April 4, 2018

Transport and Supply Chain in Saudi Arabia

The Kingdom of Saudi Arabia's (KSA) unprecedented reforms also means changes to the transport sector, with significant investments expected in seaports, road and rail networks to improve the efficiency of the transportation of goods within the Kingdom. Find out which issues the Saudi transportation sector is currently facing and how technology and other developments may impact it.

The KSA government has earmarked US$10 billion to be invested in ports over the next decade

The throughput of goods (excluding crude oil) in the KSA was 252 million tons and 6.5 million containers in 2016. 95% of those imported and exported goods are via seaports, while only 3% are by air and 2% by road. This makes the Kingdom one of the world's top sea freight destination from the EU and the USA, with nearly 50% of imported goods coming from North America and Asia. There are nine ports managed by the Saudi Port Authority ("SPA") and King Abdullah Port, which opened in 2014 just north of Jeddah, was the first fully private port in Saudi Arabia.  

Delivery time still an issue

One of the key issues faced by many importers and exporters is the time taken for goods to be eventually delivered to the end receiver after being unloaded from a ship. In KSA, that time is close to two to three weeks on average, which results in delays and increased costs for importers and exporters, as well as for shipowners/transporters. In European ports like Hamburg or Rotterdam, this delivery time can be as low as three to five days.

That being said, we have already observed a lot of changes with the opening of King Abdullah Port. The project, which is still ongoing, is a US$730 million project that approximately spans across 14 square kilometers, with 1,200 meters of berths and twelve quays. Major container lines have started to move their ships to King Abdullah Port from Jeddah Islamic Port, as the throughput time is already significantly lower and the Port much more efficient.

Investments & privatisation ahead

The KSA government has earmarked US$10 billion to be invested in ports over the next decade (over US$750 million on King Abdul Aziz Port in Dammam and over US$70 million on the Red Sea Gateway Terminal). In addition, the SPA has a mandate to fully privatise the nine ports that it currently manages – this includes Jeddah Islamic Port in Jeddah and King Abdul Aziz Port in Dammam. This is very exciting news for the transportation sector, as this will inevitably mean a much needed modernisation of the ports and implementation of technology, such as wireless technology enabling 24 hour container inspection and automated vehicles to transport containers within the ports.

The SPA's two main strategic objectives are (a) "to transform the authority into a modern and effective regulator that enables each port to compete" and (b) "corporatizing the ports for increased operational efficiency and effectiveness, allowing for more flexibility and responsiveness".

What does this mean for importers, transporters and port operators? Essentially, the SPA is looking to privatise the full management of the ports and is looking at international port operators to take over the management of the nine ports. This will increase investment, add to the KSA's economic growth and will also mean more flexibility on tariffs along with improved efficiency.

New laws

In addition, the current laws governing the transport of goods by sea and land are being overhauled. The Maritime Code has allegedly been approved for implementation, while the land transit laws are also being currently redrafted.

This is indeed very welcome news for the transportation sector as the current laws are very dated and have not moved with the change in technology / modernisation experienced in the transportation sector over the past few decades. Once the new laws are implemented, transporters and cargo interests should have more certainty when they experience disputes with their contractual counterparts.