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The future of GCC's road freight sector - growth drivers and stoppers

Trucking is the leading freight transportation mode in the world with 70% of goods being shipped by road, according to Roland Berger. In 2020, the global road freight industry was valued at around $3.1 trillion in 2020, due to a Frost & Sullivan white paper. The market has grown continuously owing to the increasing levels of trade and economic activity. The COVID-19 outbreak marked the first time in a decade that activity in the sector decreased caused by travel restrictions, border closures, and lockdowns. Those drastic precautions have obviously impacted freight capacity and flow of goods with estimates suggesting a decline of between 15% and 25%, depending on the market.

The sector’s global revenues are forecasted to grow by an average of 4.3% annually from 2020 to 2025. Looking at a regional level, the growth forecast for the Africa & Middle East region is estimated at 3.9%. Another source predicts the transport sector in the Gulf Cooperation Council (GCC) to grow by a CAGR of 5% between 2020 and 2025.

Road Freight Market Regional Growth Forecast

But which aspects will drive this growth in the GCC region and are there challenges which could possibly slow down the upwards development when not addressed in the right way?
In this article, we will look at the current road freight market in the GCC and some of its potential growth drivers. Then we will identify the risks the industry should be aware of to avoid staying behind the expectations and international competition.

The road freight market in the GCC region

As it is the case globally, in GCC’s regional logistics market the road freight mode holds the largest share. Today, practically all land cargo within the region is shipped by road freight carriers. More than one million trucks are in operation, a number that increases by 5 to 9% each year. One reason is that truck transport is relatively cheap compared to other modes, mainly due to Government fuel subsidies reducing gasoline costs by at least 20% — one of the largest expenses of trucking companies, according to Strategy&.

GCC logistics market distribution by subsector in %Source: Statistika
Market share by types of road freight transport
In terms of the types of road freight transport available in the GCC region, the full truck load (FTL) and less than truck load (LTL) segments currently constitute almost half of the total road freight logistics market and will continue to rise due to the region's strategic position and its free trade zones and economic cities. FTL constitutes the major share in the GCC road freight segment at 30% owing to high volume and large ticket size of orders and consignments.

Potential growth drivers of GCC’s road freight sector

One of the road freight sector’s challenges has been the region’s low density of the road network. The performance of road transport infrastructure remains low, causing delays and raising the cost of trade. According to the World Bank, the GCC region needs to invest approximately 5% of their GDP in infrastructure investments. The gaps are particularly prevalent in cross-border infrastructure and road transport. Governments of the GCC countries have recognized that high-quality infrastructure is a crucial driver of sustainable growth and committed to significantly invest and improve the region’s infrastructure enhancing connectivity and boosting trade. Hence, as a report from 2019 by Orient Planet Research shows, the GCC countries have a large pipeline of road infrastructure development initiatives with roads, highways, and bridges being among the highest number of projects.

                               Annual infrastructure investment needs in MENA

World Bank estimations
Intra-GCC trade growth
The GCC countries with their 58 million people rank 13th among the world's largest economies with a GDP of $1.64 trillion in 2019, due to albawaba News. Prior to COVID-19, it was predicted that the region could become the sixth-largest economy in the world by 2030 given the union’s tremendous capabilities and strong energy and trade sectors. However, the spread of the pandemic caused a halt to economic activities and growth. But the way ahead is clear, the Gulf states wish to preserve pre-pandemic gains and ensure their continued growth and will work closely together with public and private sectors to encourage more trade between GCC countries. In addition, intra-GCC trade will further benefit from the rapidly growing cross-border e-commerce sector across the entire MENA region boosting the need for road freight services across the region, as a report by Bain & Company clearly reveals.     

                                Gross domestic product (GDP) projection to 2030

Gross domestic product (GDP) projection to 2030Source: IMF World Economic Outlook
Evolving technology for the road freight sector
Digitalization and automation are transforming entire industries since years. Even though lagging behind other industries, the logistics sector is catching up in terms digital adoption. It is predicted that new technologies will streamline the road freight market in the GCC countries. There is a wave of innovation across the entire value chain with new solutions emerging to facilitate the movement of goods across all transport modes including road freight. Many of these technologies are still in the initial stages of implementation and not so relevant in near term. However, there are technology solutions such as big data and analytics, blockchain, and on-demand mobility which are further advanced and will rapidly be embraced by the transport industry to improve operational efficiencies along the supply chain. In fact, it is expected that digital solutions have the potential to reduce operating costs by 10 to 30% and operational risk and breakdowns by up to 75%, due to Strategy&. Hence, the increasing implementation of innovative solutions will drive the industry’s revenue growth.

