Qatar Crisis: the impact on logistics

The UAE and five other nations in the MENA region have cut all ties with Qatar, severely undermining the country’s logistics and connectivity to the world.
Qatar Air Cargo has suspended all services between Qatar and the UAE, Saudi Arabia, Bahrain and Egypt.
Qatar Air Cargo has suspended all services between Qatar and the UAE, Saudi Arabia, Bahrain and Egypt.

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The decision by six MENA countries (Saudi Arabia, Egypt, Bahrain, the United Arab Emirates, Libya and Yemen) to cut all diplomatic and trade ties with Qatar will have a significant logistics impact.

In an official statement issued Monday, the UAE government said it was severing all ties with Qatar, expelling its diplomats and expat nationals in the country and, crucially in terms of logistics, closing its air and land borders to the country.

“UAE airspace and seaports [will be closed] for all Qataris in 24 hours and all Qatari means of transportation, coming to or leaving the UAE, will be banned from crossing, entering or leaving the UAE territories,” the government said in a statement.

This means that major Qatari shipping companies, such as Milaha, and the air freight arm of Qatar Airways, Qatar Air Cargo, will no longer be able to import or export goods via the United Arab Emirates.

This is important, given that Dubai’s trade with Qatar grew 92 percent in the period from 2011 to 2016, reaching AED15 billion at the end of last year, according to Sultan Bin Sulayem, DP World group chairman and CEO and chairman of Ports, Customs and Free Zone Corporation, PCFC.

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The statement from the UAE government adds that these measures are only a first step. “[The UAE] will also take all legal measures in collaboration with friendly countries and international companies with regards to Qataris using the UAE airspace and territorial waters, from and to Qatar, for national security considerations.”

The UAE is home to the region’s primary transhipment hub, Jebel Ali Port (80% of cargo in Jebel Ali is re-exported to the GCC). The statement implies that the government may put pressure on international shipping lines and the home countries in which they’re based, to cease the transport of cargoes bound for Qatar.

LogisticsMiddleEast.com has reached out to Milaha, Maersk Line, MSC Shipping and CMA CGM to find out whether there are any plans to step-up their Qatar shipping rotations.

Officials at Maersk and MSC said they were still trying to find out more about the implementation of the UAE’s announcement, while Milaha had not responded at the time of writing.

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Etihad Cargo, Emirates SkyCargo and Qatar Air Cargo have all confirmed that from tomorrow all flights between the two countries will cease. Qatar Air Cargo has also confirmed that it will suspend services between Qatar and Saudi Arabia, Egypt, Bahrain, Libya and Yemen.

These knock-on effects alone will make trade for Qatar exponentially more expensive and will increase the import lead-time, but Saudi Arabia’s decision to close its land border with Qatar will have a massive impact on inflation, according to Ghanem Nuseibeh, director at advisory firm Cornerstone Global.

"It will immediately cause inflation and that will directly affect normal Qatari people," Nuseibeh told the BBC.

According to industry analysts, around 40% of Qatar’s food imports come via the Saudi border, putting its food security at risk. The country will now have to rely on unsustainably expensive air freight and unacceptably long ocean freight routes to import food.

If major shipping lines don’t increase their Doha rotations, local Qatari lines such as Milaha Shipping will need to set up new transhipment feeder routes through ‘friendly’ regional ports, which do not have the same connectivity as Jebel Ali, which will add time and costs.

Even if global shipping lines do add more Qatar rotations to their schedules, it is unlikely that Qatar’s seaports will be able to handle the additional traffic, causing congestion.

These uncertainties have helped pull the rug out from beneath the Qatari stock market, with the QSI index down 8% Monday, its largest single-day drop since the 2008 financial crisis. At the time of writing on Tuesday morning it had regained 2.7%.

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According to Reuters, credit rating agency Moody's Investors Service is concerned that the rift could have an impact on Qatar's credit outlook, if trade and capital flows are disrupted to the extent outlined above.

“There's a high degree of uncertainty. There's not much clarity on what could resolve this spat between Qatar and other GCC countries,” Mathias Angonin said in Dubai.

Late last month, Moody's downgraded Qatar's credit rating by one notch to Aa3 from Aa2 with a stable outlook, citing increasing external debt and uncertainty over the sustainability of the country's growth model over the next few years.

A further credit downgrade would put even more pressure on inflation, making Qatar’s imports more expensive in an unsustainable cycle.

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