proposal

Table 1. World Export & Import 3

Table 2. Saudi Arabia Export & Import 5

Table 3. Saudi Arabia during the years 2007, 2010, 2012, 2014, 2016 25

Table 4. LPI of Saudi Arabia & High income group & Region Middle East 29

Table 5. Domestic Logistics Comparison between UEA and KSA 31

Table 6. Saudi Arabia & Taiwan Logistics Performance Index 33

Table 7. Saudi Arabia ‘customs compared to Taiwan ‘customs 34

Table 8. Saudi Arabia ‘infrastructure compared to Taiwan ‘infrastructure 35

Table 9. Saudi Arabia & Taiwan international shipment 36

Table 10. KSA ‘logistics competence compared to Taiwan ‘logistics competence 37

Table 11. The Difference in Tracking and Tracing between KSA and Taiwan 38

Table 12. The Differences in Timeliness between Taiwan and Saudi Arabia 39

Logistics system has been increasingly recognized as one of the important driving forces for economic growth (Zhofang Chu,2012). Also, it plays an important part in a country’s economy, where rapidly developing economy supports the logistics development. For this reason, countries have given considerable attention to the development of logistics. With this linkage, logistics is expected to grow in line with the economic development. Logistics has become an enormously important component of the gross domestic product (GDP) of industrialized nations and thus affects the rate of inflation, interest rates, productivity, energy costs and its availability and other aspects of the economy as well (Hertz & Alfredsson, 2003). Ever changing business environment due to globalization, lead time reductions, customer orientation, and outsourcing has contributed to the interest in logistics (Hertz & Alfredsson, 2003). The increase in global production sharing, the shortening of product life cycles, and the increase of global competition all underline logistics as a strategic source of competitive advantage (Arvis, Mustra, Panzer, Ojala, & Naula, 2007).

Moreover, in order to remain in competitive marketplace and earn reasonable profits, organizations interest in logistics has been increased. Logistics operations have become more efficient due to technological advancements which make it possible to deliver goods on time while reducing the cost involved. Consequently, the efficiency and reliability of the logistics system affects economic productivity which is the most important determinant of economic performance.) Council of Supply Chine Management professional).

Therefore, logistics industry is the artery and the basic industry of the national economic development in the world. Its development level is one of the important marks to evaluate the level of state modernization and comprehensive strength. Logistics is the accelerator of the economic development and growth.

International logistics costs are estimated to represent about 15% of the volume of international trade and, as a result, it can be seen that international logistics plays a key role in the world's economy (Hang Zhou,2017). But there is one particular characteristic that distinguishes international logistics from domestic logistics and its impact on the world's economy. One particular characteristic is crossing of borders between two or more countries besides the complexity consisting of a mix of cultural, political, technological and economic issues. Cross border movement rings in issues related to dumping of goods and Forex exchanges. It can destroy the internal domestic economy. Thus, Government further requires a set of rules and regulation to control it. Also, It is a big issue for the government as countries differ in technological development and political scenario. It decided the quantum of flow of international trade as well as the direction of trade. Cultural and economic perspective decides the purchasing power and taste and preference of individuals in economy. It affects the trade significantly.

Countries logistics performance is strongly associated with the reliability of supply chains and the predictability of service delivery for producers and exporters. Supply chains—only as strong as their weakest links—are becoming more and more complex, often spanning many countries while remaining critical to national competitiveness (World Bank).

1.1 Overview World Trade

According to International Trade Center (ITC), total world trade grew 14.65% from 2007 to 2016. In 2007 total word trade was around $27,874,717,470 compared $31,958,841,715 in 2016. In 2007, total import was around $14,097,221,790 while in 2016 was about $16,045,698,257. Import increased by 13.8% during 2007 - 2016. On the other hand, export grew by 15.5% during the same period (Table 1).

Table 1. World Export & Import

(Source: International Trade Center)

Figure 1. World Trade

(Source: international trade center)

The graph above compares the compares global imports and exports of 2007 and 2016. Overall, it can be seen that over the period, both imports and exports increased but the percentage increase in exports is slightly higher than imports (15.5% to 13.8% respectively).

Total world trade balance:

In 2007, world trade balance (difference between imports and exports) was $-319,726,110 but it went down to $-132,554,799 in 2016 (ITC). The major trading countries were China, Germany, Russian Federation and Saudi Arabia. China is number one in terms of total trade and its ‘trade balance was 1,587,920,688 during the period (ITC).

Saudi Arabia is the largest economy in the Middle East and the richest Arab country. The policy of large-scale public works undertaken by the Government, as well as foreign direct investment and the soundness of the banking and financial system, have enabled the country to become the number one regional economy and one of the largest in the world. However, the economy of Saudi Arabia is almost entirely based on oil. GDP growth has been gradually declining since 2015 to a point where the economy moved into a recession in 2017 (-0.5%)

Saudi Arabia has been ranked as the 20th most economically competitive country in the world. It is the world’s largest producer and exporter of petroleum products, and also, the largest oil producer. Saudi Arabia’s trade remains heavily dependent on the oil and petroleum-related industries, including petrochemicals and petroleum refining.

