Thought Leadership Report GCC LOGISTICS 2017

Sponsored By: FOREWORD Mark Geilenkirchen, Chief Executive Officer SOHAR Port and Freezone

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.

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.

2 GCC LOGISTICS 2016 The GCC Economy GCC Macroeconomic Overview

GDP GROWTH GCC VISION PLANS The petrodollar fuelled GCC economies been fairly successful in lowering its oil All the GCC states have formalised strategic, have had a strong run during the first dependency to 42% of GDP in 2014, long- term plans aimed at transforming decade of this millennium, registering a down from 55% in 2008. The UAE, the their economies and social policies. One compound annual growth rate (CAGR) of second-largest GCC economy, has also common thread across these vision plans 5.7% during 2000–2012. Though growth already diversified its economy away from is to develop non-oil sectors, such as momentum has slowed down significantly oil to a significant extent. While oil-price infrastructure and logistics. For instance, since then, to 3.5% CAGR during 2013- pains may continue for sometime, the GCC as part of its Vision 2030 plan, Saudi Arabia 2015, the GCC economies today are will continue to focus on diversification intends to leverage the PPP model to considerably more diversified. According and infrastructure development. enhance its connectivity with the rest of to IMF estimates, oil currently accounts the GCC and other countries through However, GCC governments may face for about 50% of the GCC region’s overall cross-border projects related to air, sea some issues in financing various expansion GDP, down from about 60% in 2000. and road. Through these initiatives, Saudi projects. In February 2016, S&P warned This has somewhat eased the grip of global plans to strengthen its position as a major that GCC economies might fall short of oil price fluctuations on GCC economies. trade hub and improve its global ranking resources to fund their projects during Still, the region’s fate remains closely tied in the Logistics Performance Index from 2016–2019. Though the GCC governments to the future of oil. 49 currently, to 25 by 2030. have allocated US$330 billion to various The significant drop in oil prices is estimated projects, S&P estimates the actual The UAE Vision 2021 focuses on critical to have led to a fiscal deficit in most GCC requirement to be closer to US$604 billion. sectors such as healthcare, education, and economies. The consolidated fiscal balance The GCC economies will need to raise infrastructure. Key government initiatives of the GCC region is estimated to have more funds from other channels, such as such as Abu Dhabi’s Surface Transport declined from a surplus of 4.8% of GDP public-private partnerships (PPP) or debt, Master Plan focus on strengthening the in 2014, to a deficit of 7.5% of GDP in to partially fund their ambitious UAE’s crucial infrastructure. Moreover, 2015. Among all GCC economies, Kuwait infrastructure projects. Dubai Expo 2020 and the Dubai Maritime and Oman have been the most severely Vision 2030 have further boosted affected by the oil-price decline, with 2014 investment in infrastructure projects. GDP growth in the countries falling to 1.3% These initiatives from the UAE government

and 2.9% respectively. Saudi Arabia has PPP Reserves Debt offer huge opportunities to logistics players and also generate interest from logistics providers, air carriers, shipping lines and freight forwarders. Oil Price and GCC GDP As part of Oman’s Vision 2020, the 0.1 130 6.4% government plans to increase investment 111.3 111.6 108.6 99.1 110 in tourism and infrastructure to accelerate 0.1 79.5 5.4% 5.4% overall economic growth. Other GCC 90 economies such as Bahrain, Qatar and Kuwait 0.1 70 are also focusing on economic diversification 51.8 52.3 and human capital development. 3.6% 43.0 50 0.0 3.5% 3.3% 30 0.0 GCC Real GDP Growth (%) 2.8% 2.3% 10 Although GCC economies still rely on oil as the main source of revenue, Brent Yearly Averages (USD/BBL) 0.0 -10 their concerted efforts over the last decade have resulted in a much more 2010 2011 2012 2013 2014 2015 2016E2017E diversified economy than was the case at beginning of this century. Source: IMF, EIA Note: Annual Oil Brent Prices 4 5 GCC LOGISTICS 2016 GCC Macroeconomic Overview

GROWING POPULATION RISING INVESTMENTS TRANSPORT SECTOR IN THE GCC Population in the GCC region is growing at a The GCC governments have planned a Heavy spending on construction, as well very rapid pace, with expatriates dominating spending outlay of USD$330 billion for as on oil and gas projects drives the GCC the population in most countries. By 2020, the 2016–2019 period for various projects. transportation sector. The sector’s the overall GCC population is forecast to Of this, US$50 billion has been allocated contribution to GDP in the GCC countries increase to 53 million, with the vast majority for infrastructure development, but S&P averages over 5.8%. This share is high under-25 years of age. The rapidly rising estimates the actual requirement for GCC when compared to developed economies: population will lead to greater infrastructure infrastructure investments could be double 3% in the US and 5% in the UK; and development, with focus on public services, this amount, at around US$100 billion. developing economies: 2% in India and transportation and housing in urban centres. 4.5% in China. This is mainly because of the Although the investment plan looks concerted efforts of the GCC governments encouraging, investment efforts differ to diversify their economies and further among countries. For instance, while develop infrastructure. Logistics have been Dubai increased its 2016 budget by 12% identified as one of the key sectors to year-on-year to boost its infrastructure support the GCC diversification strategies, spending, Saudi Arabia was forced to with huge infrastructure spending laid reduce its 2016 transport and infrastructure out over the near future. budget by 63% to keep next year’s fiscal deficit in check. In Qatar, road transport The contribution of transport sector differs has been the key focal area, accounting from country to country. The UAE, which Cumulative Population Growth for more than 95% of infrastructure has the most diversified economy in the % (2000–2014) investments, with maximum investment GCC, has invested huge amounts in the being diverted for the development transport sector and as a result has the 300% of roads, bridges and tunnels to highest transport sector contribution to 250% improve connectivity. GDP among all GCC nations. The outlook 200% for the sector in the country is positive, 150% with many major projects underway. 100% 50% 0% r y a n it A US dia rica KS UA E wa In Brazil Qata Chin Af Oman

Ku Bahrai S. German

Source: IMF

GCC Capital and Infrastructure Transport Sector Contribution to GDP Spending Plan (2016–2019) (2014) Overall Capital Government 9.0% 5.6% 3.2% Spending Spending UAE KSA Qatar US$480 Bn US$330 Bn 2012 2014 2012

6.6% 5.5% Fund allocated Additional Funds 4.7% for required Bahrain Oman infrastructure Kuwait US$270 Bn 2014 2014 2014 US$50 Bn

Source: Standards & Poor; ConstructionWeekOnline.com Source: Respective Government Websites

6 7 GCC LOGISTICS 2016 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.

