FEATURE: Almajdouie leverages Saudi’s Vision 2030
Almajdouie Logistics is a two-time winner in its category at the Logistics Middle East Awards, the only private Saudi Arabian company to make it into the Guinness Book of Records and the largest project logistics provider in the Kingdom by a significant margin. Despite this undiluted success, CEO Baheej Al Biqawi is keeping a watchful eye on new opportunities for the company as Saudi Arabia transitions from an oil export hub into a more diversified economy within the GCC.
“Our focus for the past three decades has been oil and gas, because we’re based in Dammam and the kingdom was booming in this sector. But we have diversified our customer portfolio through the years,” he explains. In fact, Almajdouie Logistics has for the past 20 years handled the Saudi Arabian distribution contract for Coca-Cola, and is now also handling domestic logistics operations for Burger King, Hanna Water, Novo Water and many dairy brands. Nada Dairy is a client for whom it distributes across the entire GCC.
“From a warehousing perspective, we do a lot of oil and gas, but we also have a strong FMCG portfolio and from our warehouses in Jebel Ali we’re also doing e-com logistics,” says Al Biqawi. “E-commerce is a major opportunity for Almajdouie, given the total volumes of e-commerce goods consumed within the country. The logistics part is the main component to a successful e-com company, how quick you are in delivering to the market is key, this is what differentiates the different platforms from one another.”
However, he adds that the current logistics model is not favourable for these companies to respond quickly to market demands. “Sooner or later everyone will have their own hub in Saudi Arabia, not only in Jebel Ali. In the next two to three years there will be a big shift toward Saudi Arabia becoming the main hub for the whole of the Middle East,” he says, and because the e-com industry is moving much faster than any other sector and even faster than logistics providers can keep up, Almajdouie Logistics is positioning itself to pick up the slack.
“These platforms are putting huge demands on LSPs and not everyone is able to keep up,” he says. In addition, new regulations in Saudi Arabia are pushing more end-users to turn to outsourcing for their logistics needs. “The Middle East region is actually a bit late in terms of outsourcing in comparison with the rest of the world. If you look at Western Europe and the US there is a lot more outsourcing. There are new visa regulations in Saudi Arabia and there has been a hike in fees that has hit companies’ bottom lines. Its putting additional pressure on pricing and production cost, which is pushing firms to work more with sub-contractors.”
This benefits Almajdouie Logistics because it has a strong network, an internationally known name and a huge asset-based network in Saudi Arabia and the UAE. “We’re an asset based company, so whatever we use we own and clients appreciate that. We do use third parties for some ad-hoc projects, but we mainly do our job with our own assets. This gives an assurance to customers that they’ll have a response every time they have a need, and it ensures a regular and consistent level of service.”
Almajdouie Logistics network includes more than 7,000 trucks and 2,000 trailer that are owned by the group, as well as 400 axle lines for the project logistics operations and more than 2-million sqm of terminals and warehouses in the region. “The bulk is in Saudi Arabia, but we also have facilities in Jebel Ali, Abu Dhabi, Bahrain and Kuwait,” says Al Biqawi. “In Saudi Arabia we have operations spread across the kingdom, so we’re present in all the provinces and of course in the main business areas. In Jubal we have the second largest terminal in the Middle East, around 500,000sqm, and we’re investing in expansion of those facilities.”
This of course benefits Saudi customers because it gives them an integrated service. “Their business is not going out of our hands, they’re in our terminals, we do their distribution aboard our own trucks and from our own warehouses,” says Al Biqawi. “We also do freight forwarding and customs clearance in house and this is important for the Saudi market, which is the most complex customs environment in the region. This gives customers an open door to the market using an integrated logistics provider. It gives them the assurance and reliability of our reputation. Our safety record is one of our proudest achievements. We’ve conducted ten million man hours without incident. This is done under an international management system, so we’re internationally certified ISO 9001 14001 and occupational health and safety 18001.”
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All of this gives Almajdouie Logistics a solid foundation from which to capitalise on the Saudi Vision 2030, which aims to transform the Kingdom’s economy. According to Al Biqawi, the company will benefit in three key ways. Firstly, its dominant market position in project logistics will enable it to secure demand for project logistics contracts required during the construction of new infrastructure, second that new infrastructure will make its logistics operations easier, and thirdly, the subsequent diversification of the economy will present new market opportunities.
“New highways and railways are being developed and rail will be a major game changer in logistics. Mature markets with rail provide a serious alternative to trucking,” he says. “With the increase in the price of fuel and the pressure put on the workforce in terms of new visa regulations and fees, there will be a shift to rail because it will become more attractive in term of price and ease of operations. You won’t need a truck, a diver, fuel, in short you won’t need to invest CAPEX. Railway will be the game changer in terms of infrastructure, and especially given the size of the country. It’s a huge country that faces challenges when it comes to long-haul freight.”
Then there is the redevelopment of the country’s ports infrastructure and regulations when it comes to clearance. Jeddah Islamic Port has moved from eight or ten days for clearance to just eight hours, on the Saudi causeway, the border between Saudi Arabia and Bahrain, clearance has dropped from three or four days to under 24 hours. “These changes are productive and will continue. The government is responding to requests from LSPs and their clients to be more competitive with other countries in the GCC,” he says. Such changes are opening up the Saudi Arabian economy, enabling it to become a manufacturing and export hub for finished goods.
“The domestic consumption in Saudi Arabia has driven the economic growth for the past ten years. We were previously only exporting oil, but now the government is promoting the export of other products, and giving a lot of incentives to local producers for export,” Al Biqawi explains. “We’re seeing the export of agricultural products now to the rest of the GCC and these changes bring logistics opportunities for transport, clearance for export, storage and so on.” Al Biqawi’s optimism isn’t without caution though, because the effects of VAT add a hefty dose of uncertainty into the mix.
“The only issue that will remain with Vision 2030 will be the additional burden of VAT and the associated fiscal implications. VAT will make investors wary going forward in the logistics sector. It’s difficult to say what the market response will be, but toward the end of 2018 there’ll be more clarity,” he says, adding that the effects are already apparent.
“Already we are seeing in the UAE, the first market where these impacts can be sensed, there is huge price pressure from customers, everyone is reviewing their costs and looking for more economical solutions to better improve their profit margins. This affects suppliers first, so we’ll see the same pressure migrating to Saudi Arabia. It’s pushing us as a business to review our cost structure and see where we can save some money. Unfortunately with the increase in cost, there is little alternative but to pass it on to the customer, otherwise you lose on every transaction and we see this beginning to happen. Some logistics companies are already selling their assets in the market.”
In spite of this, Almajdouie Logistics is forging ahead with its expansion plans. “From an infrastructure point of view we have already started investing in new facilities. We have begun construction of a new logistics facility in Jubail Royal Commission, an additional 500,000sqm. We’re also building a new facility in the Western Province, also in terminals, around 100,000sqm. We have a very aggressive warehousing expansion plan. Our aim is to have a minimum additional 30,000 to 50,000sqm on a yearly basis from now until the end of 2020. This all part of our Accelerate 2020 plan,” he says.