thought leadership report gcc logistics · pdf file2015, the gcc economies today are ... of...
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The office we sit in, the clothes we wear and the food we eat all rely on business planning frameworks that manage material, service, information and capital flows around the globe.
F O R E W O R DMark Geilenkirchen, Chief Executive Officer SOHAR Port and Freezone
This is logistics and by necessity, in today’s
increasingly complex business environment, it centres
on the communication and control systems required
to keep our world moving twenty-four hours a day,
each and every day of the year.
As one of the world’s fastest growing Port and
Freezone developments, logistics is at the core of our
business in SOHAR and connects us with markets all
over the world. As this is our Year of Logistics, we
asked MEED Insight to prepare this special report on
the Middle East logistics industry as part of a series
of SOHAR sponsored thought leadership reports.
We define thought leaders as people or organisations
whose efforts are aligned to improve the world by
sharing their expertise, knowledge, and lessons
learned with others. We believe this knowhow can
be the spark behind innovative change, and that’s
what we’ve set out to inspire by commissioning
this series of reports.
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GCC LOGISTICS 2016
5
GCC Macroeconomic Overview
The GCC Economy
The petrodollar fuelled GCC economies
have had a strong run during the first
decade of this millennium, registering a
compound annual growth rate (CAGR) of
5.7% during 2000–2012. Though growth
momentum has slowed down significantly
since then, to 3.5% CAGR during 2013-
2015, the GCC economies today are
considerably more diversified. According
to IMF estimates, oil currently accounts
for about 50% of the GCC region’s overall
GDP, down from about 60% in 2000.
This has somewhat eased the grip of global
oil price fluctuations on GCC economies.
Still, the region’s fate remains closely tied
to the future of oil.
The significant drop in oil prices is estimated
to have led to a fiscal deficit in most GCC
economies. The consolidated fiscal balance
of the GCC region is estimated to have
declined from a surplus of 4.8% of GDP
in 2014, to a deficit of 7.5% of GDP in
2015. Among all GCC economies, Kuwait
and Oman have been the most severely
affected by the oil-price decline, with 2014
GDP growth in the countries falling to 1.3%
and 2.9% respectively. Saudi Arabia has
been fairly successful in lowering its oil
dependency to 42% of GDP in 2014,
down from 55% in 2008. The UAE, the
second-largest GCC economy, has also
already diversified its economy away from
oil to a significant extent. While oil-price
pains may continue for sometime, the GCC
will continue to focus on diversification
and infrastructure development.
However, GCC governments may face
some issues in financing various expansion
projects. In February 2016, S&P warned
that GCC economies might fall short of
resources to fund their projects during
2016–2019. Though the GCC governments
have allocated US$330 billion to various
projects, S&P estimates the actual
requirement to be closer to US$604 billion.
The GCC economies will need to raise
more funds from other channels, such as
public-private partnerships (PPP) or debt,
to partially fund their ambitious
infrastructure projects.
GDP GROWTH GCC VISION PLANS
Source: IMF, EIA Note: Annual Oil Brent Prices
Oil Price and GCC GDP
Although GCC economies still rely on oil as the main source of revenue, their concerted efforts over the last decade have resulted in a much more diversified economy than was the case at beginning of this century.
PPP Reserves Debt
6.4%
5.4% 5.4%
3.6%3.5%
3.3%
2.8%2.3%
79.5
111.3 111.6 108.6
99.1
52.343.0
51.8
-10
10
30
50
70
90
110
130
0.0
0.0
0.0
0.1
0.1
0.1
2010 2011 2012 2013 2014 2015 2016E 2017E
GCC Real GDP Growth (%)
Brent Yearly Averages (USD/BBL)
All the GCC states have formalised strategic,
long- term plans aimed at transforming
their economies and social policies. One
common thread across these vision plans
is to develop non-oil sectors, such as
infrastructure and logistics. For instance,
as part of its Vision 2030 plan, Saudi Arabia
intends to leverage the PPP model to
enhance its connectivity with the rest of
the GCC and other countries through
cross-border projects related to air, sea
and road. Through these initiatives, Saudi
plans to strengthen its position as a major
trade hub and improve its global ranking
in the Logistics Performance Index from
49 currently, to 25 by 2030.
The UAE Vision 2021 focuses on critical
sectors such as healthcare, education, and
infrastructure. Key government initiatives
such as Abu Dhabi’s Surface Transport
Master Plan focus on strengthening the
UAE’s crucial infrastructure. Moreover,
Dubai Expo 2020 and the Dubai Maritime
Vision 2030 have further boosted
investment in infrastructure projects.
These initiatives from the UAE government
offer huge opportunities to logistics players
and also generate interest from logistics
providers, air carriers, shipping lines and
freight forwarders.
As part of Oman’s Vision 2020, the
government plans to increase investment
in tourism and infrastructure to accelerate
overall economic growth. Other GCC
economies such as Bahrain, Qatar and Kuwait
are also focusing on economic diversification
and human capital development.
6
GCC LOGISTICS 2016
7
GCC Macroeconomic Overview
Source: IMF
0%
50%
100%
150%
200%
250%
300%
Qat
ar
UA
E
Ku
wai
t
Bah
rain
Om
an
KSA
S. A
fric
a
Ind
ia
Bra
zil
US
Ch
ina
Ger
man
y
Source: Standards & Poor; ConstructionWeekOnline.com
Overall Capital Spending US$480 Bn
Government
Additional Funds requiredUS$270 Bn
SpendingUS$330 Bn
Fund allocated for infrastructureUS$50 Bn
GCC Capital and Infrastructure Spending Plan (2016–2019)
Source: Respective Government Websites
Transport Sector Contribution to GDP (2014)
Qatar 2012
3.2%
KSA2014
5.6%
UAE2012
9.0%
Oman2014
4.7%
Kuwait2014
5.5%
Bahrain2014
6.6%
Population in the GCC region is growing at a
very rapid pace, with expatriates dominating
the population in most countries. By 2020,
the overall GCC population is forecast to
increase to 53 million, with the vast majority
under-25 years of age. The rapidly rising
population will lead to greater infrastructure
development, with focus on public services,
transportation and housing in urban centres.
GROWING POPULATION RISING INVESTMENTS TRANSPORT SECTOR IN THE GCC
Cumulative Population Growth % (2000–2014)
The GCC governments have planned a
spending outlay of USD$330 billion for
the 2016–2019 period for various projects.
Of this, US$50 billion has been allocated
for infrastructure development, but S&P
estimates the actual requirement for GCC
infrastructure investments could be double
this amount, at around US$100 billion.
Although the investment plan looks
encouraging, investment efforts differ
among countries. For instance, while
Dubai increased its 2016 budget by 12%
year-on-year to boost its infrastructure
spending, Saudi Arabia was forced to
reduce its 2016 transport and infrastructure
budget by 63% to keep next year’s fiscal
deficit in check. In Qatar, road transport
has been the key focal area, accounting
for more than 95% of infrastructure
investments, with maximum investment
being diverted for the development
of roads, bridges and tunnels to
improve connectivity.
Heavy spending on construction, as well
as on oil and gas projects drives the GCC
transportation sector. The sector’s
contribution to GDP in the GCC countries
averages over 5.8%. This share is high
when compared to developed economies:
3% in the US and 5% in the UK; and
developing economies: 2% in India and
4.5% in China. This is mainly because of the
concerted efforts of the GCC governments
to diversify their economies and further
develop infrastructure. Logistics have been
identified as one of the key sectors to
support the GCC diversification strategies,
with huge infrastructure spending laid
out over the near future.
The contribution of transport sector differs
from country to country. The UAE, which
has the most diversified economy in the
GCC, has invested huge amounts in the
transport sector and as a result has the
highest transport sector contribution to
GDP among all GCC nations. The outlook
for the sector in the country is positive,
with many major projects underway.
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GCC LOGISTICS 2016
9
GCC governments have identified logistics as one of the key sectors to support their diversification strategy, with huge infrastructure spending laid out over the near future.
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GCC LOGISTICS 2016
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Global Logistics Overview
Contract Logistics Model
Source: Cerasis, Armstrong & Associates
80%
12%3%
5%Transportaion
Warehousing
FreightForwarding
Value AddedServices andothers
US$210 BnUS$250 BnUS$2,000 Bn
US$4,600Bn
Actors Services
Cargo Owners
Transport Carriers
3PL Logistics ServiceProvider
4PL Logistics ServiceProvider
In-house
Transportation Outsourced
Transport +Warehousing
Entire Supply Chain Management Outsourced
Supply Chain
Serv
ice
Inte
gra
tion
1PL
2PL
3PL
4PL
Global logistics industry has grown at a brisk rate, supported by increasing outsourcing, innovative delivery models, and swift ecommerce market growth.
171.2 176.2 188.7 201.3
158.0 158.1 174.4 184.6
242.7 255.6269.6 290.3
43.6 44.941.9
42.969.6 69.0
77.281.6
2012 2013 2014 2015E
North America Europe Asia-Pacific South America Other Regions
685.1 703.8751.8
800.7
Source: MEED Insight Research & Analysis
Source: Armstrong & Associates Inc.