8 9 GCC LOGISTICS 2016 Global Logistics Overview Global Logistics Infrastructure

MARKET SIZE REGIONAL ANALYSIS Logistics is the cornerstone for the smooth roadways had the biggest share of The 3PL model is the most successful one, Countries across the globe are spending Vitoria-Rio de Janeiro railway being built border with the UAE at Khatmat Malaha. functioning of all the sectors of an US$2 trillion. The global logistics industry accounting for 20% of the overall logistics significantly on infrastructure projects, at a cost of US$7.8 billion. This will increase Other major projects include the Sharq economy, as it brings together the entire is expected to expand at a robust CAGR market. It has been rising at a CAGR of including ports, roadways and railways, the logistics potential for bulk cargoes crossing in Doha and the Masirah Island value chain of industries. In 2015, the of 8.44% from 2015 to 2019. 5.1% from 2011 to 2015 to reach US$800 and warehousing. The total value of the top such as iron-ore, minerals and various causeway project in Oman. global logistics market was estimated to billion in 2015. The Asia-Pacific region leads 100 infrastructure projects underway across agricultural products. One of the emerging trends in the logistics Europe: In Europe, logistics growth will be be close to US$4.6 trillion, accounting for the 3PL market with 36% share, and also the globe is about US$560 billion. Asia industry is the rise of contract logistics, North America: The New International modest due to continuing fiscal constraints ~11% of global GDP. The logistics supply clocked the highest CAGR of 10% alone accounts for about US$225 billion which entails the outsourcing of logistics Trade Crossing (NITC) Bridge is one of the and targeted spending. However, railways chain comprises transport, warehousing, (2011–2015). A rapid expansion in the or 40% of the total value of the top 100 to specialised companies instead of keeping most impactful projects in the pipeline in are forecast to witness strong growth in forwarding, custom clearing and industrial and retail sectors, in conjunction infrastructure projects. Of the individual it in-house. 2PL (second-party logistics), North America. The US$950 million NITC mature markets such as Germany, the UK distribution components. The transport with a need for improvement in delivery subsectors in logistics, ports are predicted 3PL (third-party logistics) and 4PL (fourth- Bridge will connect Ontario in Canada and Spain. Rail Baltica is one of the priority segment, which accounts for close to 80% models, has driven the Asian 3PL market. to grow the fastest at 5.8% CAGR during party logistics) are three major logistics with Michigan in the US, to improve projects of the European Union, which will of logistics, is further sub-categorised into 2014-2025, particularly due to the growth models that fall under contract logistics. the connectivity at these major centres link Finland, the Baltic States and Poland road, rail, air and water freight, of which of industrial real estate around the ports. of commerce. One of the other major for better trade connectivity. The Gulf region and Eastern seaports are projects is Mexico City’s new airport, worth gaining much traction as they provide easy Asia-Pacific: The APAC market will Global Logistics Market Size 2015 3PL Logistics Revenue by Regions US$9.2 billion, which is expected to boost (US$ Bn) access to major population centres. represent nearly 60% of global airfreight logistics in North America. infrastructure spending by 2025. The Transportaion 800.7 Latin America: In Latin America, 5% 751.8 Roads will be the largest “One Belt One Road” project in China, 3% 685.1 703.8 Middle East: 12% Warehousing 81.6 US$47 billion will be invested in rail freight 77.2 42.9 growth segment in the Middle East, with aimed at integrating major Eurasian 69.6 69.0 41.9 44.9 transportation from 2014 to 2020. The US$4,600 43.6 116% rise in road investments from 2014 to economies, will lead to a paradigm shift Freight 290.3 Bn 269.6 Brazilian government launched a logistics Forwarding 242.7 255.6 2025. Qatar will be the most active market in infrastructure growth. The project 80% Value Added investment plan in 2013, with a budget of Services and 174.4 184.6 in the MENA region, with US$41.7 billion will link the land-based silk-road and the 158.0 158.1 US$26.8 billion for 12 new railway projects others worth of road projects lined up. Moreover, maritime silk-road, that links China’s port 201.3 171.2 176.2 188.7 totalling 10,000 kilometres over the next the Battinah expressway is one of the most facilities with the African coast, with the 30 years. One of the most significant rail 2012 2013 2014 2015E significant projects in Oman, stretching for aim to strengthen the trade ties with US$2,000 Bn US$250 Bn US$210 Bn North America Europe Asia-Pacific South America Other Regions projects is the 572 kilometre long 275 kilometres from Muscat to Oman’s other Asian and European nations. Source: Cerasis, Armstrong & Associates Source: Armstrong & Associates Inc.

Cumulative Global Logistics Infrastructure Investment (2014–2025) Contract Logistics Model Europe Actors Services US$2.2 Tn

Integration Service North America Cargo Owners In-house US$1.6 Tn 1PL MENA Transportation US$0.6 Tn Transport Carriers 2PL Outsourced Africa Asia-Pacific US$0.4 Tn US$8.3 Tn 3PL Logistics Service 3PL Transport +Warehousing Provider Latin America 4PL Logistics Service 4PL Entire Supply Chain Provider Management Outsourced US$0.95 Tn Supply Chain Source: PwC Source: MEED Insight Research & Analysis While Asia-Pacific accounts for the bulk of major infrastructure projects Global logistics industry has grown at a brisk rate, supported by increasing with large-scale infrastructure projects in China and India, Europe is outsourcing, innovative delivery models, and swift ecommerce market growth. catching up with a big pipeline of seaport projects.

10 11 GCC LOGISTICS 2016 Global Logistics Segments

SEA ROAD Oceans have always been one of the primary However, the outlook is promising, driven by pace in the Asia-Europe rail corridor. Road freight is the largest among all the modes of global transportation, especially the recovering demand for containerized and This was due to the Chinese manufacturer’s logistics segments as it serves as the for bulk cargo such as metals, coal, and bulk cargo. Due to factors such as increasing efforts to improve speed of exports as backbone of retail, wholesale and hydrocarbons. With the growth of global exports, expansion of new trade hubs, compared to sea, and reduce costs by agricultural sectors. The global road logistics international trade, shipping volumes and rising adoption of technology, the market up to 65% when compared to air. market can be segmented into four have further soared, requiring an expansion is expected to regain traction in 2015–2020. divisions: full truckloads; less than truck On the other hand, the UK witnessed of sea logistics. Asia-Pacific is expected to remain the largest load (LTL), where the shipment does not strong growth in rail freight in 2015, driven market due to economic growth in India require a full 48-foot or 53-foot trailer; Driven by strong growth in Chinese trade by the increase in volume of consumer and trade-focused regional development parcel; and same-day. Truckload accounts volumes during the last decade, the global goods being transported. Conversely, the plans in China, despite its financial turmoil. for the largest global share within the Increasing automation of trucks and In spite of mixed regional growth, the shipping lines witnessed a huge demand, slump in commodity markets in the US has But Europe and North America are expected segments. As is the case with the other liberalisation of policies are supporting global road freight market is set to attract leading to a steep rise in the shipping rates. adversely impacted exports. Shipments of to register only modest growth rates of transport segments, road freight also growth, while stringent environmental higher investments to record a CAGR of This prompted a frenzy of orders for new US coal, the biggest commodity moving by 2.5%–3%, against the global forecast of witnessed varying growth rates based on legislation due to growing carbon emissions 6.64% during 2013–2018. The European ships, as the carriers expected to reap good rail, declined 12% to 5.1 million carloads in 4.7% CAGR (2015–2020). the regional dynamics of the differences and growing congestion on the roads, road freight sector is expected to post margins. However, within three years, by 2015, and so did rail freight demand. in the industry growth, fiscal constraints, is creating new challenges. strong recovery for the heavy-duty truck 2012, when the new ships were ready to RAIL Extensive investments are planned in fuel prices and government policies. market, posting a 4.8% CAGR during launch, the global economy had fizzled In the Asia-Pacific region, demand for Rail plays a pivotal role both in passenger the high-speed rail (HSR) segment, and 2014–2019. Russia will be one of the top out and the shipping operators faced losses In the US, the trucking tonnage index, heavy trucks in China in 2015 declined movement as well as cargo handling, Germany is forecast to rank among the performing BRIC (Brazil, Russia, India and due to the investments already made in which measures the gross tonnage of by 3.3% year-on-year, to 748,000 units, especially of bulk items such as coal and iron top three global HSR markets by 2020. China) markets, as the demand from these vessels. goods transported through roads, declined mainly owing to the impact of consolidation ore. Rail freight is witnessing mixed demand The MENA region will witness significant neighbouring eastern European markets 0.9% at the end of 2014, but increased by in the Chinese logistics market. In 2013, the ship-owners again started across the globe, with some regions posting investments due to the rise in trade activities will boost demand. China will experience 3% in 2015 with similar trends expected to to take a cue from high freight prices due strong growth and others witnessing and the growing emphasis placed on the However, the situation in China started robust growth by 2020, due to quick continue in 2016. This was due to strong to the surge in China’s coal imports. But decline. For instance, the China Railway development of railway networks. The to improve in 2015, driven by new implementation of low-carbon growth in retail, expansion of the energy surprisingly, the global market crashed Corp reported 11.6% year-on-year decline region has allocated US$250 billion for infrastructure projects, energy conservation transportation systems, government sector and a growing population. European again in 2014 because of changes in China’s to 227 million tonnes in railway cargo numerous railway projects in Riyadh, Jeddah, and emission reduction drives, and rapid spending and population growth. road freight transport increased marginally import policies, which hurt the demand for volume during 2015, primarily due to Doha, Abu Dhabi and Kuwait, among growth in e-commerce demand. Moving by 0.4% in 2014, compared to 2013, with coal imports. This further exacerbated the faltering demand especially for industrial others, to layout 67,000 kilometres of forward, financial challenges in China will national transport being more or less stable, situation of excess supply of ships compared goods. But the demand grew at a brisk railway tracks throughout the MENA region. continue to press against the growth while cross-trade and motor vehicle to their demand. momentum in the logistics industry. transport recorded robust growth.

