Emerging trends shaping supply chain in Saudi Arabia
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The pandemic first brought into the public spotlight the seriousness of logistics and supply chains, as major disruptions in the industry had an enduring impact on everyday life. Today, as the industry builds resilience, logistics is anticipated to be one of the strongest-performing sectors of the real estate market in the Middle East over the next five years.
Nowhere is this more apparent than in Saudi Arabia, where technological advancements, the greening of the logistics sector, and the government’s drive to localize manufacturing are shaping the supply chain dynamics across the Kingdom.
The ongoing evolution of the logistics market will likely continue as the Ministry of Transport has committed to significant changes in the industry and major global corporations are moving their logistics operations to the bonded zones in the Kingdom.
Logistics goes green
The global transportation sector, which accounts for 17 percent of global greenhouse gas emissions, is facing increased pressure to reduce its carbon footprint. In the same context, industry stakeholders in the Kingdom have committed to investments in electric ships, trucks and aircraft, leading to greater adoption of energy modeling, green building guidelines and carbon-neutral fuels, according to a JLL report.
Government regulations and incentives such as the In-Kingdom Total Value Add, also known as the IKTVA program, are further enabling the drive to decarbonization. In line with the Saudi Vision 2030, IKTVA aims to localize manufacturing, diversify the economy and reduce the supply chain of products produced within the Kingdom. To date, the most visible manifestation of this program is the King Salman Energy Park, or SPARK, which is developing outside Dammam. On completion, the new industrial city will contribute more than $6 billion annually to the Kingdom’s gross domestic product and create up to 100,000 direct and indirect jobs.
SPARK also signals a shift in momentum for local-made and global businesses such as California’s Lucid and Australia’s EV Metals Group Plc, which are exploring opportunities to manufacture cars and goods to further reduce the nation’s carbon footprint.
Capitalizing on these plans, global logistics giants are building an integrated logistics park in Port Jeddah, a strategic location that connects Africa, Asia, and Europe. The solar-powered project, developed on a site of 200,000 sqm, will raise the standards for digital and technologically advanced logistics infrastructure and cover all aspects of warehousing and distribution, cold chain logistics and e-commerce.
E-commerce growth
The pandemic, which accelerated the growth of e-commerce, has led to a pertinent need for building more warehouses across Saudi Arabia. Although online sales are currently low in the country, new data by Boston Consulting Group suggests they could increase from 6 percent of total sales in 2020 to 13 percent by 2025 — a growth that will fuel the demand for more warehouses and logistics spaces.
Leveraging new technologies will be essential for supply chains across the Kingdom as digitization impacts design and automation shapes the size and location of logistics facilities.
Advances in digital delivery are further accelerating the net-zero journey in high-emission industries and the logistics sector. It is also improving artificial intelligence in design, additive manufacturing and digital twins, enhancing sustainability and reducing greenhouse gas emissions.
For the successful delivery of giga-projects within the Kingdom, digital transformation tools and processes are critical, including in the logistics industry where, for instance, the adoption of building information modeling can optimize processes and make construction more efficient as well as carbon neutral.
Modular construction
The shift toward modular construction, aided by modern technologies, will be instrumental in delivering some of the Kingdom’s large-scale projects. By constructing standardized components of a building structure in a controlled off-site environment to be later assembled on-site, developers can expect significant speed and cost advantages as modular construction can potentially reduce construction timelines from 36 to 12 months for some projects.
Future trends
Alongside the demand for decarbonization and technology solutions, a few key trends that will matter this year and beyond include pop-up or dark warehouses. The pressure for shorter delivery times will significantly impact the logistics sector in Saudi Arabia, leading to an increased demand for small urban warehouses and large distribution centers on the outskirts of cities.
Investing in automation and robotics will remain a priority to improve supply chains in the future. As a result, the increased use of Trukker — an AI-driven cloud platform for logistics delivery — will likely be adopted more widely in the Middle East, North Africa and Turkiye market over the next few years.
Moreover, cold storage is one of the fastest-growing logistics sectors globally, with maximum demand from the food and beverage and pharmaceutical industries, which must store products before distribution.
Therefore, investment plans by global players such as Prologis, Brookfield and Goodmans will likely meet the Kingdom’s current deficit of cold storage facilities.
With improved infrastructure and digital tools to raise efficiency, transparency and operational performance, and Tabadul’s strategy of creating secure digital solutions for the logistics sector, the nation is well-placed to transform into a leading global logistics hub in line with the goals of Saudi Vision 2030.
• Syed Hussain is director of project and development services, JLL KSA
