Make way for the Middle East: UAE, KSA's ambitious drive to become global integrated logistics hubs

Since the mid-1900s, when oil and natural gas were discovered in the Middle East, the region’s focus has been on developing the fossil fuel industry – its biggest source of revenue. Over the past decade, however, countries in the region have been strategically pivoting to other areas to diversify their economies. They are redirecting their focus towards technology and expanding their trade portfolios, signalling a proactive approach towards sustainable development and future prosperity.

Logistics is one such industry that has been given a boost with significant investment and growth opportunities . Trade and transport have always played a key role in the growth and development of the Middle East. Throughout history, the region has been regarded as an important hub for cross-continent trade, connecting Asia, Europe and Africa. The region’s location along the Persian Gulf and the Red Sea ensures maritime trade as well. Today, governments in the Middle East, led by the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE), are expanding their logistics capabilities to offer an integrated setup encompassing ocean, air and inland transportation along with warehousing and digital systems, in a bid to make the region a key logistics hub for international trade.

Vision for an international integrated logistics hub in Saudi Arabia

The shift towards diversifying industries beyond oil is exemplified by Saudi Vision 2030. This comprehensive plan emphasizes the optimization of processes, liberalization of markets, privatization initiatives, infrastructure upgrades, establishment of new free economic zones, and governance and regulatory reforms. The enhancement of Saudi's logistics capabilities is seen as pivotal to realizing Vision 2030's objectives, laying the groundwork for infrastructural development and the creation of multiple economic zones. According to a YCP Solidiance whitepaper, the value of Saudi Arabia's logistics market reached USD 27.6 billion in 2020, the highest among the Middle East, North Africa (MENA), and the Gulf Cooperation Council (GCC) regions. This market is projected to grow to USD 38.8 billion by 2026, with a compound annual growth rate (CAGR) of 5.85%.

Investing in the future of KSA logistics

The country has already made large strides in developing its logistics sector, investing more than USD 106.6 billion towards this goal. This has allowed for an increased capacity in land, air, and maritime cargo, in addition to the development of import/export operations and the removal of restrictions related to logistics operations. In 2023, the Saudi Port Authority (SPA) invested around USD 4.5 billion in maritime, logistics and the port sector. The investment will be used to create new logistics parks equipped with the latest technologies. In 2016, the Oxagon, a floating industrial city was launched in NEOM. Located on the coast of the Red Sea, the site includes an integrated port and a logistics centre, all running on clean energy. The King Salman Energy Park (SPARK) has been planned with a dedicated logistics hub and dry port.

Other important facilities include the King Abdulaziz Port in Dammam, the largest port in the Arabian Gulf; King Fahd Industrial Port in Jubail, which plays a crucial role in the transportation of petrochemical products and industrial cargo; King Abdullah Port in King Abdullah Economic City (KAEC); Jeddah Islamic Port, and Riyadh Dry Port, which facilitates the movement of goods between the port cities and the interior regions of Saudi Arabia.

Alongside sea ports, air transportation is playing a major role in Vision 2030. KSA is modernizing its airports and expanding its air cargo facilities to eliminate infrastructure bottlenecks. Today, Saudi Arabia connects to more than 81 airports in 45 countries, allowing for over 1.2 million tons of cargo to be transported around the globe. With further development, the country aims to increase its total air cargo capacity to 6 million tons per year by 2030.

Online retail and e-commerce have created an increase in demand for warehousing and last-mile delivery in Saudi Arabia. A Ken Research report about the Saudi warehousing sector predicts a robust 4.5% CAGR, translating to a significant USD 13.2 billion market size by 2030. Around 70% of the facilities are located in the major cities of Jeddah, Riyadh, and Dammam, with growing demand in emerging industrial zones. Inland transportation has also gone through an upgrade, courtesy of the region’s growing e-commerce sector, and electric trucks and rail are providing improved connectivity within the region. The Saudi Landbridge Project has been planned to connect the Arabian Gulf with the Red Sea. The project involves the construction of a 950-kilometre railway line, which will facilitate the transportation of goods and passengers across the country.

International and regional trade get logistics boost in UAE

The United Arab Emirates’ freight and logistics market, as of 2024, is estimated to be valued at USD 20.03 billion. It is projected to reach USD 27.51 billion by 2029, growing at a CAGR of 6.55% during the forecast period, according to a report by Mordor Intelligence. This sizeable percentage has been attributed to significant efforts made by the UAE government to boost development of its logistics industry through opportunities for foreign investment, free trade zones and competitive incentives.

E-commerce driving tech innovation across UAE logistics

Growth of e-commerce has played a major role in the development of logistics in the region. It has driven the transformation of how goods are transported, stored, and delivered. Changing consumer expectations have resulted in expedited services to cater to last-mile deliveries, fulfilment centres, and efficient order processing. The integration of tracking systems, route optimization software, and real-time visibility tools is helping UAE supply chains manage the high volume of shipments and enhance operational efficiency in a market that prioritizes speed and quality.

