Sponsored By:

Thought Leadership Report

GCC LOGISTICS 2017

2

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

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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

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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

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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)

30

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.

32

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.

34

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.

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