Figure 2. Saudi Arabia at a glance

(Source: Saudi Arabia transportation and logistics opportunities)

Table 2. Saudi Arabia ‘Export & Import

(Source: Saudi statistics)

Figure 3. Saudi Arabia Import and Export: 2007-2016

(Source: International Trade Center )

Saudi Arabia has made a remarkable progressive in both sectors export and import. As can be seen from the graph above, there were different trends for export and import. Imports increased steadily between 2007 and 2014 and started to decline in 2015. Imports reached their highest level in 2015 to $655,033 million and its lowest level in 2016. Exports on the other hand followed a fluctuating trend and reached its highest level in 2012 to $1,456,502 million and its lowest level in 2016. The growth rate of the import sector during the years is 55.47% while the rate of the export sector is -21.26%.

Supporting all these trade activities is logistics and supply chain operations. Logistics performance is strongly associated with the reliability of supply chains and the predictability of service availability.

1.3 Logistic in Saudi Arabia:

The Kingdom of Saudi Arabia is located strategically between three continents Asia, Africa and Europe. The transport and logistics sector in Saudi Arabia is supporting a population of 32,28 million (2016) and plays a crucial role as enabler and prerequisite for growth in the country as well as for the “economic cities” (EC’s). As a result of the economic growth and development, annual cargo volumes will triple from 300 million tons in 2005 to around 900 million tons in 2020.The two most important ports for imports are Jeddah Islamic Port and King Abdul Aziz Port Dammam. Jubail Industrial Port is the biggest port for export, Yanbu Industrial Port follows as the second biggest port for exports. This implies that hinter- land connections are as important as maritime transport and ports. The existing infrastructure, however, has not yet kept pace with the industrial development of Saudi Arabia and is still inadequate with limited inland road, rail and sea connectivity. For this reason, numerous projects for the development of ports, roads and railway transportation have been planned. With the right incentives and also by leveraging the country’s strategic location to attract traffic to its seaports, airports, logistics network; Saudi Arabian Government aims to strategically privatize operation and management of components of the transport and logistics sector ) Andreas Hergenröther 2013)

Recognizing the growth potential that its logistics sector can have on non-oil trade and investment — a key objective of its Vision 2030 — the Kingdom puts a nine-point logistics transformation strategy. The strategy will be a significant enabler for the country’s logistics success.

a. Enhance and reengineer the import/export process

Becoming an international logistics hub begins with reducing the time, cost and variability of importing and exporting goods. KSA already has some nice wins in this area thanks to automation and progress efforts to reengineer the import/export methods. For example, average declaration clearance times at seaports have been cut in half to just 2.2 days and at airports to just 1.2 days, and the amount of import-export paperwork is down by 75 percent (Figure 4).

Figure 4. Early wins in customs process streamlining

(Source: Supply Chine Brain)

Clearing customs is not just faster, but also more predictable and reliable, with 40 percent of customs declarations at seaports now cleared within 24 hours and 70 percent cleared within 48 hours. Many of the improvements are attributed to modernizing the declarations process and managing risk. “Declarations can now be submitted digitally and prior to arrival at ports, and customs is now open 24/7,” explains a customs executive

b. Digital transformation

Digital technology has significantly improved KSA’s security, transparency and control over the import-export process. Today, importers track the status and progress of their shipments in real time. Customs brokers receive automated status notifications on their mobiles, and are prompted to create their declarations as soon as the shipping manifest is available online, i.e., prior to ship arrival. KSA recently launched two new digital initiatives: a port community system to guarantee secure and efficient exchange of information, and a digital payment platform to accelerate the payment process.

c. Develop a transport infrastructure

The Kingdom aims to improve the quality, safety and efficiency of the country’s transport infrastructure. The plan calls for development of several major assets, including the Saudi Land bridge railway to connect the east and west coasts of Saudi, and two new rail corridors, Ras-Al Khair-Dammam in the east and Yanbu-Jazan in the west. Next on the agenda could be construction of new multimodal logistics terminals to fill the increasing need for sea-to-air and rail-to-road connectivity.

d. Eliminate air cargo bottlenecks

Saudi Arabia works to improve airports and expand air cargo facilities to eliminate infrastructure bottlenecks. According to vision 2030, the objective is to increase total air cargo capacity in the Kingdom from 0.8 million tons/year today to 6.8 million tons/year by 2030.