             Essential digital technologies that major freight T&L players can adopt

Essential digital technologies for the road freight sector

Challenges and risks potentially slowing down the growth

Even though there are promising growth indicators for GCC’s road freight industry, there are also risks in place which could negatively impact the sector’s growth if not addressed appropriately and timely. Let’s look at some of them in the following.
Drivers lacking qualifications
Some reports state that the qualification and skills of drivers in the Middle East don’t meet the benchmark set by Western countries. Driver shortage and lack of driving skills is a global phenomenon since a few years. However, for the industry, the level of driving skills makes a huge difference to its overall performance as it impacts fleet efficiency. Due to a Shell report, independent tests indicate that highly skilled drivers can reduce fuel expenses by between 5% and 20% on average and subsequently lower costs associated with the wear and tear of vehicles.

Hence, road freight carriers should not try to save costs when it comes to their work force. Fair working conditions as well as professional and sufficient trainings for the drivers will influence the overall performance which is important in a highly competitive market with tight margins as the road freight industry.
Customs slowing intra-GCC trade
Customs processes in the GCC region are a bureaucratic huddle. If cross-border shippers are not prepared, it can take weeks to clear customs. For example, different states require different documentation which can vary from six documents in the UAE to 12 in Saudi Arabia. Cargo shipments crossing multiple land borders within the GCC region might have to undergo physical inspections by customs at each border crossing even though there is a customs union in place in the GCC region. Another challenge is a missing standardization of import licensing and permissions. A product that may be imported freely into one GCC customs union member state might require a permit or license in another. Those challenges cause shipment delays and frustration on the side of the transport company as well as the shipper. An important decision would be to have a single customs system used in all GCC countries. 

In addition, as inter-trade has been increasing tremendously, thousands of trucks are moving through the different border points daily. However, as these points have not been significantly upgraded for years, long queues of trucks especially during peak seasons are the consequence which is slowing down intra-regional trade. Even though there are plans to build and/or expand the border points in the GCC, the execution has been postponed again and again. Hence, this should become a priority to reduce backlogs and help intra-GCC to further grow.
Slow adoption of technology
Even though the transport and logistics sector is generally catching up in terms of digital adoption, a report by Strategy& claims that most companies in the GGC region are still applying an analog and manual mind-set and are less digitized than enterprises in more developed markets. With the rapid speed digitalization and new technologies are evolving globally, this attitude presents a great risk, and will likely impact their own, as well as the customers’ business, operations negatively. By not adopting the available innovative and digitally driven solutions but rather sticking to old habits, companies will increasingly face operational invisibility, rising need for resources, random decision-making leading to waste of time and frustration among employees and customers. Hence, to ensure that operational processes become more agile, speedy, transparent, and cost-efficient resulting in higher customer satisfaction and industry competitiveness, road freight stakeholders in the GCC must start adopting and implementing latest technologies. Otherwise, start-ups or international competitors with new and disruptive solutions might put them out of business soon.

Digital solutions for the Road Freight sector to prioritize

With technology and digitalization being buzz words and new solutions evolving everywhere, it can be quite overwhelming for decision makers from the road freight industry to keep up with the fast development. And while many technologies are indeed not yet so relevant to transport companies, simply because they are in early development stages and companies lack the internal capabilities to capitalize on them, there are the earlier mentioned tech tools big data and analytics, blockchain, and on-demand mobility which are already disrupting the regional industry and should be implemented by companies across the industry. Due to Strategy&, those will have the greatest impact in the regional industry over the next several years. They all focus on improving operational efficiencies, making processes leaner and less manual, reducing costs and enhancing the customer experience. All essential aspects for a sustainable business.

