Logistics

GCC companies safeguard stocks against Red Sea crisis

February 28, 2024

red sea shipping crisis gcc — A cargo ship is escorted by Houthi boats in the Red Sea. The route accounts for 12% of trade worldwide, including 30% of container traffic

Adding supply chain buffer times
Re-routing around Africa
Transportation costs at 15-month high

Businesses in the GCC are adding up to three months to their supply chains as disruption in the Red Sea persists.

Despite the increased costs, a survey of executives from the region revealed companies are maintaining “substantial extra inventory” in the face of the current geopolitical uncertainties.

The fourth annual Trade in Transition study by DP World and Economist Impact highlighted that 45 percent of executives from the GCC were incorporating one-to three-month “buffer times” into supply chains – the highest globally.

“There was a slight pick-up in safety stockpiling [in January], with reports from businesses of inventory building due to supply or price fears at the highest since last June,” a report from S&P Global said.

However the number remained well below the levels seen in 2021-22 during the post-pandemic supply crunch.

The Red Sea accounts for 12 percent of trade worldwide, including 30 percent of container traffic.

But since Houthi rebels began attacking commercial ships in November, in what they claim is a show of support for Palestinians in the Israel-Hamas war, many vessels have been re-routing around Africa.

This adds approximately 10 to 15 days to their journey times and significant extra costs. Transportation costs rose to a 15-month high in January, according to the S&P report.

More than a third of 1,000 companies surveyed by the British Chamber of Commerce said they had been impacted by the disruption.

In some cases they reported rises of 300 percent for container hire and logistical delays, adding three to four weeks to delivery times.

So far in February, the number of ships transiting through the Gulf of Aden and the Suez Canal is 50 percent and 37 percent lower than last year respectively, according to Bimco, the world’s largest international shipping association.

Container ship transits are down by 70 percent through the Gulf of Aden and the Suez Canal.