in the Eastern Province and the capital in Riyadh.

SAR is a private-sector entity and is owned by the Public Investment Fund (PIF). It was created to develop and operate the 2,750-km North-South Railway (NSR) network, which includes freight and passenger services.

The SAG is currently investing $25 billion in three mega projects as part of a combined 3,900-kilometer rail expansion plan. The North-South Rail Project is the largest railway in the region spanning 2,750 km between Riyadh and Al Haditha, near the border with Jordan. The project is costing $3.5 billion and is projected to transport four million tons of commodities and two million passengers annually once it is up and running.

The third major rail program is the planned Saudi Landbridge Project which would provide the first direct link between the Red Sea and the Arabian Gulf. This proposal includes plans to construct 950 kilometers of new rail line between Riyadh and Jeddah and another 115 kilometers of track between Dammam and Jubail, costing roughly $7 billion. The project will be implemented using the build-operate-and-transfer system for 50 years. In addition to the above mega-projects, the Saudi government envisions a further 10,000 kilometers of rail and metro tracks to be added to the network by 2030.

The SAG has invested $22 billion into a state-of-the-art metro network in Riyadh consisting of six main lines with total track length of 176 kilometers and 85 stations that will connect the city to commercial and retail areas, the financial center, and the airport, when completed.

Four metros are planned for Mecca, Jeddah, Madinah and Dammam. All four metro projects will have a new procurement strategy under a plan to turn them into PPP/BOT projects. The National Centre for Privatization (NCP) is currently working out the framework for the privatization process and is expected to be ready with the guidelines by the second quarter of 2019. The total cost of the four metro projects is expected to be about $55 billion (Mecca Metro about $16 billion, Jeddah Metro about $12 billion, Dammam Metro about $16 billion and Madinah Metro about $11 billion). Prequalification is expected to start by 2020. Each project is governed by a different entity that will be responsible for tender announcements.  Jeddah’s metro is managed by Metro Jeddah Project Company, Madinah Metro is governed by Madinah Development Authority, Mecca Metro is under Mecca Development Authority and Dammam metro is under Dammam municipality.

Maritime transport

Saudi Arabia’s maritime network can handle a capacity of approximately 13 million 20-foot equivalent containers (TEUs) per year and receive 15,000 ships annually. The network consists of 10 primary harbors for non-oil trade, 200 piers, 216 berths and six leading container ports located along a critical intersection of the East-West shipping routes. Saudi ports dominate the regional transit market, handling more than 90 percent of Red Sea trade transits and 30 percent of the East African trade transits.

Saudi Arabia is investing in its seaports to modernize their infrastructure and increase their capacity. Several projects worth $1.6 billion are already underway and are designed to boost the maritime transport sector by transforming it into a technologically advanced and functional system.  $8 billion has been allocated by the Saudi Ports Authority to modernize and properly equip each port.

The commercial and industrial ports include Jeddah Islamic Port, King Abdulaziz General Port, King Fahd Industrial Port in Jubail, King Fahd Industrial Port in Yanbu, Jubail Commercial Port, Yanbu Commercial Port, and the ports of Jazan, Dhiba, and Ras Al-Khair. King Abdullah Port, Saudi Arabia’s first port to be fully developed and operated by the private sector, is currently the most advanced port in the region. To further take advantage of its location in the region and better serve its local oil-producing industry, Saudi plans to build a maritime and shipbuilding complex on its east coast to increase its capacity to export oil and build a shipping fleet to match its oil capabilities.

Efforts are underway to improve seaport efficiency and service quality through increased port specialization, governance reforms, and updated concession frameworks. The recently established port regulator Mawani is leading the efforts for corporatizing and privatizing the port sector.

Events:

Saudi Maritime Congress, March 22-23, 2020, Dammam

Land transport

Saudi Arabia has large road networks covering more than 200,000 kilometers, including 66,000 kilometers of roadways connecting major cities and providing access to railways, ports and airports. This growing ground network benefits from 5,000 kilometers of highways and bridges, providing extensive means to transport passengers and goods.

Under the current development plan, Saudi Arabia has allocated a substantial sum to the creation and renovation of the Kingdom’s roadways, particularly its heavily used inner-city roads, intersections and bridges. Plans are scheduled to build more than 3,500 kilometers of new roads, including 284 highways set to link the country’s main urban centers. Ambitious plans include the design and construction of Obhur Creek Bridge, located 20 kilometers from Jeddah, which would incorporate eight lanes of road traffic, footpaths and two lanes of rail transit. KSA road projects are beginning and include an additional 2,200 kilometers of road construction planned for the next development phase beginning in 2020. Land freight transportation is forecast to rise due to increasing industrial activity and the expansion of e-commerce throughout the region.

Saudi Arabia’s economy emerged from recession in 2018, boosting consumer market outlook during 2019. This will continue to support the road freight sphere as deeper pockets among consumers will translate into increased spending on goods transported across the country via the road network. It is forecast that Saudi Arabia’s road freight sector will register growth of 1.7% in 2019 (slightly up on 2018’s estimated annual growth of 1.5%), with tonnage reaching just more than 133.9 million tons. Growth predictions for 2020, remain at 1.7% to reach 136.2 million tons. Several factors will support higher road freight growth over the short term, including rising oil prices and a planned $261 billion budget that will support various public infrastructure development projects.

The Transport Ministry is planning to implement 23 road safety projects, with investments totaling around $586.67 million. Fifteen plans will be carried out over the next three years to upgrade intersections and junctions, improve street lighting around dangerous intersections, enhance safety facilities at animal crossings, and install protective barriers for lampposts on some roads.

The Saudi Government is currently examining the logistics of implementing tolls and may introduce them in the future. The findings of the study will be made available in early 2020 and will then be put before the supreme authority for a final decision.

Events:

Saudi Transport & Logistics Services, November 4-6, 2019, Riyadh

Opportunities

        Jeddah Corniche Tram PPP Project: the total length of the tram will be 15.6 kilometers and it will consist of 11 single cars and 15 stations.

        Obhur Creek Bridge PPP Project: it is two kilometers long (360 meters creek crossing), 74 meters wide and 51 meters high. The Bridge will have eight lanes for cars (four in each direction) and will contain Jeddah metro Orange line.

        Waterbuses & Ferries: MJC is looking to procure 26 waterbuses and planning to build four Ferry terminals.

        Jeddah Bus Contract: 1000 buses to be acquired in two phases

        Saudi Landbridge Railway

        Riyadh-Dammam Electrification

        Yanbu-Jeddah Railway

Web Resources

Ministry of Transport, www.mot.gov.sa

Invest Saudi, http://investsaudi.sa/en/

Saudi Ports Authority, www.mawani.gov.sa

General Authority for Civil Aviation, www.gaca.gov.sa

Saudi Railways Organization, www.saudirailways.org

Metro Jeddah Company, www.metrojedda.com.sa

For more information contact U.S. Commercial Service: Ahmed Khayyat (Riyadh) at Ahmed.Khayyat@trade.gov and Haisum Shah (Jeddah), Commercial Specialist at Haisum Shah@trade.gov