Red Sea disruptions hit UAE business activity

• PMI down from 57.1 to 56.9
• Delivery times hit by Houthi attacks
• Non-oil business rising

Backlogs of work in the UAE are at their highest levels in 15 years because of supply chain disruptions caused by the Red Sea shipping crisis.

As a result growth in the country’s non-oil business sector eased slightly in March, the seasonally adjusted S&P Global UAE purchasing managers’ index shows.

The latest PMI dropped marginally from 57.1 in February to 56.9 last month, although it remained well above the 50 mark, which separates growth from contraction.

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David Owen, a senior economist at S&P Global Market Intelligence, said capacity pressures have shot up since the beginning of the year, with delivery times for UAE companies hit by events in the Red Sea. However, he said, he did not foresee any major issues at this stage.

“While the surge in backlogs is concerning as an indicator of business health, the pent-up demand should support activity growth for even longer once these issues are resolved,” he said.

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

Since Houthi rebels began attacking commercial ships in the Red Sea 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.

Filipe Gouveia, an analyst at the shipping trade organisation BIMCO, said the number of ships passing through the Suez Canal was down 51 percent in the first three weeks of March compared to the same period last year, which translated to a 63 percent fall in gross tonnage year on year.

“Unless safety in the area improves significantly, ships cannot return to their normal routes,” he said.

“As shipping is responsible for transporting around 80 percent of world trade, delays and higher costs are expected to continue.”

Despite the disruptions non-oil businesses in the UAE experienced a considerable rise in output, with almost a third of firms reporting growth over the previous month. This was driven by new orders, a healthy project pipeline and promotional activity.

While costs were up, according to the index, prices fell at the sharpest rate for 3.5 years, which firms linked to growing competition and the need to retain customers, S&P Global said.

Overall optimism on the future was at its strongest level in four years.

“Strong demand, high profits and marketing plans were often attached to positive predictions,” the index reported.