Chilling Success: KSA’s Cold Chain Market Surges with Government Support: What’s on the Horizon?

With the surge in urbanization, the demand for frozen food items and their efficient storage and transportation has propelled the rapid growth of the KSA cold chain market. However, this thriving industry encounters formidable challenges on its path to success. Limited technology infrastructure and labor availability issues pose significant threats to its expansion. Yet, amidst these icy obstacles, a guiding light emerges.
The government steps forward as a staunch ally, spearheading initiatives to address these hurdles and becoming the key catalyst behind the market's flourishing trajectory.
Explore the comprehensive measures and strategic support employed by the government as it resolves the challenges and shapes a promising future for the KSA cold chain market.

1. The Cold Chain Market has grown rapidly owing to an increase in urbanization which led to a demand for frozen food items and their storage and transportation

High-quality, fresh, healthy food products, and thus, the usage of the cold chain was not a necessity rather an option

I: Emerging Phase <2000

• Cold chain market in KSA was largely manually undertaken.
• limited adoption of cold chain technology
• It was not possible to maintain temperatures in large warehouses.
• Automation had not been introduced.
• Warehouses were not specialized to cater end user needs, lacking high precision in service quality to the final client/customer.

Third party logistics growth has been owing to growing e-commerce industry in the country.
It is common for firms to outsource their contracts to their logistics partners, leading to an increase in 3 PL logistics.

II: Growing Phase 2000-2030

• Rapid Urbanization has increased demand for frozen food items
• Advancement in Technologies for cold storage and transportation
• The service providers are constantly searching for new technologies that will not only improve operations, but help give their business a competitive edge.

The Market will move from the Growth stage towards saturation amongst competition.

III: Maturity Phase >2030

• Drones which are designed for the most extreme temperatures and can fly autonomously inside a warehouse are under development and to be launched in KSA.
• The cold chain industry will be data driven and the data collected and analyzed across the cold chain networks, would help to inform about a real-time assessment of quality and the determination of actual remaining shelf life of products.

Market Nature

• KSA cold chain market is highly fragmented with multiple domestic and international players, organized 3PLs and unorganized small players operating in the market.

Source: Industry Articles, Interview with Industry Experts, Ken Research Analysis

2. Increasing pharmaceuticals, online grocery platforms, expansion of cold chain infrastructure, and government initiatives are the key trends and developments in KSA cold chain market

Trends and Developments in KSA Cold Chain Market

Increase in Pharmaceuticals

• There is a growing demand for temperature-controlled logistics in KSA due to the expansion of the pharmaceutical sectors.

• In 2022, The Saudi pharmaceutical market was estimated to be worth about $8 Bn. Saudi stands at 12^th position in the world in pharmaceuticals with a global share of 2.4%¹

Increase in Online Grocery Platforms

• E-commerce is growing rapidly in KSA, and this trend is expected to continue. Cold chain companies are leveraging this trend by providing cold storage and transportation services for online grocery orders.

• Online grocery platforms such as Nana Direct, Carrefour Now, and Danube Online are gaining popularity in KSA.

Expansion of cold chain infrastructure

• Cold chain companies in KSA are forming collaborations and partnerships to strengthen their market position, expand their geographic reach, and leverage the expertise of other players in the value chain.

• In 2021, Dubai-based Gulf Islamic Investments (GII) and Riyadh-based Alkhabeer Capital announced a partnership to invest in cold storage facilities in KSA.¹

Government Initiatives

• The KSA government is investing heavily in developing its cold chain infrastructure to support the growing demand for temperature-controlled logistics services. This includes the construction of new warehouses, cold storage facilities, and transportation networks.

• The Saudi Food and Drug Authority (SFDA) has mandated that all imported perishable food items must be transported in temperature-controlled vehicles.

Source: Industry Articles, Industry Report & Ken Research Analysis
1 Arab News

3. However, Limited technology, power outages and labor availability are the major threats to KSA cold chain market

Challenges in KSA Cold Chain Market

Lack of Availability

Saudi Arabia has been majorly dependent on expats for skilled and unskilled labor.

• After the implementation of dependent fees on the expats in the country in 2016, many foreign workers had to leave the kingdom which has resulted into scarcity of labor.
• It has also reduced the total consumer spending in the country and increased the pressure on companies to find alternative solutions for enhancing their service capability.

Limited Technology

Some common technologies used by cold chain companies in KSA include RFID, GPS tracking and monitoring systems, Temperature monitoring and control systems, cold storage solutions such as refrigerated containers and warehouses packaging solutions designed for temperature-sensitive products, such as insulated boxes and containers.

• There is a growing need for the implementation of real-time monitoring systems, automated inventory management, and cloud-based data management systems to optimize the cold chain operations.
• The cost associated with these technologies and lack of awareness and skilled workforce are some of the factors hindering their adoption.

Power Outages

It can cause disruption to the temperature-controlled storage and transportation of perishable goods

• The Saudi government has been investing heavily in the energy sector and implementing measures to ensure a stable power supply.
• Etmam Logistics is looking into the possibility of fitting its warehouse roofs with solar panels and is already in talks with industry specialists.

Source: Interviews with Experts & Veterans in KSA Cold Chain Industry, Industry Articles, Ken Research Analysis

5. The industry has high potential to grow owing to the Rising Grocery Retail Spending, Geographic location, and increasing government initiatives

Strengths

• Rising Grocery Retail Spending: During 3^rd quarter of 2022, fast-moving consumer goods sales increased by 6.5% YoY in KSA. Between July and September 2022, frozen items prices in Saudi Arabia rose by 15%.¹
• Geographical Location: The country has a prime location as it is located between the eastern and western hemispheres and at the intersection of the eastern and western shipping routes.
• Increasing Impetus for Domestic Production: Saudi Arabia’s food and beverage sector increased 6.3% in the first half of 2022. $187Mn were invested in the Kingdom’s F&B startups in the first half of 20221

Weaknesses

• Inadequate Rail Infrastructure: It lacks adequate rail infrastructure for the movement of refrigerated products. The country ranks 97th out of 140 countries on the Railroad density index on GII.
• Need for a Regulatory Body: The country lacks a regulatory body to govern the cold chain industry in the country and formulate specific guidelines and regulations for the cold chain operators.
• Lack of Modern Technologies: Unlike other major cold chain markets, most of the cold chain companies in the country lack modern technologies such as WMS, TMS, RFID and others. The WMS used by the companies are outdated and hamper the efficiency of the cold chain facilities.

Opportunities

• Increasing Government Initiatives: Under Vision 2030, the Saudi government launched the National Industrial Development and Logistics Vision Realization Program, where it is inviting investments into varied sectors and encouraging public-private partnerships.
• Rise of 3PL: A number of third party logistic operators are interested in KSA owing to the excellent growth potential in cold chain industry.
• Inter-Modal Transportation: Recent investment in rail infrastructure and port modernization holds immense potential for the development of inter-modal cold transportation in the country

Source: Interviews with Experts & Veterans in KSA Cold Chain Industry, Industry Articles, Ken Research Analysis|
1 Arab News