Logistics is the cornerstone for the smooth
functioning of all the sectors of an
economy, as it brings together the entire
value chain of industries. In 2015, the
global logistics market was estimated to
be close to US$4.6 trillion, accounting for
~11% of global GDP. The logistics supply
chain comprises transport, warehousing,
forwarding, custom clearing and
distribution components. The transport
segment, which accounts for close to 80%
of logistics, is further sub-categorised into
road, rail, air and water freight, of which
MARKET SIZEroadways had the biggest share of
US$2 trillion. The global logistics industry
is expected to expand at a robust CAGR
of 8.44% from 2015 to 2019.
One of the emerging trends in the logistics
industry is the rise of contract logistics,
which entails the outsourcing of logistics
to specialised companies instead of keeping
it in-house. 2PL (second-party logistics),
3PL (third-party logistics) and 4PL (fourth-
party logistics) are three major logistics
models that fall under contract logistics.
The 3PL model is the most successful one,
accounting for 20% of the overall logistics
market. It has been rising at a CAGR of
5.1% from 2011 to 2015 to reach US$800
billion in 2015. The Asia-Pacific region leads
the 3PL market with 36% share, and also
clocked the highest CAGR of 10%
(2011–2015). A rapid expansion in the
industrial and retail sectors, in conjunction
with a need for improvement in delivery
models, has driven the Asian 3PL market.
Global Logistics Market Size 2015 3PL Logistics Revenue by Regions (US$ Bn)
Global Logistics Infrastructure
Cumulative Global Logistics Infrastructure Investment (2014–2025)
While Asia-Pacific accounts for the bulk of major infrastructure projects with large-scale infrastructure projects in China and India, Europe is catching up with a big pipeline of seaport projects.
Source: PwC
North AmericaUS$1.6 Tn
Latin AmericaUS$0.95 Tn
AfricaUS$0.4 Tn
EuropeUS$2.2 Tn
MENAUS$0.6 Tn
Asia-PacificUS$8.3 Tn
Countries across the globe are spending
significantly on infrastructure projects,
including ports, roadways and railways,
and warehousing. The total value of the top
100 infrastructure projects underway across
the globe is about US$560 billion. Asia
alone accounts for about US$225 billion
or 40% of the total value of the top 100
infrastructure projects. Of the individual
subsectors in logistics, ports are predicted
to grow the fastest at 5.8% CAGR during
2014-2025, particularly due to the growth
of industrial real estate around the ports.
The Gulf region and Eastern seaports are
gaining much traction as they provide easy
access to major population centres.
Latin America: In Latin America,
US$47 billion will be invested in rail freight
transportation from 2014 to 2020. The
Brazilian government launched a logistics
investment plan in 2013, with a budget of
US$26.8 billion for 12 new railway projects
totalling 10,000 kilometres over the next
30 years. One of the most significant rail
projects is the 572 kilometre long
REGIONAL ANALYSISVitoria-Rio de Janeiro railway being built
at a cost of US$7.8 billion. This will increase
the logistics potential for bulk cargoes
such as iron-ore, minerals and various
agricultural products.
North America: The New International
Trade Crossing (NITC) Bridge is one of the
most impactful projects in the pipeline in
North America. The US$950 million NITC
Bridge will connect Ontario in Canada
with Michigan in the US, to improve
the connectivity at these major centres
of commerce. One of the other major
projects is Mexico City’s new airport, worth
US$9.2 billion, which is expected to boost
airfreight logistics in North America.
Middle East: Roads will be the largest
growth segment in the Middle East, with
116% rise in road investments from 2014 to
2025. Qatar will be the most active market
in the MENA region, with US$41.7 billion
worth of road projects lined up. Moreover,
the Battinah expressway is one of the most
significant projects in Oman, stretching for
275 kilometres from Muscat to Oman’s
border with the UAE at Khatmat Malaha.
Other major projects include the Sharq
crossing in Doha and the Masirah Island
causeway project in Oman.
Europe: In Europe, logistics growth will be
modest due to continuing fiscal constraints
and targeted spending. However, railways
are forecast to witness strong growth in
mature markets such as Germany, the UK
and Spain. Rail Baltica is one of the priority
projects of the European Union, which will
link Finland, the Baltic States and Poland
for better trade connectivity.
Asia-Pacific: The APAC market will
represent nearly 60% of global
infrastructure spending by 2025. The
“One Belt One Road” project in China,
aimed at integrating major Eurasian
economies, will lead to a paradigm shift
in infrastructure growth. The project
will link the land-based silk-road and the
maritime silk-road, that links China’s port
facilities with the African coast, with the
aim to strengthen the trade ties with
other Asian and European nations.
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GCC LOGISTICS 2016
13
Source: Frost & Sullivan
3.1
10.1
4.7
12.3
Passenger Kilometer(pkm)
Freight TonnageKilometer (tkm)
(In Trillions)
2013
2020
Huge investments made by the global shipping carriers in megaships during the early part of this decade, followed by an unexpected decline in global trade, has led to overcapacity.
Global Logistics Segments
Global Rail Traffic Forecast (in Trillions)
Oceans have always been one of the primary
modes of global transportation, especially
for bulk cargo such as metals, coal, and
hydrocarbons. With the growth of
international trade, shipping volumes
have further soared, requiring an expansion
of sea logistics.
Driven by strong growth in Chinese trade
volumes during the last decade, the global
shipping lines witnessed a huge demand,
leading to a steep rise in the shipping rates.
This prompted a frenzy of orders for new
ships, as the carriers expected to reap good
margins. However, within three years, by
2012, when the new ships were ready to
launch, the global economy had fizzled
out and the shipping operators faced losses
due to the investments already made in
these vessels.
In 2013, the ship-owners again started
to take a cue from high freight prices due
to the surge in China’s coal imports. But
surprisingly, the global market crashed
again in 2014 because of changes in China’s
import policies, which hurt the demand for
coal imports. This further exacerbated the
situation of excess supply of ships compared
to their demand.
SEA
RAIL
However, the outlook is promising, driven by
the recovering demand for containerized and
bulk cargo. Due to factors such as increasing
global exports, expansion of new trade hubs,
and rising adoption of technology, the market
is expected to regain traction in 2015–2020.
Asia-Pacific is expected to remain the largest
market due to economic growth in India
and trade-focused regional development
plans in China, despite its financial turmoil.
But Europe and North America are expected
to register only modest growth rates of
2.5%–3%, against the global forecast of
4.7% CAGR (2015–2020).
pace in the Asia-Europe rail corridor.
This was due to the Chinese manufacturer’s
efforts to improve speed of exports as
compared to sea, and reduce costs by
up to 65% when compared to air.
On the other hand, the UK witnessed
strong growth in rail freight in 2015, driven
by the increase in volume of consumer
goods being transported. Conversely, the
slump in commodity markets in the US has
adversely impacted exports. Shipments of
US coal, the biggest commodity moving by
rail, declined 12% to 5.1 million carloads in
2015, and so did rail freight demand.
Extensive investments are planned in
the high-speed rail (HSR) segment, and
Germany is forecast to rank among the
top three global HSR markets by 2020.
The MENA region will witness significant
investments due to the rise in trade activities
and the growing emphasis placed on the
development of railway networks. The
region has allocated US$250 billion for
numerous railway projects in Riyadh, Jeddah,
Doha, Abu Dhabi and Kuwait, among
others, to layout 67,000 kilometres of
railway tracks throughout the MENA region.
Rail plays a pivotal role both in passenger
movement as well as cargo handling,
especially of bulk items such as coal and iron
ore. Rail freight is witnessing mixed demand
across the globe, with some regions posting
strong growth and others witnessing
decline. For instance, the China Railway
Corp reported 11.6% year-on-year decline
to 227 million tonnes in railway cargo
volume during 2015, primarily due to
faltering demand especially for industrial
goods. But the demand grew at a brisk
CAGR3.3%
CAGR4.9%
CAGR5.5%
CAGR14.0%
CAGR10.0%
CAGR5.1%
CAGR9.8%
CAGR8.0%
240 160
700
90 100 220
90 70
320 220
1,180
300 220
380 200 250
North America South America China India Russia Europe Next 11 Rest of theWorld
2013
2022
Units in ‘000s
Source: Frost & Sullivan (base year 2013)
Roads will remain a major connector for freight and passengers within Asia, with China and India driving growth in this segment.
Global Heavy Truck Demand (2013–2022)
Road freight is the largest among all the
logistics segments as it serves as the
backbone of retail, wholesale and
agricultural sectors. The global road logistics
market can be segmented into four
divisions: full truckloads; less than truck
load (LTL), where the shipment does not
require a full 48-foot or 53-foot trailer;
parcel; and same-day. Truckload accounts
for the largest global share within the
segments. As is the case with the other
transport segments, road freight also
witnessed varying growth rates based on
the regional dynamics of the differences
in the industry growth, fiscal constraints,
fuel prices and government policies.
In the US, the trucking tonnage index,
which measures the gross tonnage of
goods transported through roads, declined
0.9% at the end of 2014, but increased by
3% in 2015 with similar trends expected to
continue in 2016. This was due to strong
growth in retail, expansion of the energy
sector and a growing population. European
road freight transport increased marginally
by 0.4% in 2014, compared to 2013, with
national transport being more or less stable,
while cross-trade and motor vehicle
transport recorded robust growth.
ROAD
Increasing automation of trucks and
liberalisation of policies are supporting
growth, while stringent environmental
legislation due to growing carbon emissions
and growing congestion on the roads,
is creating new challenges.
