Middle East Eyes New Era of Manufacturing, Logistics

By Liesl Venter

A lack of fabrication facilities in the Middle East has necessitated a dependency on international goods and services. From Issue 6 of Breakbulk Magazine, we report on how regional governments are now upping investment in fabrication expertise and infrastructure to reduce reliance on non-national supplies.


The Middle East is on the cusp of a transformative journey, shifting its economic landscape from oil-dependent revenues to a diversified and export-oriented economy. The goal is to use digital technologies to modernize and move beyond traditional processes, all while emphasizing local industry growth, particularly in manufacturing.

“In recent years, the Middle East has witnessed a significant upsurge in fabrication activities, particularly in the context of the breakbulk and project industry,” said Sue Donoghue, Arab cluster CEO at DHL Global Forwarding. “This trend can be attributed to several factors. Firstly, the region’s strategic location has made it a hub for major infrastructure and energy projects, leading to a growth in demand for fabrication services to meet project requirements.”

The rise in fabrication also stems from an economic diversification intent by the regional governments to reduce oil dependency. This shift could reshape economies in the Middle East and drive demand for breakbulk shipping, especially for diverse and oversized cargo.

“Infrastructure development and global partnerships further amplify the need for specialized logistics in the breakbulk industry. Therefore, governments in the Middle East are actively investing in state-of-the-art fabrication facilities to bolster the region’s capacity to handle these complex projects. They also intend to develop local fabrication capabilities to reduce dependency on foreign talent and create job opportunities.”


Saudization Strategy

According to Rafael Vicens, managing director Iraq and head of global projects and industry solutions, Middle East & Africa at DB Schenker, Saudi Arabia has been at the forefront of this.

In 2022, the Kingdom launched the Saudi Advanced Manufacturing Hub strategy focusing on three main priorities: helping people in the public, private, and academic sectors adapt to the changing industrial landscape, supporting small and medium-sized enterprises (SMEs) in their digital transformation journeys, and sharing technologies and best practices in alignment with the Global Network of Advanced Manufacturing hubs.

“Much of this drive stems from continuous efforts to increase local content. Engineering, procurement, and construction companies, or EPCs, receiving projects are mandated to engage local manufacturers to produce or manufacture equipment required for a particular project,” Vicens explained.

The Saudi strategy calls for building 59 logistics centers by 2030 with a total area exceeding 1 billion square feet as it sets out to become the global logistics hub for Asia, Europe and Africa. As it boosts manufacturing and nurtures the logistics service sector, the goal is to improve export strategies, widen investment prospects, and forge partnerships with private businesses.

Saudi Arabia envisions that these completed centers will streamline the export of Saudi products and bolster e-commerce by enabling swift connections between logistics centers and distribution hubs across different regions, cities, and provinces.

The United Arab Emirates has been punting manufacturing for some time already and is no stranger to exporting to its neighboring countries, said Colin Charnock, group CEO at Trans Global Projects Group. “What we are now seeing increase is the frequency and volume of exports outside of the Middle East to the U.S., Europe, and Africa. The fruits of Middle Eastern fabrication are being shipped worldwide at a much higher rate than ever before.”

As a region, it is in a solid position to establish new fabrication facilities as it can use its geographical advantages between global markets. “In Europe, many manufacturing sites are located in the interior of countries, which start small and grow with success," he said.

"If such businesses were to start fresh, it is unlikely they would choose to be located inland, as this makes shipping items quite a challenge. In the Middle East, fabrication yards have been and are being built in coastal locations - an ideal setup for global export."


Manufacturing Powerhouse

With a third of the world’s crude produced in the Middle East, the countries in the region heavily depend on oil to contribute to their GDP. However, the acceleration of the energy transition in recent years has caused substantial disruption in these countries, spurring governments to act in two areas: speeding up economic reforms to minimize reliance on oil and preparing for the post-oil situation through economic transformation activities.

It makes sense that Gulf countries, including Saudi Arabia, the UAE, Qatar, Bahrain, and Oman, are establishing their strategies to become manufacturing hubs, said Karim Smaili, general manager Middle East, AAL Shipping. “Countries like Saudi Arabia and the UAE are leveraging their oil and gas projects to boost manufacturing production,” he said.

As part of its In-Kingdom Total Value Add (IKTVA) initiative to enhance the volume of goods and services produced in Saudi Arabia, Saudi Aramco signed 50 preliminary agreements with local and international companies, including Honeywell, Larsen & Toubro, and Sutherland Global Services, in 2022. Similarly, ADNOC is driving the charge in the UAE. In 2022, it signed nearly US$9.5 billion in partnerships with 25 businesses, including Schneider Electric, Emerson, and Siemens, to produce vital industrial goods domestically.

Arabian Rig Manufacturing, a joint venture with NOV to manufacture drilling equipment locally for the first time, was announced, as was the opening of new offshore fabrication yards in Ras Al Khair to build and assemble offshore platforms, jackets, and structures for subsea pipelines in collaboration with National Petroleum Construction Company (NPCC) and McDermott International.

This is good news for the project sector, Smaili said. “With all of these new facilities planned, projects will increase as the building progresses. We should expect more breakbulk enquiries for imports into the Middle East.”

In addition to the typical infrastructure, such as ports, transportation networks, and industrial zones, to support the growing fabrication operations, another critical factor will be developing renewable energy sources to help economic activity as corporations face increased scrutiny over their carbon footprint.

“The region is importing project cargo to meet the local need and exporting steel and locally fabricated project heavy-lift components. We are also seeing trade lanes expand and develop with Southeast Asia, Africa and the U.S., strengthening ties on the back of widespread international re-engagement with the region and geopolitical uncertainty surrounding other areas of the world,” he said.


