Saudi Arabia – Not Just for Oil

oil fieldsSaudi Arabia – Not Just for Oil

When one thinks of Saudi Arabia and international trade, oil typically comes to mind first, but times are changing. The price of oil has been on the decline over the past couple of years and as such Saudi Arabia has been diversifying its economy. As a result, opportunities exist for exporters.

Saudi Arabia is the 19th largest exporter and the 20th largest import market in the world. Among the top exports is of course, oil, but also plastics, metal goods, construction materials and electrical appliances. In terms of imports, the country’s leading commodities are vehicles, machinery, electronic equipment and pharmaceuticals. U.S. exporters of these products have found Saudi Arabia to be an excellent market for decades.

Trade Lanes

Diversification and Infrastructure

Diversification is important for Saudi Arabia in order to grow its economy and as such government investments in infrastructure and non-oil industries are on the rise. Not surprising, the construction sector is the largest driver of economic activity in Saudi Arabia after oil particularly as government-sponsored projects such as hospitals, specific industry-related economic hubs and infrastructure are driving most of this need.

Indeed, ambitious infrastructure projects are underway with five rail projects to connect not only the major cities within the country but also to serve as a link between the Red Sea and the Persian Gulf as well as with the six other countries of the Gulf Cooperation Council (GCC). This is an interesting development for many reasons, as the Arabia Peninsula is one of the only regions of the world that jumped to modern air and ocean ports infra structure without first developing a rail network. For U.S. exporters, especially those shipping to major inland points such as Riyadh (the nation’s capital), the presence of rail cargo could lower the cost of inland delivery substantially and increase delivery times.

Expansion plans are also underway at airports in Riyadh, Jeddah, Madinah, Nijran, and Tabuk primarily for passengers but will undoubtedly benefit cargo also.

Furthermore, ocean port projects include expansion of the country’s largest port in Jeddah, as well as improvements to ports in Jazan, Al-Madhaya and Fursan. Inland ports are also being built in specific industry-related economic hubs known as Economic Cities.

Along with infrastructure investments, Saudi Arabia has identified several industries for further development such as healthcare, life sciences, automotive, information technology, logistics, alternative energy and manufacturing.

Because of the high volume of imported automobiles and automobile parts, there are particularly high expectations to expand the domestic automobile manufacturing industry. Currently there is local production of light trucks only on a small scale by Isuzu, Daimler, Volvo and MAN. Tata, Jaguar and Land Rover are considering local assembly operations in Saudi Arabia.

In addition, Saudi Arabia is the world’s largest importer of defense equipment and as a result, the government is also working towards developing a manufacturing base for weapons parts and components.

Trade

The Department of Customs at the Ministry of Finance oversees all merchandise moving through Saudi customs ports. In addition, the Saudi Food and Drug Authority (SFDA) are empowered by the Saudi Council of Ministers to have a representative at eight Saudi ports of entry with Saudi Custom officials to regulate and control the entry of medical devices. As such, medical devices are only allowed entry into Saudi Arabia through the three major international airports, two seaports in Jeddah and Dammam, and three land entry points.

On the global front, Saudi Arabia joined the World Trade Organization (WTO) in 2005 and as part of this trade organization is committed to its rules including transparency in trade requirements and more accommodating to non-Saudi businesses. Being a WTO member, Saudi Arabia is expected to bind its tariffs on over three fourths of U.S. exports of industrial goods at an average rate of 3.2%, while tariffs on over 90% of agricultural products are set at 15% or lower.

Additionally, as a member of the Gulf Cooperation Council (GCC), Saudi Arabia applies an external tariff of 5% for most products, with a limited number of GCC-approved country-specific exceptions.

Despite being a member of WTO, Saudi Arabia still favors Saudi businesses. In addition, there are also concerns of counterfeit products. In some consumer goods, for example, it is estimated that as much as 50% of the entire Saudi market is counterfeit. In order to restrict the entry of counterfeit products, the Saudi Customs Authority now requires all imported goods to clearly display the “Country of Origin” or “Made in ….” on items in an irremovable manner.

So, Saudi Arabia is much more than oil. True, oil still remains a leading export commodity but the country is working hard to diversify from its dependence and as such suppliers of numerous industries such as automotive, pharmaceutical, consumer goods and manufacturing should benefit as this country opens its doors further to global trade.

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Top 11 Export Markets for U.S. Oil and Gas Industry Equipment

Top 11 Export Markets for U.S. Oil and Gas Industry Equipment

Screen Shot 2015-08-30 at 5.47.22 PMDespite significant drops in global oil prices, demand for energy supplies remains strong.  While the supply of crude oil dominates industry and world news headlines, there are several industries ranging from chemicals to transportation services that are directly impacted by the flow of oil and gas.  We at Crescent Air Freight follow this industry closely as it directly affects many of our customers across a range of business segments from compressors to spare parts, valves and pumps and others.  Based on the general classification from the United States Census Bureau, here are the top markets for U.S. “Oil and Gas Field Machinery & Equipment” as defined by NAICS code 333132:

11. Colombia – 2014 Oil and Gas Field Machinery & Equipment exports: US$196,361,000

Beneficiary of a Free Trade Agreement with the United States since May 2012, Colombia’s oil & gas sector relies heavily on U.S. manufactured equipment to help meet its growing energy needs.  Exporters, however, should be very careful with commercial and shipping documentation to ensure compliance with local customs procedures.