In the Asia-Pacific region, demand for
heavy trucks in China in 2015 declined
by 3.3% year-on-year, to 748,000 units,
mainly owing to the impact of consolidation
in the Chinese logistics market.
However, the situation in China started
to improve in 2015, driven by new
infrastructure projects, energy conservation
and emission reduction drives, and rapid
growth in e-commerce demand. Moving
forward, financial challenges in China will
continue to press against the growth
momentum in the logistics industry.
In spite of mixed regional growth, the
global road freight market is set to attract
higher investments to record a CAGR of
6.64% during 2013–2018. The European
road freight sector is expected to post
strong recovery for the heavy-duty truck
market, posting a 4.8% CAGR during
2014–2019. Russia will be one of the top
performing BRIC (Brazil, Russia, India and
China) markets, as the demand from
neighbouring eastern European markets
will boost demand. China will experience
robust growth by 2020, due to quick
implementation of low-carbon
transportation systems, government
spending and population growth.
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GCC LOGISTICS 2016
15
Aviation is a crucial mode of transport for the
movement of high-value and time-sensitive
goods, besides meeting the growing
passenger demand. According to the
International Air Transport Association (IATA),
the airfreight demand was volatile in 2015,
with a 3.3% year-on-year increase in
cargo volumes.
During 2015, sluggish growth in the airfreight
market was primarily due to weak growth
in global trade and a slowdown in China.
Besides that, qualitative easing in the
Eurozone, global concern about rising carbon
emissions from aviation, and structural
changes due to the shortening of supply
chains were the other factors contributing
to this sluggish growth.
The global freight load factor, the ratio of
revenue cargo tonne miles to the available
cargo tonne miles, was 47% in October 2015,
much lower than the passenger load factor of
79.1% in 2014. However in 2015, the Middle
East carriers witnessed a 15.3% year-on-year
AIR WAREHOUSINGgrowth in demand, with a capacity hike of
19.2% year-on-year. In the Middle East, the
airlines have started pursuing a successful hub
strategy that connects the long and short haul
markets, thereby improving trade connectivity.
Asia-Pacific’s airfreight volume grew 10% in
2015, while Europe and North America’s
volume was below the global average of
11% for the same period.
IATA has predicted that international airfreight
volumes will rise at CAGR of 4.1% from 2015
to 2020. During this period, the Middle East
will be the fastest-growing region at 4.7%
CAGR, followed by Africa at 4.4% CAGR,
and Asia-Pacific and Latin America at 3.8%
CAGR. By 2018, the three largest global
airfreight markets will be the US, China and
the UAE. Qatar will also witness a notable
CAGR of 5.7%. However, the overall outlook
for the airfreight market remains slightly
muted due to factors such as geopolitical
concerns, volatile oil prices and the constant
threat of trade protectionism.
Warehousing is a significant part of logistics
enabling the value chain players to stock
goods in appropriate condition until the
market demand is elicited. The global storage
and warehousing industry has grown at
a strong pace to reach a market size of
US$566.4 billion as of 2014, driven by
export-import growth, the global retail
industry, especially e-commerce, and
overall industrial production. Growth
opportunities were strong in the developing
countries of Asia and Africa due to
increasing trade activities, and accelerated
government spending on enhancing
warehousing infrastructure.
In Europe, trade growth has significantly
outpaced the region’s GDP growth, leading
to a rise in the demand for warehouses
needed to store goods in-transit. This in turn
has led to investments in warehouse property
development in northern European port areas
and inland hubs. Outsourcing demand is also
strong in the warehousing market, with
operators offering services such as packaging
and kitting, which are otherwise challenging
to manage in-house. Some of the prominent
storage and warehousing operators across
the globe include APL, DHL, Genco,
Kuehne+Nagel and UPS.
The warehousing market is expected
to expand at a CAGR of 5.8% during
2014–2019, to reach a market value of
US$709.7 billion. Upcoming technology
trends, such as the use of robots in
warehouses, automated vehicles and
drones for product distribution, are going
to impact the structure and dynamics of
the warehousing market by 2020.
Global aviation remains on a growth track, with the Middle East being one of the fastest growing markets in both airfreight and passenger segments.
GCC Logistics
16
GCC LOGISTICS 2016
17
71.776.7
82.087.6
93.7100.1
2015 2016 2017 2018 2019 2020
Source: MEED Insight Research & Analysis
Country-wise Logistics Market Share 2015 GCC Logistics Market Growth (US$ Bn)
42%
25%
15%
12%3%
3%
UAE KSA Qatar Oman Kuwait Bahrain
US$71.7 Bn
GCC Logistics Market Size
The strategic location of the GCC as a
gateway between Europe and Asia has
created a strong logistics market in the region.
Additionally, the efforts of all GCC economies
to focus on diversification away from oil have
further propelled the GCC logistics market.
Large-scale infrastructural developments,
a booming retail industry, and a high
dependence on international trade are
some of the major drivers that have been
instrumental in the logistics market growth
story. The GCC logistics market forms a
fundamental part of the economy and
grew at a brisk pace to reach a value of
US$71.7 billion in 2015, and continues
to expand further.
The UAE, Saudi Arabia and Oman together
accounted for about 79% of the total value
of GCC logistics market in 2015. All these
countries have witnessed significant growth
in logistics capacity in the last decade.
The UAE, for instance, overtook countries
such as the UK, Germany, Italy, Spain
and Belgium, with more than 19.3 million
20-foot equivalent units (TEUs) of container
traffic shipped in 2013. Other GCC
countries also witnessed strong growth
in logistics demand. From 2000 to 2013,
Saudi Arabia’s container traffic shipment
grew 4.5 fold, while that of Oman grew
3.4 fold. This growth is further evidenced
by the Agility Emerging Markets Logistics
Index 2016, in which the UAE, at number
two, and Saudi Arabia, at number 5,
featured among the most promising
emerging logistics markets.
While concerns loom large over the
low oil-price environment, the need for
a fully functional logistics sector to support
a diversified economy will ensure that the
sector continues to receive due attention.
The UAE’s logistics sector is expected to
grow at slightly slower CAGR of 5.7%
during 2015–2020, compared to that
in other countries such as Qatar, expected
to record a CAGR of 12.5% owing to
huge spending for the 2022 FIFA
World Cup over the same period.
Oman’s logistics sector will also register
strong growth, at a CAGR of about 6.9%
over the same period. The logistics sector
in the GCC region as a whole is expected
to register a CAGR of 6.9% over the next
five years as regional governments invest
heavily in this vital sector.
GCC logistics market has been growing at a brisk pace, primarily driven by the region’s economic diversification efforts, strong infrastructure investments and strategic location.
Source: MEED Insight Research & Analysis
Source: MEED Insight
GCC Logistics Segments
Railways are one of the main pillars of the
logistical infrastructure of any country. They
function as a major conveyance for both
passengers and cargo. However, the same
cannot be said of the GCC. Unfavourable
geographic conditions, relatively small country
size, with the exception of Saudi Arabia and
Oman, and the availability of cheap fuel for
road transport have made roads the preferred
option for inland logistics. However, this
situation has changed over the recent past,
especially in view of the diversification efforts
undertaken by the region’s economies. With
the growth of various sectors, especially
manufacturing and construction, the
requirement to transport greater quantities
of bulk raw materials has created the need for
a functioning rail network. Considering these
changed circumstances, the GCC countries
have implemented various rail projects.
The most ambitious rail project is the GCC
Railway Network, which would connect all
GCC countries. The project is planned to
extend 2,177 kilometres in length and has
an estimated budget of US$250 billion.
It would have huge impact on GCC logistics
industry and would help to promote
intra-GCC trade. Originally planned for
completion in 2018, the actual completion
of this railway line has been delayed and
the new date has still not yet been finalized.
One of the main reasons for this delay is
budget shortage owing to low oil prices, in
turn leading to lower government revenues;
and the lack of consensus between member
countries as they focus on short-term
budgetary constraints over their prior
commitments to the GCC Rail agenda.
Adding to the delay, the 2016 tender
suspension for phase two of the Etihad Rail
project in the UAE has further created a
situation of uncertainty.
In the UAE, Etihad Rail is developing
the UAE national network to support
both passenger and freight transport
across the country. The network will be
1,200-kilometres long and is projected to
cost US$11 billion. The first phase, which
covers 264 kilometres, has been completed
and is being used for commercial purposes.
However, the second phase of the
project has been put on hold to control
public spending to compensate for
falling oil revenues.
In Saudi Arabia, the Saudi Landbridge
Railway Project, focusing on cargo and
passenger usage, is being built at a cost
of US$7 billion. It is a 950-kilometre line
connecting Jeddah on the Red Sea with
Dammam on the Arabian Gulf. Another
major project in Saudi Arabia is the
North-South Railway. At US$3.5 billion,
it is a 2,400-kilometre line connecting
the bauxite and phosphate mines at
Az Zubairah and Al Jalamid to processing
facilities at Ras Azur Port.
In Oman, the US$15 billion Oman National
Railway network, with an estimated length
of 2,135-kilometres, is planned. This railway
line would connect the UAE to Muscat and
southern parts of the country, including the
ports of Sohar, Duqm and Salalah. Along
similar lines, the Qatar Integrated Railways
Project for passenger and freight usage is
also being developed.
Developing railways as a viable mode of logistics is a top priority for GCC economies, as they would eventually replace roadways as the logistical backbone of the region.
