Containerizing the Pandemic

Airlines and logistics adapting to COVID-19

While recovery in the airline business is a slow, ongoing proposition, the irrepressible necessity of logistics—amplified by Saudi Arabia's massive growth drive—has seen a much rosier performance under the shadow of COVID-19.

While scientists around the world deal with the virus and, hopefully, prepare for the next one, everyone else remains in full recovery mode. Saudi Arabia’s airline and logistics sectors are no exceptions. Yet, continued massive developments toward realizing Vision 2030 spell sustained momentum for the latter sector and the Kingdom’s wider economy.

The problem with being an international hub with vast ground handling infrastructure catering to the close to 100 of the world’s airlines is the screaming silence when it all comes to a stop. This was the fate of the Saudi—and global—airline industry, reduced to a trickle in 2020. And while local flights resumed in May and recovered around 60% in volume, international flights are another story.

Data from the International Air Transport Association (IATA) confirms that passenger numbers on regional airlines in October slumped 86.7% (89.3% in September). The global figure for October was a decline of 70.6% (72.2%). Commenting in 2020, Irish company DAA International, which manages the domestic terminal at King Khalid International Airport (KKIA) on behalf of Riyadh Airports Co. (RAC), suggested that domestic passenger traffic would not likely regain its 100% pre-COVID-19 performance until mid-2021.

Meanwhile, Fahd Cynndy, the CEO of Saudi Ground Services (SGS), told TBY that revenues “plunged by 85% as a result of COVID-19″ and for the post-COVID-19 era, the “first thing is to secure our cash position,” achievable, he says, by having 24 months cash available on hand and shaving 5% of OPEX per annum over three years.

Shifting the goods

Saudi Arabia, not content with its status as an oil giant, is racing toward broad wider industrial supremacy. It already has 35 industrial cities, and the opening of new facilities continues, predominantly at the hands of the Saudi Authority for Industrial Cities and Technology Zones. Riyadh seeks to be ranked among the world’s top-10 cities, but the goals are nationwide. Duly, the KSA has been bolstering the financial stability of its logistics, in part by encouraging greater private-sector participation.
This underpins the goals of the National Industrial Development and Logistics Program (NIDLP), spanning the mining, energy, and logistics sectors. Over the next decade or so, the Kingdom has earmarked roughly USD36 billion of state and private investment to expand the sector. Meanwhile, enhancements to Saudi Arabia’s soft infrastructure (governmental and legislative) boosted its ease of doing business ranking from 92nd place in 2019 to 62nd in 2020.

The Kingdom boasts a robust freight and logistics sector that has benefited from giant state investment into road, rail, air, and maritime. Riyadh alone boasts around 23 million sqm of available warehouse and logistics space, followed by Jeddah with about 17.2 million sqm. Official figures put transportation, storage, and communications—a broad term covering logistics, warehousing, and cargo transportation—activity up from USD34 billion in 2013 to USD44 billion in 2019, its contribution to GDP rising YoY from 5.5% to 6.2%. 1Q2020 growth of 4.2% YoY turned to shrinkage of 16.3% YoY in 2Q2020, as COVID-19 left its mark. The sector, however, saw the value of non-oil exports regain its pre-COVID levels in 3Q2020.

King Abdullah Port

In January, Energy Minister Khalid al-Falih announced the Kingdom was raising USD427 billion in private-sector investments, with approximately USD36 billion earmarked for logistics infrastructure. The massive King Abdullah Port, wholly owned by the Ports Development Company, was the region’s first port facility to be owned, developed, and operated by the private sector. As the main Red Sea logistics hub for Maersk and MSC, it plays a vital intercontinental role for these giants. Its capacity of 6 million TEUs has meant that 10 of the world’s largest shipping lines operate at its state-of-the-art facilities.
The port saw a 7% increase in container volumes last year, handling 2.15 million TEUs. This was reflected in a 16% rise in containerized imports, with bulk and general cargo up 12% to 3.33 million tons. According to official data, besides a predictable 72% rise in pharmaceuticals and medical supplies imports in August 2020, we note robust 15% growth in building materials imports, confirming a vibrant construction sector.

Ultimately, given the unforeseen nature of COVID-19, the global economy has had to take the pandemic on the chin. Yet, earmarked infrastructure and commercial projects are beginning to see the light at the end of the tunnel. Finally, following the AlUla agreement, Saudi Customs resumed operations at the Salwa border crossing with Qatar on January 9 and at the Abu Samra border crossing on February 14, a further confirmation of economic normalization.

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