Global Rail Traffic Forecast (in Trillions) Global Heavy Truck Demand (2013–2022)

12.3 CAGR CAGR CAGR CAGR CAGR CAGR CAGR CAGR (In Trillions) 3.3% 4.9% 5.5% 14.0% 10.0% 5.1% 9.8% 8.0% 10.1 1,180 Units in ‘000s 2013 4.7 2013 3.1 700 2020 2022

320 380 Passenger Kilometer Freight Tonnage 240 300 250 160 220 220 220 200 (pkm) Kilometer (tkm) 90 100 90 70

Source: Frost & Sullivan North AmericaSouth AmericaChina India RussiaEuropeNext 11 Rest of the Source: Frost & Sullivan World (base year 2013) Huge investments made by the global shipping carriers in megaships during the early part of this decade, followed by an unexpected decline in global Roads will remain a major connector for freight and passengers trade, has led to overcapacity. within Asia, with China and India driving growth in this segment.

12 13 GCC LOGISTICS 2016 GCC Logistics

AIR WAREHOUSING Aviation is a crucial mode of transport for the growth in demand, with a capacity hike of Warehousing is a significant part of logistics movement of high-value and time-sensitive 19.2% year-on-year. In the Middle East, the enabling the value chain players to stock goods, besides meeting the growing airlines have started pursuing a successful hub goods in appropriate condition until the passenger demand. According to the strategy that connects the long and short haul market demand is elicited. The global storage International Air Transport Association (IATA), markets, thereby improving trade connectivity. and warehousing industry has grown at the airfreight demand was volatile in 2015, Asia-Pacific’s airfreight volume grew 10% in a strong pace to reach a market size of with a 3.3% year-on-year increase in 2015, while Europe and North America’s US$566.4 billion as of 2014, driven by cargo volumes. volume was below the global average of export-import growth, the global retail 11% for the same period. industry, especially e-commerce, and During 2015, sluggish growth in the airfreight overall industrial production. Growth market was primarily due to weak growth IATA has predicted that international airfreight opportunities were strong in the developing in global trade and a slowdown in China. volumes will rise at CAGR of 4.1% from 2015 countries of Asia and Africa due to Besides that, qualitative easing in the to 2020. During this period, the Middle East increasing trade activities, and accelerated Eurozone, global concern about rising carbon will be the fastest-growing region at 4.7% government spending on enhancing emissions from aviation, and structural CAGR, followed by Africa at 4.4% CAGR, warehousing infrastructure. changes due to the shortening of supply and Asia-Pacific and Latin America at 3.8% chains were the other factors contributing CAGR. By 2018, the three largest global In Europe, trade growth has significantly to this sluggish growth. airfreight markets will be the US, China and outpaced the region’s GDP growth, leading the UAE. Qatar will also witness a notable to a rise in the demand for warehouses The global freight load factor, the ratio of CAGR of 5.7%. However, the overall outlook needed to store goods in-transit. This in turn revenue cargo tonne miles to the available for the airfreight market remains slightly has led to investments in warehouse property cargo tonne miles, was 47% in October 2015, muted due to factors such as geopolitical development in northern European port areas much lower than the passenger load factor of concerns, volatile oil prices and the constant and inland hubs. Outsourcing demand is also 79.1% in 2014. However in 2015, the Middle threat of trade protectionism. strong in the warehousing market, with East carriers witnessed a 15.3% year-on-year 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.

14 15 GCC LOGISTICS 2016 GCC Logistics Market Size GCC Logistics Segments

MARKET OVERVIEW GCC RAILWAYS: A WORK-IN-PROGRESS INFRASTRUCTURE The strategic location of the GCC as a The UAE, Saudi Arabia and Oman together While concerns loom large over the Railways are one of the main pillars of the It would have huge impact on GCC logistics However, the second phase of the gateway between Europe and Asia has accounted for about 79% of the total value low oil-price environment, the need for logistical infrastructure of any country. They industry and would help to promote project has been put on hold to control created a strong logistics market in the region. of GCC logistics market in 2015. All these a fully functional logistics sector to support function as a major conveyance for both intra-GCC trade. Originally planned for public spending to compensate for countries have witnessed significant growth a diversified economy will ensure that the passengers and cargo. However, the same completion in 2018, the actual completion falling oil revenues. Additionally, the efforts of all GCC economies in logistics capacity in the last decade. sector continues to receive due attention. cannot be said of the GCC. Unfavourable of this railway line has been delayed and to focus on diversification away from oil have In Saudi Arabia, the Saudi Landbridge The UAE, for instance, overtook countries The UAE’s logistics sector is expected to geographic conditions, relatively small country the new date has still not yet been finalized. further propelled the GCC logistics market. Railway Project, focusing on cargo and such as the UK, Germany, Italy, Spain grow at slightly slower CAGR of 5.7% size, with the exception of Saudi Arabia and One of the main reasons for this delay is Large-scale infrastructural developments, passenger usage, is being built at a cost and Belgium, with more than 19.3 million during 2015–2020, compared to that Oman, and the availability of cheap fuel for budget shortage owing to low oil prices, in a booming retail industry, and a high of US$7 billion. It is a 950-kilometre line 20-foot equivalent units (TEUs) of container in other countries such as Qatar, expected road transport have made roads the preferred turn leading to lower government revenues; dependence on international trade are connecting Jeddah on the Red Sea with traffic shipped in 2013. Other GCC to record a CAGR of 12.5% owing to option for inland logistics. However, this and the lack of consensus between member some of the major drivers that have been Dammam on the Arabian Gulf. Another countries also witnessed strong growth huge spending for the 2022 FIFA situation has changed over the recent past, countries as they focus on short-term instrumental in the logistics market growth major project in Saudi Arabia is the in logistics demand. From 2000 to 2013, World Cup over the same period. especially in view of the diversification efforts budgetary constraints over their prior story. The GCC logistics market forms a North-South Railway. At US$3.5 billion, Saudi Arabia’s container traffic shipment Oman’s logistics sector will also register undertaken by the region’s economies. With commitments to the GCC Rail agenda. fundamental part of the economy and it is a 2,400-kilometre line connecting grew 4.5 fold, while that of Oman grew strong growth, at a CAGR of about 6.9% the growth of various sectors, especially Adding to the delay, the 2016 tender grew at a brisk pace to reach a value of the bauxite and phosphate mines at 3.4 fold. This growth is further evidenced over the same period. The logistics sector manufacturing and construction, the suspension for phase two of the Etihad Rail US$71.7 billion in 2015, and continues Az Zubairah and Al Jalamid to processing by the Agility Emerging Markets Logistics in the GCC region as a whole is expected requirement to transport greater quantities project in the UAE has further created a to expand further. facilities at Ras Azur Port. Index 2016, in which the UAE, at number to register a CAGR of 6.9% over the next of bulk raw materials has created the need for situation of uncertainty. two, and Saudi Arabia, at number 5, five years as regional governments invest a functioning rail network. Considering these In Oman, the US$15 billion Oman National In the UAE, Etihad Rail is developing featured among the most promising heavily in this vital sector. changed circumstances, the GCC countries Railway network, with an estimated length the UAE national network to support emerging logistics markets. have implemented various rail projects. of 2,135-kilometres, is planned. This railway both passenger and freight transport line would connect the UAE to Muscat and The most ambitious rail project is the GCC across the country. The network will be southern parts of the country, including the Country-wise Logistics Market Share 2015 GCC Logistics Market Growth (US$ Bn) Railway Network, which would connect all 1,200-kilometres long and is projected to ports of Sohar, Duqm and Salalah. Along GCC countries. The project is planned to cost US$11 billion. The first phase, which similar lines, the Qatar Integrated Railways extend 2,177 kilometres in length and has covers 264 kilometres, has been completed 3% Project for passenger and freight usage is 3% 100.1 an estimated budget of US$250 billion. and is being used for commercial purposes. 93.7 also being developed. 12% 87.6 82.0 Proposed GCC Rail Network 76.7 42% 71.7 RAIL VERSUS ROAD TRANSPORTATION 15% US$71.7 Bn One freight train can replace 50 trucks Uses 60%–80% less energy per km compared to roads Safer mode of transport 25% Causes less CO2 emissions compared to road transport

UAE KSA Qatar Oman Kuwait Bahrain 2015 2016 2017 2018 2019 2020 By 2020, the share of railway in cargo Source: MEED Insight Research & Analysis Source: MEED Insight Research & Analysis transportation is expected to reach 20%–25% for Saudi Arabia, 15%–20% for Source: MEED Insight the UAE, and 10%–15% for Oman. With various projects underway or planned, the Developing railways as a viable mode of logistics GCC logistics and transportation sector is GCC logistics market has been growing at a brisk pace, primarily driven is a top priority for GCC economies, as they likely to undergo a major transformation. by the region’s economic diversification efforts, strong infrastructure would eventually replace roadways as the investments and strategic location. logistical backbone of the region.