GCC RAILWAYS: A WORK-IN-PROGRESS INFRASTRUCTUREMARKET OVERVIEW
Proposed GCC Rail Network
RAIL VERSUS ROAD TRANSPORTATION
One freight train can replace 50 trucks
Uses 60%–80% less energy per km compared to roads
Safer mode of transport
Causes less CO2 emissions compared to road transport
By 2020, the share of railway in cargo
transportation is expected to reach
20%–25% for Saudi Arabia, 15%–20% for
the UAE, and 10%–15% for Oman. With
various projects underway or planned, the
GCC logistics and transportation sector is
likely to undergo a major transformation.
18
GCC LOGISTICS 2016
19
Source: World Bank, CIA
Road Density Comparison GCC (per 100 sq. km)
85
37
33
19
10
5
Bahrain
Qatar
Kuwait
World
Oman
SaudiArabia
UAE
542
Low fuel costs and sandy terrain make the GCC naturally dependent on roadways as the primary logistics network.
Road infrastructure plays a crucial role in
the GCC inland logistics space, as the railway
network is still not established. Therefore,
businesses and individuals still have a
significant reliance on road transportation.
The GCC is estimated to have about 276,252
kilometres of road networks. The availability
of low-cost fuel has also worked in favour of
roadways as the preferred mode of transport
in the GCC. It is estimated that more than
90% of inland freight in the GCC is carried
on roadways.
Despite the importance of road transport
for logistics in the GCC, the network is not
as developed as needed. Road density, which
is the ratio of total road network to total land
area in a country, is quite low. Also, the road
network in three GCC countries is below
the global average.
ROADWAYS: THE REAL CONNECTOR IN GCC However, the situation is being addressed
with major road development projects.
Saudi Arabia is leading the race with close
to US$35 billion being allocated to various
road projects. The largest project is the
Riyadh Road Development Project, planned
over four phases and costing US$13.3 billion.
This project will create 491 kilometres of
new roads and 180 bridges, in addition to
improving 779 kilometres of existing roads.
Another visionary project is a US$5 billion
bridge, the Saudi–Egypt Causeway linking
Saudi Arabia with Egypt. However, this project
is delayed owing to on-going political tensions
between the two countries.
Qatar comes next in line, with an ambitious
five-year plan to build 8,500-kilometres of
new highways, 200 new bridges and 30
new tunnels by 2020. In the run-up to the
2022 FIFA World Cup, Qatar has earmarked
US$150 billion for infrastructure projects,
of which US$20 billion has been allocated
for investments in the road sector.
Kuwait is also investing US$6.2 billion in
the development of road projects covering
a distance of 550 kilometres. Key projects
include the US$875.8 million Jahra Road
development, one of the largest elevated
road projects in the world, and the
US$789 million Jamal Abdul Nasser Street
development to transform the street into
a world-class expressway.
Oman is not far behind, investing
US$3.9 billion in one of the biggest road
projects in the country, the Batinah
Expressway. It will work as an extension
of the Muscat Expressway and spans over
265 kilometres to the Oman-UAE border.
Additionally, Oman has built the
Oman-Saudi Arabia road, which has
reduced the distance between two
countries by 800 kilometres.
Over next five years, GCC investment in
road infrastructure is projected to grow
at a healthy rate as GCC governments
plan to increase budgetary allocations to
fuel employment opportunities, economic
growth and diversification efforts.
Source: International Air Transport Association
*Freight Load Factors : The load factor is the ratio of the average cargo revenues earned to total freight capacity.
Freight Load Factors* (2014)
Source: World Bank**Airfreight: Airfreight is the volume of freight, express and diplomatic bags carried on each flight stage (operation of an aircraft from take-off to its next landing), measured in metric tons times kilometres travelled.
54%45% 43% 38% 34%
30%
Asia-PacCarriers
EuropeanCarriers
MiddleEasternCarriers
Lat-AmCarriers
North-AmCarriers
AfricanCarriers
CountryAir Freight** (Mn
Tonne – Km)
United Arab Emirates 15,624
Qatar 5,993
Saudi Arabia 1,842
Oman 275
Bahrain 274
Kuwait 259
GCC Air Freight, Million Tonne – Km (2014 )
Healthy freight load factors will keep the GCC air logistics sector soaring at high altitude.
In terms of infrastructure, Saudi Arabia has
the highest number of airports in the GCC
region with 33, followed by Oman with 10,
and the UAE with 9. Kuwait, Bahrain and
Oman have two airports each. This is more
or less proportionate to the landmass of
the countries, as the airports are laid out
from a connectivity standpoint.
In 2015, the Middle Eastern airfreight sector
expanded 11.3% year-on-year. The freight
load factor for the region was 42.8% in 2015,
which was quite healthy compared to the
global average. Airlines in the GCC region,
such as Emirates, Etihad and Qatar Airways,
have led the way and expanded their freight
networks and increased their cargo capacities.
According to the International Air Transport
Association (IATA), the Middle East is
expected to be one of the fastest growing
regions in terms of passenger traffic,
recording a CAGR of 4.6% until 2034.
All these factors point towards a strong
outlook for the GCC air logistics segments.
AIR: GCC SKIES ARE AMONG THE BUSIEST IN THE WORLDTo keep pace with the strong outlook for
air-traffic, the GCC countries are making
necessary investments in airport
infrastructure, with about US$40 billion
being invested. The UAE has laid out
an US$18.8 billion expansion plan with
US$15.9 billion allocated for Dubai airport.
The cargo capacity at the airport is slated
to increase from 600,000 tons to 1.4 million
tons per annum. Qatar is investing
US$15.5 billion in its Hamad International
airport in Doha while Kuwait is investing
US$6 billion in the Kuwait International airport
expansion, including a new terminal and
establishment of a cargo facility. Saudi Arabia
is investing US$4.4 billion to expand capacity
at its King Khaled International Airport.
With growth drivers firmly in place, the GCC
air logistics market has a promising future.
The FIFA World Cup 2022 and the World
Expo 2020 will further attract global tourists
to the region and will send the aviation
market into overdrive mode. In an estimate
made by Boeing, the Gulf region will require
more than 3,000 new planes over the next
two decades, 70% of which will go to the
GCC. The GCC governments are also focusing
heavily on the aviation sector to diversify their
economies. According to the International Air
Transport Association (IATA), the Middle East
is expected to be one of the fastest growing
regions in terms of passenger traffic,
recording a CAGR of 4.6% until 2034.
All these factors point towards a strong
outlook for the GCC air logistics segments.
20
GCC LOGISTICS 2016
21
GCC ports are gateways through which the region trades with the rest of the world; GCC governments are making major efforts to expand and modernise them.
22
GCC LOGISTICS 2016
23
Major GCC Sea Ports & Respective Capacities (2015 in Mn TEU)
Duqm (3.5)
Damman (1.9)
Saudi Arabia
Jeddah (4.1)
King Abdullah (3)
Salalah(2.5)
Sharjah (2.5)Jabel Ali(19)
D
Khalifa (3) Sohar (1.2)
Oman
UAE
Source: Respective Ports Association, Gulf News Articles
The GCC has traditionally been a major,
international oil-trading hub. This trade-
orientation of the region has become even
more pronounced as the GCC focuses on
building its economy and infrastructure.
The various seaports of the GCC, spread
over its broken coastline, have served as
vital cogs in this trade machinery. The GCC
has about 48 seaports, which together
account for more than 50 million TEUs of
the total container port capacity of the
MENA region.
The UAE alone has nine seaports, with a
total container capacity of 36.5 million TEU.
The largest seaports in the GCC are Dubai/
Jebel Ali, in the UAE; followed by Fujairah,
UAE; Jeddah, Saudi Arabia; Sharjah/Khor
Fakkan, UAE; and Salalah, Oman. Dubai’s
Jebel Ali is the world’s largest man-made
harbour and the biggest seaport in MENA.
The port featured among the top 10 ports
in the world in 2013, in terms of volume of
containers handled. Built by DP World and
inaugurated in 2014, the new container
Terminal 3 has increased the port’s total
capacity to 19 million TEU.
Saudi Arabia has 21 seaports, which
handled 6.74 million TEU of freight in 2013.
Jeddah port in Saudi Arabia has emerged as
one of the most important gateway ports in
the Middle East. In 2014, the total container
throughput at the port was 4.1 million TEU,
or 87% of its capacity. The port has three
terminals: Northern Container Terminal,
Red Sea Gateway Terminal, and
Southern Container Terminal.
SEAPORTS: THE GATES OF GCC Sea transport accounts for more than
80% of freight among all logistics activities
in Oman, mainly handled by Sohar and
Salalah ports. Oman has seven seaports,
of which the Port of Salalah is the largest
multi-purpose port, with facilities to handle
bulk cargo, containers, and general and
liquid cargoes. It also offers value-added
services such as bunkering, container
repairs, a container freight station,
warehousing, and ship repairs. In Oman,
sea freight is estimated to grow 4.8%
year-on-year in 2016, driven by increasing
intra-regional GCC trade.
Seaports in the GCC were operating at
about 75% of capacity in 2015, with the
highest capacity utilization in the UAE at
80%. Growing sea trade in the GCC has
also led to higher investments in port
facilities. These investments are not just
for upgrading current facilities, but also
for building new ones. For instance,
Saudi Arabia has a five-year plan to
develop and expand its port facilities
with investments worth US$30 billion.
