Unlocking HVAC supply routes

The ships are taking longer. The costs are higher. And the old playbook no longer works.

For the time being at least, geopolitical disruption is a reality for the Gulf’s HVAC sector, forcing suppliers and distributors to confront a situation that no forecast had fully anticipated: Freight costs that have tripled; ports operating under strain; and procurement cycles, built over decades, now rendered inadequate almost overnight. The pressure has also produced something less expected, a new frankness amongst industry players and their clients, born not out of choice but of circumstance. They speak of how their organisations have been adapting to prolonged logistics uncertainty while striving to maintain supply continuity across the region.

For NIA, which distributes GREE’s commercial HVAC portfolio across the region, current stock positions remain manageable, says Kamran Birjees Khan, the company’s CEO. “Current inventory positions across our commercial HVAC portfolio remain healthy and sufficient to support immediate project requirements,” he says. However, he is quick to acknowledge the undercurrents. “We do not underestimate the potential mid- to long-term impact of shipping disruptions, extended lead times and cost escalation,” he adds.

NIA, he says, has been working closely with manufacturing, logistics and regional operations teams to manage seasonal demand well in advance and maintain continuity. NIA, he says, has been managing upcoming consignments through “staggered shipment schedules, diversified routing strategies, and close coordination with channel partners, contractors and consultants”. He adds that the company has also strengthened buffer stock positions for critical equipment and spare parts.

DC Serve’s situation reflects the broader market reality with greater granularity. Rennie Sequeira, General Manager, DC Serve, explains that when the conflict began, the company observed a sharp surge in demand for last-mile deliveries and offshore items, driven by contractors who had traditionally forecast orders on standard lead times of 4-6 weeks from Asia, Europe and the United States – timelines that since then have become unreliable. This situation, he says, has prompted the supply chain to rethink its approach.

Fortunately, though, DC Serve had entered the disruption period with healthy order books and goods already in transit, he says. “We could cater to the market demand of faster deliveries for almost over two months,” Sequeira notes, adding that material arriving slightly late still arrived “just in time to replenish the depleting stock levels”.

That buffer, however, is finite, and Khan and Sequeira are clear that the ordering logic of the pre-conflict era is challenging to sustain.

Sourcing and routing: The art of the calculated gamble

On the question of sourcing components and entire equipment amidst prolonged shipping chokepoints, Sequeira describes a deliberate, bifurcated approach. For standard, fast-moving items, DC Serve places advance orders on a conscious and calculated risk basis, after clearly communicating additional freight costs and war surcharges to customers and obtaining their acceptance, he says. For slow-moving, custom-made or special items, the calculus is reversed entirely, he says. “We are mindful of not placing any advanced orders,” he adds.

Where DC Serve mutually agrees with key customers to place advance orders for special items, sometimes because formal consultant approvals are still pending, strict cancellation clauses apply. Sequeira is emphatic: “Customers will be liable to pay for this. This is clearly communicated to the customer.” He adds that this protocol predates the current crisis and remains unchanged.

NIA’s approach leans on the structural advantages of its partnership with GREE. So says Khan. “Through vertically integrated production capabilities and established regional infrastructure, we’re able to provide greater flexibility in responding to market changes,” Khan says. NIA, he says, relies on close coordination with GREE’s manufacturing arm to ensure regional inventory is positioned ahead of demand cycles, reducing dependency on any single shipping window or transport corridor.

Then, there is trans-border warehousing as a solution. On leveraging this, Sequeira points to a practical example: DC Serve uses warehouse facilities in Saudi Arabia, from where material is shipped by road to customers in the UAE, with clients paying only additional transport charges. “When you have another warehousing, it does reduce a lot of costs and time,” he says. He also notes that when manufacturers hold finished stock at their factories, customers can bypass manufacturing lead times entirely, reducing the effective delivery window to seven weeks by sea or from one to two weeks by air freight.

The insurance question

Both companies carry marine insurance policies, but the fine print carries a significant caveat. Sequeira explains that DC Serve operates under an open marine policy, based on annual turnover, covering standard goods in transit. “Even if you have marine insurance in place today, this does not cover any damage to goods due to war,” he cautions. The policy provides protection only against conventional sea and transit damage, not war-related losses. Any impact on premiums will only become apparent at the time of renewing the policy, he says.

For NIA, Khan frames insurance cost increases as one of several compounding pressures on landed costs. “Our approach has not been to absorb these changes in isolation nor pass them through reactively,” he says, instead pointing to operational efficiency and supply chain optimisation as the mechanisms for minimising impact.

