A Frost & Sullivan report says weak infrastructure and a paucity of local talent were hampering Saudi Arabia’s growth in the logistics sector where transportation accounted for close to half of the sector’s total revenues of $16.73 billion in 2012.

The report, authored by Srinath Manda, Frost & Sullivan’s programme manager, transportation and logistics practice, estimates transportation made up 48.2 per cent of revenues, followed by freight forwarding 30.2 per cent, warehousing 17.5 per cent and value added logistics services (Vals) 4.1 per cent.

“Due to  the  substantial  domestic  cargo movement  required  for oil  and  several other  industries,  transportation accounts for the largest share in the logistics market,” it said.  “Apart from the massive exports of the oil industry, there is substantial export activity for a few other industries that have a sizeable manufacturing base in the country. These two factors, combined with a significant level of imports for various consumer product industries, result in the freight forwarding function accounting for the second-largest share in the total logistics market,” it added.

The report noted that infrastructure had not kept pace with industrial development and that weak infrastructure in most parts of the country is hampering the logistics industry’s growth. Inadequacies lay in poor inland road, rail and sea connectivity. “Moreover very poor connectivity to rural areas is adversely impacting rural penetration levels of various industries. This is resulting in significantly low level of transportation activities to such potential market areas, thus affecting the logistics service providers’ revenues,” it said.

The report also observed that a deficit of local talent is affecting growth of the logistics sector with the kingdom having to rely heavily on its expatriate population for low to middle-level jobs across all industries but there were constraints to bringing in overseas workers.

On the outlook, it said: “Consistent demand for exports of oil, gas, petrochemicals and imports of various consumer goods are likely to ensure the sustained growth of the logistics market in Saudi Arabia. Further, the Government’s focus on expanding manufacturing bases in the country coupled with on-going developments in the infrastructure sector is likely to enhance the market’s prospects over the long term. Hence, logistics service providers in the country are set to witness significant growth in future, provided they offer tailor -made services apart from overcoming limitations related to human resources and infrastructure.”