Top Logistics Operators in GCC
Source: News Articles, Company Websites
Name Services
DP World� Cargo services� Marine terminal
Aramex� Land freight� Air freight
Port Services Corp.
� Cruise terminal services� Container� Marine & security services
Agility� Land freight� Air freight� Sea freight
National Shipping Co of Saudi Arabia
� Gas & marine services� General cargo� Crude oil transport
Gulf Warehousing Company
� Warehousing and distribution
� International transport
KGL Logistics Company
� Warehousing and distribution
� Freight forwarding
DHL� Freight transportation� Warehousing
FedEx � Shipping
Barloworld Logistics
� Warehousing and distribution
� Freight forwarding
Name Services
DP World� Cargo services� Marine terminal
Aramex� Land freight� Air freight
Port Services Corp.
� Cruise terminal services� Container� Marine & security services
Agility� Land freight� Air freight� Sea freight
National Shipping Co of Saudi Arabia
� Gas & marine services� General cargo� Crude oil transport
Gulf Warehousing Company
� Warehousing and distribution
� International transport
KGL Logistics Company
� Warehousing and distribution
� Freight forwarding
DHL� Freight transportation� Warehousing
FedEx � Shipping
Barloworld Logistics
� Warehousing and distribution
� Freight forwarding
Market Dynamics
The GCC logistics industry is highly
fragmented, with many small players.
Furthermore, owing to the region’s high
attractiveness, the number of new players
entering the market is increasing. The UAE
alone has about 4,700 logistics companies,
with 90% being small, unorganized players.
Due to this highly fragmented structure,
the GCC logistics sector faces a number
of challenges, such as a lack of skilled
manpower and an uncertain regulatory
environment. While private players
dominate the sector’s landscape in the
GCC, about 23 companies are listed on
various stock exchanges across the Gulf
States. With nine companies, the Kuwait
Stock Exchange has the highest number
GCC LOGISTICS: MARKET DYNAMICSof listed transportation and logistics
enterprises in the GCC. While local players
dominate inland logistics in the GCC,
multinational players such as DHL and
FedEx lead international transportation
and freight forwarding by sea.
Over the past few years, a trend of
consolidation has been observed in the
GCC transport and logistics industry.
The logistics market in the Middle East
witnessed 25 deals in 2015, compared to
18 in 2014. In 2015, the UAE announced
seven transactions, Saudi Arabia six, and
Kuwait five. Companies are undertaking
M&A activities to expand their geographic
presence and business operations. In 2015,
players such as Aramex (UAE), Agility Public
Warehousing (Kuwait), and DP World (UAE)
were the most active acquirers. In 2015,
M&A deals in the freight-trucking subsector
accounted for a larger share of 32%,
compared to 22% in 2014. Investors are
focusing on the freight-trucking subsector
as they foresee huge potential in it.
GCC logistics sector is highly fragmented, with many players. However, the market is witnessing consolidation through M&A activities.
Seaports in the GCC were operating at about 75% of capacity in 2015, with the highest capacity utilization in the UAE at 80%.
Name Services
DP World� Cargo services� Marine terminal
Aramex� Land freight� Air freight
Port Services Corp.
� Cruise terminal services� Container� Marine & security services
Agility� Land freight� Air freight� Sea freight
National Shipping Co of Saudi Arabia
� Gas & marine services� General cargo� Crude oil transport
Gulf Warehousing Company
� Warehousing and distribution
� International transport
KGL Logistics Company
� Warehousing and distribution
� Freight forwarding
DHL� Freight transportation� Warehousing
FedEx � Shipping
Barloworld Logistics
� Warehousing and distribution
� Freight forwarding
24
GCC LOGISTICS 2016
25
GCC Logistics Drivers and Trends
Growth Drivers (1/3)
A focused approach towards the
development of free-trade zones by
the GCC nations has been a major
contributor to the development of the
logistics sector. Also, the promotional
policies of free-trade zones have attracted
multinational corporations to setup
continent-level distribution centres for
air and sea modes, thereby boosting
the logistics services market.
Saudi Arabia
Saudi Arabia’s General Authority of Civil
Aviation (GACA), with the support of other
government agencies, is planning to set
up free-trade zones at Jeddah and Riyadh
airports as part of the long-term plan to
diversify the Kingdom’s economy. The
free-trade zones would be set up to attract
foreign businesses through relaxed
licencing, visa and taxation rules across
industrial and services sectors.
FREE TRADE ZONES: STRENGTHENING THE LOGISTICS SECTOR
UAE
Free-trade zones are an established
phenomenon in the UAE. Jebel Ali, the
UAE’s first free-trade zone, was setup
in 1985, and has helped the country
to significantly boost its industrial base
and diversify its economy. Well over 20
free-trade zones now exist in the country,
offering a range of benefits to businesses,
such as 100% foreign ownership,
100% import and export tax exemptions,
100% repatriation of capital and profits,
corporate tax exemptions up to 50 years,
no personal income tax, and assistance with
labour and support services. One of the
latest free-trade zones is Umm Al-Quwain,
set up primarily for SMEs and micro
businesses; however, it is also attracting
larger businesses.
Oman
To diversify its non-oil revenues, Oman
began setting up free-trade zones in 2000.
Oman currently has three functioning
free-trade zones: at Salalah, Sohar and Al
Mazunah. Salalah and Sohar are the larger
and more important free-trade zones,
and operate major projects. Oman is now
building its fourth free-trade zone at the
port city of Duqm, which when completed
is planned to cover a mammoth 1,777
square kilometres, to serve the tailored
needs of heavy manufacturing, tourism,
logistics, food packaging, education and
fishery industries.
Kuwait
Kuwait plans to build free-trade zones on
five of its islands: Boubyan, Failaka, Warba,
Miskan and Awha. The planned zones
would serve as economic and cultural
gateways between the northern Gulf region
and Kuwait. These are slated to boost
regional and international competitiveness.
The proposal includes involving the private
sector to finance, execute and operate
the free-trade zones.
Governments across the GCC are leveraging existing and constructing new free-trade zones to offer a competitive edge to businesses and to help diversify their economies.
Qatar
Ras Bufontos free-trade zone spans
4.1 square kilometres of land close to the
new Hamad International Airport and is
specialised for companies operating in the
technology, energy, construction, info-tech,
and transportation sectors. Two other
special economic zones include Um Alhoul
and Al Karaana. Um Alhoul will be a
33.5 square kilometres light-manufacturing
cluster adjoining the new port project,
south of Al Wakrah, while the 38.4 square
kilometre Al Karaana, located halfway
between Doha and Abu Samra, targets
businesses involved in building materials,
machinery and fabrication, specialised
spill-over industries, as well as safety,
maintenance, and specialised warehousing
and logistics activities.
Bahrain
Bahrain boasts three main free-trade
zones: Bahrain Logistics Zone, Bahrain
International Investment Park, and Bahrain
International Airport. These are suitable
for foreign companies intending to use
Bahrain as a regional manufacturing or
distribution base. These free-trade zones
enjoy a robust infrastructure and offer
significant investment opportunities for
logistical expansion, to help overcome
existing trade bottlenecks.
26
GCC LOGISTICS 2016
27
Growth Drivers (2/3) Growth Drivers (3/3)
Youth Population 0–24 years, 2014 (%)
36%
41%
50%
26%
47%
34%
Bahrain
Kuwait
Oman
Qatar
KSA
UAE
Source: Census.gov Source: Alpen Capital
GCC Retail Sales 2013–2016F (US$ Bn)
199.7 213.4246.4
285.5
2013 2014 2016F 2018F
GCC E-commerce Market Share 2014 Top GCC Trading Partners 2015
GCC: Total Trade (2010–2015) US$ Bn
Source: Frost & Sullivan
Source: Directorate-General for Trade
Source: Directorate-General for Trade
UAEKSAOmanQatarKuwait & Bahrain
53%14%12%10%
11%
479644
789 745 710580
277 316392 408 421 487
2010
2011
2012
2013
2014
2015
Export Import
Top 10 Partners
Value of Trade (In US$Millions)
% Total
EU 28 180,806 16.8
China 137,201 12.8
India 104,914 9.8
Japan 91,882 8.5
USA 88,049 8.2
South Korea 64,840 6.7
Iran 36,239.1 3.4
Singapore 28,605.5 2.7
Thailand 24,301.5 2.3
Taiwan 23,092.9 2.1
Total 1,075,660 100
In 2015, the population of the GCC region
was about 50 million, with expats making
up more than 40% of the total. The
region’s growing population, compounded
by a high proportion of expats along with a
large working-age demographic, increases
travel frequencies and makes further
investment in transportation and logistics
imperative. The growing population also
increases trade demand, stimulating all
industries from retail to automotive,
enhancing the attractiveness of the GCC
region for investment across sectors,
leading to the further expansion in logistics.
Between 2014 and 2019, the GCC’s
population is expected to increase at an
annual rate of 2.5%, much higher than the
aggregate global population growth rate of
1.2%, further driving demand in the sector.
Growth in the retail sector and the
expansion of logistics networks across
the GCC region share a cause and effect
relationship, as each has been driving the
development of the other. There has been
a boom in the construction of refrigerated
warehousing facilities, especially in Dubai,
Oman, Kuwait and Saudi Arabia, with
significant levels of investment in cold chain
logistics. This has been due to the rapid
growth in the FMGC retail markets, fresh
foods market, and the growing preference
for frozen and chilled foods. Due to the
growing opportunities and promising
prospects, private players are also investing
in logistics. In late 2013, Spinneys, the
Middle East supermarket chain, expressed
its willingness to invest in constructing cold
storage facilities worth US$15 million in the
logistics cluster of Khalifa Industrial Zone in
Abu Dhabi, UAE.