16 17 GCC LOGISTICS 2016

ROADWAYS: THE REAL CONNECTOR IN GCC AIR: GCC SKIES ARE AMONG THE BUSIEST IN THE WORLD Road infrastructure plays a crucial role in However, the situation is being addressed Kuwait is also investing US$6.2 billion in In terms of infrastructure, Saudi Arabia has To keep pace with the strong outlook for With growth drivers firmly in place, the GCC the GCC inland logistics space, as the railway with major road development projects. the development of road projects covering the highest number of airports in the GCC air-traffic, the GCC countries are making air logistics market has a promising future. network is still not established. Therefore, Saudi Arabia is leading the race with close a distance of 550 kilometres. Key projects region with 33, followed by Oman with 10, necessary investments in airport The FIFA World Cup 2022 and the World businesses and individuals still have a to US$35 billion being allocated to various include the US$875.8 million Jahra Road and the UAE with 9. Kuwait, Bahrain and infrastructure, with about US$40 billion Expo 2020 will further attract global tourists significant reliance on road transportation. road projects. The largest project is the development, one of the largest elevated Oman have two airports each. This is more being invested. The UAE has laid out to the region and will send the aviation The GCC is estimated to have about 276,252 Riyadh Road Development Project, planned road projects in the world, and the or less proportionate to the landmass of an US$18.8 billion expansion plan with market into overdrive mode. In an estimate kilometres of road networks. The availability over four phases and costing US$13.3 billion. US$789 million Jamal Abdul Nasser Street the countries, as the airports are laid out US$15.9 billion allocated for Dubai airport. made by Boeing, the Gulf region will require of low-cost fuel has also worked in favour of This project will create 491 kilometres of development to transform the street into from a connectivity standpoint. The cargo capacity at the airport is slated more than 3,000 new planes over the next roadways as the preferred mode of transport new roads and 180 bridges, in addition to a world-class expressway. to increase from 600,000 tons to 1.4 million two decades, 70% of which will go to the In 2015, the Middle Eastern airfreight sector in the GCC. It is estimated that more than improving 779 kilometres of existing roads. tons per annum. Qatar is investing GCC. The GCC governments are also focusing Oman is not far behind, investing expanded 11.3% year-on-year. The freight 90% of inland freight in the GCC is carried Another visionary project is a US$5 billion US$15.5 billion in its Hamad International heavily on the aviation sector to diversify their US$3.9 billion in one of the biggest road load factor for the region was 42.8% in 2015, on roadways. bridge, the Saudi–Egypt Causeway linking airport in Doha while Kuwait is investing economies. According to the International Air projects in the country, the Batinah which was quite healthy compared to the Saudi Arabia with Egypt. However, this project US$6 billion in the Kuwait International airport Transport Association (IATA), the Middle East Despite the importance of road transport Expressway. It will work as an extension global average. Airlines in the GCC region, is delayed owing to on-going political tensions expansion, including a new terminal and is expected to be one of the fastest growing for logistics in the GCC, the network is not of the Muscat Expressway and spans over such as Emirates, Etihad and Qatar Airways, between the two countries. establishment of a cargo facility. Saudi Arabia regions in terms of passenger traffic, as developed as needed. Road density, which 265 kilometres to the Oman-UAE border. have led the way and expanded their freight is investing US$4.4 billion to expand capacity recording a CAGR of 4.6% until 2034. is the ratio of total road network to total land Qatar comes next in line, with an ambitious Additionally, Oman has built the networks and increased their cargo capacities. at its King Khaled International Airport. All these factors point towards a strong area in a country, is quite low. Also, the road five-year plan to build 8,500-kilometres of Oman-Saudi Arabia road, which has According to the International Air Transport outlook for the GCC air logistics segments. network in three GCC countries is below new highways, 200 new bridges and 30 reduced the distance between two Association (IATA), the Middle East is the global average. new tunnels by 2020. In the run-up to the countries by 800 kilometres. expected to be one of the fastest growing 2022 FIFA World Cup, Qatar has earmarked Over next five years, GCC investment in regions in terms of passenger traffic, GCC Air Freight, Million Tonne – Km (2014 ) US$150 billion for infrastructure projects, road infrastructure is projected to grow recording a CAGR of 4.6% until 2034. of which US$20 billion has been allocated at a healthy rate as GCC governments All these factors point towards a strong Air Freight** (Mn for investments in the road sector. Country plan to increase budgetary allocations to outlook for the GCC air logistics segments. Tonne – Km) fuel employment opportunities, economic growth and diversification efforts. Freight Load Factors* (2014) United Arab Emirates 15,624

Road Density Comparison GCC Qatar 5,993 (per 100 sq. km) 54% 45% 43% 38% 34% Saudi Arabia 1,842 30% Bahrain 542 Oman 275 Qatar 85

Kuwait 37 Asia-Pac European Middle Lat-Am North-Am African Bahrain 274 World 33 Carriers Carriers Eastern Carriers Carriers Carriers Carriers Oman 19 Kuwait 259 Source: International Air Transport Association Saudi 10 Arabia *Freight Load Factors : The load factor is the ratio of the average cargo Source: World Bank UAE 5 revenues earned to total freight capacity. **Airfreight: Airfreight is the volume of freight, express and diplomatic bags carried on each flight stage (operation of an Source: World Bank, CIA aircraft from take-off to its next landing), measured in metric tons times kilometres travelled. Low fuel costs and sandy terrain make the GCC naturally dependent on Healthy freight load factors will keep the GCC air logistics roadways as the primary logistics network. sector soaring at high altitude.

18 19 GCC LOGISTICS 2016 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.

20 21 GCC LOGISTICS 2016 Market Dynamics

SEAPORTS: THE GATES OF GCC GCC LOGISTICS: MARKET DYNAMICS The GCC has traditionally been a major, Sea transport accounts for more than Seaports in the GCC were operating at The GCC logistics industry is highly of listed transportation and logistics M&A activities to expand their geographic international oil-trading hub. This trade- 80% of freight among all logistics activities about 75% of capacity in 2015, with the fragmented, with many small players. enterprises in the GCC. While local players presence and business operations. In 2015, orientation of the region has become even in Oman, mainly handled by Sohar and highest capacity utilization in the UAE at Furthermore, owing to the region’s high dominate inland logistics in the GCC, players such as Aramex (UAE), Agility Public more pronounced as the GCC focuses on Salalah ports. Oman has seven seaports, 80%. Growing sea trade in the GCC has attractiveness, the number of new players multinational players such as DHL and Warehousing (Kuwait), and DP World (UAE) building its economy and infrastructure. of which the Port of Salalah is the largest also led to higher investments in port entering the market is increasing. The UAE FedEx lead international transportation were the most active acquirers. In 2015, The various seaports of the GCC, spread multi-purpose port, with facilities to handle facilities. These investments are not just alone has about 4,700 logistics companies, and freight forwarding by sea. M&A deals in the freight-trucking subsector over its broken coastline, have served as bulk cargo, containers, and general and for upgrading current facilities, but also with 90% being small, unorganized players. accounted for a larger share of 32%, Over the past few years, a trend of vital cogs in this trade machinery. The GCC liquid cargoes. It also offers value-added for building new ones. For instance, Due to this highly fragmented structure, compared to 22% in 2014. Investors are consolidation has been observed in the has about 48 seaports, which together services such as bunkering, container Saudi Arabia has a five-year plan to the GCC logistics sector faces a number focusing on the freight-trucking subsector GCC transport and logistics industry. account for more than 50 million TEUs of repairs, a container freight station, develop and expand its port facilities of challenges, such as a lack of skilled Name as they foreseeServices huge potential in it. The logistics market in the Middle East the total container port capacity of the warehousing, and ship repairs. In Oman, with investments worth US$30 billion. manpower and an uncertain regulatory witnessed 25 deals in 2015, compared to Cargo services MENA region. sea freight is estimated to grow 4.8% environment. While private players DP World 18 in 2014. In 2015, the UAE announced Marine terminal year-on-year in 2016, driven by increasing dominate the sector’s landscape in the The UAE alone has nine seaports, with a seven transactions, Saudi Arabia six, and intra-regional GCC trade. GCC, about 23 companies are listed on Land freight Aramex total container capacity of 36.5 million TEU. Kuwait five. Companies are undertaking Air freight various stock exchanges across the Gulf The largest seaports in the GCC are Dubai/ States. With nine companies, the Kuwait Cruise terminal services Jebel Ali, in the UAE; followed by Fujairah, Port Services Container Major GCC Sea Ports & Respective Capacities (2015 in Mn TEU) Stock Exchange has the highest number Corp. UAE; Jeddah, Saudi Arabia; Sharjah/Khor Marine & security services Fakkan, UAE; and Salalah, Oman. Dubai’s Land freight Jebel Ali is the world’s largest man-made Agility Air freight harbour and the biggest seaport in MENA. Top Logistics Operators in GCC Sea freight The port featured among the top 10 ports Gas & marine services DammanD (1.9) National in the world in 2013, in terms of volume of Shipping Co of General cargo Sharjah (2.5) Name Services Name Services Saudi Arabia Crude oil transport containers handled. Built by DP World and Jabel Ali(19) Khalifa (3) inaugurated in 2014, the new container Sohar(1.2) Cargo services Gulf WarehousingCargo services and DP World DP World distribution Terminal 3 has increased the port’s total UAE Marine terminal Warehousing Marine terminal King Abdullah (3) Saudi Company International transport capacity to 19 million TEU. Arabia Jeddah (4.1) Land freight Land freight Aramex Aramex Warehousing and Saudi Arabia has 21 seaports, which Air freight KGL Logistics Airdistribution freight Oman Duqm (3.5) Freight forwarding handled 6.74 million TEU of freight in 2013. Company Cruise terminal services Cruise terminal services Port Services Port Services Jeddah port in Saudi Arabia has emerged as Container Container Salalah(2.5) Corp. Corp. Marine & security services MarineFreight &transportation security services one of the most important gateway ports in DHL Warehousing the Middle East. In 2014, the total container Source: Respective Ports Association, Gulf News Articles Land freight Land freight throughput at the port was 4.1 million TEU, Agility Air freight AgilityFedEx AirShipping freight or 87% of its capacity. The port has three Sea freight Sea freight terminals: Northern Container Terminal, National Gas & marine services National GasWarehousing & marine servicesand Red Sea Gateway Terminal, and Shipping Co of General cargo ShippingBarloworld Co of Generaldistribution cargo Logistics Freight forwarding Southern Container Terminal. Saudi Arabia Crude oil transport Saudi Arabia Crude oil transport

