Fig: Logistics costs in Saudi Arabia, Key factors influencing and optimization strategies

Current Situation of Logistics Costs in Saudi Arabia

Logistics costs in Saudi Arabia primarily include transportation, warehousing, inventory management, and customs clearance fees. According to the Saudi Logistics Services Association (SLSA
), logistics expenses account for approximately 13% of the country's GDP, standing at around $80 billion annually. This is significantly higher than the global average of 11% and the Middle East average of 12%, indicating a need for cost reduction efforts to support sectors like e-commerce, manufacturing, and construction, which depend heavily on efficient logistics.

Key Factors Driving Up Logistics Costs in Saudi Arabia

• Infrastructure Constraints

While Saudi Arabia has made progress in infrastructure development under Vision 2
030, such as expanding ports (e.g., King Abdullah Port) and improving road networks, gaps persist in remote areas. For example, the road density in rural regions like Asir and Najran is only 30% of urban areas, leading to longer transportation times and higher fuel consumption. Additionally, port congestion during peak seasons, like Ramadan or the Hajj, causes delays, increasing storage and labor costs for logistics providers.

• Complex Regulatory Environment

Saudi Arabia's customs procedures, though digitized through the General Authority of Customs (GACA)'s e-customs platform, still involve multiple manual checks and documentation, leading to delays. Import duties on certain goods, such as machinery and consumer electronics, further inflate logistics costs. The country's "Saudization" policy also requires local hiring, increasing recruitment and training expenses for logistics companies.

• Market Demand and Urban Concentration

The concentration of 70% of the population in major cities (Riyadh, Jeddah, Dammam) creates uneven demand. Logistics providers charge premium rates for transportation to and from these hubs, while remote regions face limited service availability, forcing businesses to use expensive specialized carriers. This imbalance drives up overall logistics costs for both urban and rural operations.

• High Labor and Technology Costs

The shortage of skilled logistics professionals, such as supply chain managers and technical staff for IoT tracking systems, leads to higher recruitment and training costs. Many companies rely on foreign labor, which incurs work permit and visa fees, adding to operational expenses. Additionally, adopting advanced logistics technologies like AI-driven route optimization requires significant upfront investment, which small and medium enterprises (SMEs) struggle to afford.

Effective Strategies to Optimize Logistics Costs in Saudi Arabia

To mitigate these challenges, stakeholders can adopt the following strategies. First, leveraging digital transformation: implementing Logistics Management Systems (LMS) and IoT-based tracking tools can enhance route efficiency, reduce delays, and improve inventory turnover. For instance, Aramex, a leading logistics provider in Saudi Arabia, has integrated AI algorithms to optimize delivery routes, cutting costs by 15%.

Second, strategic warehouse location: businesses should establish regional distribution centers near major ports and transportation networks. The government's Logistics Cities initiative, such as the King Abdullah Economic City, offers tax exemptions and integrated infrastructure, making it an ideal location for warehouses. This reduces transportation distances and lowers fuel and labor costs.

Third, collaboration with third-party logistics (3PL) providers: SMEs, in particular, can benefit from partnering with 3PLs, which handle warehousing and transportation, reducing overhead costs. The Saudi government has introduced regulations to support 3PL development, with initiatives like the Logistics Support Fund, which provides grants for SMEs to adopt 3PL services.