Ensuring the fluid marine movement of a diverse range of goods — not just millions of barrels of precious oil — into and out of the kingdom, the Saudi Ports Authority (SPA) is a vital cog in the fast-growing logistics sector, and is guardian and regulator of an industry on the crest of a wave of expansion.

Around 95 percent of Saudi imports and exports pass through the kingdom's modern and well-equipped seaports, representing more than 5 million twenty-foot equivalent units (TEU) and involving the arrival and departure of more than 11,000 vessels a year. Operating costs have been slashed from $40 per ton to just $1 per ton and, two decades ago, SPA started passing responsibilities of ports management, operation and maintenance to the private sector, so as to provide services capable of regional competition.

Today, the kingdom's ports are fully managed and operated by the private sector on a commercial basis, although SPA retains its supervisory role and is a key figure in the comprehensive strategy to transform Saudi Arabia into a world-class logistics hub connecting the three continents of Asia, Africa and Europe, in line with the powerful goals of Vision 2030. Assets include several major container terminals on the Red Sea and on the Arabian Gulf, ship repair yards at Jeddah and Dammam with floating docks for each, transshipment facilities, re-export facilities, passenger services and transit services.

Opportunities abound for Japanese companies and other foreign investors. For example, Tokyo-headquartered international logistics provider NYK Group signed a joint-venture agreement with the Ports Development Company in late 2015 for the first exclusive roll-on/roll-off terminal operating company at King Abdullah Port on the Red Sea coast.



Investing in services
"Saudi Arabia has invested a lot into the development of sea-side infrastructure over the past 40 years and it is sufficient to last us for the medium to long term," states SPA President, Dr. Nabeel M. Al-Amudi. "Where we lose efficiency is in our processes, procedures and people skills. Our hardware is in place, but our software is lacking in terms of speed of processing our paper work and getting goods into the country. We are now implementing an aggressive plan with the Saudi Customs Agency to speed up the clearing of our imports and exports. We are also concentrating on the connectivity of the ports to the hinterland. At some ports, we need better rail and road connections. We need optimization, improvement of our processes and better connectivity.

Planning logistics zones
"The other element we are working on is the establishing of logistics zones that support the ports. We have plans to develop areas around our larger ports to increase the stickiness of products and to have value-added services in the logistics space.

"I am very optimistic that, with the changes in processes and procedures, our citizens, companies and investors will see a rapid decrease in how long it takes to get products into the kingdom," he adds. The senior executive is eager for small and medium-sized enterprises (SMEs) to follow in the footsteps of multinational operators, but is also keen to attract international investors, to help streamline operations and boost capacity. "Large companies have, and always will, invest here, but there is a need for SMEs. Things are changing quickly on the ground and now is the time to come on this journey with us. The Japanese can help SPA a lot on the technology side, as they have cutting-edge technologies that can be implemented."



Enabling Japanese investments
"What is important for a Japanese investor is our role in reducing transportation costs and increasing efficiencies throughout the supply chain. If the supply chain is more efficient, inventory costs reduce and the kingdom as a whole becomes a more attractive place to invest. We are an enabler of investment in the transport sector and many other industries. Japanese companies have yet to really invest in the engineering and construction space when it comes to competing for our contracts. The port of Ras al Khair has been operational for four to five years, which is a major investment. We just finished another four berths, which means we have a lot of capacity. We are happy to explore ideas for investors at this port, or any other port under my jurisdiction."

Al-Amudi continues by saying: "We have three of the world's top-four container shipping handling companies operating in the kingdom and a bunch of private port operators, ranging from purely international, to international with local players and purely local players. We also have a revenue-sharing model, that has been in place for a long time, that aligns the interest of the government with the private investor to increase volumes. The next phase will be the renegotiation of some of the concession agreements. Some of them will be restructured in terms of their legal requirements. When you merge that with the plans on corporatization, there is a much more robust and commercial relationship between the infrastructure investor and the superstructure investor. This is a multi-year project, but it is something that can unlock a lot of hidden potential and financing opportunities for the ports."

The logistics expert says there are many reasons why the kingdom is far more attractive to investors and enterprises than other countries in the region. "Saudi Arabia is a big market, with a large, growing population that is very tech savvy — we have one of the highest penetration rates on social media globally," he says. "With Saudi Vision 2030, there are ambitious and aggressive targets that will change how we operate. The oil, gas, petrochemicals and mining sectors will really develop over the next decade."

Saudi Arabia can become the logistics hub of the Gulf, according to a recent report from marketing strategy company Solidiance, and it is already well on its way to achieving this. Solidiance estimates that the Saudi Arabian logistics market was worth $19 billion in 2015 — 43 percent of the total Gulf Cooperation Council (GCC) countries' market.

