Saudi’s Horizon of Project Opportunities

Look Beyond NEOM for More Mega Developments

By Heba Hashem

Saudi Arabia is investing billions of dollars in world-scale infrastructure projects as part of its Vision 2030 plan to diversify the economy away from fossil fuels. But is the kingdom’s logistics industry ready to support the buildout?

From Issue 2, 2024 of Breakbulk Magazine

From the west coast, where mega developments like The Red Sea are taking shape, to the capital Riyadh, where sprawling cities like Qiddiya and Diriyah Gate are emerging, to massive industrial facilities and railway schemes, these are exciting times to be involved in Saudi Arabia’s project logistics market.

According to UAE-based intelligence provider BNC Network, there are 4,695 active construction projects in Saudi Arabia worth an estimated US$6.18 trillion. Real estate and infrastructure projects alone crossed US$1.25 trillion in value in 2023, property consultancy Knight Frank stated in its Saudi Giga Projects report.

The surge in construction projects has been driven by Saudi Arabia’s successful bids for hosting global events such as the World Expo 2030, FIFA World Cup 2034, Asian Winter Games 2029, and the Asian Cup in 2027 – all areas to watch for project cargo specialists.

“The Public Investment Fund-related project budget approvals stand at US$1.07 trillion. Looking at the wider projects market, we can establish that the pipeline for under-construction projects equates to approximately US$1.5 trillion,” David Clifton, director at Canada-headquartered global engineering and project management consultancy AtkinsRéalis, told Breakbulk.

Key giga projects make up the lion’s share of the portfolio, with NEOM, a high-tech and sustainable gigacity; The Red Sea, a luxury tourism development; Qiddiya, an entertainment and tourism destination; Diriyah Gate, a heritage tourism project; New Murabba, a new downtown area for Riyadh, and a cluster of other schemes placing huge pressure on the supply chain industry, he said.

AtkinsRéalis, which expanded to Saudi Arabia in early 2023, has conducted numerous supply chain reports and continues to provide market analysis and forward forecasts to support clients in project planning and delivery.

“We’ve seen contracting awards grow to above 2012 level - the highest in recent records - at over US$78 billion in 2023,” Clifton said. In terms of asset delivery, The Red Sea in the Western Province and Diriyah Gate in Riyadh are the programs delivering operational projects for revenue generation, he said.

“This is partially a misnomer, however, as schemes are of such varying scale, that we’re seeing a variety of different capital burn rates which indicate that all projects are moving, some with greater infrastructure requirements than others.”

Manufacturing Pace Picks Up

The industrial sector, too, saw significant developments last year, including the opening of the kingdom’s first car manufacturing facility by American electric vehicle maker Lucid Group, and the launch of the first-ever Saudi electric vehicle brand, Ceer.

With a vision to transform itself into a competitive hub for manufacturing and production, and as part of its efforts to diversify the economy, Saudi Arabia plans to increase the number of factories from over 11,000 today to 36,000 by 2035, including 4,000 which will be fully automated.

A rising star in this landscape is the industrial city of Ras Al Khair. Located on the country’s east coast, the economic zone represents the backbone of the domestic mining industry and will see the development of factories for iron, zinc, phosphate, aluminum, and metal smelting and forming. It is also planned to house a collection of low-carbon investments and a new export terminal.

In May 2023, oil giant Saudi Aramco contracted French engineering group Technip Energies to develop the master plan for Ras Al Khair. In the same month, China’s Baoshan Iron and Steel Co., one of the world’s largest steelmakers, announced plans to establish a US$4 billion steel plate manufacturing complex in the economic zone.

In early 2024, Saudi Arabian Mining Company, or Ma’aden, and U.S.-based industrial solar steam company GlassPoint unveiled plans to develop the first phase of the world’s largest industrial solar thermal project in Ras al Khair, with the goal of decarbonizing Ma’aden’s aluminum supply chain.

But this is just the beginning as Saudi Arabia plans to offer 814 industrial projects with a combined value of nearly US$262 billion to the private sector gradually until 2035, Bandar AlKhorayef, Saudi Minister of Industry and Mineral Resources, said in 2023.

Activity Centers

Looking at real estate and infrastructure giga developments, the Western Province is where most of the action is happening today, with a total of US$687 billion of projects expected to be completed by 2030. These include NEOM, The Red Sea, the King Abdullah Economic City, and AlUla, an ancient city being transformed into an international tourism destination.

“Saudi Arabia’s focus is primarily on the Western region, which accounts for about 60 percent of projects, while Riyadh accounts for about 30 percent,” Kris Brusselmans, CEO of Bahrain-based Kanoo Logistics, told Breakbulk.

“The Integrated Logistics Bonded Zone, an economic zone in the north of Riyadh, will come with a lot of project cargo. There’s also some activity in the Eastern Province on the back of oil and gas projects, such as those in the industrial city of Ras Al Khair,” said Brusselmans, who was previously COO at Saudi Arabia-based Almajdouie Logistics and has lived in the Middle East for the last 18 years.