10. United Arab Emirates – 2014 Oil and Gas Field Machinery & Equipment exports: US$285,467,000

Home to the vast oil reserves of Abu Dhabi and trade friendly distribution “mega hub” Dubai, the UAE has been an ongoing buyer of American made products for the oil & gas industry.  The presence of major oil industry players such as Halliburton and proximity to the world’s largest oil & gas producing markets ensures that American businesses will continue to find the UAE to be a growth market well into the future.

9. United Kingdom – 2014 Oil and Gas Field Machinery & Equipment exports: US$218,238,000

America’s single largest market for exports amongst the European Union member nations, and home to vast reserves of North Sea oil, the United Kingdom proves its worth as a solid market for U.S. exports in the oil and gas industry.

8. Canada – 2014 Oil and Gas Field Machinery & Equipment exports: US$301,898,000

As we had highlighted in our list of Top 10 Markets for U.S. Exports, Canada is the # 1 destination for U.S. exports overall.  The country has been in the midst of an oil boom over the past decade and will continue to offer American exporters of oil and gas equipment, services and affiliated products, opportunities close to home.  The Canadian Energy Research Institute estimates the country will see over $500 billion in new investment over the next 25 years, ensuring excellent opportunities for industry suppliers for years to come.

7. Angola – 2014 Oil and Gas Field Machinery & Equipment exports: US$326,030,000

In 2013 Angola ranked as the 71st largest market for U.S. exported goods (source: Office of the United States Trade Representative).  An OPEC member since 2007, Angola derives nearly 45% of its GDP from oil production.  All of this combined with a strong rate of economic growth spells good opportunity for American businesses.

6. Brazil – 2014 Oil and Gas Field Machinery & Equipment exports: US$367,223,000

While a great deal has been made of Brazil’s use of ethanol to achieve energy independence, the fact remains that the world’s 5th largest country does have significant oil reserves and demand.  When it comes time to get the crude “out of the ground” or process its natural gas, Brazil looks to U.S. companies to provide key equipment and technologies to support its energy sector.

5. Russia – 2014 Oil and Gas Field Machinery & Equipment exports: US$395,135,000

Recent political developments have resulted in the enforcement of significant trade sanctions against Russia.  U.S. exporters must exercise caution in dealing with this market for the foreseeable future.  On the upside, however, when sanctions end, business comes roaring back.  Until then, however, there’s always…

4. South Korea – 2014 Oil and Gas Field Machinery & Equipment exports: US$477,029,000

Another country on this list that enjoys a Free Trade Agreement with the United States, South Korea purchases significant volumes of oilfield products and services from the United States.  A favorable trade environment and strong political ties have made this country a Top 10 trading partner for the United States and growth opportunities will exist in the energy sector for years to come.

3. China – 2014 Oil and Gas Field Machinery & Equipment exports: US$503,942,000

Trade compliance issues are to be noted, as well as some difficulties with customs procedures, which we detailed in this recent article.  Nonetheless, China is the biggest overall market in Asia and not surprisingly this applies to the oil and gas industries as well.

2. Saudi Arabia – 2014 Oil and Gas Field Machinery & Equipment exports: US$587,509,000

The conversation on oil, gas and energy begins and ends here.  To say Saudi Arabia is a key market for the oil and gas business is to overstate the obvious.  Luckily for American exporters in this field, Saudi Arabia remains the place to look for growth.  Despite recent drops in oil prices Saudi Arabia has maintained, and slightly increased, its annual budget for 2015 and the energy sector will be the prime beneficiary of this spending.

1.Mexico – 2014 Oil and Gas Field Machinery & Equipment exports: US$842,216,000

As we detailed in this recent blog post Mexico is a great market for two way trade with the United States.  A beneficiary of the North American Free Trade Agreement, Mexico looks to the United States to service the needs of its growing energy demands.  U.S. companies enjoy the ability to reach most parts of Mexico by overland transportation services, and NAFTA enables a smooth and orderly flow of goods thereby minimizing potential customs or regulatory problems.

Rope BailerKeep in mind that these figures only refer to one classification of oil & gas industry equipment.  As energy is a massive industry, so too are the product classifications.  Exporters must take the time to learn about compliance issues and regulatory concerns for their specific product line.  Logistics companies can help by applying their considerable market knowledge and expertise.  U.S. companies are also advised to check with the U.S. Department of Commerce for market and compliance data relevant to their specific products.

 

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