Analysts expect this figure to soar. Reasons given are wide ranging, but include improving infrastructure, increasing imports and exports as consumption increases and the country diversifies from oil, the development of a borderless GCC customs union and new free trade zones. But the main competitive advantage fueling the growth of the logistics industry is its strategic location. "We have a long coast on the Red Sea, one of the main corridors for global trade, and Saudi Arabia is the biggest market in the region," explains Dr. Abdulaziz Y. Al Babtain, president of a leading local logistics company Himmah Holding.

Saudi Vision 2030 intends to build on this advantage and transform the country into "a global hub connecting three continents, Asia, Europe and Africa," says Crown Prince Mohammed bin Salman, adding that the kingdom's location makes it "an epicenter of trade and the gateway to the world."

Al Babtain believes that Japanese companies in particular could benefit from using Saudi Arabia as a trade hub. "We are ideally located for manufacturing and logistics, both basic and added-value. And from here, they can export their products to the region and the African market. I think any hub in the west of Saudi Arabia would be ideal to use as a gateway," he says. To transform the country into a logistics hub, the government is investing heavily in infrastructure, both inside Saudi Arabia and across borders. It is also improving regulations, strengthening links with existing trade hubs and opening new trade routes.

"All government entities are working in an integrated way to reach the goal and we've already seen good results," says Al Babtain. "One of the main improvements is the new, dynamic customs reform, which gives a strong signal to investors that the sector is developed, to encourage investment in the supply chain," he expands. There are currently few professional logistics service providers in Saudi Arabia. That means there is a gap in the market and, as he puts it, "Now is the right time to invest or expand in supply chain management and services in Saudi Arabia." Himmah Logistics is doing just that. The company is one of the kingdom's leading suppliers of integrated end-to-end supply chain solutions — including logistics, warehousing and transportation — across the GCC region. It works with all types of industries, but specializes in vehicles, and cold chains for health care, pharmaceuticals and food.

Another specialism is e-commerce, including "last mile delivery," which is increasingly important to Japanese companies looking to build an online shopping network in Saudi Arabia and use it as a gateway to over 600 million people in the regional common market. "E-commerce is growing — it's one of the fastest growing sectors in Saudi Arabia. So we are focusing on the "omnichannel" supply chain. The backbone of e-commerce is logistics," says Al Babtain.

As well as providing services, Himmah Logistics is a developer of much needed large-scale, modern logistics infrastructure in GCC, alongside its partner, Al Muhaidib Group, one of the Middle East 's biggest construction companies. As well as building facilities for itself, Babtain says the company has "the capabilities to work with international companies and build any infrastructure they want." It has already proved this to be true, by constructing a 12,000-square-meter warehouse, which is leased to Japan's Kintetsu World Express. "We built to their specifications. We build these quality warehouses, because it is hard to find them." Not only warehouses, but any part of a logistics hub, like truck yards, dry ports and facilities for automotive parts, which is of increasing importance, with Toyota and Nissan already very active here," notes Al Babtain.

He points out, "Most of the global service providers don't like to put big investment in any foreign country, especially in infrastructure, unless they have a strong local partner — like us." But, he thinks, "This is the right time to have a global player come in and take the lead with us." Warehouse construction is one area offering opportunities for investors, both directly and through real estate investment trusts (REITs). Only 15 percent of the kingdom's logistics market spend goes on warehousing, while the figure for the GCC overall is 25 percent. Globally, logistics REITs are outperforming other REIT categories, due to e-commerce. With the recent introduction of REITs in Saudi Arabia, Himmah Logistics, for one, sees them as a very important tool for developing its capabilities in the future.

It is planning further investments, many of which it thinks would be of interest to potential Japanese partners. Al Babtain sees major opportunities in special economic zones, central to Saudi Vision 2030, by providing added-value facilities to enable activities like packaging, repackaging, assembly and export to regional markets. "We have already started working on this by buying a huge plot of land in King Abdullah Economic City, very near the country's most efficient seaport. We have also bought land banks all around the kingdom. Over 1 million square meters, qualified as logistics land, but with a focus on developing added value," he says.

Himmah Logistics is also working closely with the government on possible public-private partnerships in transportation and logistics, and the company would like to explore these potential opportunities with Japanese investors as well. But, cautions Al Babtain, "Japanese companies need to act quickly. Saudi Arabia is open for business and is developing into a dynamic market. Companies have to select, evaluate and test the opportunities, but they will have to move faster than they did in the past."