The US$500 billion NEOM, one of the world’s most active construction projects, has awarded more than US$237 billion of contracts since its launch in 2017, according to the Knight Frank report. While most turn-key projects have gone to international logistics players, local firms have a crucial role to play.

“The big players don’t do the actual work on the ground. Their contracts are usually based on 4PL, or fourth-party logistics, which means they manage the entire supply chain, but they don’t do work on the ground,” Brusselmans explained.

“In the end, because of the Saudization policy, companies will have to go preferably with local players, like us. This is also because they don’t own their own trucks, and they don’t want to either,” he said.

Part of the family-owned business conglomerate Yusuf Bin Ahmed Kanoo Group, Kanoo Logistics operates across Saudi Arabia, where it has a network of warehouses and yards, including a large logistics facility near the King Abdul Aziz Port in Dammam.

Through its events logistics department, the company supports major events such as the Saudi Arabian Grand Prix in Jeddah, and others launched by the General Entertainment Authority, such as Riyadh Season. It is also providing logistical support for projects in AlUla, as well as for the expansion of ports and airports and establishment of industrial zones and logistics parks.

Saudi Arabia plans to establish 59 logistics zones by 2030, of which 22 have materialized, according to Brusselmans. “Many of these zones include project cargo and out-of-gauge commodities—so heavy cargo to set them up—and our company is also involved. This is primarily in the Western Province and also in Riyadh.

“These industrial zones are going to be clusters for certain industries, such as pharma and telecom. They are all projects that from a construction point of view, as well as from running them later on, will demand project cargo logistics providers. So ultimately, these will provide opportunities to some local players who have the financial capabilities and assets, such as trucks, warehouses, and terminals.”

Meanwhile, Saudi Ports Authority continues to heavily invest in the maritime transport and logistics sector, with several large-scale projects to upgrade existing ports and terminals as well as to develop new ports underway or in the pipeline.

“Saudi Arabia’s ports want to have better and more automated facilities and logistics parks to be able to handle more exports and imports, and to become one of the top 10 twenty-equivalent-unit size ports. All of these are mega projects where both international and local players are participating,” Brusselmans said.

“The ports are already growing, and this will create a lot of rail connections and intermodal models. Because the vision on the back of the green ambitions is to move goods increasingly by road,” he said.

Saudi Arabia plans to more than triple the size of its rail network with 8,000 kilometers of new track, investment minister Khalid al-Falih said in 2022. The government also approved in October 2023 the construction of a significant railway connection that will stretch from Riyadh to Kuwait.

Mounting Pressure

While most projects are ramping up, it is important to acknowledge that not all schemes may realistically be delivered, and that some could be delayed, slowed or re-prioritized for the Vision 2030 objectives, especially when considering the major events recently secured for delivery in the country, Clifton said.

“The major logistical considerations are the locations of the mega projects being developed in the kingdom. Over 65 percent of the forecast spend on schemes is located outside of city limits, and in most instances may be hours’ travel from key logistics hubs or points of distribution,” he said.

As a result, logistics in Saudi Arabia is one of the top three risks that need to be addressed and, in many instances, this realization has only recently been grappled with.

“With over 4,000 projects spread at pre- and post-contract delivery and with contracting awards increasing at a compound annual growth rate of about 60 percent, the situation is likely to compress the logistics industry’s ability to effectively service the demand side,” Clifton said.

Local logistics companies have been strengthening their capabilities to handle the anticipated project cargo needs. For example, Almajdouie Logistics invested in 30 Hyundai heavy-duty vehicles in 2023 to support its efforts to implement large-scale projects. Similarly, heavy haulage company Rezayat Sparrow Arabian Crane Hire Co. invested in 16 new cranes in 2022 to support the performance of its fleet.

Clifton believes that Saudi Arabia’s drop-deadline projects are going to need very sophisticated and detailed logistical input to achieve the milestones that the government has signed up to. However, with the kingdom’s supply chain being some 70 percent the size of pre-pandemic, there is significant pressure on being able to ramp up to meet these requirements, he said.

In all cases, Saudi Arabia’s project landscape is so futuristic and thought through that it is likely to leave a lasting mark and serve as an example for the next 30 or 40 years, suggested Brusselmans.

“If you’re part of that success, it will be something very tangible for your business. Some of the projects are unmatched in the world in their size and timeframe. So, I believe both for the logistics providers and companies involved, it’s an opportunity to be part of this success and use it as a future reference for projects anywhere in the world.”

We spoke to Lars Greiner at Breakbulk Middle East 2024 about Saudi’s soaring project sector:

TOP PHOTO: Kanoo Logistics is supporting various Saudi projects. CREDIT: Kanoo