Source:Gulf News Articles, Company Warehousing Websites and Gulf Warehousing and Warehousing distribution Warehousing distribution Company International transport Company International transport

Warehousing and Warehousing and KGL Logistics distribution KGL Logistics distribution Company Freight forwarding Company Freight forwarding Seaports in the GCC were operating at about 75% of capacity in 2015, GCC logistics sector is highly fragmented, with many players. However, Freight transportation Freight transportation with the highest capacity utilization in the UAE at 80%. theDHL market is witnessing consolidationDHL through M&A activities. Warehousing Warehousing 22 23 FedEx Shipping FedEx Shipping

Warehousing and Warehousing and Barloworld distribution Barloworld distribution Logistics Freight forwarding Logistics Freight forwarding GCC LOGISTICS 2016 GCC Logistics Drivers Growth Drivers (1/3) and Trends

FREE TRADE ZONES: STRENGTHENING THE LOGISTICS SECTOR A focused approach towards the offering a range of benefits to businesses, development of free-trade zones by such as 100% foreign ownership, Qatar the GCC nations has been a major 100% import and export tax exemptions, Ras Bufontos free-trade zone spans contributor to the development of the 100% repatriation of capital and profits, 4.1 square kilometres of land close to the logistics sector. Also, the promotional corporate tax exemptions up to 50 years, new Hamad International Airport and is policies of free-trade zones have attracted no personal income tax, and assistance with specialised for companies operating in the multinational corporations to setup labour and support services. One of the technology, energy, construction, info-tech, continent-level distribution centres for latest free-trade zones is Umm Al-Quwain, and transportation sectors. Two other air and sea modes, thereby boosting set up primarily for SMEs and micro special economic zones include Um Alhoul the logistics services market. businesses; however, it is also attracting and Al Karaana. Um Alhoul will be a larger businesses. 33.5 square kilometres light-manufacturing Saudi Arabia cluster adjoining the new port project, Oman south of Al Wakrah, while the 38.4 square Saudi Arabia’s General Authority of Civil kilometre Al Karaana, located halfway Aviation (GACA), with the support of other To diversify its non-oil revenues, Oman between Doha and Abu Samra, targets government agencies, is planning to set began setting up free-trade zones in 2000. businesses involved in building materials, up free-trade zones at Jeddah and Riyadh Oman currently has three functioning machinery and fabrication, specialised airports as part of the long-term plan to free-trade zones: at Salalah, Sohar and Al spill-over industries, as well as safety, diversify the Kingdom’s economy. The Mazunah. Salalah and Sohar are the larger maintenance, and specialised warehousing free-trade zones would be set up to attract and more important free-trade zones, and logistics activities. foreign businesses through relaxed and operate major projects. Oman is now licencing, visa and taxation rules across building its fourth free-trade zone at the industrial and services sectors. port city of Duqm, which when completed Bahrain is planned to cover a mammoth 1,777 Bahrain boasts three main free-trade square kilometres, to serve the tailored zones: Bahrain Logistics Zone, Bahrain needs of heavy manufacturing, tourism, International Investment Park, and Bahrain logistics, food packaging, education and International Airport. These are suitable fishery industries. for foreign companies intending to use Bahrain as a regional manufacturing or Kuwait distribution base. These free-trade zones enjoy a robust infrastructure and offer Kuwait plans to build free-trade zones on significant investment opportunities for five of its islands: Boubyan, Failaka, Warba, UAE logistical expansion, to help overcome Miskan and Awha. The planned zones existing trade bottlenecks. Free-trade zones are an established would serve as economic and cultural phenomenon in the UAE. Jebel Ali, the gateways between the northern Gulf region UAE’s first free-trade zone, was setup and Kuwait. These are slated to boost in 1985, and has helped the country regional and international competitiveness. to significantly boost its industrial base The proposal includes involving the private and diversify its economy. Well over 20 sector to finance, execute and operate free-trade zones now exist in the country, 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.

24 25 GCC LOGISTICS 2016 Growth Drivers (2/3) Growth Drivers (3/3)

POPULATION GROWTH MANUFACTURING RETAIL GROWTH E-COMMERCE GROWTH GCC TRADE In 2015, the population of the GCC region SECTOR BOOM Growth in the retail sector and the High internet penetration and the changing Trade with Asia and Europe is likely to remain As the GCC develops itself as an important was about 50 million, with expats making The GCC manufacturing sector, expanding expansion of logistics networks across buying habits of consumers in the GCC the major driver of freight forwarding and global trade hub, demand in its logistics up more than 40% of the total. The at a CAGR of 5.2%, is one of the primary the GCC region share a cause and effect have been the main drivers of a five-fold transportation companies in the region. The sector will rise strongly. Typically, the UAE region’s growing population, compounded factors driving the demand for logistics in relationship, as each has been driving the jump in e-commerce demand, from US$3.3 booming GCC trade results in huge demand and Qatar have been the most active by a high proportion of expats along with a the region. Factors driving manufacturing development of the other. There has been billion in 2010 to US$15 billion by 2015. for port services. Between 2012 and 2014, trading nations in the GCC, while the much large working-age demographic, increases industry growth include low setup and a boom in the construction of refrigerated About 54% of the population in the GCC is the region’s total imports increased by 5.3%, larger economy of Saudi Arabia has to-date travel frequencies and makes further running costs, duty-free access to warehousing facilities, especially in Dubai, young, below 25 years of age, and mostly while total exports decreased by 2.9%, been slightly inward facing. But that is investment in transportation and logistics manufactured goods in the GCC, the Oman, Kuwait and Saudi Arabia, with tech-savvy, further driving online retail mainly due to falling oil prices. The major changing now, with all the GCC nations imperative. The growing population also Greater Arab Free Trade Area (GAFTA), the significant levels of investment in cold chain demand. Lured by growth volumes, private trade partners of the GCC region include becoming more focused on diversification increases trade demand, stimulating all US-GCC Framework Agreement for Trade, logistics. This has been due to the rapid equity and venture capital firms are also the twenty-eight countries of the European and strengthening trade relations with industries from retail to automotive, and favourable tax regimes. growth in the FMGC retail markets, fresh investing in the GCC’s burgeoning Union, China and India, which together other nations. enhancing the attractiveness of the GCC In 2015, the GCC region had 16,842 foods market, and the growing preference e-commerce sector. account for nearly 40% of its total trade. region for investment across sectors, for frozen and chilled foods. Due to the manufacturing units, and the sector is Swift logistics is indispensible in order to leading to the further expansion in logistics. growing opportunities and promising GCC: Total Trade (2010–2015) US$ Bn projected to witness a CAGR of 4.8% from manage inventories, billing, packaging, 2015 to 2020. Logistics, an integral part of the prospects, private players are also investing 789 Between 2014 and 2019, the GCC’s shipping, cash on delivery, product return 745 710 644 supply chain, is essential for the procurement, in logistics. In late 2013, Spinneys, the 580 population is expected to increase at an and exchange, tracking, and much more. 479 487 production, distribution and handling of raw Middle East supermarket chain, expressed 392 408 421 annual rate of 2.5%, much higher than the But as an emerging economy, operational 277 316 its willingness to invest in constructing cold aggregate global population growth rate of materials and finished goods. gaps on the GCC’s logistics front are storage facilities worth US$15 million in the 1.2%, further driving demand in the sector. Moreover, the capital-intensive nature of posing significant bottlenecks to growth. logistics cluster of Khalifa Industrial Zone in GCC industry makes it imperative to have a Nonetheless, e-commerce is still one of the

