Localisation shields Saudi builders from Red Sea crisis

Reuters/Ahmed Yosri

• Materials sourced locally
• Construction companies adapt
• Industry resigned to delays

Houthi attacks in the Red Sea may have been disrupting the construction supply chain into Saudi Arabia but companies, in particular larger ones, are adapting to the challenge. 

Since November, the Yemeni militia has launched dozens of attacks on commercial vessels on their way to or from the Suez Canal, forcing many global shippers to reroute around South Africa’s Cape of Good Hope at higher costs and delays.

The threat to the steady flow of resources, materials and goods around the world is happening just as demand surges in Saudi Arabia, where giga projects valued at around $1 trillion are under way.

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Industry players attending the Big 5 construction convention in Riyadh this week largely agreed that the disruptions are putting pressure on delivery costs and timelines but believed they had some tools and strategies in place to cope.

Faisal Al-Muhaidib, chief executive of Masdar, a Saudi construction materials provider, told AGBI on the sidelines of the conference that core materials such as cement, steel and aluminium are mostly sourced locally and are therefore more resilient to ongoing shipping volatility. 

“The problems happening now in the Red Sea are affecting some parts of the supply chain,” Al-Muhaidib said. “However, we don’t see a severe issue at the moment. We see some delays and some price increases but nothing major.”

Several factors are working to Saudi Arabia’s advantage: the ability to secure resources from both the East and West; access to the Arabian Gulf through the King Abdul Aziz Port in Dammam, which provides a counterbalance to uncertainty along the nation’s Red Sea coast; and the government’s push to have foreign companies localise parts of their operations.

A pair of large European companies active in the kingdom told AGBI the government’s localisation policy has worked to their benefit, making the supply chain more self-sufficient.

“Secondly, we have a large stock in the UAE and we are in the process of having large stocks in Saudi Arabia,” said Ammar Alul, chief executive for the regional headquarters of Schüco International, a German supplier of window, door and façade systems.

The benefit of the localisation drive was echoed by Ziad El Chaar, CEO of Dar Global, the London-listed international arm of Dar Al Arkan, a local property developer.

“The main building materials are very much local. We haven’t seen a big impact on the supply chain,” he said.

“Most of the problems have been on American ships. For building materials, we don’t have a lot of products coming out of the US.”

The main building materials are very much local. We haven’t seen a big impact on the supply chain

Ziad El Chaar, CEO of Dar Global

European deliveries have undoubtedly been hit the hardest by the Houthi attacks, creating problems for smaller operators with a less diversified supply chain, according to multiple industry players at Big 5.

Khaled Al-Hamdan, chief executive of Kah Middle East for General Trading Co, a door and window hardware distributor, said that shipping times from Europe have doubled to 66 days and increased in price by 3 to 4 percent. The Kuwait- and Saudi Arabia-based company has resorted to stocking more products locally and is negotiating hard on freight rates.

Similarly, shipments to the kingdom from Caleffi, which manufactures components for heating, air conditioning and plumbing systems in Italy, have gone from around five to eight or nine weeks, according to Fabio Rossi, an export area manager with the company.

Rossi said Caleffi has been urging clients to communicate any potential orders as early as possible so as to increase the lead time for deliveries and avoid significant delays. 

Outside of aggressively looking for the best freight rates available, there is otherwise little that the company can do to mitigate the slower shipments and ensuing increase in price to the final user.

Saudi clients, for the time being, appear understanding.

“At the moment, they too know there is no solution, because sea freight is in any case the cheaper way to ship,” Rossi said. “We have to accept it.”