Saudi Arabia's gigaproject developers are rerouting shipments and absorbing higher freight costs as regional geopolitical tensions disrupt supply chains. Executives discussed the impact at MEED's Shaping Mega Projects conference in Riyadh on 28 September.

Mohamed Saad, president of DevCo at Diriyah Company, said supply chain disruption was one of several challenges facing the developer. He said it required the company to be adaptive and quick in its decision-making.

He said the wider situation had also weighed on end-user demand. "The appetite to buy residential units or lease retail or commercial office spaces has softened," he said. "We also see opportunity, and developers who believe in the future and invest and develop in these times will catch the opportunity."

Rerouted shipments

Dale Chadwick, acting chief executive officer of King Salman Park Foundation, said the park had been fortunate because much of its supply chain was already in place.

Some bespoke construction materials sourced from India have been affected, forcing suppliers to change routes. The foundation has also been unable to import some trees from China, because extended delivery times meant they would spend too long at sea.

"It is a genuine challenge, and it's on a case-by-case basis," said Chadwick. "We make the call, then we pivot and start trying to secure the material from elsewhere."

He said one alternative was sourcing from Europe through a different supply route into the kingdom's west coast. Chadwick said the impact had so far been manageable, with no significant effect on the park linked to the geopolitical situation. He added that contractors were facing the same pressures and suggested some might be seeking higher margins as a result.

Local content

Ben Edwards, group head of cost, commercial and procurement at Red Sea Global, said the developer had been shielded by the stage its projects had reached. The high proportion of local content in its procurement had also helped.

Red Sea Global set up a landscape nursery so it could bring plants in early and acclimatise them. Edwards said the nursery, the largest in the region, had doubled in size to about 200 hectares.

Freight costs have still risen sharply. "Container prices have doubled, and you have to just face into that," he said. "Where you haven't got any other route to bring things in, and you've got to pay double, and you need the stuff, then you have to be flexible and deal with it accordingly with the supply chain."

Edwards said the local supply chain had strengthened since the peak of gigaproject construction activity.

"The capability was here in Saudi, but the capacity wasn't necessarily here at the time that everybody needed it three or four years ago," he said. "Everybody needed all the same stuff all at the same time."

He said support from the Ministry of Investment and government programmes to build supplier capability was starting to pay off. Supplier quality was improving as capacity grew.

Saad said the contracting market was also maturing. A correction was allowing contractors to be more selective about the work they pursue.