The GCC retail market was valued at
US$221 billion in 2015, driven by steady
economic growth; rising disposable
incomes; a growing, young and affluent
population; increasing penetration of
international retail players; and mega
events such as the 2022 FIFA World Cup,
and Dubai Expo 2020.
POPULATION GROWTH RETAIL GROWTH
A constant demand for better transportation infrastructure from a growing population, and overall development of the GCC region’s business and manufacturing sectors, are the factors driving growth in the logistics sector.
High internet penetration and the changing
buying habits of consumers in the GCC
have been the main drivers of a five-fold
jump in e-commerce demand, from US$3.3
billion in 2010 to US$15 billion by 2015.
About 54% of the population in the GCC is
young, below 25 years of age, and mostly
tech-savvy, further driving online retail
demand. Lured by growth volumes, private
equity and venture capital firms are also
investing in the GCC’s burgeoning
e-commerce sector.
Swift logistics is indispensible in order to
manage inventories, billing, packaging,
shipping, cash on delivery, product return
and exchange, tracking, and much more.
But as an emerging economy, operational
gaps on the GCC’s logistics front are
posing significant bottlenecks to growth.
Nonetheless, e-commerce is still one of the
top megatrends to boost business in the
GCC and is therefore expected to climb
40% by 2020.
E-COMMERCE GROWTHTrade with Asia and Europe is likely to remain
the major driver of freight forwarding and
transportation companies in the region. The
booming GCC trade results in huge demand
for port services. Between 2012 and 2014,
the region’s total imports increased by 5.3%,
while total exports decreased by 2.9%,
mainly due to falling oil prices. The major
trade partners of the GCC region include
the twenty-eight countries of the European
Union, China and India, which together
account for nearly 40% of its total trade.
As the GCC develops itself as an important
global trade hub, demand in its logistics
sector will rise strongly. Typically, the UAE
and Qatar have been the most active
trading nations in the GCC, while the much
larger economy of Saudi Arabia has to-date
been slightly inward facing. But that is
changing now, with all the GCC nations
becoming more focused on diversification
and strengthening trade relations with
other nations.
Trade, whether intra-GCC or with the rest of the world, has been a fundamental driver of the logistics sector.
The GCC manufacturing sector, expanding
at a CAGR of 5.2%, is one of the primary
factors driving the demand for logistics in
the region. Factors driving manufacturing
industry growth include low setup and
running costs, duty-free access to
manufactured goods in the GCC, the
Greater Arab Free Trade Area (GAFTA), the
US-GCC Framework Agreement for Trade,
and favourable tax regimes.
In 2015, the GCC region had 16,842
manufacturing units, and the sector is
projected to witness a CAGR of 4.8% from
2015 to 2020. Logistics, an integral part of the
supply chain, is essential for the procurement,
production, distribution and handling of raw
materials and finished goods.
Moreover, the capital-intensive nature of
GCC industry makes it imperative to have a
robust logistics infrastructure. The growth
in the manufacturing industry has been
supporting strategic initiatives such as
import substitution.
MANUFACTURING SECTOR BOOM
GCC TRADE
28
GCC LOGISTICS 2016
29
15%
2%
15%
8% 9%
4%
Lati
nA
mer
ica
East
Asi
a an
dPa
cifi
c
Sou
th A
sia
Euro
pe
and
Cen
tral
Asi
a
Sub
-Sah
aran
Afr
ica
Mid
dle
Eas
tan
dN
ort
h A
fric
a
Source: World Bank
While the current geopolitical concerns and softening of oil prices has resulted in tightening of liquidity within the GCC, it has also created the need for more holistic growth within the region. This has enabled the GCC countries to focus on a long-term vision of diversification and sustainable development. With new opportunities expected to open up in flourishing industries, the outlook for the GCC’s logistics sector is stable.
- Shailen Shukla, Head of Logistics, Jumbo Group, 2016
Challenges (1/2) Challenges (2/2)
The success of the transportation and
logistics industry depends significantly on
the quality and quantity of the people
involved in operating the value chain.
Despite strong infrastructure expansion
and growth in the logistics market, there
is still a lack of skilled labour to support
the logistics sector in the GCC.
Numerous jobs in the logistics industry,
such as those in procurement, sourcing,
material handling and transportation,
demand different categories of labour
for the various roles. The GCC has been
heavily reliant on expats for both skilled
and unskilled labour, due to shortages in
the local human capital market. Therefore,
logistics companies are compelled to hire
skilled expats who demand higher salaries,
leading to cost escalations.
Road density is a measure that calculates
the ratio of the length of a country’s total
road network to its land area. It helps in
comparing a country’s road infrastructure
with other countries. As the most
developed nations in the GCC, the UAE and
Saudi Arabia still lag behind other countries
as their road density is below 20 kilometres
per 100 square kilometres. Road density in
developed and developing countries such
as Germany (180 kilometres), UK (172
SHORTAGE OF SKILLED LABOUR
LOW-DENSITY ROAD NETWORKS
The GCC logistics industry is facing typical growth phase challenges such as skilled labour shortages, low road densities, and the lack of economy of scale associated with a fragmented market.
Struggling revenues from non-hydrocarbon sector
The non-oil sector in the GCC is still in
its nascent stage of development and
the region’s diversification efforts have
not yet begun to yield economic dividends
that could adequately fund logistics
projects. Experts have forecast that in 2016,
growth in the non-oil sectors will be the
lowest since the 1990s, at only 2.9%. This
not-so-positive outlook stems from the fact
that the non-oil sector’s fortunes remain
aligned with growth in oil prices, which
are displaying a falling trend.
World Bank data on public-private
partnerships (PPPs) during the period
1990-2014 indicates that the GCC has
among the lowest number of PPP projects,
compared to other regions of the world.
This is due to factors such as volatile oil
prices, the availability of sufficient fiscal
headroom to fund infrastructure projects
from hydrocarbon sales, and sovereign
debt issues. The public sector therefore
still dominates the GCC transport and
logistics industry.
PPPs in transport in the MENA region have
been very low. The PPP investment as a
percentage of GDP stood at 4% in MENA,
lower than that in other regions such as
Latin America, the Caribbean, and South
Asia, where PPP investment as a percentage
of GDP was around 15%.
Several operational factors are hindering
efficient logistics flow within the GCC.
These include inefficient clearance
processing leading to problems with
customs and other government bodies;
high, non tariff-related trading costs; the
inability to track and trace consignments;
and the delayed delivery of consignments.
On average, logistics players in the GCC
spend 30–45 working days each year on
resolving clearance and regulatory issues,
compared to a global average of ~15 days.
In Saudi Arabia, for instance, mandatory lab
tests are imposed on many commodities
that enter the Kingdom. This leads to a
14-day holdup on shipments until fully
tested and cleared, leading to extra
inventory build-up and cost escalations.
Agility, in its Emerging Markets Logistics
Index for 2014, highlighted government-
related issues and regulatory complications
in the MENA region as key supply-chain
risks. Furthermore, the institutes in charge
of transport and logistics in the GCC have
weak policy formulation and management
capacities, mainly due to the lack of
coordination between them.
Being in the early stages of growth, the
GCC logistics industry is highly fragmented,
with thousands of players either already
operating or planning to enter the market.
Because of this fragmentation, companies
are hesitant to invest in technology because
FRAGMENTED MARKET
LOW PRIVATE PARTICIPATION
their volatile workloads cannot harness
the same cost benefits as larger-scale
operations. In addition, high attrition rates,
the poor quality of trade and transport-
related infrastructure, and inadequate
indigenous logistics services also pose
big challenges.
However, the GCC transport and logistics
industry is witnessing consolidation through
significant M&A activity, with Aramex
(UAE), Agility Public Warehousing Company
(Kuwait), and DP World (UAE) being the
most active acquirers.
kilometres), India (143 kilometres), Japan
(90 kilometres) and US (67 kilometres) are
much higher. On the other hand, smaller
states like Bahrain, Kuwait and Qatar have
above-average road densities compared
with global benchmarks.
Poor road network density escalates the
cost of transportation, both in terms of
money as well as time, thereby causing
difficulties in the integration of various
regions within the GCC economy.
The GCC’s substantial dependency on
the oil trade has led it to face numerous
challenges brought about by the oil price
decline. Due to sluggish demand in China,
political upsets in Iraq and Libya, and shale
gas discoveries in the US, oil prices halved
from US$110 per barrel in 2014, to around
US$55 per barrel in 2015. In Bahrain,
foreign investors are no longer willing to
buy into stalled infrastructure projects
worth US$795 million, due to low returns
on account of falling oil prices. However,
Saudi Arabia, the UAE and Qatar are better
shielded from the effects of falling oil
prices due to larger and more mature
domestic banking systems, better access
to international markets and larger
sovereign wealth funds.
FUNDING CHALLENGES
OPERATIONAL GAPS
Public-Private Partnership Projects (1990–2014)
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GCC LOGISTICS 2016
31
Contract Logistics
The dominance of integrated service
providers is a major trend in the GCC
market, with the sector slated to expand
by 33% in the MENA region by 2017.
