Logistics crisis puts question mark over Gulf construction industry

Arabian Post Special

The ongoing Red Sea crisis has cast a long shadow over the Gulf construction industry. While the initial reports focused on the disruption to material supply, a new wrinkle is emerging – the impact on the competitiveness of major construction players.

With shipping costs soaring due to re-routed journeys around the Cape of Good Hope, construction firms are facing a significant cost escalation for essential materials. This puts a strain on project budgets and threatens profit margins. The firms that can weather this storm by absorbing some of the cost or finding alternative, potentially local, suppliers will be better positioned to maintain their competitiveness.

Larger companies with diversified project portfolios and established supply chains might have more wiggle room to navigate the price hikes. Smaller firms, or those heavily reliant on Red Sea imports, could struggle to compete for new contracts or even face project delays if material shortages become severe.

Construction companies have estimated that their costs have gone up by an average of 25 percent since the trouble broke out. The steep hike in war risk premiums has further complicated the situation, raising questions about the very viability of the alternatives.

The crisis presents an opportunity for regional suppliers to step up and fill the gap. Construction companies that can establish strong relationships with these local players could gain a significant edge, especially if the Red Sea situation remains unstable.

Overall, the Red Sea crisis is creating a dynamic situation in the Gulf construction sector. The most competitive firms will be those that can adapt to the new reality, find creative solutions to manage material costs, and leverage strategic partnerships with regional suppliers.

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Also published on Medium.