e. Meet international regulatory standards

Saudi Arabia wants to attract more competition and private-sector participants, then its regulatory environment must be in line with international standards. It will help logistics players to move the logistics performance in the area. Government works to give licenses to warehouse operators and makes remarkable effort to improve efficiency and safety standards.

f. Improve seaport quality and efficiency

Efforts are under way to identify and repair the inefficiencies of sea ports. The initial focus is on growing port specialization, reforming governance and oversight, and updating concession frameworks. Also, Saudi Arabia wants to create a more level playing field by separating port regulations from port ownership and assigning a dedicated regulating entity. Concession frameworks are revised to become more transparent, fair and attractive to international terminal operators.

g. Reform the rail sector

The rail sector is going through similar reforms. Recently, railway regulation was separated from railway ownership and assigned to an independent regulator and it called (the Public Transport Authority). The government is consolidating and restructuring all railway operations, and planning to award operations and maintenance contracts for passenger and freight services to reputable international operators.

h. Engage the private sector

The Kingdom takes a great step to engage private sectors in the markets. Recently, awarded a 20-year contract to Singapore's Changi Airport Group to handle operations at the new King Abdul-Aziz International Airport (KAIA) in Jeddah. Similarly, SATS, Singapore’s biggest ground handler, has agreed to develop and operate a new cargo terminal at King Fahd International Airport (KFIA) in Dammam (supply chain brain). Similar schemes to increase private sector participation are being considered for the King Khalid International Airport in Riyadh.

i. Develop special economic zones

The kingdom works to reduce the costs and barriers to setting up new businesses, signing trade agreements, and attracting foreign direct investment. There are many plans under way to develop several new special economic areas.

Figure 5. Nine-point Strategy for Transforming its Logistics Sector

(Source: Transport Ministry of Saudi Arabia)

In 2016, Saudi Arabia launched its Vision 2030 to guide its economic and social development of the country. One of the key components of Vision 2030 is improvements in trade and logistics performance. According to the vision, the share of non-oil exports are expected to increase from 16% to 50% and the global ranking in the Logistics Performance Index (LPI) from 52 to 25. Saudi Arabia also aims to be the regional logistics leader.

This research aims to assess the trade logistic performance of Saudi Arabia and its place in the region. It will explore the strength and weakness of the different dimensions of its logistics performance. It will try to answer the following research questions

1. Does Saudi Arabia logistics performance improved overtime?

2. Is Saudi Arabia efficient in terms of its logistics performance compared to the region? If so in what dimension? If no, what are its weaknesses

3. Is Saudi Arabia efficient in terms of its logistics performance compared to its income group? If so in what dimension? If no, what are its weaknesses

4. Can Saudi Arabia achieve its vision 2030 logistic performance goal? What will it take to achieve that?

Logistics is the one important function in business today. No marketing, manufacturing or project execution can succeed without logistics support. Logistics is the process of planning, implementing, and controlling procedures for the efficient and effective transportation and storage of goods, including services and related information, from the point of origin to the point of consumption. The goal of the logistics is to successfully meet customer satisfaction. This definition includes inbound, outbound, internal and external movements (Margaret Rouse, 2014). Logistics is defined by Bowersox as: “… a term which denotes a total approach to the management of the distribution process including all of those activities involved in physically moving raw materials, in process inventory and finished goods inventory from point of origin to point of use or consumption”. In other words, logistics combines the traditionally defined areas of materials management and physical distribution. Every business establishment is aimed at providing quality, timely and effective products or services to their customers as a means of retaining them and opening more customer doors. Logistics is very important in business for it actually leads to the ultimate consummation of the sales contract. Logistical support enables the actual movement, delivery and transportation of goods or services from a seller to a buyer.

The World Bank’s logistics performance index uses as starting point for the assessment of logistics performance. All these indicators are measured on a scale of 1 (low) to 5 (high). All the data used in the study are for the period of 2007-2016.

Figure 6. Six Dimension of LPI

(Source: Drivers of Logistics Performance” Case Study of Turkey)

The figure shows the six LPI dimensions to two main categories. The first category relates to main inputs to the supply chain (customs, infrastructure, and quality of logistics services). The second category involves service delivery performance outcomes, namely timeliness, ease of arranging international shipments, and tracking and tracing. Logistics systems usually involve complex combinations of sequential activities. Poor performance in one dimension might be related to inconsistency among policy actions targeting other dimensions. For example, government restrictions on logistics services may enhance logistics quality but might increase shipment costs. Therefore, a policy program encompassing overall logistics performance improvement has a greater chance of yielding effective and sustainable results than partial reforms.

The World Bank provides source “international logistics” for supply chain and countries and it is a tool to help them to identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance. The components analyzed in the international LPI were chosen by the World Bank based on recent theoretical and empirical research and on the practical experience of logistics professionals involved in international freight forwarding.

