Keys to the Kingdom

Saudi Arabia’s logistics sector is comparatively small given the size of the country. However, the Kingdom is now trying to improve its infrastructure, but bureaucracy remains a challenge.

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By  Laura Barnes Published  March 27, 2005

|~||~||~|Since the discovery of oil in Saudi Arabia in 1932 and especially since the oil boom of the 1970s, the Kingdom has been viewed as a potential goldmine for outside investors. However, despite the potential trade and business that could be done in Saudi Arabia, external companies are still being deterred from entering the country due to inner wrangling and strict bureaucracy. As the biggest country in the Gulf and also with the largest economy due to its oil industry — which is also currently benefiting from high prices — Saudi Arabia looks attractive to outside investment and trade. However, companies from the Gulf and the rest of the world seeking to invest in the country face problems due to a combination of traditional behaviour and restrictive bureaucracy. “Saudi Arabia is still 10-20 years behind the rest of the world, and to be on the global scale it cannot be like this. Competition drives a country and its industry, and if you do not allow competition in, you will fall behind the rest of the world,” says David Lugt, deputy general manager, Al Rais Cargo. Because of these difficulties, companies looking to trade in Saudi have traditionally set up operations in Bahrain. As such, many shipments heading for Saudi are first transported to Bahrain, which has a more efficient customs system than Saudi Arabia. The shipments are then sent by road to Saudi via the causeway that links the two Kingdoms. Dubai, likewise, has stormed ahead of Saudi Arabia as an entrance into the Gulf, acting not only as a transit hub between the East and West but also as a major port for the local market. Airport traffic figures, for instance, show the amount of cargo passing though Dubai in the first 11 months of 2004 reached 1,138,294 tonnes, compared to just 222,019 tonnes entering Jeddah and 191,401 tonnes for Riyadh. Similarly, the amount of cargo carried to and from the Kingdom by Saudi Arabian Airlines was just 256,987 tonnes in 2003. This was only 700 tonnes more than the amount carried in 1999, showing slow growth in the amount of cargo being shipped in and out of the country. The reason why the amount of air cargo entering Saudi remains so low is mainly due to the tight restrictions at customs, leading some shipments to be delayed by a matter of days. “In Dubai, customs can be cleared in one hour but in Saudi it takes much longer,” says Anis Nazir, manager logistics, Al Rais Cargo. “Over a weekend everything is closed and over Ramadan everything is shut down. Although this is the country’s tradition, Dubai has been able to adapt in order to become a world player. Saudi will have to change as well,” he adds. “We hope regulations will change in the future,” agrees Ingo Roessler, strategic cargo development, Etihad Airways. “I am sure in the mid-term the initiatives of the GCC will certainly lead to some changes. I think this is a very important issue that Saudi has to address, as it is by far the largest country and has the biggest economy in the Gulf.” The bureaucratic challenges for companies looking to operate in Saudi Arabia also extends to gaining landing slots, as the closed skies policy prevents air cargo operators from launching services. Al Rais Cargo, for instance, is looking to serve the Kingdom, but it has been refused permission so far. “We are looking at landing rights at the moment. However, it is very difficult to obtain these, so we are working with DHL to gain access into the Kingdom,” comments Lugt. Saudi Arabia is also suffering from security problems, as over the last 22 months, 90 civilians, 39 security force members and 92 militants have died in terrorist incidents. These attacks, which have mainly targeted foreigners, have also caused damage to property estimated at US $266 million, which has further deterred investment. “The country is getting better, but during the first half of the year [2004] we did have some extra concerns and indeed some unprecedented worries led to security being stepped up. However, I think the situation is moving on and improving,” says Phil Couchman, regional director, DHL. ||**|||~||~||~|Despite these problems the Kingdom is investing in its infrastructure and it is hoping to entice more international companies to the country. For instance, last month the governor of the Saudi Arabian General Investment Authority (SAGIA) announced at the Saudi Arabia-UK joint forum that he expects investments of more than US $50 billion over the next 20 years for projects to expand rail, air and seaports. These plans include the development of seaports in Jeddah and Damman to cater for sea/air traffic. Although no specific plans were mentioned at the joint forum, it is expected that work will be on the major ports and airports in Riyadh, Jeddah and Jubail. However, expansion plans for the moment will mainly be centred on the rail network and the proposed Landbridge project. “The transport sector puts the Kingdom at the centre of the market of several countries, and this sector has some very attractive investment opportunities, especially in the overland bridge project, which will link Damman with Jeddah, passing the industrial city of Jubail and Riyadh,” says Umro Bin Abdullah Al Dabbagh, governor, SAGIA. For the time being though, Saudi’s 151,470 km of highways are the backbone of its internal transport system. It is also the main gateway for imports, given the difficulty of arranging flights and sea services into the country. Etihad Airways for instance, has daily passenger flights into Saudi Arabia, which has some bellyhold capacity for cargo. However, as this space is limited, it compliments its flights with road haulage as well. “We have no cargo flights going into Saudi at the moment and passenger flights do not hold enough capacity. We therefore move a significant amount of cargo using the road network instead. We are also currently in the process of finalising a deal with a trucking company in order to operate our feeder network, as we see the Saudi market as an integral part to our future plans,” Roessler says. Other companies, especially express couriers, also rely heavily on the Saudi road network. Aramex, for example, has three main stations in the Kingdom to cope with the increasing demand for express services. “Right now, we use the road network. It is well set up, the roads are wide and it is cheaper to use than going by air or sea. From the UAE is takes three to five working days to send goods to our main stations in Riyadh, Jeddah and Damman. This is no time at all,” says Paul Bassil, customer account manager, Aramex. Aside from being cost effective, the Saudi road network also has Kingdom-wide reach, which makes it an efficient option. “The road network is very robust and we [DHL] have a network that criss-crosses the country every night from Dhahran to Jeddah and also one that intersects through Riyadh. The road network is excellent in Saudi, and plans to increase it can only boost the logistics market more,” says Couchman. However, Saudi Arabia is now looking to compliment its road network with an extended rail system. At present, the rail network in Saudi is very limited just linking the port of Damman with Riyadh. The 556 km freight line in this network handled 850 million tonne/km last year, of which, 80% was container traffic. However, the Saudi Railways Organisation (SRO) has now unveiled plans to build a new network called the Saudi Landbridge. The proposed scheme will see the construction of two new lines. The longer one, which measures 950 km, will link Jeddah’s port to Riyadh’s Dry Port, and then link up with the Damman line. The second line, which will be 115 km long, will be built from Damman to Jubail and Jubail Port. The Kingdom hopes that the rail network will boost internal trade and also allow it to grab a larger share of the transhipment market. “The intercontinental railway tracks will allow large quantities of cargo to be transported across the country at competitive rates, resulting in considerable cost savings in the movement of goods to and from North America/Europe and the Gulf,” says Dr Jobarah Al Suraisry, Saudi Minister of Transport and SRO’s chairman. Logistics companies have already expressed interest in the scheme. For example, DHL at present does not use trains in this region. However, Couchman says: “we use trains in other parts of the world, so who knows, we may use it in Saudi eventually as well.” With these plans to enhance the transport network, Saudi may eventually become a key player on the global logistics scene. All of the potential is there to make it a success, however changes need to be made before this can happen. “Saudi is very much an engine room for the oil industry, and as Saudi is historically an import country there is a lot of potential for the import and export market. They are realising this now, and changes have started,” adds Couchman. ||**||

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