Supply Logjams Push Gulf Builders to Innovate

Gulf Construction Industry Faces Severe Disruptions

The Gulf’s construction industry is grappling with severe disruptions due to the Red Sea crisis. This situation has led to significant spikes in shipping costs. Tensions between Israel and the Houthis in Yemen have worsened the decline in commercial shipping traffic. Builders in the Gulf face major challenges in adjusting their supply chains and pricing to ensure timely delivery of materials and products.

Impact of the Red Sea Crisis

According to Stefano Iannacone, director for the Middle East and Africa at MAPEI Construction Chemicals, shipments from Europe to the region are experiencing significant delays and cost increases. This issue follows recent attacks by Yemeni rebels on vessels transiting through the Suez Canal, as well as strikes by the Houthis against Israel and vice versa. Many commercial ships are now opting for the longer route around the Cape of Good Hope in South Africa. This change has led to a 9.3% increase in the distance traveled by a typical container in the first four months of 2024, as reported by Xeneta.

The Appeal of Air Freight

In response to these challenges, many clients are willing to pay more for timely air freight delivery. Iannacone noted that while clients understand the delays, they still expect suppliers to absorb part of the cost increase due to contractual obligations. Global demand and ocean shipping bottlenecks are driving up air freight rates. The latest DHL Hong Kong Air Trade Leading Index (DTI), published on July 22, showed that 70% of surveyed air traders expect rates to rise in the second half of 2024.

To address these issues, MAPEI Mena has increased both the frequency and quantity of material reorders. “I believe the situation will not improve but also won’t get worse,” Iannacone said. “We will have to get used to working in such an environment for many more months to come.” This reflects the broader industry experience.

Strategic Acquisitions and Local Manufacturing

To strengthen the construction supply chain, Saint-Gobain’s construction chemical division announced a $1 billion acquisition of Dubai-based Fosroc at the end of June. This move is seen as strategically vital for the company’s expansion in the Gulf and the larger Middle East. Thierry Bernard, chief executive of construction chemicals at Saint-Gobain, stated, “Those who manufacture products locally with a strong local supply chain have an edge.”

Potential for Overheating

Harm Peters, managing director in Dubai of Henkel Polybit, reported significant price increases for raw materials such as bitumen and chemicals. Peters expects these prices to keep rising, though at a slower pace. “We make sure that we have multiple suppliers for all of our key raw materials and ideally in different continents or countries, because the world is very volatile these days,” Peters said.

The GEP Global Supply Chain Volatility Index, released on July 12, highlighted the global supply chain’s struggle with increasing business activity. The index, developed with S&P Global, revealed strong demand for inputs in Asia, particularly from manufacturing in China, Taiwan, Vietnam, and India. The report also noted that global transportation costs rose to their highest level since October 2022 in June. This increase is attributed to higher shipping and container rates due to strengthening activity across global supply chains.

The Gulf’s construction industry is navigating a challenging landscape of supply chain disruptions and rising costs. Companies are increasingly turning to local and APAC suppliers, utilizing air freight despite higher costs, and making strategic acquisitions to strengthen regional supply chains. The ongoing volatility in global trade and shipping highlights the need for resilience and adaptability.