By outsourcing the logistics part of their
operations to 3PL or 4PL providers,
companies can focus on improving their
core competencies while saving time and
money. Moreover, increased competition
has necessitated outsourcing to help
companies maintain their position in the
market. 4PL is the next step in the evolution
of the logistics industry, as more customers
require partners to share risks and gains.
IoT & Smart Logistics
The Internet of Things (IoT) is rapidly
gaining ground in the logistics sector in
the GCC, with companies implementing
enhanced connectivity technologies to
increase efficiency in port and road
logistics. IoT offers traders a mobile,
round-the-clock application platform that
gives them real-time information from any
geographical location. This in turn leads to
better traffic management in and around
port areas, and reduced waiting times at
the docks. As an example of a successful
IoT implementation in Dubai, part of
a “Smart Port” initiative, active RFID
(radio-frequency identification) tags have
been issued to trucks transporting cargo
to and from Jebel Ali terminal. The UAE
and Qatar will also invest significantly in the
development of IoT, with the GCC’s cloud
market set to grow from US$118.5 million
in 2014, to US$668.5 million by 2020.
The Oman OpportunityTrends in logistics
Autonomous Vehicles
Autonomous vehicles are capable of sensing
their environment on the basis of global
positioning systems (GPS), radar, sensors
and software, and navigate without human
input. The technology of autonomous
trucks holds great promise in the GCC as
it can infuse a lot of efficiency in the road
freight industry by reducing a large number
of low-value expat jobs and creating
high-value digital technology jobs for
GCC nationals. Most of the freight in the
GCC moves by truck, with more than one
million trucks currently in operation, and
this number has been growing at 5%–9%
year-on-year since 2012. Experts believe
that this trend would change the face of
the GCC logistics industry, providing great
cost savings and technological advantages
to trucking companies in the region.
GCC TRENDS
Development of Rail Network
The Gulf region’s railway landscape is set
to transform due to the vast number of
projects in planning and already underway.
The need to balance out excessive
dependence on roadways, save on fuel
costs, and lower environmental impact has
necessitated huge investment towards the
development of railways in the GCC region.
Over US$200 billion have been earmarked
for investment in constructing thousands of
kilometres of new railway lines across the
GCC. Saudi Arabian Railways is building a
massive rail network of 5,000 kilometres to
strengthen its existing road connectivity.
Contract logistics, integration of technology with logistics delivery, and smart port concepts are transforming the face of the GCC logistics industry.
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GCC LOGISTICS 2016
33
Additionally, Oman has signed other FTAs
7 6
9
16
911
13
16 16 17 17
2011
2012
2013
2014
2015
e
2016
f
2017
f
2018
f
2019
f
2020
f
2021
f
Oman: Value of Contract Awards by Year, 2008–2021 (US$ Bn)
GCC Project Awards Breakdown by Sector, 2008–21 (US$ Bn)
Oman Project Awards Breakdown by Sector, 2008–2021 (US$ Bn)
Source: MEED Insight Research & Analysis Source: MEED Insight Research & Analysis
Source: MEED Insight Research & Analysis
40
40
40
60
110
130
200
380
52
39
52
78
130
104
312
533
Water
Industrial
Chemical
Gas
Oil
Power
Transport
Construction
2015-21
2008-14
24%
20%
13%
11%
10%
8%
7%7%
Transport
Construction
Gas
Oil
Power
Chemical
Industrial
Water
Transport: Key Priority Sector
Total ContractAwards
2008-2021=
US$158 Bn
Top Export Destinations 2014
Source: World Integrated Trade Solution (WITS); MEED Insight Research & Analysis
Source: World Integrated Trade Solution (WITS); MEED Insight Research & Analysis
As part ofGCC
Signed free trade agreements with Syria (2005), Singapore (2008) and EFTA (2009)
As part ofGCC
Planning to establish with Australia, China, Mercosur, Japan, Jordan, Korea, Turkey, New Zealand, India,
Individually USA (2006)
China, 44.10%
Korea, 14.80%Japan,
7.20%
Other Asian
Countries, 7.50%
UAE, 4%
Rest of the
World, 22.50%36.6
47.152.1 55.5
50.7
19.8 23.628.1
34.329.3
2010
2011
2012
2013
2014
Export Import
Export CAGR: 8.5%Import CAGR: 10.3%
Opportunity Assessment: Projects
Opportunity Assessment: Oman Trade Overview
To reduce reliance on oil revenue, GCC
economies have been adopting policies that
support economic diversification. Heavy
investments in non-oil sectors, such as
construction, transport, power, and rail
infrastructure, have resulted in a constant
flow of projects in these sectors. This in
turn is expected to drive demand for
logistics and transportation services in
the GCC region.
In Oman, over the next six years, investment
worth US$100 billion is projected across
sectors such as transport, construction, oil
and gas, and chemicals, driven by heavy
government spending. During 2015–2021,
investments worth US$15 billion are
targeted for construction projects, backed
by plans to develop hotels, new roads and
highways. While in the power sector, the
focus will be on developing renewable
power generation facilities.
STRONG PROJECT PIPELINE ACROSS GCC AND OMAN
Compared with most of its GCC counterparts, Oman’s projects exhibit more diversity, with key sectors including transportation, construction, oil and gas, and chemicals.
Transportation forms a major investment
focus in Oman. Investments in the Oman
National Railway Project will exceed
US$15 billion, once the project is restarted.
The railway network will cover 2,135
kilometres and links Oman’s borders
with the UAE to the capital, Muscat.
The network will also connect to the
southern parts of the country: Port of
Duqm, Port of Salalah, and the border
with Yemen. The project will include both
freight and passenger trains. All these
projects have fuelled demand for port
logistics services. But some of these
projects are getting delayed owing to
funding issues. Any such delay in the
implementation of these projects is likely
to impact Oman’s logistics sector.
Oman, with its stable political and social
environment, has a substantial trade
surplus. The country has successfully built
a competitive and low-cost economy in
terms of production of goods. Oman’s
diversification efforts have resulted in
it starting to become an important
contributor to global trade. Oman became
part of the World Trade Oraganisation
(WTO) in 2000. It also signed a free-trade
agreement with the US in 2006, which
came into effect in 2009, with the
primary objectives of:
• Eliminating most tariff and
non-tariff barriers
• Expediting the movement of goods
• Strengthening protection for investors
• Protecting intellectual property
rights and labour
OMAN TRADE OVERVIEW
All the abovementioned initiatives have
boosted Oman’s trade environment.
During 2011–2014, total trade recorded
a CAGR of 9.2% to reach US$80 billion
in 2014. Between 2010 and 2013, Oman’s
total exports increased by 15%, while
imports increased by 20%. Trade activity
declined in 2014, mainly owing to a sharp
drop in oil prices.
Oman’s external trade is dominated by oil
exports, which account for the lion’s share
During 2011–2014, total trade recorded a CAGR of 9.2% to reach US$80 billion in 2014.
Oman: Trade Performance by Year, 2011–14 (US$ Bn)
of total exports. Other exports include
petroleum products, certain re-exports,
metals, as well as textiles and fish to Asian
countries such as China, Korea, and Japan.
Imports are also rising owing to heavy
investments, and include food, machinery,
transport equipment, and livestock from
the UAE, Japan, China, the US and India,
among others. Furthermore, on the back
of heavy investments, exports are expected
to rise to US$4,349 million and imports will
increase to US$3,624 million by 2020.
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GCC LOGISTICS 2016
35
While recent oil-price declines affected the Oman economy overall, steady investments in infrastructure, logistics, and various downstream sectors will help to create a more balanced economy.
36
GCC LOGISTICS 2016
37
Oman: Logistics Market (2015-2020) (US$ Bn)
Source: Frost and Sullivan
Source: MEED Insight Research & Analysis
8.81
12.3
2015 2020F
CAGR: 6.9%
Opportunity Assessment: Oman Logistics Market
SOHAR Port and Freezone (1/2)
Oman serves as a transhipment centre, by
sea, and is an ideal gateway for moving
goods by land into the interior of Saudi
Arabia, the UAE and Yemen. Additionally,
it shares marine borders with Pakistan
and Iran. In 2015, the logistics sector
contributed 4.9% to Oman’s GDP.
Oman’s logistics market is expected
to rise at a CAGR of 6.9% to reach
US$12.3 billion by 2020.
Oman’s government has concentrated on
the logistics and transportation sector
through the Oman Logistics Plan 2020, and
the Oman Logistics Strategy 2040. These
plans aim to improve soft infrastructure,
including the necessary regulatory
environment, support mechanisms and
national institutions, to catapult the
Sultanate into the top ten of the world’s
most logistics-friendly economies by 2040.
Additionally, the government has
undertaken several infrastructure projects,
including Sohar port and free-trade zone,
Salalah port and free-trade zone, Al-
Mazunah free-trade zone and Muscat
Knowledge IT city - the latter is Oman’s
flagship technology park aimed at
promoting entrepreneurial ventures.
OMAN LOGISTICS MARKETThese free-trade zones and SEZs enable
domestic and foreign businesses to set up
operations in Oman with benefits such as
100% foreign ownership. They offer
lucrative incentives such as tax exemption
for up to 50 years, no restriction on
repatriation of capital or profits, zero
customs duties, and tax exemption on
personal income.
The ports in Oman are strategically located,
with each port serving a specific function.
