Will military conflict hasten structural change in Middle East supply chains/logistics networks?

The military conflict in the Middle East has brought into sharp relief once again the vulnerability of supply chains.

Over the past two months, forwarders have drawn up contingency plans to keep goods moving to and from the Gulf region to a backdrop of missile and drone attacks and latterly during a fragile ceasefire.

Certain seaports, notably Jeddah, on the Red Sea, in Saudi Arabia, and airports, such as Muscat, in Oman, have emerged as alternative freight gateways, supported by upscaled road feeder services.

These logistics ‘patchworks’ are proving their worth during the crisis although they do come at a much higher cost than customary provision and with longer transit times.

‘Strong Ability to Adapt’

A key question is whether the higher perception of risk which has taken hold over the course of the conflict will lead to structural changes to the supply chains serving the region once the hostilities cease?

Will logistics networks shift from a cost-optimization emphasis to one that is more risk-managed and resilience-focused as was the case in light of the attacks on ships by Houthi militia, in Yemen at the entrance to the Red Sea which began late-2023?

“It is difficult to predict exactly how the situation will evolve, as markets transition into a “new normal,” noted Tobias Maier, DHL Global Forwarding’s CEO for the Middle East and Africa.

“However, recent developments across the Gulf Co-operation Council (GCC) of states have demonstrated a strong ability to adapt, including regulatory simplifications in areas such as cross-border trucking and the use of transit visas across ports. There is a clear opportunity for these measures to be sustained, as they contribute to making the region both more efficient and more resilient as a logistics hub.”

Balancing Resilience and Efficiency

He underlined that the GCC continued to benefit from its strategic, geographic position between Asia, Europe, and emerging markets in Africa.

“Ongoing investments in aviation and infrastructure, such as new airport developments and airline expansion, further reinforce its role as a key global air freight hub. In ocean freight, the fundamental need for reliable connectivity across the Arabian Gulf remains unchanged. Established ports in the region will continue to play a central role in ensuring stable and efficient trade flows.”

Asked whether shippers were more ready to put supply chain resilience above costs when it comes to freight transport and logistics services, provision, Tobias Maier replied: “Resilience is clearly gaining importance in current discussions around supply chains, including in the GCC. The region is known for its long-term strategic planning approach, and it is likely that resilience considerations will be increasingly integrated into these frameworks.

“At the same time, experience shows that supply chains must continuously balance resilience with efficiency. While periods of disruption tend to accelerate the focus on robustness, the emphasis is likely to be on finding the right balance between these two qualities rather than prioritizing one at the expense of the other.”

Regional Freight Hubs Need to ‘Restore Trust’

Henri Le Gouis, EVP, Global Freight Forwarding, at French logistics group, Geodis was less affirmative on the prospect of significant change in the Gulf's supply chain configurations.

However, he did note that one possible consequence of the crisis, whenever its ends, will be that freight hubs in the region will have to restore trust in their capabilities, despite the huge potential they possess.

“When the Strait of Hormuz re-opens, the safety conditions and insurance premiums related to it will deeply affect the cost of ocean freight services in the Gulf. Also, the sustained pressure on oil prices will penalize the entire transport industry for the months to come.”

He underlined his “firm belief” that shippers should choose freight forwarders on “the basis of their capability to manage disruptions and propose contingency plans” - in an effort to maintain resilient supply chains. “However, one of the lessons learned from COVID was that the market can return extremely fast to competitive prices once crisis conditions have passed.”

Asked how Geodis has coped amid the chaos to logistics in the Gulf over the past seven to eight weeks, Le Gouis said that since COVID the group had been well-prepared to manage severe disruptions in global supply chains.

“Nevertheless, the strikes on Jebel Ali – the world’s tenth-largest port – and the significant impact on capacity and services at the airports of Dubai, Abu Dhabi and Doha, were a serious test. At this stage, what has come out of this crisis is an inflated cost of energy, resulting in sharp increases in fuel prices. In air freight, we will have to live for at least a further few months with capacity under constraint, especially on daily flights.

“In ocean freight, the closing of the Strait of Hormuz has shown that it is very difficult to put in place reliable and cost-effective alternative solutions.”