Navigating Opportunities and Hurdles

According to Donoghue, strengthening manufacturing in the Middle East holds several benefits.

“It plays a pivotal role in a country’s economic growth and sustainability. It holds the potential of revolutionizing local economies. Beyond fostering export capabilities, manufacturing has a cascading impact on various sectors, including driving technological progress and productivity gains. Furthermore, strengthening domestic manufacturing gives countries strategic independence, reduces reliance on international trade and minimizes disruptions during crises or geopolitical tensions.”

One key that increased fabrication in the Middle East presents is the need to enhance the workforce’s skill levels to attract more manufacturing projects to the region.

Sustainability, Donoghue said, is another crucial consideration. Project operators must find ways to align the growing demand for increased fabrication with sustainable practices, including environmentally friendly logistics and resource management.

“On the flipside, there are also several opportunities for project operators. Infrastructure development in the Middle East offers significant growth potential for logistics projects. Investments in specialized facilities, transportation networks, and logistics hubs can improve efficiency and attract more regional manufacturing projects. Furthermore, as the Middle East’s energy sector shifts towards renewables and sustainability, project operators can be vital in providing logistics and transportation solutions for renewable energy projects like solar and wind farms.”

Vicens said challenges and opportunities are emerging for forwarders amid all these developments. “We’re observing a decrease in the number of breakbulk vessels we charter annually compared to previous years. This reduction, on the one hand, presents more opportunities for work within the country. Where you lose on the one side, you gain on the other,” he said.

This was seen in the case of the first utility-scale wind farm in Saudi Arabia, Dumat Al-Jandal. Here, a local heavy equipment provider supplied the 150 hydro generators. Unlike before, when everything was sourced from places like Houston in the U.S. or factories in Europe, in this case, the towers were manufactured locally in Saudi Arabia and the blades and gas turbines were brought in from Saudi factories. The equipment that couldn’t be fabricated in Saudi Arabia still needed to be sourced externally.

“While offshore work decreased, in-country logistics saw a significant increase,” Vicens said.

Donoghue pointed out that accommodating the increasing fabrication activities in the Middle East will demand substantial advancement in logistics and infrastructure.

“For instance, Saudi Arabia’s ambitious 100 billion Saudi riyal (US$26.61 billion) railway project, known as The Land Bridge Project, connects the eastern and western regions of the Kingdom. Similarly, in the UAE, initiatives like Rail Direct, a joint venture between Etihad Rail and DHL Global Forwarding, bolstered the region’s freighter network.

Incorporating such developments and technological innovations in the industry promises significant benefits for businesses through optimized resource utilization, cost reductions and enhanced asset management efficiency.”


Charting The Course Ahead

The overall outlook is incredibly positive, according to Charnock: “It can only go one way, and that is up. The Middle East is now, and historically has been, ideally at a crossroads between trade lanes, easily tapping into markets from the East and West. Ships arriving in the Middle East to discharge cargo will also have space to bring cargo back. If the Middle East continues this upward trajectory, it will benefit breakbulk operations globally.”

The region is expected to witness a 3.1 percent GDP growth in 2024 compared with 2.9 percent in 2023. This growth is higher than the world average of 2.6 percent and 2.4 percent in the respective years.

“The growing export capacity truly has profound implications for logistics,” Donoghue said. “As Middle Eastern countries diversify their exports and expand their trade partnerships, they continue to experience economic growth, reduce their reliance on oil revenue, and improve trade balances. This expansion is spurring substantial investments in logistics infrastructure, leading to a more efficient and competitive logistics sector.

“Furthermore, the region’s growing export capacity opens doors to economic benefits such as job creation, increased foreign direct investment, and the potential to become a global leader in sustainable exports. Overall, the Middle East’s export-driven economic growth and close alignment with logistics development position it as a vital player in the evolving global trade landscape.”

It remains one of the world’s fastest developing economies, and the numerous ambitious infrastructure and development projects are expected to attract around US$1 trillion in investment by 2030. “These megaprojects will bring huge benefits to project operators in addition to the regular breakbulk cargo,” Smaili said.

“However, when the region becomes ‘self-sufficient’ in the medium term, and the number of projects decreases, project operators may suffer from a cargo shortage. Furthermore, with the recent establishment of the India-Middle East-Europe Economic Corridor, constructing a rail link may shift goods away from the sea route.”

Vicens added the project sector is, and always has been, a delicate balancing act. “It’s all about making prudent investments at the right moment. You need to exercise high caution while maintaining a careful equilibrium. The demand is expected to remain strong, and the future of projects looks promising. However, it’s crucial to ensure that the necessary equipment is available when required without overcommitting.”

Donoghue agreed, saying the Middle East’s logistics landscape is poised for significant developments in fabrication, trade, and breakbulk operations. Economic diversification efforts will continue to drive the growth of advanced fabrication facilities, necessitating efficient logistics for material transportation.

“For logistics project operators and stakeholders in the region, several key takeaways and advice are crucial for success,” she said. “Embrace cutting-edge technology solutions like IoT, AI and blockchain to optimize supply chain operations, enhance visibility and make informed decisions. Recognize the growing importance of sustainability and implement eco-friendly practices to meet market demands and reduce environmental impact. Stay agile and adaptable to respond to changing market dynamics.

“Consider global logistics partnerships for expanded reach. Keep abreast of regulatory changes and invest in workforce training and development to maintain competitiveness. Prioritize customer satisfaction, employ robust risk management strategies and continually evaluate and improve logistics processes for enhanced efficiency and cost savings,” she said. By integrating these strategies, logistics operators can build resilient, efficient, and sustainable solutions that cater to the evolving demands of the market.

AAL Shipping, DB Schenker and DHL Global Forwarding will be exhibiting at Breakbulk Middle East 2024, taking place on 12-13 February at the Dubai World Trade Center.