Digital road freight network
Big data and analytics
By using software and tools which capture detailed types of data along the entire supply chain and analyze them, companies can truly benefit. When using the information in the right way, big data and analytics help companies to better understand their business processes and customer preferences, make data-driven rather than random adjustments and decisions, improve performance, and create greater value for their customers. Hence, road freight companies should invest in data collecting tools and ensure the right interpretation of the information to be able to base future strategies on collected data.
In basic terms, blockchain allows organizations to record transactions online in a secure way, by encrypting and distributing them across a wide network of computers. This enables safe exchange of data and resources between nodes and stakeholders in the supply chain. For example, cross-border trade cargo flow is one of the most complex operations to manage in transport and logistics involving transactions and data exchanges including tariff, tax and import/export duty checks, security checks (if applicable), goods validation and logistics service providers check-ups. Blockchain is rapidly evolving in helping to improve traceability of cargo trade flow across borders. It does so by serving as a decentralized distributed ledger that administrates the data transaction and authentication of goods and services handled internationally by diverse stakeholders. Hence, industry business leaders should educate themselves about the functionalities and benefits of blockchain to be able to apply it to their business.
On-demand mobility
This concept is best known from private passenger transportation. Apps such as Uber and Lyft disrupted the classic taxi industry by offering car sharing and rides on demand via an application connecting passengers directly with drivers through technology. On-demand mobility has slowly been adopted by the road freight industry as well and will play a major role going forward. Technology is used to connect different parties of the supply chain comprising shippers, transporters, road freight couriers, and drivers via online platforms. Through those systems cargo transport can be arranged and executed efficiently and transparent as all stakeholders can communicate and track cargo locations in real-time. Generated data can be used for revealing valuable insights about service performance, routes, pricing, and preferences helping road freight companies to enhance their strategies.

The on-demand mobility solution by RSA Global

ClickRF – Click for your Road Freight

What is ClickRF
Watch our ClickRF intro video here to learn more.

At RSA Global, for example, we have created a joint platform for shippers, transporters, and drivers in the GCC region called ClickRF
. The goal was to create a digital marketplace for all road freight services across the UAE and GCC region providing an aggregator service for fast, convenient, and transparent transport solutions. The system gives real-time information about cargo that needs transport, available trucking routes, as well as up-to-date rates. In addition, ClickRF enables all kinds of related transactions such as booking, rate bidding and negotiation, road freight tracking as well as payment. All steps are facilitated via a transparent real time communication between the supply chain stakeholders through the single window interface WhatsApp. The platform is powered by Artificial Intelligence (AI) and RSA Global’s voice-enabled intelligent assistant RiA, an IVA (interactive virtual assistant) that is built on a groundbreaking platform of AI, ML and NLP. RiA interacts with ClickRF users and carries out orders and administrative tasks on their behalf. The system analyzes generated data revealing relevant information and bottlenecks allowing smart decisions-making based on facts.
RSA Global’s RSA Click Eco-System
ClickRF complements our digital Click Eco-System comprising the freight management system ClickSC (Click for your Supply Chain), ClickRF and the warehouse management system ClickWM (Click for your Warehouse Management). With this set of digital platforms for international freight, e-commerce, land transport and warehousing we offer our customers and transport partners smart alternatives to the traditional way of supply chain management. Our intention is to help them build robust and seamless supply chains obtaining true visibility, flexibility, and mobility in order to advance their businesses, and provide them with a competitive edge. Something urgently needed in the GCC region as we learned throughout this article.

RSA's Click Eco-SystemWatch our Click Eco-System intro video here to to learn more.

Conclusion: GCC’s road freight sector needs to act fast to ensure future growth

Road freight is the most used mode of transport globally as well as in the GCC region and it is predicted to further grow continuously within the next five years. There are several growth drivers enforcing the upwards trend in the GCC such as ongoing and planned infrastructure projects, expected growth of intra-GCC trade and newly launched technology solutions leading to more operational efficiency. However, there are also risks which could hinder the industry’s growth when not addressed appropriately. For example, truck drivers lacking sufficient qualifications and skills, bureaucratic and inconsistent customs procedures across the GCC, and slow adoption of available and emerging technologies by road freight logistics companies. Especially the latter is critical as it is in the hands of road freight companies to digitally transform their businesses or not. However, observing the global trend of digitalization and technology in the transport and logistics industry there doesn’t seem to be a way out. Road freight stakeholders in the GCC region need to act. If they don’t disrupt their own businesses, their competitors will. And then it will be too late with no chance to recover as numerous examples from other industries have illustrated.

Do you need support in digitizing your road freight operations? Our road freight team is happy to assist you. Reach out to us via our contact form or send us a WhatsApp message any time.

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