Modernisation projects drive Gulf logistical efficiencies

Bahrain is making progress towards a long-standing goal of leveraging its geographic advantage as a gateway to the Gulf, using highly integrated port connections to become a leading regional logistics centre. In November 2021 the government unveiled the Logistics Services Sector Strategy 2022-26, which aims to lift the sector’s contribution to GDP to 10% and establish Bahrain among the top-20 logistics destinations in the world. Favourable regulations, augmented port and airport infrastructure and connectivity, and new investor incentives for local and international partners form the crux of Bahrain’s logistics thrust.

Regional Landscape

The country’s ambitions position it to keep pace with advancements elsewhere in the region. In 2018 the World Bank’s Logistics Performance Index ranked Bahrain 59th globally, indicating scope for improvement in Customs procedures and infrastructure. Bahrain’s existing transport connections with Saudi Arabia offer a base from which to improve its standing and secure logistics business from the Gulf’s largest economy.

In July 2021 Saudi Arabia announced a $147bn strategy to fund its own transport sector. The country’s economy is expected to grow by 7% in 2022 and by more than 3% in 2023 and 2024, ensuring consistent demand for logistics services in adjacent nations. Plans are also afoot to launch a new Saudi air carrier and expand Saudi airports. These ambitions signal significant deals on Bahrain’s horizon.

Many aspects of the Saudi-Bahraini relationship have grown closer in recent years, underlined by a recent agreement to enhance coordination in domestic, military and cybersecurity operations. These measures aim to streamline procedures for air and sea travellers and cross-border cargo transit. The December 2021 pact also suggested closer networking and electronic links between the two ministries of interior.

With the prospect of greater cooperation, Bahrain in planning a new $3.5bn road and rail link to its larger neighbour. The King Hamad Causeway should dovetail with the long-delayed project to build the 2177-km GCC Railway, which is envisioned to link the entire region. The project reached a milestone in December 2021 when the bloc agreed to establish a unified rail authority (see regional analysis).

A proposed GCC Railway freight yard at Bahrain’s Khalifa Bin Salman Port (KBSP) is earmarked to handle 600,000 containers and 13m tonnes of bulk freight a year, which will boost commercial port operations.

Demand Growth

As it stands, Bahrain primarily re-exports four-wheel drive cars, gold ingots and aircraft parts. The country’s principal trade is concentrated around iron ore and aluminium. However, the swift rollout of 5G starting in January 2021, coupled with a robust digital infrastructure in cloud computing, e-commerce and ICT, are expected to drive future economic and export growth.

Bahrain’s National eCommerce Strategy 2019-22 is coming to fruition, improving the ability of local small and medium-sized enterprise to export overseas and driving higher demand for logistics services as the country accelerates diversification away from hydrocarbons. The majority of logistics demand is expected to originate from the leasing of international-grade warehouses, according to real estate firm CBRE. Secondary-grade assets will remain under pressure as local and international occupants demand more sophisticated offerings suited to their needs.

Bahrain continues to offer cost advantages to operators, which include land leasing prices that are significantly below the GCC average; logistics and manpower costs that are 35-50% lower than neighbouring markets; and visa and permit costs that are more competitive than in Saudi Arabia and Oman.

Seeing as it is difficult for Bahrain to compete with its neighbours in terms of scale, it plans to target the creation of efficiencies as its competitive advantage. Nevertheless, expansion projects are under way. The Logistics Services Sector Strategy 2022-26 targets 1m tonnes each of air freight and cargo-handling capacity by 2030. Indeed, Bahrain International Airport (BIA) is building a new 25,000-sq-metre cargo area which will double its capacity to more than 1.3m tonnes annually.

Competitive Advantages

The strategy focuses on quality and speed to establish the kingdom’s competitive edge, encapsulated by a new global logistics centre at BIA to leverage end-to-end digital processing to transfer cargo from sea to air and vice versa in less than two hours, Bahrain strives to be the region’s fastest multi-modal transit point. This is expected to cut transport companies’ expenses by up to 40% – a key differentiator in an era when supply chain costs are driving retail price inflation around the globe. Transport firms can then utilise the King Fahd Causeway to Saudi Arabia, which trucks can traverse in less than 40 minutes aided by an artificial intelligence screening system capable of processing 120 trucks per hour.

KBSP, meanwhile, is intent on driving improvements to help increase container throughput. Cargo traffic has dropped from a peak of more than 500,000 twenty-foot equivalent units (TEUs) in 2012 to 400,000 TEUs more recently. The port already houses a thirdparty logistics zone that offers component assembly, packing and packaging, labelling, testing and repair, mixing, weighing and filling, and other light manufacturing activities. The Bahrain Logistics Zone focuses on storage and distribution for export and re-export, and includes 24-hour Customs clearance, temperature-controlled warehouses, and a bonded area where companies can reconstitute cargo and prepare it for GCC distribution without paying import duties – unless the goods are ultimately imported into Bahrain.

Digital port upgrades include safety and performance improvements. A new vessel traffic management system introduces an electronic platform which will herald the arrival of ships and allocate docking. Another e-service allows customers to pre-book and pay fees to receive incoming containers, further streamlining operations and creating efficiencies.

Bahrain is characterised by the close proximity of its major transport links, and the government is focused on improving the interconnections between them. A truck management project aims to ease traffic congestion, reduce waiting times and improve port control by allowing merchants to book appointments.

The system will soon link to Bahrain’s single Customs window, known as OFOQ, which has been in place since 2011. Moreover, the Logistics Services Sector Strategy 2022-26 envisages a blockchain-based upgrade, OFOQ 2, which will digitalise and accelerate various port procedures. The Singaporean company CrimsonLogic is currently developing a platform that will process sea and air manifests and offer other integrated operational benefits.

This modification should allow trucks to complete port transitions in less than 30 minutes, while gantry cranes process 37 containers and quayside operations handle 67 containers every hour. Smoother Customs procedures and a designated route for cold chain vehicle traffic should improve KBSP’s attractiveness to logistics distributors and suppliers.

Expanding Opportunity

Bahrain’s logistics plans are notable for their private sector buy-in. For example, APM Terminals, which operates KBSP, is supporting the Logistics Services Sector Strategy 2022-26 with an acceleration programme to train maritime industry professionals – especially younger recruits. The company is also working with the Ministry of Transportation and Telecommunications to onboard new trans-shipment customers. France’s CMA CGM Group signed on in March 2021 to link freight discharged from around the Gulf to ports in the far east.

Global logistics company DHL expects to deepen its presence at BIA over the next decade, having selected Bahrain as its primary distribution centre for the MENA and Eastern European regions some 40 years ago. Not to be outdone, in October 2021 FedEx Express signed a 10-year contract to operate a self-contained 9000-sq -metre facility in the new cargo area. Bahrain Airport Company (BAC), BIA’s operator, is in the process of appointing a contractor to build new warehouses, aircraft parking and associated infrastructure ahead of a planned handover to FedEx in 2023. Mohamed Yousif Albinfalah, CEO of BAC, noted that air cargo volumes expanded 5% in 2020 despite the impact of the Covid-19 pandemic; talks are ongoing with new cargo operators to build on this recent success.

The expected upswing in logistics activity could complement deals completed shortly after the onset of the 2007-08 global financial crisis which have yet to fulfil their potential. For example, Bahrain Investment Wharf, a public-private partnership project adjacent to KBSP, was completed in 2008 and offers pre-serviced plots for industrial, logistics and commercial use. Manara Developments’ Investment Gateway Bahrain, a similarly positioned venture in the Al Hidd area, is seeking new business as the country pursues the goals of the Bahrain Economic Vision 2030 programme.