Local ecommerce marketplaces in the Middle East don’t have as much variety as ecommerce players from other regions. Therefore, consumers are looking abroad to satisfy their needs. This has led to an exponential growth of cross-border ecommerce. Chinese stand-alone ecommerce sites like Jollychic, Fordeal and Funmart have seen good growth as a result. Reports indicate that roughly 80% of the products purchased abroad are from China.
Esnad, a Hong Kong-based international logistics company has gotten the license to legally operate customs clearance and last-mile delivery services in the country. Momentum Works, together with Esnad, is partnering to create a series of articles on the Middle Eastern logistics landscape.
Ecommerce wise, Saudi Arabia is an important market with its high purchasing power from a population of over 30 million. However, two major pain points are preventing cross-border sellers from selling more. Firstly, the fulfilment of orders from their home country to Saudia Arabia has its set of challenges. Secondly, the ability to cash out their profits and bring it home. In this article, we will explore the issues faced in cross-border logistics and the industry outlook.
Chinese freight forwarders in the market
The Middle East has traditionally been heavily dependent on oil and gas resources. Almost all consumer products are imported, with a significant amount coming from China. Due to the demand for consumer products, a few Chinese freight forwarding companies (Tianlong, Yibang, Choice, etc) emerged to serve the trade of goods and have since enjoyed good traction in the region. Following the ecommerce boom, they expanded their service offerings to cross-border ecommerce logistics. Their main advantage is volume, allowing them to have easier and cheaper access to airline cargo spaces.
The freight forwarding business is all about volume and hence the lower volume players will be eliminated due to the lack of pricing power. After defending their freight forwarding turf, forwarders will naturally look to expand into the last-mile space, due to its higher margin.
The relevance of service aggregators
Service aggregators provide a full suite of supply chain services. Coverage on services such as consolidation, first-leg shipment, customs clearance, last-mile delivery, warehousing, money collection can be expected. Among these services, some are operated by themselves, others are subcontracted to local service providers.
For most ecommerce sellers, reaching out to separate logistics service providers and managing them is not possible with limited manpower. As such, service aggregators exist to serve them.
Understanding customs clearance
The United Arab Emirates, Kuwait and several other smaller Gulf countries are relatively easy when it comes to customs clearance. Saudi Arabia is the only exception.
There are two types of clearance licences in Saudi Arabia. The first is the general trade clearance licence, which requires SASO certification for each shipment (SASO stands for Saudi national standard for imports). The import clearance time is generally longer. Used by businesses that stock goods in local warehouses, due to the high value or heavy big-ticket electronics that are heavy in actual weight or volumetric weight.
The second type of license is for express delivery, which does not require SASO certification. Goods with a declared value below 1000 Saudi riyal will be exempted from duty. This is suitable for e-commerce seller. But to get the licence is no easy feat.
Currently, only 9 licences are issued and are operated by companies including DHL, SMSA, Naqel, Zajil, TNT, UPS, Aramex, Skynet and Esnad. As a condition of license issuance, license holders are required to also be capable of serving last mile and export express deliveries.
Saudi Arabia’s import network
Saudi Arabia has three main ports for customs clearance. Riyadh, Damman and Jeddah.
Shipments going through Riyadh are split into two kinds. “DHL shipments” and “Non- DHL shipments”. This is because DHL has its own warehouse. All other shipments share a common warehouse. Naqel is currently constructing its own warehouse and will handle customs clearance independently in the near future.
Damman is a port city and a large number of goods enter Saudia Arabia through this city. Most major logistics companies have their own warehouses established. In addition, goods trucked from Dubai are also cleared in Damman.
The last-mile delivery players
Saudi Arabia is notorious for its low delivery rate. On average, it’s below 70%, and even less than 50% if the products are purchased through Facebook.
In Saudi Arabia, logistics companies need a licence to operate a last-mile delivery service. The latest entrant to the last-mile delivery space is startup, Fetchr, having received their license earlier this month. Existing players include Aramex, DHL, SMSA and Naqel.
Among Chinese sellers, Aramex is preferred for its overall performance for a good price. For important documents or high-value goods, DHL is the most reliable choice, with responsive last-mile delivery and quick customs clearance handling. Unfortunately, DHL does not offer Cash-on-delivery business in the market, for reasons we will discuss next time.
In Saudi Arabia, the company with the best reputation among local people is SMSA. Known for its wide delivery coverage to even far-flung villages. In addition, the payment collection lead time of less than a week is shorter than Aramex. The downside for them would be poor customer support to resolve issues when they arise from time to time. Lastly, Naqel, backed by Saudi Postal, used to have good traction. However, of more interest is the latest rumour that there are some changes in the equity of Naqel.
Unlicensed last-mile providers
A bunch of logistics companies operate under the radar, getting business directly from ecommerce sites. These companies may fulfil thousands of parcels a day, and there is definitely good money to be made. These firms took off due to the demand by ecommerce sites for a quick way to grab market share.
However, in the long run, becoming licenced is the only path to sustainable growth for these companies. As supply better matches demand, there would be less reason for ecommerce sites to take the risk of losing their cash collected on behalf by the logistics firms. From a logistics company point of view, the only way to continue enjoying the profits would be to become a legal entity.
Saudi Arabia’s market is still developing and it will be a while before we see the winner of the ecommerce logistics space.