Striving towards global standards of UAE logistics

Dubai’s Jebel Ali Port, the largest man-made harbour in the world, and the Dubai International Airport, one of the busiest by international passenger traffic, are prime examples of the country’s logistics prowess.

The logistics sector constitutes approximately 14% of the UAE's gross domestic product as of 2024. The country is actively investing in bolstering its logistics infrastructure, with projects like the USD 3.5 billion Al Mafraq-Al Ghuwaifat road upgrade. This initiative aims to enhance 246 kilometres of roads in the western region, contributing to improved connectivity and efficiency.

Dubai South is a master-planned development project that includes Al Maktoum International Airport, designed to be the world's largest airport upon completion. The airport aims to become a major air cargo hub, complementing Dubai International Airport. A part of Dubai South, Dubai Logistics City is a specialized logistics hub designed to streamline logistics and supply chain operations. It includes facilities for warehousing, distribution, freight forwarding, and value-added services. DLC leverages its proximity to Al Maktoum International Airport and Jebel Ali Port to offer efficient multimodal transportation solutions.

Located in Abu Dhabi, Khalifa Port is the Abu Dhabi Ports' flagship deepwater port and has been developed to accommodate the largest container ships. The expansion of rail networks, such as the Etihad Rail project, aims to revolutionize freight movement across the region by connecting major industrial and logistics hubs, including ports, manufacturing zones, and cities.

Free trade zones and business-friendly policies in the UAE have also supported market growth. The Jebel Ali Free Zone (JAFZA), located next to the Jebel Ali Port is one of the largest free zones globally, offering incentives and facilities for companies engaged in logistics, manufacturing, and trade. Dubai South Free Zone, with direct access to Jebel Ali Port and JAFZA, provides incentives for logistics companies, including tax exemptions, full foreign ownership, and streamlined regulatory procedures.

Challenges to logistics growth in KSA, UAE

As the logistics industry in the Middle East strives to elevate its infrastructure and deliver top-tier services, it must confront various obstacles to ensure smooth operations and sustained expansion. KSA and the UAE are spearheading ambitious initiatives aimed at transforming trade and commerce in the region.

Key sectors such as manufacturing, construction, pharmaceuticals, retail, and e-commerce are experiencing substantial investment and innovation, bolstered by supportive public policies. However, logistics plays a critical role in each of these endeavours and must operate at peak efficiency to meet demands for speed, quality, and quantity. For this, the region needs to address certain challenges:

• Technology disrupting logistics: The Middle East is rapidly embracing technological innovation, yet the burgeoning e-commerce sector is driving an increased demand for automation and digitalization. To stay competitive, logistics firms must integrate blockchain, robotics, automation, and the Internet of Things (IoT) throughout their operations. However, challenges like cost, limited awareness, and data security concerns may hinder widespread adoption of these technologies.
• Lack of skilled labour: Skilled labour is in high demand and short supply in the logistics sector, especially in specialized areas like supply chain management, transportation planning, and warehouse operations. This shortage has resulted in inflated labour costs as businesses have to pay higher wages to attract and retain qualified personnel from other countries. There needs to be collaboration between the private and public sector to provide necessary training in supply chain management, regulations, logistics processes, and relevant technologies.
• Need for integrated logistics: With speed of delivery and safety of the product playing significant roles in the success of a business, logistics companies need to provide multimodal solutions that connect the entire supply chain, from trucking, rail, air and ocean, to warehousing, customs, fulfilment and last-mile delivery. Fragmentation, with the use of multiple vendors, can leave gaps in the supply chain, allowing for disruptions, delays, damage, and loss.
• Infrastructure: While Saudi Arabia and the UAE have been investing heavily in infrastructure development, including ports, roads, and railways, there are still areas that may need more focus. In some regions, infrastructure may not be developed adequately to support efficient regional logistics operations.
• Sustainability: There is growing pressure on companies to adopt sustainable practices in their operations, including reducing carbon emissions and minimizing environmental impact. Meeting these sustainability goals while maintaining cost-effectiveness can be a significant challenge for logistics companies in Saudi Arabia and the UAE.
• Geopolitical instability: Despite KSA and the UAE being recognized as stable countries for business, they need to address the instability in neighbouring countries and on the ocean. Piracy, political turmoil, embargoes, sanctions and conflict cause major disruptions to a supply chain and can impact connectivity. Navigating these challenges requires careful planning, strategic partnerships, and innovative solutions to to build confidence and safeguard supply chains operations within and beyond the region.

Saudi Arabia and the United Arab Emirates will need to provide prospective customers with opportunities unique to those of other upcoming logistics hubs in the larger region. Overcoming their challenges will draw them closer to this goal. However, it necessitates collaborative efforts among government entities, industry stakeholders, and logistics firms to invest in infrastructure, streamline regulations, develop the workforce, embrace technology, mitigate geopolitical risks, and promote sustainability practices.