News / Middle East conflict sees shippers face soaring costs and weakening demand

© Mukta Parvin

Shippers are grappling with the logistics challenges posed by the military conflict in the Middle East while, in some cases, also having to absorb the impact of weakening consumer demand in the region for their goods.

Last week, CEO of Adidas Bjørn Gulden revealed that the company had faced difficulties getting products into the Middle East due to the Iran war.

Presenting the sports and leisurewear giant’s Q1 results, he also underlined that transportation costs were “starting to explode”, due to a surge in oil prices.

Keeping a watchful eye on the situation is the director of the Global Shippers Forum, James Hookham.

“Normal trade flows are suspended until the Strait of Hormuz is reopened, with or without a toll,” he told The Loadstar in an interview/

“There are long overland routes being established to import goods via the Red Sea ports of Jeddah and King Abdullah, but the unexpected movement of goods through Saudi Arabia is adding to the customs issues being encountered,” .

He underlined that the Gulf region was too lucrative for exporters simply to give up on, but the higher costs and time delays would make some flows uneconomic in the long run.

“Many of the expected imports will have been contracted for delivery before the onset of the conflict, hence the need for the alternative routes and perseverance by shippers and forwarders.

“How the costs are passed on in the region will depend on the extent national governments are prepared to subsidise essential imports,” he added.

On this point, Saudia Cargo has launched an air freight support programme with the Saudi Food and Drug Authority (SFDA) to reduce shipping costs for pharmaceutical shipments and medical supplies entering the kingdom.

The programme will offer facilities, and price reductions of up to 50% on shipping costs, to support medicine importers and maintain the steady movement of essential healthcare products.

Under the agreement, Saudia Cargo and the SFDA aim to “improve the affordability and continuity of pharmaceutical imports while strengthening co-operation between public authorities and private logistics operators”.

Another difficulty facing shippers exporting to the Gulf is weakening consumer demand, particularly for luxury goods, which, although pre-dating the conflict, has been made worse by it.

Earlier this year, LVMH, whose product portfolio spans champagne, haute-couture, jewellery, time-pieces and perfumes, temporarily closed some stores in the region. Although some locations have reopened, demand remains soft, particularly in retail destinations popular with tourists, which traditionally generate high-margin sales.

While the Middle East region only accounts for approximately 6% of the global luxury goods market, it is among the most dynamic, with annual sales growth estimated at between 6% and 8%.

The conflict has not just provoked a decline in sales, but also slowed a key driver in the sector’s expansion.

This will not be lost on air and ocean freight forwarders for whom the segment has long been a lucrative source of business, thanks to those high yields.

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