Saudi Arabia Logistics, Saudi Arabia, freight transport, business setup in Saudi Arabia

Doing business in the Kingdom of Saudi Arabia (KSA) differs from most countries due to its unique Arabic culture and work ethic. It is a growing country and famous for producing and exporting oil worldwide. The kingdom’s oil exportation accounts for 40% of Saudi’s GDP.

In addition to oil, various products are being imported and exported as the country develops. The logistics industry is a big part of the kingdom and has opened up to working with various international companies.

Trading with Saudi Arabia presents many opportunities for foreign businesses, which should be taken advantage of with adequate market research.

Starting trade with a new country is always complicated, and Saudi Arabia is no exception; in fact, it may present even more tricky challenges. Businesses need to recognise the challenges involved before engaging in trade with Saudi Arabia and collaborating with its logistics industry.

Hence, the article will highlight the main Saudi Arabia’s logistics challenges and how a company can deal with them.

Saudi Arabia Logistics Challenges

Complicated Customs and Regulation

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One of the most challenging Saudi Arabia’s logistic challenges is the customs, tax and import regulations. The government requires the companies to provide a long list of forms and meet specific regulations to import into Saudi successfully.

The Saudi Arabian consulate requires importers to present a commercial invoice, a bill of lading, a packing list and special goods certificates. Importers must complete clearing procedures (Fasah) by submitting the necessary documents and the customs declaration form at least 48 hours before the shipment arrives at the port.

The country has strict rules on what can be imported and what is strictly prohibited. Companies may need to apply for special approval from Saudi authorities for products such as agricultural seeds, live animals, books, movies, religious books, and even perfume. Additionally, Saudi law prohibits the importation of alcohol, weapons, narcotics, pork products, and more.

The Saudi government will take severe legal action if a company imports illegal products. The port will reject the goods if the required forms are missing or not submitted on time. Companies must study all customs and laws to ensure that imports are successful.

Limited Warehousing 

Another challenge regarding Saudi Arabia’s logistics industry is the shortage of warehousing space. 96% of warehouse space is occupied in both Riyadh and Jeddah, meaning there is a considerable lack of storage space.

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Saudi Arabia’s shortage of warehouses has resulted in a high spike in rent for any available space. The high rental prices make it even more complex and expensive for foreign companies to operate in Saudi Arabia. This poses challenges for importing products, expanding businesses, and competing with local companies.

Saudi is attempting to increase warehouse spaces, but the progress may be slow and may take years. The logistics challenge, unfortunately, disturbs a business and may slow down its supply chain process.

However, the demand for warehouse space can also be considered an opportunity for international investors. Investors can invest in the development of warehouses and the future of Saudi Arabia’s logistics industry. 

Talent Shortage and Skills Gap

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Like many other countries, the Kingdom of Saudi Arabia also faces a shortage of skilled talent. The logistics industry is among the many industries that find it harder to hire the right employees.

The logistics sector requires a skilled workforce that are professionally trained to manage and execute supply chain activities. The lack of talent affects warehouses, freight forwarders, and logistics firms.

The government is taking action to invest in the local workforce and attract international employees. The significant challenge can make it hard for foreign companies to grow their business and hire the right staff within an effective cost strategy.

Local and foreign businesses can address this challenge by upskilling their current employees and financing suitable training.

Security Concerns

One of the biggest concerns regarding Saudi Arabia’s logistics is the geopolitical security issues. Saudi Arabia is surrounded by countries that are at war and is located on the Red Sea route.

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The Red Sea is the easiest shipping route to reach the kingdom; however, it has become a logistic disaster due to its dangers. The sea has seen a rise in attacks on ships since October 2023, and at least 40 ships have been attacked. The attacks lead to hijacks, damaged cargo, fires and sinking.

To import goods to Saudi Arabia, companies currently have to spend more time and money by taking the longer route (Cape of Good Hope) and using multiple modes of transportation. When importing goods to the Middle East, logistics companies must constantly track their ships and have strategic protocols in place in case of an attack.

Supply Chain Disturbance 

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All the above Saudi Arabia logistics challenges lead to supply chain disturbance. Supply chain disruption is when an incident forces an interruption in the processes of production, sales, and distribution of specific goods. The disturbance includes delays, product rejections, fines, damaged or lost cargo and transport, liability lawsuits and more.

All these factors can seriously harm a logistics business’s efforts. Companies may need to spend more time and money to deal with or recover from the possible disturbance. Companies should be ready for potential supply chain issues when importing into Saudi Arabia.

In addition, companies should have the proper protection to deal with the business and financial damage due to challenges and interruptions. The best logistics business strategy involves a range of insurance.

Why Is Insurance Vital to Dealing with Saudi Arabia Logistics Risks?

 Insurance is crucial to deal with the logistics challenges in Saudi Arabia. A proper combination of insurance helps companies financially recover from unfortunate incidents.

As an importer, your cargo could be damaged or lost at any point of the journey, especially a dangerous journey. Cargo insurance is essential to cover the cost of damages and loss. The insurance will help companies recover financially and possibly send cargo again.

Freight forwarders in Saudi Arabia are crucial in managing transportation and paperwork. However, due to the complex nature of the process, they could be vulnerable to lawsuits. Freight forward insurance provides coverage for their liability, helping them handle lawsuits.

There are more insurance policies that may be the ideal protection for a company involved in the Saudi Arabia supply chain. You can learn more about these insurance policies in detail in our article– Managing Supply Chain Risks with Essential Insurance.

The Saudi Arabia logistics challenges can be avoided and understood with suitable research, strategy and insurance.

 

 

To Learn More about logistics insurance and cover Saudi Arabia’s Logistics risks, contact Red Asia Insurance.