• Latest News

UAE and Saudi Businesses Pivot Sourcing Strategies Amidst Rising Red Sea Tensions

by Rosario Fondo

January 15, 2024 23

As geopolitical tensions escalate in the Red Sea, businesses in the United Arab Emirates (UAE) and Saudi Arabia are facing the impact of increased shipping costs and extended delivery times from Europe. Recent military actions by the US and the UK against Houthi targets have triggered a surge in shipping costs, particularly on routes from Europe to UAE ports, prompting businesses to swiftly reassess their sourcing and transportation strategies

The latest incidents in the Red Sea have resulted in a significant uptick in shipping costs, with businesses witnessing an increase of more than $1,000 per TEU (20-foot container) on routes from Europe to UAE ports. This surge has reverberated across various sectors, affecting shipments from Dubai to Jeddah and prompting businesses to seek immediate solutions.

Diversification of Suppliers
To counter the impact of rising costs, UAE businesses that traditionally sourced from Europe are actively exploring alternative suppliers. A notable trend is the engagement of Turkish suppliers to meet short-term requirements. This strategic shift is driven by the urgency to secure crucial supplies until the end of April, especially with Ramadan approaching in mid-March.

Multi-Modal Transportation Strategies
To optimize costs and expedite deliveries, businesses in the UAE and the Gulf are turning to multi-modal transportation strategies. This approach involves a mix of sea and other modes of transport such as rail, trucks, or air, offering faster delivery compared to traditional sea routes, particularly those passing through the Cape of Good Hope.

China-Europe Rail Options
Similar trends are emerging in the goods destined for Europe from Asia. Chinese exporters are actively considering Sino-Euro rail options through the Commonwealth of Independent States (CIS) to expedite orders before the Chinese New Year. The rail service options are gaining popularity due to their ability to provide faster delivery than conventional sea routes.

Impact on UAE to Jeddah Route
Shipping costs on the UAE to Jeddah route have seen a pronounced spike, prompting businesses to explore alternative ways to manage costs and transit times effectively. Multimodal transport has become crucial in this scenario, with an increased focus on overland freight options to Saudi Arabia.

Customs and Overland Freight Options
The unified customs duties between the UAE and Saudi Arabia have provided an opportunity for businesses to consider overland freight options, particularly trucking. This approach not only allows for competitive rates but also ensures effective clearing of customs, enabling a smoother transition of goods between the two countries.

The evolving geopolitical environment in the Red Sea is presenting significant challenges to businesses in the UAE and Saudi Arabia. As shipping costs rise and traditional routes face disruptions, businesses are adopting diversified and multi-modal approaches to sourcing and transportation. This strategic shift is crucial for ensuring supply chain resilience and meeting crucial timelines, especially with Ramadan approaching. The ability to adapt to these challenges will be instrumental in maintaining business continuity and fostering resilience in the face of geopolitical uncertainties.