October 7, 2023, armed conflict broke out between Israel and Hamas in the Gaza Strip. The impact on several industries and sectors has not yet been calculated. The logistics, supply chain, and other sectors are feeling the devastation too, a trend that is expected to continue in the coming months.
Locate2u News sat down in an exclusive interview with industry expert Ritesh Kumar, director of procurement and supply chain intelligence at The Smart Cube, about the impact businesses will face due to the war.
The impact will be global on all businesses
Increased oil prices and fuel inflation. Those are the two immediate risks the geopolitical risks in the Middle East can lead to. Disruptions to oil production and supply routes will be felt around the world.
Kumar says this could also increase air and road freight rates globally due to increased jet fuel and crude oil prices. “Critical shipping routes, like the Suez Canal, may face disruptions, which could lead to shipment delays. [It] could drive up prices of various agricultural commodities, such as wheat, traded regularly between Europe and Asia.”
Israel is a significant player in the global semiconductor supply chain, and Kumar says the war could disrupt chip production and innovation. “Additionally, manufacturing disruptions in Israel’s med-tech space are expected due to resource diversion and blockades.”
How to mitigate the impact on the supply chain
Companies with no progressive procurement practices will battle far more during this instability.
Kumar says: “Today’s procurement professionals have everything needed to implement comprehensive, coherent, cost-effective risk monitoring, measurement, and mitigation programs.
Procurement and supply chain operations teams should focus on these five elements of supply chain management:
- Priority risks and diversify suppliers: Determining which suppliers to monitor most closely and key categories that are either most exposed to risk or most critical to your operations. It’s crucial to diversify suppliers to reduce dependence on a single region or supplier.
- Examine data closely: Acquiring and bringing together the correct data about those categories and suppliers to help you learn more about them.
- Micro and macro risks: Converting that data into actionable intelligence, organizing, and understanding how each disparate data point could holistically influence relevant micro and macro risk categories, increasing supply chain visibility.
- Equipping the right people: Sharing and disseminating the intelligence to ensure the right people have the information they need to make the right decisions at the right time.
Impact on trade regulations
“The war could potentially lead to trade regulations and customs procedures changes. Governments may implement sanctions or restrictions on trade with involved parties, impacting international trade,” says Kumar.
He says as a result, there could be more red tape and restrictions on trade – delaying export times. “Additionally, increased security measures may be put in place, leading to delays and additional scrutiny of customs procedures.”
Kumar references the influence of Iran in the war, which could have further far-reaching implications on the sector. “The possible involvement of Iran – a major supplier of weaponry and financial aid for Hamas – would likely result in tighter sanctions being imposed on the nation’s oil exports.”
He says this could impact the oil flow through the Strait of Hormuz, an “Iran-controlled choke point where about one-fifth of the global oil supply passes through.”
This would eventually reduce global supply and likely lead to a commodity price surge.
A vital port near the Gaza border, the Port of Ashdod, has restricted transporting hazardous materials. At the same time, Port of Ashkelon, Gaza’s nearest terminal, has stopped operations due to missile attack threats. “As the war continues, more areas could be affected, and more regulations could be put into effect, further hindering supply chains.”
Planning for supply chain disruptions
Quick mitigation during supply disruptions is vital, and Kumar says companies must develop contingency plans that outline critical actions for this. “These plans should be reviewed and refreshed regularly in light of the emergence of new risks or potentially helpful measures.
“An example of a useful risk mitigation strategy is the formalization of an alternative sourcing strategy wherein the company continues to leverage and support existing competitive suppliers while continually exploring new suppliers.”
He emphasizes the importance of diversification and enabling complete supply chain visibility – as a “critical” point for planning supply chain disruptions.
Supplier communication
Strong supplier communication methods should also be part of your supply chain disruptions contingency plans. “Having strategic suppliers with established trust on your side has proven invaluable for many businesses during challenging economic and political times.”
Develop a communications plan to stay in touch with strategic/critical suppliers and support them financially through supply chain and working capital financing.”
Kumar says “optimal inventory levels” must constantly be reviewed through “safety stock management” during such a crisis. This will help to minimize the impact of prolonged supply chain disruptions when it comes to critical raw materials and consumables.
“Finally, encourage collaboration with all relevant areas of the business to demonstrate the strategic value that procurement teams can deliver in everything from mitigating risk to diversifying suppliers to streamlining data processes,” advises Kumar.
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About the author
Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.