Abu Dhabi, UAE. 201 0 201 1 201 2 201 3 201 4 201 5 robust logistics infrastructure. The growth top megatrends to boost business in the Export Import in the manufacturing industry has been The GCC retail market was valued at GCC and is therefore expected to climb supporting strategic initiatives such as US$221 billion in 2015, driven by steady 40% by 2020. Source: Directorate-General for Trade import substitution. economic growth; rising disposable incomes; a growing, young and affluent GCC E-commerce Market Share 2014 Top GCC Trading Partners 2015 population; increasing penetration of

international retail players; and mega UAE 53% Top 10 Value of Trade (In US$ % events such as the 2022 FIFA World Cup, KSA 14% Partners Millions) Total Oman 12% EU 28 180,80616.8 and Dubai Expo 2020. Qatar 10% Kuwait China 137,20112.8 & 11% Youth Population 0–24 years, 2014 (%) GCC Retail Sales 2013–2016F (US$ Bn) Bahrain India 104,9149.8 Japan91,8828.5 UAE 34% 285.5 USA88,0498.2 KSA 47% 246.4 213.4 South Korea64,8406.7 Qatar 26% 199.7 Source: Frost & Sullivan Iran 36,239.13.4 Oman 50% Singapore 28,605.52.7 Kuwait 41% Thailand 24,301.52.3 Bahrain 36% 2013 2014 2016F 2018F Taiwan 23,092.92.1 Source: Census.gov Source: Alpen Capital Total1,075,660 100 A constant demand for better transportation infrastructure from a growing Source: Directorate-General for Trade population, and overall development of the GCC region’s business and Trade, whether intra-GCC or with the rest of the world, manufacturing sectors, are the factors driving growth in the logistics sector. has been a fundamental driver of the logistics sector.

26 27 GCC LOGISTICS 2016 Challenges (1/2) Challenges (2/2)

SHORTAGE OF LOW PRIVATE SKILLED LABOUR PARTICIPATION OPERATIONAL GAPS The success of the transportation and their volatile workloads cannot harness kilometres), India (143 kilometres), Japan Struggling revenues from World Bank data on public-private Several operational factors are hindering logistics industry depends significantly on the same cost benefits as larger-scale (90 kilometres) and US (67 kilometres) are non-hydrocarbon sector partnerships (PPPs) during the period efficient logistics flow within the GCC. the quality and quantity of the people operations. In addition, high attrition rates, much higher. On the other hand, smaller The non-oil sector in the GCC is still in 1990-2014 indicates that the GCC has These include inefficient clearance involved in operating the value chain. the poor quality of trade and transport- states like Bahrain, Kuwait and Qatar have its nascent stage of development and among the lowest number of PPP projects, processing leading to problems with Despite strong infrastructure expansion related infrastructure, and inadequate above-average road densities compared the region’s diversification efforts have compared to other regions of the world. customs and other government bodies; and growth in the logistics market, there indigenous logistics services also pose with global benchmarks. not yet begun to yield economic dividends This is due to factors such as volatile oil high, non tariff-related trading costs; the is still a lack of skilled labour to support big challenges. that could adequately fund logistics prices, the availability of sufficient fiscal inability to track and trace consignments; Poor road network density escalates the the logistics sector in the GCC. projects. Experts have forecast that in 2016, headroom to fund infrastructure projects and the delayed delivery of consignments. However, the GCC transport and logistics cost of transportation, both in terms of growth in the non-oil sectors will be the from hydrocarbon sales, and sovereign Numerous jobs in the logistics industry, industry is witnessing consolidation through money as well as time, thereby causing On average, logistics players in the GCC lowest since the 1990s, at only 2.9%. This debt issues. The public sector therefore such as those in procurement, sourcing, significant M&A activity, with Aramex difficulties in the integration of various spend 30–45 working days each year on not-so-positive outlook stems from the fact still dominates the GCC transport and material handling and transportation, (UAE), Agility Public Warehousing Company regions within the GCC economy. resolving clearance and regulatory issues, that the non-oil sector’s fortunes remain logistics industry. demand different categories of labour (Kuwait), and DP World (UAE) being the compared to a global average of ~15 days. aligned with growth in oil prices, which for the various roles. The GCC has been most active acquirers. FUNDING CHALLENGES PPPs in transport in the MENA region have In Saudi Arabia, for instance, mandatory lab are displaying a falling trend. heavily reliant on expats for both skilled The GCC’s substantial dependency on been very low. The PPP investment as a tests are imposed on many commodities LOW-DENSITY and unskilled labour, due to shortages in the oil trade has led it to face numerous percentage of GDP stood at 4% in MENA, that enter the Kingdom. This leads to a ROAD NETWORKS the local human capital market. Therefore, challenges brought about by the oil price lower than that in other regions such as 14-day holdup on shipments until fully Road density is a measure that calculates logistics companies are compelled to hire decline. Due to sluggish demand in China, Latin America, the Caribbean, and South tested and cleared, leading to extra the ratio of the length of a country’s total skilled expats who demand higher salaries, political upsets in Iraq and Libya, and shale Asia, where PPP investment as a percentage inventory build-up and cost escalations. road network to its land area. It helps in leading to cost escalations. gas discoveries in the US, oil prices halved of GDP was around 15%. comparing a country’s road infrastructure Agility, in its Emerging Markets Logistics from US$110 per barrel in 2014, to around with other countries. As the most Index for 2014, highlighted government- FRAGMENTED MARKET US$55 per barrel in 2015. In Bahrain, developed nations in the GCC, the UAE and related issues and regulatory complications Being in the early stages of growth, the foreign investors are no longer willing to Saudi Arabia still lag behind other countries in the MENA region as key supply-chain GCC logistics industry is highly fragmented, buy into stalled infrastructure projects as their road density is below 20 kilometres risks. Furthermore, the institutes in charge with thousands of players either already worth US$795 million, due to low returns per 100 square kilometres. Road density in of transport and logistics in the GCC have operating or planning to enter the market. on account of falling oil prices. However, Public-Private Partnership Projects (1990–2014) developed and developing countries such weak policy formulation and management Because of this fragmentation, companies Saudi Arabia, the UAE and Qatar are better as Germany (180 kilometres), UK (172 15% 15% capacities, mainly due to the lack of are hesitant to invest in technology because shielded from the effects of falling oil coordination between them. prices due to larger and more mature 8% 9% domestic banking systems, better access 4% to international markets and larger 2% d sovereign wealth funds. n d a n Asia l d e an Lati ra an Americ Africa Pacific South Asia Europ Middle East Cent North Africa Sub-Sahara East Asia an

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 The GCC logistics industry is facing typical growth phase challenges such vision of diversification and sustainable development. With new opportunities expected as skilled labour shortages, low road densities, and the lack of economy to open up in flourishing industries, the outlook for the GCC’s logistics sector is stable. of scale associated with a fragmented market. - Shailen Shukla, Head of Logistics, Jumbo Group, 2016