For instance, Duqm focuses on oil and gas,
and ship repairs; Salalah is a modern
container port that focuses on regional
distribution; Muttrah on tourism; Sur on
LNG transportation; and Sohar, as the
Sultanate’s major international hub, on
commercial and industrial development
across a number of sectors. In Oman, sea
transport is the predominant mode, with
more than 80% of total freight volumes
handled by Sohar and Salalah port together.
These ports are not only essential for
Oman, but also for the GCC, as rising
connectivity within the region will drive
more traffic through these ports. For
example, investments worth US$200 billion
are planned for the construction of over
With its strategic location and government focus on developing well-planned free-trade zones, Oman’s logistics sector is set to prosper at a CAGR of 6.9% during 2015–2020 to reach a total market size of US$12 billion.
2,000 kilometres of railways, which will
connect all the GCC countries. Additionally,
the opening of a new 680-kilometre road
between Oman and Saudi Arabia will
provide a more direct route between the
two countries, by avoiding congested UAE
border crossings. The new highway should
significantly increase road transport
efficiencies and will reduce the trucking
time from Sohar port to Saudi Arabia by up
to four days. Moreover, through its vision
plans, Oman government is committed to
focusing on improving soft infrastructure
and operational issues such as clearance
processes and regulatory hurdles.
Oman will also be a major economic
beneficiary of the lifting of international
sanctions against Iran, as Oman historically
shares close diplomatic and economic ties
with the country. Oman and Iran signed six
MOUs to boost commercial ties as recently
as 2014. Oman also has the potential to
become a major transportation hub for the
transit of goods between Iran and the rest
of the world, owing to its close geographic
proximity to Iran and its large, modern
ports and landside infrastructure.
Oman government has made a significant investment in the development of Sohar port and so has good reason to foresee strong growth. Oman’s strategic geographical location has turned it into a major point of investment and to leverage this, the government plans to develop a strong trade route between Oman and China.
- Krishna Kumar, General Manger, Kanoo Logistics, 2016
Sohar Port and Freezone is a deep-sea port,
located roughly 220 kilometres northwest
of the Sultanate’s capital of Muscat and
about the same distance from Dubai. Setup
in 2001 the port is managed by Sohar
Industrial Port Company (SIPC), which is a
50:50 joint venture between
the government of the Sultanate of Oman
and Port of Rotterdam. The port received
its first ship in 2004. The port and the
adjacent free-trade zone offer modern
infrastructure and operate on a landlord-
tenant model, with the port and free-zone
authorities acting as the landlord. In
addition to the Government of Oman
and Port of Rotterdam, SKIL Infrastructure
from India holds a small minority share in
Sohar free-zone as the provider for local
labour requirements. Today, the port
handles over 2,500 ships and well over
50 million tonnes of cargo a year. Sohar
Airport opened recently, offering an
additional airfreight cargo link to other
GCC states, with an initial planned capacity
of 50,000 tonnes/year.
Sohar Port and Freezone focuses on
key industries around four main clusters:
petrochemicals, food, metals and logistics.
From the outset, it partnered with leading
international providers to help setup and
operate its terminals: Oiltanking Odfjell for
SOHAR PORT AND FREEZONE: BENEFITS bulk liquid and gas storage; Hutchison
Whampoa for containers; C. Steinweg for
general and project cargo and stevedoring;
Vale who operate the dry bulk jetty and the
adjacent iron ore pelletizing plant; and
Svitzer who operate the tugs and other
marine services. In recent years, MXO
have offered bunker fuel services at the
port, including highly successful ship-to-ship
transfers in the offshore anchorage area.
The free-zone includes a cluster for ready
built warehousing and offers an ideal hub
for 3PL logistics providers; these include
Saudi-owned WPL Group who were
among the first specialised logistics
companies to rent land there.
Sohar Port and Freezone are setup to
operate in symbiosis, with the port
providing ample supplies of feedstock for
industry and seamless logistics facilities
for the export of any type of finished
product through the port’s terminals.
Thanks to massive infrastructure
investments, the Omani logistics hub
also provides excellent, uncongested road
and air access to all other GCC countries.
Additionally, Sohar provides easy access
to emerging markets such as East Africa
and the Indian sub-continent, as well as
to adjacent Iran.
Sohar Port and Freezone: Strategic Location
Sohar Port and Freezone is located
outside the Strait of Hormuz, which helps
to avoid the increased insurance premiums
associated with passing through this narrow
and congested waterway. Furthermore,
it offers easy accessibility via road systems,
connecting to different parts of Oman as
well as to other major GCC economies,
such as the UAE and Saudi Arabia.
Sohar Port: New Gateway to Gulf
Sohar Port has witnessed double-digit
growth every year over the past ten years
and is one of the fastest growing ports in
the world, with investments today totalling
US$25 billion. In 2015, it handled over 50
million tonnes of cargo, 12% more than in
2014. The closure of port Sultan Qaboos in
the capital Muscat, in 2014, helped to
consolidate volumes in Sohar and achieve
economies of scale, resulting in a 62%
increase in container traffic in 2015 over
2014. In the first-half of 2016, container
traffic saw continued year-on-year organic
growth of 18%. The new container terminal
in Sohar is equipped for 1.5 million TEU and
uses remote-controlled quay cranes that
are ready for next generation 20,000
TEU container vessels. A new and fully
automated, 6 million TEU terminal is in
the final planning stages and is due to
start construction by 2019.
38
GCC LOGISTICS 2016
39
� Ownership: 100% foreign ownership for Freezone tenants
Port of Sohar - Key Characteristics� Major Clusters
� Logistics
� Petrochemicals
� Metals
SOHAR Jebel Ali Hamriyah KIZAD Ras Al Khaimah
Power (USD / kWh) 0.04 0.09 0.12 0.04 0.11
Open land (USD / sq m) 7.00 5.44 - 21.78 6.81 - 10.89 2.72 - 6.81 9.53 - 13.61
Registration FZ company (USD) 2,700 – 4,100 4,100 2,500 1,400 1,900
General trade license (USD) 7,800 8,200 3,300 1,400 4,100
� Imports: Duty-free imports in the Freezone
� Capital Requirements: Low capital requirements, withUS$ 51,921 required to set up a company in the Freezone
� Cost of living: Lower cost of living compared with that inthe UAE
About MEED Insight
MEED Insight is the consulting arm of the MEED business. We provide bespoke market research, business plans, feasibility studies and corporate strategy development studies to help our clients make more informed and profitable business decisions. MEED Insight has access to a wealth of regional information ranging from broad macroeconomic statistics, to specific sector data to help our clients accurately and cost effectively forecast market growth and trends.
MEED Insight has a particular focus on project-related market data thanks to its proprietary database of projects in the region, MEED Projects. Thanks to the respected MEED brand name and MEED magazine, MEED Insight consultants have considerable access to the market, enabling them to speak directly to clients, consultants, government ministries and other companies.
About SOHAR
SOHAR Port and Freezone is a deep sea port and free zone in the Middle East, situated in the Sultanate of Oman midway between Dubai and Muscat. With current investments of US$25 billion, it is one of the world’s fastest growing port and free zone developments and lies at the centre of global trade routes between Europe and Asia.
SOHAR provides unequalled access to the fast diversifying economies of the Gulf and Iran, while avoiding the additional costs of passing through the Strait of Hormuz. The existing road network and airport and the future rail system provide direct connectivity to the UAE and Saudi Arabia, as well as to the rest of the world.
Equipped with deep-water jetties capable of handling the world’s largest ships, SOHAR has leading global partners that operate its container, dry bulk, liquid and gas terminals including Hutchison Whampoa, C. Steinweg Oman, Oiltanking Odfjell and Svitzer. SOHAR Port and Freezone is managed by Sohar Industrial Port Company (SIPC), a joint venture between Port of Rotterdam and the Sultanate of Oman.
Find out more at: soharportandfreezone.com
SOHAR Port and Freezone (2/2)Oman is gearing up to take full advantage
of its favourable geographic location by
investing heavily in infrastructure, and
SOHAR Port and Freezone is at centre of
its plans. The significant investment in
railway infrastructure integrating the three
main deep-water ports with the entire
country will be a major boost for Oman.
The ports will be directly connected to
different parts of Oman as well as to other
major GCC economies, such as the UAE
and Saudi Arabia, thereby bypassing the
Strait of Hormuz.
Moreover, a major dual-carriageway
road is being constructed in Oman and
Saudi Arabia, linking Ibri and Haradh-Batha
road. This combined road network will
reduce the distance to Saudi by more than
800 kilometres and the truck journey time
by up to four days, and will serve as a key
SOHAR PORT AND FREEZONE: PROVIDING OPPORTUNITIES connector between Riyadh and Sohar,
further increasing the viability of doing
business through Oman’s main port.
Apart from boasting direct connectivity
with Saudi Arabia and the UAE, the Sohar
port and free-zone also emerges as a
particularly good value-for-money
proposition for exporters and importers,
when compared with some of the other
ports in the region, having among the
lowest operating costs.
With its strategic location and government focus on developing well-planned free-trade zones, Oman’s logistics sector is set to prosper at a CAGR of 6.9% during 2015–2020 to reach a total market size of US$12 billion.
Thanks to a well established metals cluster,
lower costs and better connectivity to the
UAE, Saudi Arabia and Iran, the biggest
regional producers and consumers of iron
and steel, Sohar port is ideally placed to
facilitate iron and steel trade in the region.