Expert Column Israel-Hamas Conflict: How geopolitical tensions affect supply chains

The Israel-Hamas conflict has prompted the maritime shipping industry to reassess its operations. The maritime route through the Suez Canal, which passes through the Middle East, is used for the transportation of goods between Europe and Asia. As the conflict ensues within both factions, shipping companies are altering their transport routes in an effort to continue their operations safely. 

Geopolitical tensions can wield a profound impact on the stability of global supply chains. As nations engage in military standoffs, the interconnectivity of supply chain networks becomes vulnerable to disruptions. Political uncertainties can lead to abrupt shifts in procurement strategies, which in turn affects the movement of goods. The implications of these disruptions extend beyond logistics. It heightens operational costs, increases lead times and amplifies any risk of supply chain bottlenecks. Companies must continue to assess geopolitical landscapes and diversify sourcing strategies to mitigate the impact of these tensions. 

Security Concerns and Logistics Disruption 

Geopolitical tensions give rise to substantial security concerns across the supply chain network. Supply chain assets from warehouses, transportation routes and storage facilities become targets of security breaches during periods of geopolitical instability. Security concerns over crew members and cargo have prompted many shipping companies to temporarily suspend shipping activities across the red sea. Some have also opted to divert their maritime routes, routing around the cape of good hope, opting for a safer route despite needing to make a huge detour of thousands of kilometers.

The economic implications from these security concerns, from increased insurance cost to potential losses to damaged or stolen goods, can be exacerbated from logistic disruptions, with extended lead times and heightened operational costs. This operational uncertainty surrounding the movement of goods, amplifies the challenges of ensuring a seamless supply chain. When security risks escalate, an economic fallout will impact the operational efficiency of supply chains and the financial well-being of businesses operating in the affected region. 

Shift in Procurement Strategies

In response to the political climate, companies will nonetheless re-evaluate their sourcing strategies. Initial locations which might have been excellent sources of raw materials may have become physically unsafe from military conflicts. Businesses would then need to seek out alternative suppliers and diversify their sourcing strategies. 

Unfortunately, the transition period in terms of establishing a new supplier and assessing the reliability of alternative sources will result in delays and uncertainties across the supply chain. These shifts will introduce a new set of challenges from production to procurement, prompting businesses to proactively adapt their procurement procedures to mitigate the potential issues amidst a climate of political uncertainty. 

Disrupted Routes and Increased Freight Costs 

By disrupting established trade routes, geopolitical tensions exert a far-reaching impact on global supply chains. The strategic waterways and transit corridors critical for ensuring the smooth flow of goods and materials can become hotspots of contention during periods of geopolitical strain. Trade routes may face closures, delays or heightened security measures, which may disrupt the movement of products between nations. Attacks on the Red Sea have caused companies to reschedule their ship volumes, with companies like Maersk halting their ships until further notice. Disruptions on the Red Sea have caused a drop in shipping volume on the Suez canal by 28%. 

Heightening levels of geo-political tensions can also result in the imposition of tariffs and trade barriers between conflicting nations. With increased costs impacting the economics of international commerce, companies will find themselves dealing with higher expenses from the import and export of goods, necessitating a reassessment of pricing strategies and an inevitable impact on profit margins. Freight rates across the red sea have already reported to quadruple amidst various logistic costs. 

Conclusion

The impact of geopolitical tensions on global supply chains is profound and multi-faceted. The consequences extend beyond logistical challenges to financial implications such as increased operational costs to altered procurement strategies. Disruptions to trade routes and shifts in political alliances will challenge the stability of supply chains. As geopolitical tensions continue to alter the global landscape, companies that prioritize adaptability will be better positioned to weather the storms of an unpredictable geopolitical climate and sustain the smooth operations of the supply chain. 

About Cello Square

Cello Square is a digital freight forwarding service, developed by Samsung SDS. The platform provides end-to-end visibility and optimal routing of logistics transport with a simple booking process. Features range from real-time quotations, chat functions to dashboards reflecting operation insights. Cello Square is used by leading companies from various industries to optimize supply chain stages and enhance system capability. 

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