28 29 GCC LOGISTICS 2016 Trends in logistics The Oman Opportunity

GCC TRENDS 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 Autonomous Vehicles Development of Rail Network The Internet of Things (IoT) is rapidly Autonomous vehicles are capable of sensing The Gulf region’s railway landscape is set gaining ground in the logistics sector in their environment on the basis of global to transform due to the vast number of the GCC, with companies implementing positioning systems (GPS), radar, sensors projects in planning and already underway. enhanced connectivity technologies to and software, and navigate without human The need to balance out excessive increase efficiency in port and road input. The technology of autonomous dependence on roadways, save on fuel logistics. IoT offers traders a mobile, trucks holds great promise in the GCC as costs, and lower environmental impact has round-the-clock application platform that it can infuse a lot of efficiency in the road necessitated huge investment towards the gives them real-time information from any freight industry by reducing a large number development of railways in the GCC region. geographical location. This in turn leads to of low-value expat jobs and creating Over US$200 billion have been earmarked better traffic management in and around high-value digital technology jobs for for investment in constructing thousands of port areas, and reduced waiting times at GCC nationals. Most of the freight in the kilometres of new railway lines across the the docks. As an example of a successful GCC moves by truck, with more than one GCC. Saudi Arabian Railways is building a IoT implementation in Dubai, part of million trucks currently in operation, and massive rail network of 5,000 kilometres to a “Smart Port” initiative, active RFID this number has been growing at 5%–9% strengthen its existing road connectivity. (radio-frequency identification) tags have year-on-year since 2012. Experts believe been issued to trucks transporting cargo that this trend would change the face of to and from Jebel Ali terminal. The UAE the GCC logistics industry, providing great and Qatar will also invest significantly in the cost savings and technological advantages development of IoT, with the GCC’s cloud to trucking companies in the region. market set to grow from US$118.5 million in 2014, to US$668.5 million by 2020.

Contract logistics, integration of technology with logistics delivery, and smart port concepts are transforming the face of the GCC logistics industry.

30 31 GCC LOGISTICS 2016 Opportunity Assessment: Opportunity Assessment: Projects Oman Trade Overview

STRONG PROJECT PIPELINE ACROSS GCC AND OMAN OMAN TRADE OVERVIEW To reduce reliance on oil revenue, GCC Transportation forms a major investment GCC Project Awards Breakdown by Oman, with its stable political and social Additionally, Oman has signed other FTAs economies have been adopting policies that focus in Oman. Investments in the Oman Sector, 2008–21 (US$ Bn) environment, has a substantial trade As part of Signed free trade agreements with support economic diversification. Heavy National Railway Project will exceed surplus. The country has successfully built GCC Syria (2005), Singapore (2008) and Construction 533 investments in non-oil sectors, such as US$15 billion, once the project is restarted. 380 a competitive and low-cost economy in EFTA (2009) construction, transport, power, and rail The railway network will cover 2,135 312 terms of production of goods. Oman’s Transport As part of Planning to establish with Australia, 200 infrastructure, have resulted in a constant kilometres and links Oman’s borders diversification efforts have resulted in GCC China, Mercosur, Japan, Jordan, 104 Power Korea, Turkey, New Zealand, India, flow of projects in these sectors. This in with the UAE to the capital, Muscat. 130 it starting to become an important turn is expected to drive demand for The network will also connect to the contributor to global trade. Oman became 130 Individually USA (2006) Oil logistics and transportation services in southern parts of the country: Port of 110 part of the World Trade Oraganisation 78 the GCC region. Duqm, Port of Salalah, and the border Gas (WTO) in 2000. It also signed a free-trade 60 All the abovementioned initiatives have of total exports. Other exports include with Yemen. The project will include both agreement with the US in 2006, which In Oman, over the next six years, investment 52 boosted Oman’s trade environment. petroleum products, certain re-exports, Chemical freight and passenger trains. All these 40 came into effect in 2009, with the worth US$100 billion is projected across During 2011–2014, total trade recorded metals, as well as textiles and fish to Asian projects have fuelled demand for port 39 primary objectives of: Industrial a CAGR of 9.2% to reach US$80 billion countries such as China, Korea, and Japan. sectors such as transport, construction, oil 40 logistics services. But some of these in 2014. Between 2010 and 2013, Oman’s Imports are also rising owing to heavy and gas, and chemicals, driven by heavy 52 • Eliminating most tariff and projects are getting delayed owing to Water 2015-21 government spending. During 2015–2021, 40 non-tariff barriers total exports increased by 15%, while investments, and include food, machinery, funding issues. Any such delay in the 2008-14 investments worth US$15 billion are imports increased by 20%. Trade activity transport equipment, and livestock from implementation of these projects is likely • Expediting the movement of goods targeted for construction projects, backed Source: MEED Insight Research & Analysis declined in 2014, mainly owing to a sharp the UAE, Japan, China, the US and India, to impact Oman’s logistics sector. by plans to develop hotels, new roads and • Strengthening protection for investors drop in oil prices. among others. Furthermore, on the back of heavy investments, exports are expected highways. While in the power sector, the • Protecting intellectual property Oman’s external trade is dominated by oil to rise to US$4,349 million and imports will focus will be on developing renewable rights and labour exports, which account for the lion’s share power generation facilities. increase to US$3,624 million by 2020.

Oman Project Awards Breakdown by Sector, Oman: Trade Performance by Year, 2011–14 (US$ Bn) 2008–2021 (US$ Bn) Oman: Value of Contract Awards by Year, Top Export Destinations 2014 2008–2021 (US$ Bn) Transport: Export CAGR: 8.5% Key Priority Sector Import CAGR: 10.3% 17 17 16 16 16 Transport 7% Rest of 13 Construction 55.5 7% 24% 52.1 50.7 the 11 47.1 World, 9 9 Total Gas 8% 36.6 22.50% 7 Contract 34.3 China, 6 Oil 28.1 29.3 44.10% Awards 23.6 2008-2021 19.8 UAE, 4% 10% Power = Other US$158 Bn 20% Chemical 11% Asian Industrial Countries, 13% 7.50% Korea,

201 1 2012 2013 2014 Water 2010 2011 2012 2013 2014

2016 f 2017 f 2018 f 2019 f 2020 f 2021 f Japan, 14.80% 2015 e 7.20% Export Import Source: MEED Insight Research & Analysis Source: MEED Insight Research & Analysis Source: World Integrated Trade Solution (WITS); Source: World Integrated Trade Solution (WITS); MEED Insight Research & Analysis MEED Insight Research & Analysis

Compared with most of its GCC counterparts, Oman’s projects exhibit more diversity, with key sectors including transportation, During 2011–2014, total trade recorded a CAGR of 9.2% construction, oil and gas, and chemicals. to reach US$80 billion in 2014.

32 33 GCC LOGISTICS 2016 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.

34 35 GCC LOGISTICS 2016 Opportunity Assessment: SOHAR Port and Freezone Oman Logistics Market (1/2)

