Peter Shaw-Smith, Middle East Contributor | Dec 23, 2022, 10:00 AM EST

Saudi Arabia is making a sizable bet that it can transform its container shipping sector, much like it's trying to do in other non-oil sectors from electric cars to renewable energy. By building out inland logistics hubs and enhancing rail connectivity, officials in Saudi Arabia are looking to more than quadruple the country's annual container throughput to 40 million TEU by 2030.

The ambitions of Saudi Arabia's Vision 2030 plan are seemingly matched by the scale of so-called giga projects such as the $500 billion Neom scheme, which includes a new 170-kilometer city and a container port with annual handling capacity of 9 million TEU. According to plans for the Oxagon port unveiled Dec. 21, the facility will be the largest floating structure in the world.

In addition, King Abdullah Port has plans for a twin basin complex that could eventually see capacity reach 25 million TEU, while the port of Dhiba, located in the northwestern city of Duba, is planning expansion efforts that will bring annual capacity to between 3.5 million and 4 million TEU by 2030.

"Container throughput is expected to grow above 10 percent this year, which is already a good sign of how Vision 2030 and the economic diversification is impacting the port and logistics industry," Genís García-Alzórriz, principal at ALG, a consulting firm specializing in transportation infrastructure, told the Journal of Commerce. "Giga and mega developments such as Neom, or the expansion of Riyadh city to more than 15 million inhabitants, will also have a strong contribution to reach those figures."

As those efforts filter through various government ministries, Crown Prince Mohammed bin Salman has become increasingly vocal about the country's potential for trade growth.

"Our geographic location is exceptional," he said. "We are the only country in the world to have three major maritime straits, which contribute to approximately 30 percent of global seaborne trade passing within our boundaries, sitting at the crossroads of Asian and African trade and Europe's trade to Asia. Saudi Arabia has a great opportunity to create logistics services whether by air or through ports or industrial complexes."

Anthony Miller, an independent supply chain and logistics technology consultant, said that in looking beyond traditional oil markets, Saudi Arabia's Public Investment Fund (PIF) is "playing on all fronts. Just like a venture capital firm with plenty of cash but little knowledge in the field, they are hedging their bets outside of oil, and hoping to hit a winner."

"Saudi Arabia sits in a great position right now, with an important trucking scene in the region and decent ocean potential," he added. "This all remains very 'classic' though, as do their current investments in the name of 'growth.'"

New national regulatory body

García-Alzórriz and Miller both said ensuring coordination between government agencies and the private sector to effect reform will be critical to achieving those Vision 2030 goals.

"One of the key drivers for the achievement of such ambitions will be the readiness of the country and its institutional framework," García-Alzórriz said. "This is ongoing, and is already attracting international players to the country either through PPPs (public-private partnerships) or foreign direct investment. The role of the Public Investment Fund, already present in several of the port and logistics assets, can also be a game-changer for the country's capacity to deliver and activate the investments required."

Currently, the Saudi Ports Authority (Mawani) regulates, owns, and operates, directly or through concessions, Jeddah Islamic Port, Dammam Port, Jubail Industrial and Commercial Ports, Yanbu Industrial and Commercial Ports, Ras Al Khair Port, and Jizan Port. Ports outside Mawani's remit include King Abdullah, which is privately owned (in part by the PIF), Dhiba, and the Aramco ports.

But that landscape is quickly changing, with the government aiming for a more holistic approach.

"The country is going through an overall institutional reform which shall also affect the governance of the port and maritime sector, and eventually bring a nationwide regulating body for all port and maritime affairs, segregated from the asset ownership and operation," García-Alzórriz said.

In the past, a lack of coordination between port, rail, and road connections, as well as an overdependence on free trade zones in the United Arab Emirates, has hindered trade growth, he added. The country has also underperformed in terms of re-exports given the capacity and strategic location of its ports along international maritime trade routes, García-Alzórriz said.

"New special economic zones, railway logistics centers (linked to the Saudi Landbridge Project, a railway planned between Jeddah and Riyadh), or the DistriParks will completely change the picture," he said. "When it comes to ports, the country is developing a National Ports Master Plan, which will multiply capacity and operating performance, in line with best international practices in quality, safety, health, and environment."

Miller said that for Saudi Arabia to truly compete in the Middle Eastern port market, the government must continue to reform and improve the country's notoriously slow and cumbersome customs processes.

"The Gulf Cooperation Council (GCC) Customs Union started back in 2003, and is still not as mature as required, with key elements such as tariffs and customs processes varying from country to country," Miller said. "They need to get the GCC Customs Union right and solve regional inefficiencies before attempting a bigger push on an international scale.

West coast focus

Dean Davison, head of maritime advisory at infrastructure consultancy Infrata, sees ports on the west coast of Saudi Arabia — which include Jeddah, King Abdullah, Yanbu, and Dhiba — as the focus for future progress.

"Ports on the Red Sea coast benefit from being on the major east-west container shipping trade lanes and able to serve any vessels transiting the Suez Canal," he explained. "This is a strong geographic advantage."

DP World's concession to operate one of Jeddah's two container terminals, for example, "involves a commitment to invest up to $500 million to improve and modernize the terminal and increase the annual design capacity from 2.4 million TEU to 3.9 million TEU," Davison said. "The second Jeddah terminal, Red Sea Gateway Terminal (RSGT), also recently saw a new 30-year concession signed."

RSGT recently announced plans to increase capacity to 5.2 million TEU by 2023, with proposals calling for expansion to 8.8 million TEU, costing an additional $1.44 billion, to be completed by 2049.

Both Jeddah and King Abdullah offer opportunities for growth in transshipment volumes as well, despite well-established players such as Khalifa Port and Jebel Ali in the United Arab Emirates, Davison said.

"The fundamentals apply: deviation from the main shipping lanes, sufficient infrastructure at ports, and markets that can be served," he said. "Also, shipping line strategies are a factor; MSC and Maersk Line undertake relay transshipment, as opposed to hub and spoke transshipment with feeders. Jeddah and King Abdullah are candidates for both."

On the east coast, PSA International affiliate Saudi Global Ports is moving forward with expansion plans announced in 2020 that will increase annual capacity at Dammam to 7.5 million TEU, likely before the end of the decade.

After a sudden spike in oil prices caused by the Russia-Ukraine war, the PIF now has plenty of cash to back up its plans, Davidson noted.

"We know the principles of what needs to happen," he said. "It's not a question of the will or desire, but instead delivering."

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.