Smart E-Commerce and Logistics Lead the Future Middle East

Today, everything we experience is connected digitally. Lives have become easier, more sustainable, and more accessible through the easy exchange of information online. How is the Middle East leveraging this opportunity? Most importantly, it is uniquely located between Europe and Asia, so trade is convenient. Some countries in the region, such as Saudi Arabia and the UAE, are wealthy and have young people under the age of 25.

All this is possible thanks to e-commerce, which has helped businesses gain access to and construct a wider market presence using a distribution channel. However, it is not limited to purchasing but also the supply chain delivering these products or services.

According to a report by Kearney Middle East, the e-commerce sector in the GCC is forecast to reach a value of US$50 billion by 2025. Moreover, the UAE is placed 11th as the best-performing country in the region, ranking higher than Hong Kong, Switzerland, and the United States. This was calculated for the Logistics Performance Index by the World Bank.

Adel Belcaid, partner at Kearney Middle East, commented in the Saudi Gazette, "E-commerce continues its rapid growth in the region. In our last e-commerce outlook for the GCC in 2017, we forecasted growth of 35 percent CAGR, which was essentially more than a four-fold jump in value for the sector between 2015 and 2020. By the end of 2019, it was worth just short of US$18 billion, with signs of maturing growth and intense market competition."

Belcaid continued, "However, COVID-19 caused an unforeseen push and gave a new, accelerated lease of life to the sector, in line with what we have seen in global markets. This is due to a rapid change in consumer behaviour, with unprecedented adoption of e-commerce by all population segments, spurred to a large extent by the new normal of social distancing, lock-downs, and reduced capacity in physical stores."

This clearly shows that with the pandemic, more people started shopping online, which accelerated the e-commerce industry's growth.

Monitoring Logistics by Developing Sustainable Methods and Reducing Economic Losses

According to a global tech firm, Technavio, the UAE's logistics market size is expected to grow by US$11.87 billion by 2026. It also stated that the market's growth momentum will accelerate at a CAGR of 6.84 percent by that period.

An excellent example is Dubai’s interlinked connectivity to other countries; its airports and seaports make transporting profitable, easy, and efficient. It also benefits from logistical facilities, investments, and policies that facilitate trading.

Dubai’s roads are connected to Jebel Ali Port and Dubai World Central, which covers Al Maktoum International Airport. Many industries leverage this connectivity to Jebel Ali Port to cater to the Middle East market.

Dubai will lead the shipping industry in the future. An initiative that is supporting this position for logistics is the World Logistics Passport (WLP), which is an inclusive freight loyalty programme under the Dubai Silk Road strategy. This will eliminate trade barriers and boost existing trade routes, thereby strengthening the global supply chain.

However, certain challenges remain as cargo and shipping containers get lost at sea. Hence, many companies are including technology and AI in managing their systems. Emirates Logistics uses blockchain and AI technology extensively, enhancing their efficiency, such as by applying technology in warehouse management. This enables the company to track the origin of their goods.

Considering this example, companies can support real-time tracking in the vehicle fleet management, container goods control, and asset management sectors. Newer technology, such as Internet of Things sensors, can provide details such as the position, sensing, and transmission of vehicles or containers over networks. It can also read geolocation and collect data on humidity, luminosity, carbon emissions, temperature, and vibration. Such information can be sent to the company’s cloud servers for analysis.

Additionally, Emirates Logistics also employs sustainable energy sources to develop a sustainable and efficient business model. They have adopted electric trucks and have installed solar panels on all the company’s warehouses to power the warehouse and the electric trucks.

Saudi Arabia is also taking significant steps towards sustainable logistics through initiatives such as the Saudi Green Initiative and the Green Middle East Initiative.

It aims to reduce carbon emissions, conserve natural resources, and protect the environment by emphasising green logistics procedures, such as electric and hybrid vehicles, green warehouses, and eco-friendly packaging. Industries involved in logistics are expected to follow the same pattern by investing in renewable energy sources, reducing fuel consumption, and implementing waste reduction measures.

A Shift in Digitization and E-Commerce

For the e-commerce industry to thrive, investments in software and infrastructure remain critical. Consumers have less patience with a slow or poorly functioning website. It is also equally important to have quick, reliable, and easy return delivery services.

PwC’s Global Consumer Insights Survey 2023-Middle East stated that consumers faced longer than expected delivery times as the second most common issue. And a quarter of respondents cited the quality of purchased goods as another one of the common issues encountered.

The same report found that a higher percentage of consumers in the region plan to shop less in-store over the next six months compared to the previous survey. However, a majority of consumers are expecting to increase their online shopping, with many preferring retailers that offer efficient delivery and click-and-collect services.

Interestingly, the use of mobile phones for daily and weekly online shopping remains high compared to other devices like PCs, tablets, and smart home voice assistants. Moreover, there is a small but growing group of consumers who use VR for shopping. It also stated that nearly half, or 48 percent, of consumers in the region claim to have experienced rising prices for household goods.

Adding further, several companies are incorporating non-fungible tokens (NFTs) into their virtual shopping experience for customers. NFTs are stored on blockchains and serve as certificates of authenticity for digital copyrights in the virtual world.

Vorto Games, an online gaming company, introduced the ‘play to earn’ model, where gamers earn digital goods and cryptos. Millennials and younger millennials are the primary demographic group that engages with the metaverse.

According to Zawya, e-commerce revenue in the UAE is expected to grow annually at 8.57 percent between 2023 and 2027, and the predicted market value is US$16.37 billion by 2027. In the GCC region, it is expected to grow at 10.95 percent annually between 2023 and 2027 to reach US$49.78 billion annually by 2027, up from US$32.85 billion in 2023.

To support the growth of e-commerce, Abu Dhabi Islamic Bank has partnered with Visa to provide biometric identity verification for e-commerce transactions. This is in response to the increased need for digital payment security as e-commerce expands.

According to Bain & Co., governments are finding solutions by investing in digital infrastructure to support this growth, such as Saudi Arabia's building 14 fully automated smart warehouses in Jeddah. The UAE is aiming to become a cashless society and is doubling down on its multi-billion-dollar e-commerce market.

The Middle East is taking bold steps towards economic diversification, recognising the importance of moving away from hydrocarbons and investing in new industries. Increasing digitization and the widespread adoption of emerging technologies will be at the heart of this shift.

The growth in e-commerce and the adoption of emerging technologies will transform the way businesses operate in the region, presenting opportunities for those looking to expand into this dynamic and growing market.