OMAN LOGISTICS MARKET SOHAR PORT AND FREEZONE: BENEFITS Oman serves as a transhipment centre, by These free-trade zones and SEZs enable Sohar Port and Freezone is a deep-sea port, bulk liquid and gas storage; Hutchison Sohar Port and Freezone: sea, and is an ideal gateway for moving domestic and foreign businesses to set up located roughly 220 kilometres northwest Whampoa for containers; C. Steinweg for Strategic Location goods by land into the interior of Saudi operations in Oman with benefits such as of the Sultanate’s capital of Muscat and general and project cargo and stevedoring; Sohar Port and Freezone is located Arabia, the UAE and Yemen. Additionally, 100% foreign ownership. They offer about the same distance from Dubai. Setup Vale who operate the dry bulk jetty and the outside the Strait of Hormuz, which helps it shares marine borders with Pakistan lucrative incentives such as tax exemption in 2001 the port is managed by Sohar adjacent iron ore pelletizing plant; and to avoid the increased insurance premiums and Iran. In 2015, the logistics sector for up to 50 years, no restriction on Industrial Port Company (SIPC), which is a Svitzer who operate the tugs and other associated with passing through this narrow contributed 4.9% to Oman’s GDP. repatriation of capital or profits, zero 50:50 joint venture between marine services. In recent years, MXO and congested waterway. Furthermore, Oman’s logistics market is expected customs duties, and tax exemption on the government of the Sultanate of Oman have offered bunker fuel services at the it offers easy accessibility via road systems, to rise at a CAGR of 6.9% to reach personal income. Source: MEED Insight Research & Analysis and Port of Rotterdam. The port received port, including highly successful ship-to-ship connecting to different parts of Oman as US$12.3 billion by 2020. its first ship in 2004. The port and the transfers in the offshore anchorage area. well as to other major GCC economies, The ports in Oman are strategically located, 2,000 kilometres of railways, which will adjacent free-trade zone offer modern The free-zone includes a cluster for ready such as the UAE and Saudi Arabia. Oman’s government has concentrated on with each port serving a specific function. connect all the GCC countries. Additionally, infrastructure and operate on a landlord- built warehousing and offers an ideal hub the logistics and transportation sector For instance, Duqm focuses on oil and gas, the opening of a new 680-kilometre road tenant model, with the port and free-zone for 3PL logistics providers; these include Sohar Port: New Gateway to Gulf through the Oman Logistics Plan 2020, and and ship repairs; Salalah is a modern between Oman and Saudi Arabia will authorities acting as the landlord. In Saudi-owned WPL Group who were Sohar Port has witnessed double-digit the Oman Logistics Strategy 2040. These container port that focuses on regional provide a more direct route between the addition to the Government of Oman among the first specialised logistics growth every year over the past ten years plans aim to improve soft infrastructure, distribution; Muttrah on tourism; Sur on two countries, by avoiding congested UAE and Port of Rotterdam, SKIL Infrastructure companies to rent land there. and is one of the fastest growing ports in including the necessary regulatory LNG transportation; and Sohar, as the border crossings. The new highway should from India holds a small minority share in the world, with investments today totalling environment, support mechanisms and Sultanate’s major international hub, on significantly increase road transport Sohar Port and Freezone are setup to Sohar free-zone as the provider for local US$25 billion. In 2015, it handled over 50 national institutions, to catapult the commercial and industrial development efficiencies and will reduce the trucking operate in symbiosis, with the port labour requirements. Today, the port million tonnes of cargo, 12% more than in Sultanate into the top ten of the world’s across a number of sectors. In Oman, sea time from Sohar port to Saudi Arabia by up providing ample supplies of feedstock for handles over 2,500 ships and well over 2014. The closure of port Sultan Qaboos in most logistics-friendly economies by 2040. transport is the predominant mode, with to four days. Moreover, through its vision industry and seamless logistics facilities 50 million tonnes of cargo a year. Sohar the capital Muscat, in 2014, helped to Additionally, the government has more than 80% of total freight volumes plans, Oman government is committed to for the export of any type of finished Airport opened recently, offering an consolidate volumes in Sohar and achieve undertaken several infrastructure projects, handled by Sohar and Salalah port together. focusing on improving soft infrastructure product through the port’s terminals. additional airfreight cargo link to other economies of scale, resulting in a 62% including Sohar port and free-trade zone, and operational issues such as clearance Thanks to massive infrastructure These ports are not only essential for GCC states, with an initial planned capacity increase in container traffic in 2015 over Salalah port and free-trade zone, Al- processes and regulatory hurdles. investments, the Omani logistics hub Oman, but also for the GCC, as rising of 50,000 tonnes/year. 2014. In the first-half of 2016, container Mazunah free-trade zone and Muscat also provides excellent, uncongested road connectivity within the region will drive Oman will also be a major economic traffic saw continued year-on-year organic Knowledge IT city - the latter is Oman’s Sohar Port and Freezone focuses on and air access to all other GCC countries. more traffic through these ports. For beneficiary of the lifting of international growth of 18%. The new container terminal flagship technology park aimed at key industries around four main clusters: Additionally, Sohar provides easy access example, investments worth US$200 billion sanctions against Iran, as Oman historically in Sohar is equipped for 1.5 million TEU and promoting entrepreneurial ventures. petrochemicals, food, metals and logistics. to emerging markets such as East Africa are planned for the construction of over shares close diplomatic and economic ties uses remote-controlled quay cranes that From the outset, it partnered with leading and the Indian sub-continent, as well as with the country. Oman and Iran signed six are ready for next generation 20,000 international providers to help setup and to adjacent Iran. MOUs to boost commercial ties as recently TEU container vessels. A new and fully Oman: Logistics Market (2015-2020) (US$ Bn) operate its terminals: Oiltanking Odfjell for as 2014. Oman also has the potential to automated, 6 million TEU terminal is in become a major transportation hub for the CAGR: 6.9% the final planning stages and is due to 12.3 transit of goods between Iran and the rest start construction by 2019. of the world, owing to its close geographic 8.81 proximity to Iran and its large, modern ports and landside infrastructure.

2015 2020F Oman government has made a significant investment in the development of Sohar port Source: Frost and Sullivan 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 With its strategic location and government focus on developing well-planned to develop a strong trade route between Oman and China. free-trade zones, Oman’s logistics sector is set to prosper at a CAGR of - Krishna Kumar, General Manger, Kanoo Logistics, 2016 6.9% during 2015–2020 to reach a total market size of US$12 billion.

36 37 GCC LOGISTICS 2016 SOHAR Port and Freezone (2/2)

SOHAR PORT AND FREEZONE: PROVIDING OPPORTUNITIES Oman is gearing up to take full advantage connector between Riyadh and Sohar, Thanks to a well established metals cluster, About SOHAR About MEED Insight of its favourable geographic location by further increasing the viability of doing lower costs and better connectivity to the investing heavily in infrastructure, and business through Oman’s main port. UAE, Saudi Arabia and Iran, the biggest SOHAR Port and Freezone is a deep MEED Insight is the consulting arm SOHAR Port and Freezone is at centre of regional producers and consumers of iron sea port and free zone in the Middle of the MEED business. We provide Apart from boasting direct connectivity East, situated in the Sultanate of bespoke market research, business its plans. The significant investment in and steel, Sohar port is ideally placed to with Saudi Arabia and the UAE, the Sohar Oman midway between Dubai and plans, feasibility studies and corporate railway infrastructure integrating the three facilitate iron and steel trade in the region. port and free-zone also emerges as a Muscat. With current investments of strategy development studies to help main deep-water ports with the entire particularly good value-for-money US$25 billion, it is one of the world’s our clients make more informed and country will be a major boost for Oman. proposition for exporters and importers, fastest growing port and free zone profitable business decisions. MEED The ports will be directly connected to when compared with some of the other developments and lies at the centre Insight has access to a wealth of different parts of Oman as well as to other ports in the region, having among the of global trade routes between regional information ranging from major GCC economies, such as the UAE lowest operating costs. Europe and Asia. broad macroeconomic statistics, to and Saudi Arabia, thereby bypassing the specific sector data to help our clients Strait of Hormuz. SOHAR provides unequalled access accurately and cost effectively forecast to the fast diversifying economies market growth and trends. Moreover, a major dual-carriageway of the Gulf and Iran, while avoiding road is being constructed in Oman and the additional costs of passing MEED Insight has a particular focus Saudi Arabia, linking Ibri and Haradh-Batha through the Strait of Hormuz. on project-related market data road. This combined road network will The existing road network and thanks to its proprietary database reduce the distance to Saudi by more than airport and the future rail system of projects in the region, MEED 800 kilometres and the truck journey time provide direct connectivity to the Projects. Thanks to the respected by up to four days, and will serve as a key UAE and Saudi Arabia, as well as MEED brand name and MEED to the rest of the world. magazine, MEED Insight consultants have considerable access to the Equipped with deep-water jetties market, enabling them to speak capable of handling the world’s directly to clients, consultants, largest ships, SOHAR has leading government ministries and Port of Sohar -Key Characteristics global partners that operate its other companies. Major Clusters Imports: Duty-free imports in theFreezone container, dry bulk, liquid and gas terminals including Hutchison  Logistics Capital Requirements: Lowcapital requirements, with Whampoa, C. Steinweg Oman,  Petrochemicals US$51,921 requiredto set up a companyinthe Freezone Oiltanking Odfjell and Svitzer.  Metals SOHAR Port and Freezone is Cost of living: Lower costof living compared withthatin Ownership: 100% foreign ownership for Freezone the UAE managed by Sohar Industrial Port tenants Company (SIPC), a joint venture between Port of Rotterdam and Ras Al SOHARJebel AliHamriyah KIZAD Khaimah the Sultanate of Oman.

Power (USD / kWh) 0.04 0.09 0.12 0.04 0.11 Find out more at: Open land (USD / sq m) 7.00 5.44 -21.78 6.81 -10.89 2.72 -6.819.53 - 13.61 soharportandfreezone.com

Registration FZ company (USD) 2,700 –4,100 4,1002,500 1,4001,900

General trade license (USD) 7,8008,200 3,3001,400 4,100

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.

38 39 www.meed.com