Logistics Sector in Saudi Arabia Skyrocketing
The logistics sector in Saudi Arabia is booming. Global logistics companies are increasingly focusing on Saudi Arabia. The country’s socio-economic transformation is boosting demand for industrial and e-commerce facilities.
Previously, regional and local players, like Aramex and SMSA, dominated the market. However, Crown Prince Mohammed bin Salman’s Vision 2030 has reshaped the landscape. Chinese logistics firms have also entered the market through joint ventures, such as J&T Express and AJEX. This has increased competition and lowered prices.
Currently, traditional players, new Chinese entrants, and local startups like Salasa and CloudShelf are all competing for market share. Overseas powerhouses are also joining the fray. Abhishek Mittal, head of industrial advisory at JLL, noted significant investment from PIF-backed assets and other regional players, such as Agility from Kuwait. Gulf Islamic Investments, based in Dubai, recently partnered with LogiPoint to establish Grade A facilities in Riyadh and Jeddah.
Furthermore, more international players from Europe and the US are eyeing the market. Industrial rents in Riyadh, Jeddah, and Dammam have surged in recent months. CBRE reported an 8 percent increase in Riyadh, 3 percent in Jeddah, and 4.6 percent in Dammam during the first quarter of this year. Occupancy rates have hit record highs.
Logistic Sector in Saudi Arabia
Aramex’s general manager in Saudi Arabia, Al Nowaiser, projects 6 percent annual growth in logistics sector in Saudi Arabia over the next five years. Aramex plans to expand its domestic services, focusing on freight, warehousing, and express delivery. He noted a rising demand for dangerous goods warehousing and temperature-controlled storage, especially for perfumes and cosmetics. However, the market is oversaturated with general cargo dry warehouses that only meet basic requirements. There’s a clear lack of specialized warehouses, particularly those with pharmaceutical or cold chain capabilities.
Source: Ministry of Commerce, Saudi Arabia, Created with Datawrapper
As Saudi consumers increasingly shop online, especially for groceries, the demand for Grade A logistics buildings is rising. New investments in the logistics sector in Saudi Arabia are focused on expanding the supply of these high-quality facilities. Al Nowaiser pointed out that incremental rental costs are significantly impacting logistics service providers, becoming a growing concern. While Amazon is increasing its warehouse space in Saudi Arabia, Aramex relies on build-to-suit warehouses tailored to specific client needs.
Expansion of Ports and Logistics Business
In December 2023, the Saudi Ports Authority (Mawani) signed four contracts with private companies for maritime services at eight ports, with investments exceeding SAR1 billion ($267 million).
The contracts were signed with Zamil Marine Services and Naghi Marine Company. Zamil Marine Services will provide services at the Jeddah Islamic Port, Jazan Port, Ras Al Khair Port, King Fahd Industrial Port in Jubail, and Jubail Commercial Port. Naghi Marine will offer services at King Abdulaziz Port in Dammam, Yanbu Commercial Port and King Fahd Industrial Port in Yanbu.
These contracts will expand the partnership with the private sector, improve the operational efficiency of maritime services in ports, and renew the fleet through investment in 44 new maritime units,
Last May, Dubai logistics company DP World commenced work on a SAR900 million ($250 million) logistics park in Saudi Arabia’s Jeddah Islamic Port.
The new storage and distribution facilities, being developed along with state-backed Saudi Ports Authority (Mawani), will boost trade in the kingdom and the wider region.
The 415,000 sq m “greenfield” facility will provide 185,000 sq m of warehousing space and a multi-purpose storage yard, making it the “largest integrated logistics park in the kingdom.
Port Capacity of Saudi Arabia
In 2022, King Fahad Industrial Port (Yanbu) in Saudi Arabia had the highest capacity, valuing to 210 million tons. The total capacity of ports across the country had a capacity of 681 million tons, as of 2022.
The development of the maritime transport and logistics sector is a crucial pillar of Saudi Arabia’s transport strategy within the country’s development plan, Saudi Vision 2030. This is why Saudi Arabia is planning to increase port capacity to more than 40 million standard containers and its share of the trans-shipment market to 45 percent as part of its economic development plans. Investment in port facilities and new liner services contributed to a solid increase in seaport throughput.
The Red Sea coastal region features heavily in the giga-projects at the heart of the plan to diversify the Saudi economy, including Neom in north-west Saudi Arabia, luxury resort Amaala, Jeddah Central, and entertainment and tourism centers in Jizan and Abha.
Furthermore, improvements to date are reflected in the steady rise in Saudi Arabia’s score in the quarterly Liner Shipping Connectivity Index (LSCI). The LSCI index is produced by the UN Conference on Trade and Development. The kingdom has closed the connectivity gap with the UAE. The UAE was the top performer among Gulf Arab states in the LSCI, since the first quarter of 2019.
In conclusion, Saudi Arabia’s transformation is driving demand across various sectors. The logistics sector, in particular, is seeing rapid growth as international and regional players invest in high-quality real estate. This demand extends beyond logistics, affecting the residential and office markets, especially in Riyadh.
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