Fig: Middle East logistics expenses, a key factor affecting regional trade and development

Factors contributing to high logistics costs in the Middle East

Geographical complexity is a primary driver of elevated logistics costs in the Middle East. While the region’s strategic location between Europe, Asia, and Africa offers trade advantages, it also presents logistical hurdles. Vast deserts—such as the Arabian Desert—scarce water resources, and rugged terrains in countries like Yemen and Oman necessitate longer transportation routes and specialized vehicles, increasing fuel consumption and operational time. For instance, transporting goods from Dubai to Muscat may require navigating coastal roads or using expensive air freight for time-sensitive shipments, raising overall costs.

Infrastructure gaps further exacerbate the issue. While nations like the UAE and Saudi Arabia have invested heavily in modern ports (e.g., Jebel Ali Port in Dubai) and logistics parks, many Middle Eastern countries lag in developing integrated transportation networks. Roads in parts of Iraq, Syria, and parts of Iran often lack proper maintenance, leading to delays and higher vehicle repair costs. Rail systems, though expanding, remain underdeveloped compared to global standards, with limited connectivity between key cities. Additionally, some airports in the region struggle with outdated cargo handling facilities, causing bottlenecks and increasing per-unit shipping expenses.

Regulatory and policy inconsistencies also play a significant role. Each country in the Middle East maintains distinct customs procedures, import/export regulations, and tax structures, creating administrative barriers. For example, customs clearance times can range from a few hours in the UAE to several days in countries like Iran, leading to extended storage fees and cash flow delays. Tariffs on logistics services, such as port handling or warehousing, vary widely across nations, with some imposing hidden costs that increase overall expenses for international businesses.

Market fragmentation and low network density further drive up costs. The Middle East’s population is spread across diverse urban and rural areas, with demand for goods often scattered. This requires smaller, more frequent deliveries, which are less cost-effective than large-scale, consolidated shipments. Smaller logistics firms, which dominate in some markets, lack the economies of scale to lower prices, while high labor costs in urban centers (e.g., Dubai and Doha) add pressure on operational budgets.