New routes, new costs

The financial mathematics of today’s logistics environment, as described by Sequeira, are stark. Before the conflict, shipping a 40-foot container from China to the region cost approximately USD 2,500. Today, the same container, routed along new and circuitous sea lanes, costs USD 6,500, inclusive of a mandatory war surcharge that shipping lines will not waive. “Even if you want to ship anything today, they will not give you a booking without a war surcharge,” he says. On top of that, additional local clearing costs, including documentation charges, port clearance fees and bonded truck transportation, add a further approximately USD 3,000 per container, he adds.

Estimated transit times, meanwhile, have extended to 6-7 weeks, “if you’re lucky”, as Sequeira puts it, and even those estimates are no longer reliable. Ships have, in some documented instances, been docked at Salalah or northern India before sailing back to their port of origin without completing delivery. “The ETA,” he says, “cannot be considered as a realistic date of material arrival.”

Adding to the pressure, shipping lines have eliminated the grace periods previously granted for port clearance. Where importers once had up to seven negotiated days to clear goods, that buffer is now zero. “The moment they tell you it’s arrived, you give the document, you have to pay and take it,” Sequeira says. Failure to comply triggers demurrage charges, a cost that compounds quickly given current port congestion, he adds.

Khan describes NIA’s approach as built around PSI (Purchases, Stocks and Inventory) planning, supported by forecasting tools, demand visibility, inventory monitoring and scenario-based procurement, designed to reduce exposure to supply volatility before it occurs rather than responding to it after the fact. “We plan significantly further in advance, take calculated inventory positions and work closely with GREE to ensure adequate stock is positioned within our facilities ahead of demand cycles,” he says. The underlying logic is straightforward: If you can anticipate disruption early enough, the chaos of rerouted ships and unpredictable ETAs becomes a manageable variable rather than a crisis, he adds.

A circuitous route

With Jebel Ali operating under constraints, cargo destined for the UAE now typically arrives at Khor Fakkan or is routed via Jeddah, cleared at those ports by bonded trucks and then transported onwards. Custom clearance at Jeddah port alone, Sequeira notes from direct experience, has taken between three and four weeks. “This is the new normal,” he says, “but all of this is at a huge cost.”

NIA similarly acknowledges the sector-wide challenge of port congestion, documentation procedures and shifting compliance requirements, but points to supply chain digitisation and strengthened coordination across procurement and logistics functions as mitigating factors. “Digital transformation initiatives and integrated operational systems have strengthened supply chain transparency, forecasting accuracy and financial coordination across multiple stakeholders,” he says.

Client confidence: Transparency over promises

Both companies describe confidence building as an exercise in honest communication rather than reassurance. NIA’s approach revolves around proactive engagement with consultants, contractors, developers and channel partners regarding lead times, inventory planning and project support, backed by local spare parts readiness and technical after-sales infrastructure.

At DC Serve, customers are now routinely advised to factor in an additional three weeks for sea freight when planning project timelines. They are also presented with a clear cost-benefit choice: Pay significantly more for air freight and receive goods within 1-2 weeks, or accept a longer and less predictable sea freight timeline at lower cost. The decision, Sequeira makes clear, rests with the client, but he cites instances of customers spending over AED 1 million on air freighting material to avoid project delays. “The customer has to weigh the cost benefit,” he says.

What has shifted most fundamentally, Sequeira observes, is what clients now prioritise. “Customers are very agile now, no longer looking only at the cost and transit time,” he says. “They’re also increasingly looking at mitigating risk and flexibility from suppliers and manufacturers. For high-value clients, the financial stability of their supplier has emerged as a key selection criterion, which was not the case before.”

Sustainability and ESG: Commitment meets candour

The two companies have interesting perspectives on the question of ESG compliance during this period of disruption. NIA maintains that sustainability and operational resilience must be pursued in parallel, and points to GREE’s continued investment in inverter-driven solutions, intelligent HVAC systems and environmentally conscious manufacturing. “Even during periods of uncertainty, our long-term focus remains centred on innovation, resilience and delivering solutions that contribute positively to both economic development and environmental responsibility, Khan says.

DC Serve offers no such assurance. When asked how the company has managed to remain aligned with regional and global sustainable development targets, Sequeira acknowledges that the question is not one the industry is yet equipped to answer with confidence. Survival, for now, takes precedence. ESG commitments, he suggests, are a conversation for calmer waters.