The Saudi e-commerce surge is transforming logistics

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Traditionally, Saudi Arabia’s economy has been predominantly cash-based, stemming from a culture rich in local markets, souks and bargaining. 

This preference, which was further cemented by a deep-rooted distrust in banking systems and a lack of regulatory frameworks for online transactions, is rapidly changing. 

Today, with two-thirds of the kingdom’s population under 35 and the nation ranking third globally in smartphone usage, Saudi Arabia is witnessing a rapid shift in payment preferences.

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This change is not just reshaping consumer behaviour but is also a pivotal element in the broader narrative of digital transformation, paving the way for a more efficient e-commerce and logistics ecosystem.

This transformation is evident in the way consumers and merchants are rapidly adapting to online financial activities. Prior to the pandemic, cash-on-delivery (COD) was a preferred method for e-commerce transactions.

However, today, with its huge, digitally savvy, youthful population combined with the impact of the Covid-19 pandemic, digital payment adoption has rapidly accelerated.

In 2020, for instance, digital payment transactions surged by 75 percent while cash withdrawals from ATMs declined significantly. 

This shift is not just a matter of convenience or a response to global trends, it is a strategic move aligned with Saudi Arabia’s Vision 2030, which aims to accelerate the digital economy and increase cashless transactions.

Government initiatives, such as the introduction of the SADAD system, and the efforts of the Central Bank of Saudi Arabia (Sama) to regulate and standardise the digital payment sector, have simplified electronic payments and built trust among users. This regulatory framework has been crucial in encouraging the adoption of online payment services, fostering a more secure and reliable digital transaction environment.

The e-commerce sector, expected to exceed $13.2 billion by 2025, is a direct beneficiary of this trend. As consumers have become more comfortable with online payments demand for e-commerce has grown, as seen during 2019-2020 when there was a 60 percent surge in online shopping. 

The rise of mobile payment platforms from the likes of Apple Pay, Google Pay and various local apps has further facilitated this shift, making it more convenient than ever to make payments through smartphones. 

The rapid evolution in payment methods within Saudi Arabia is also reshaping the logistics sector, especially in the realm of last-mile delivery.

The reduction in cash handling simplifies the delivery process, minimising errors and enhancing efficiency while supporting environmental sustainability goals by reducing paper usage and optimising delivery routes.

The growth in digital payments is also increasing demand for deliveries, making managing multiple drop-off points and route optimisation a critical focus area. 

One of the major challenges that Saudi Arabia has traditionally faced in last-mile delivery is the lack of a clear and standardised delivery address system. The absence of precise postal codes and addresses often leads to reliance on phone calls and detailed descriptions from customers, adding complexity and potential delays to deliveries.

To overcome these challenges local logistics companies are increasingly turning to technologies like GPS, Internet of Things, and advanced Transportation Management Systems. 

The use of drones and autonomous vehicles also presents an avenue for enhancing delivery practices. These could revolutionise the efficiency and speed of deliveries, particularly in hard-to-reach areas or during peak demand times.

Meanwhile, Saudi Post has embarked on an ambitious programme – the National Address system – to provide every business and residence with an address. Individuals or companies who register their address receive an eight-digit code of four letters and four numbers, which provides a unified and comprehensive addressing system for all regions, cities and villages, accurate to one square metre, helping to avoid delivery delays. 

The challenge now is to get e-tailers to integrate the new short address format into their customer journeys to encourage faster and more standardised adoption.

Despite the obstacles, companies in Saudi Arabia are actively expanding their domestic networks and exploring on-demand delivery tools, allowing customers to specify delivery times and locations.

However, maintaining the balance between service quality and cost management remains a critical ongoing challenge for the industry.

The synergy between online payments, e-commerce and logistics in Saudi Arabia is poised to become more integrated and sophisticated, contributing positively to the country’s broader economic goals. 

Eman Alghamdi is a manager at AJEX Logistics, based in Saudi Arabia