Supply logjams force Gulf builders to get creative

Alamy/Finnbarr Webster

• European supplies reduced
• Local, APAC suppliers favoured
• Air freight costs expected to rise

Shipping cost spikes resulting from the Red Sea crisis are hitting the Gulf’s construction industry especially hard.

Mounting tensions between Israel and the Houthis in Yemen are exacerbating the already severe decline in commercial shipping traffic there.

Builders are struggling to adjust their supply chains and pricing mechanisms to deliver materials and products to their clients.

According to Stefano Iannacone, director for the Middle East and Africa at MAPEI Construction Chemicals, everything shipped to the region from Europe has suffered significant delays and cost increases. 

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The regional operation of the Milan-based company has reduced purchases of both raw materials and finished goods from Europe as far as possible. It has started to scout and qualify new suppliers and new routes within the Asia-Pacific region, Iannacone told AGBI this week. 

PCE, sodium gluconate and epoxy are the construction chemicals that have recorded the biggest rise in costs. The challenges in procuring them and growing demand out of Saudi Arabia are the cause, Iannacone said.

Freight data provider Xeneta last week found that the average short-term cost of shipping a 40 ft container from Asia to North America increased by more than 140 percent since the last peak in April. 

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This follows renewed attacks by the Yemeni rebels on vessels still transiting through the Suez Canal, as well as direct strikes by the Houthis against Israel, and vice versa in recent days.

As more commercial ships started taking the longer route around the Cape of Good Hope in South Africa, the typical container travelled 9.3 percent further in the first four months of 2024, according to Xeneta.

The appeal of air freight

Iannacone said many clients have been willing to pay more to get timely delivery via air freight.

“Most of them understand the delays, but still insist that we bear part of the cost increase due to their contractual obligations,” he said.

Pushed by increased global demand and bottlenecks in ocean shipping, air freight rates are also on the rise.

According to the latest quarterly DHL Hong Kong Air Trade Leading Index (DTI), an industry benchmark, published on July 22, 70 percent of surveyed air traders expected to see an increase in rates in the second half of 2024.

To stay ahead of these challenges, MAPEI Mena has separately increased the frequency at which it reorders materials, and the orders’ quantity. 

“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 environment for many more months to come.”

His organisation’s experience reflects that of other industry companies.

The construction chemical division of French conglomerate Saint-Gobain announced at the end of June that it would pay $1 billion to take over Dubai-based Fosroc.

Saint-Gobain executives subsequently told AGBI the acquisition was strategically vital for the company’s ongoing expansion in the Gulf and larger Middle East. It would also help shore up the construction supply chain regionally, they said. 

“Those people who are capable of manufacturing products locally with maximum intensity of their local supply chain have got an edge,” Thierry Bernard, chief executive of construction chemicals at Saint-Gobain, said. 

Potential for overheating

Harm Peters, the managing director in Dubai of Henkel Polybit, which manufactures waterproofing solutions, separately said in early June that some raw materials, including bitumen and organic and inorganic chemicals, had experienced significant price increases. 

Peters expected such price growth to continue for the rest of the year, but 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 at least different countries, because you see how volatile the world is these days.”

The most recent GEP Global Supply Chain Volatility Index from July 12 found the global supply chain contending with growing business activity, its capacity “stretched across suppliers worldwide.”

The benchmark is developed in partnership with S&P Global and based on the firm’s monthly business sentiment surveys. 

Demand for inputs was especially strong in Asia, driven in particular by manufacturing in China, Taiwan, Vietnam and India.

“An early warning sign of potential overheating ahead is global transportation costs, which rose to their highest level since October 2022 in June as strengthening activity across global supply chains led to higher shipping and container rates,” the report stated.