Also, World Bank have section that called “domestics logistics” Domestic logistics is the distribution of goods within a country. Managing logistics domestically is very different from managing logistics internationally because of the much narrower geographic scope in a domestic operation. Domestics use four major determinants of overall logistics performance to measure performance and they are Infrastructure, Services, Border procedures and time, and Supply chain reliability.

Domestic logistics can utilize a variety of transportation options for moving goods, out of which road transport is the most common preference. Domestically, road transport in itself also provides a variety of options while international logistics have limited transportation options and some would require only rail while others would require only flight or sea transport. International logistics may also involve using multiple transportation alternatives for a single transaction. International logistics, there are some additional costs to be considered too which include tariffs, government taxes, fees and currency exchange fluctuations while the domestics logistics, the costs involved with just store facilities, transportation, workers and technology. In order to build relationships between businesses or between a business and the customers, trust is the most important factor, which decides on the nature of the relationship. It gets easier to build trustworthy relationships domestically but, in international cases, different country regulations, geography and economic roadblocks present more challenges in building reliable relationship.

The levels of importance of logistics performance are measured by the five-point, in which 1 means very unimportant and 5 means very importance. As for the level of satisfaction of logistics policy, 1 refers to very low and 5 refers to very high.

Faria et al., (2015) have founded that the greatest obstacles are bureaucratic issues such as customs clearance time with physical inspection, high number of agencies to import and export and high number of documents required to allow the import and export. The quality and efficiency of logistics services can matter for international trade as a weak logistics infrastructure and operational processes can be a major obstacle to global trade integration (Devline & Yee, 2005). In countries with poor governance and where institutions governing trade transactions and procedures are weak, traders can face significant difficulties in dealing with public sector employees such as customs officials (Azmat G., 2017)

One of the major obstacles is additional costs such as time delays in shipping that can take several forms but ultimately they increase the cost to firms that are then passed on to consumers (Jane K., Patricia S., 2009).

There are gaps in logistics performance between the high-income group countries and the low and middle-income group of countries (Arviset et al., 2012). With regard to the “logistics gap” between the high-income countries argued that the transport and logistics in the developing countries, including the supporting for integration into other global value chain “GVCs”, still face very significant obstacle (Azmat G., 2017)

(Source: Ballou, 2004)

Infrastructure, though still a constraint in developing countries, seems to be improving. Satisfaction with infrastructure quality varies by infrastructure type (world bank 2014) Satisfaction with rail infrastructure is again low in all regions (World Bank).

Chapter 3: Methodology

The study will Logistics Performance Index developed by the World Bank. The LPI index has six dimensions divided in two categories: Areas of policy regulations which are inputs and Service delivery performance which are the outcomes of the inputs. Areas for policy regulation are the main inputs to the supply chain and include customs, infrastructure, and quality of logistics services. Service delivery performance show the outcomes and include timeliness, international shipments, and tracking and tracing.

Figure 8. six Logistic Performance Index

(Source: connecting to compete 2016 report)

Figure 8 shows:

Customs measures the efficiency of customs and border clearance

Infrastructure measures the quality of trade and transport infrastructure

Logistics competence: It measures the overall competence of the logistics services –

trucking forwarding, and customs brokerage provided by parties within the logistics system.

Achieving logistics excellence requires continuous improvement in reliability, responsiveness and well-functioning support services.

Timeliness measures the frequency with which shipments reach consignees within scheduled or expected delivery times

Tracking and tracing measures the ability to track and trace consignments

International shipment: This dimension gives an estimate of the country’s performance in arranging shipments at competitive prices.

Even though the overall LPI and its six dimensions provides some preliminary information on the drivers of overall logistics performance, domestic logistics performance is needed to unbundle countries performance further. It provides a more detailed information on countries’ logistics environments, core logistics processes and institutions, and performance time and cost. This approach looks at the logistics constraints within countries, not just at the gateways, such as ports or borders. It analyzes country performance in four major determinants of overall logistics performance: infrastructure, services, border procedures and time, and supply chain reliability.

3.2 Sources of Data

3.2.1World Bank:

The source of monthly, quarterly and yearly trade data. Import & export values, volumes, growth rates, market shares. ITC is a key challenge for exporters is the scarcity of reliable trade information on markets.

Descriptive analysis will be used to see and compare

· Saudi Arabia logistics performance overtime

· Saudi Arabia against top performer in the region (United Arab Emirates).

· Compare Saudi Arabia with Taiwan which in 2016 is ranked 25.

Chapter 4: Analysis

In 2016, Saudi Arabia by scoring 3.22 (out of a maximum of 5) in the Logistics Performance Index scale of the World Bank and was ranked 52 out of 160 countries. If we breakdown its logistics performance of 2016 into the six dimensions (Graph 5) we see that the weakest points are the efficiency in the clearance process and uncompetitive shipment prices.

(Source: World bank)