Saudi Arabia Freight Transport Report Q1 2008

Saudi Arabia's state-controlled National Shipping Company (NSCSA) said in 2006 that it had secured SAR3.1bn (US$825.6mn) in loans to fund 60% of an expansion plan that would double its fleet of oil and chemical tankers. In recent years, Saudi Arabia, the world's biggest oil exporter, has increased production and sales of its crude to try to meet growing demand for oil and to check rising oil prices; more recently however it reduced output as part of OPEC production cuts agreed in late 2006. NSCSA registered a 15.8% year-on-year (y-o-y) decrease in net profit to SAR225.4mn (US$60.1mn) for the first six months of 2007. The company posted a net profit of SAR441.5mn (US$117.7mn) for 2006, up from SAR437.8mn (US$116.7mn) in 2005. Even though oil prices are set to ease over the next couple of years, BMI believes that Saudi Arabia's status as OPEC's swing producer, together with capacity increases, positions NSCSA for continued growth. In our latest Saudi Freight Transport Report, BMI concludes that the country's sea-freight tonnage is likely to grow by an annual average of 6.8% over the next five years.

Various factors underpin our prediction. We now think that Saudi GDP growth in 2007-2011 will reach an annual average of 3.7% (lower than the 4.7% achieved over the preceding five years). Oil and gas exports will be the drivers of foreign trade. Although the pace of trade growth will ease, tanker exports will remain dynamic. Big infrastructure projects will also help expand maritime transport capacity and boost demand for cargo.

By transport mode, we expect the fastest growing area to be sea cargo, followed by rail at an annual average of 4.8%, airfreight at 4.4%, road haulage at 3.9%, and pipeline throughput at 2.6%. The slower growth of oil and gas pipeline throughput will reflect the cooling of the current price boom towards the end of the forecast period. Saudi Arabia scores in a low range in terms of its growth forecast for freight transport across all modes through to 2011, with an annual average of 3.9%. However, with its petrodollar revenues, the country has shown recent commitment to reform and improve its transport sector and the current policy agenda (including greater private sector involvement) will bring results further forward.

Saudi Arabia's overall business environment rating is a little below the average for the Middle East and Africa (MEA) region. It scores well in terms of its economic outlook because of its abundant natural resources, principally oil and gas. However, it does less well in terms of its freight-transport growth projections over the 2007-2011 period and its current regulatory environment.

For the 2007-2011 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole in GDP growth terms. It will achieve average annual growth of 4.6%, versus 3.7% for overall GDP. The total value of transport and communications GDP will rise to US$22.8bn in nominal terms by 2011, representing 5.6% of Saudi Arabia's GDP.