The Saudi Arabian 3PL market is expected to register a growth rate of over 6.5% during the forecast period of 2020-2025. The third-party logistics market is gaining immense popularity in Saudi Arabia catering to the management of the increasing cross-border flow of goods.

Factors, such as enabling cost reduction, availability of specialized service providers, the presence of industrial zones, and increasing industrialization, are driving the 3PL logistics market in the kingdom.

The strong growth of e-commerce sector in the country is expected to generate significant demand for 3PL services such as warehousing, distribution logistics, and e-commerce fulfillment.

The 3PL industry in Saudi Arabia is fairly fragmented in nature with significant number of local and international players where very few providers offer complete end-to-end logistics solutions.

With the changing consumer preferences and growing demand for faster delivery times and efficeint suppy chain management, the 3PL companies in the country are moving towards integrating technology and automation into their suppy chain services.

Key Market Trends

Increasing Foreign Investments to Spur the demand for 3PL services

Trade relations between Saudi Arabia and other countries are improving, which is attracting significant interest in export and import values. Strong FDI inflows are also set to increase opportunities for 3PL providers, as will expanding industrial activity that stimulates the need for supply chain management services.

In line with Vision 2030, the foreign direct investment in the country has been progressing. According to sources, the FDI in the country has reached USD 4.6 billion in 2019, increasing by around 9% from 2018. The number of companies that have been awarded with foreign investor licenses also have been increasing significantly which reached 1131 in 2019 when compared to 736 in 2018 and 377 in 2017.

Construction and Manufacturing are the two key sectors for FDI. In 2019, approximately 400 companies were awarded licenses for foreign investment in these sectors.

Strong downstream chemical industry driving chemical logistics sector

Saudi Arabia is among the top ten exporters of chemicals in the world. The chemical industry in Saudi is the region’s powerhouse, with the largest volume output and chemical sales revenue. This makes the country one of the key global market for chemical logistics, with significant demand for domestic and international chemical transportation and storage services.

Given the increased demand of chemicals by the GCC producers, the production capacity of the GCC chemical industry has also been on rise which increased by 13.3 million tons in 2018 with an increase of 2.8% in terms of contribution to the regional GDP.

Given the complexity of the market forces in terms of production, transportation, accessibility and cost; companies need to be more strategic in these areas. As mentioned, logistics is one of the key areas for companies to reduce costs and partnering with 3PL companies provide an effective way of transporting chemicals for large number of small and medium companies engaged in downstream industry in Saudi.

Due to the impact of Covid-19 the market is expected to witness significant fall in revenue from chemicals sector. The chemiclas industry in the country had witnessed significant impact in ouput which had affect on demand for 3PL services.

The companies engaged in the chemical logistics are expanding their opreations to remain competitive in the market. In 2019, the Saudi-based Arabian Chemical Terminals’ (ACT) distribution company, International Chemical Logistics (ICL) formerly known as Suttons Arabia has annoucned plans to start operations in Plaschem Park and the company has started a feasibility study, as of Sep 2019.

LogiPoint, in May 2019, agreed with Aramco Chemicals Company (ACC) to provide export logistics services from its Bonded and Re-Export Zone (BRZ) adjacent Jeddah Islamic Port eliminating the need to use an intermediary overseas hub for the storage and shipping of their cargo. Shipping the cargo directly to the target market will reduce the export processing time from one week to one day, increasing the demand and appeal for Saudi products.

Competitive Landscape

The market is fairly fragmented with a significant number of local and international players active in the market. Some of the key players include DHL, Agility Logistics, Mosanada Logistics Services, Almajdouie Logistics, Hala Supply Chain Services, Himmah Logistics, and LSC Logistics amongst others.

The leading players in the market are focusing on strategic market initiatives to improve their product capabilities as well as to expand their presence in the market. The dry warehouse is the most common type of the warehousing segment which witnessed substantial growth in recent years. Given the region’s potential and the growing importance of trading links, logistics, and service companies, who already have a very strong presence in Saudi Arabia, are further expanding their operations.

In October 2019, a new logistics zone was launched in the Red Sea port in Jeddah, as part of a wider industrial initiative to diversify the economy away from oil. The al Khomra zone will support activities around shipping, freight distribution and transport of goods extend over 2.3 million sq. meters in Jeddah. The facility, functioning in Jeddah, aims to turn Saudi Arabia into a global logistics hub.

Among recent developments, Emirates SkyCargo launched bonded trucking corridors to Riyadh to meet the customer demand connecting Dammam and Medina with Riyadh, providing an additional capacity option for overseas businesses willing to send cargo to Riyadh. Operated by Eastern Allied Transport, the trucking services will allow Emirates SkyCargo, offer same-day delivery at Riyadh for cargo that is trucked from Dammam and Medina, increasing the connectivity and delivery time options for customers.

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