THE global pandemic revealed to the general public just how fragile global supply chains really are.

A breakdown at one point in the chain can have rapid, cascading effects globally.

The networks designed for maximum efficiency in normal times, have little capacity to handle shocks.

These are not normal times.

The war in the Middle East has created the largest supply disruption in the history of the global oil market, but the ripple effects are felt far beyond tankers and stalled refineries.

As Hormuz stays closed, fears will mount about other things, such as fertiliser and helium supply shortages, which could impact a wide range of assets, from agricultural commodities to semiconductors.

The full impact on the container market is yet to be fully felt, but as diverted vessels reach alternative ports, stranded cargo accumulates and inland transport networks strain under the weight of emergency rerouting, the full implications of this latest supply chain shock is going to become very clear to everyone.

The regional impacts are already obvious on shop shelves. Inbound food supplies leaves Middle East Gulf economies acutely exposed when shipping routes are disrupted.

Minor blockages in the system, can quickly affect food security, especially for perishable goods and staple cereals. But these are not minor blockages.

The knock-on effects of cargo displacement are already visible across Asia’s key hubs and the longer this latest global supply chain breakdown lasts, the worse it will become.

As diverted vessels arrive simultaneously, congestion is rising across the region and the peak is at least two to three weeks away, regardless of what happens next in the MEG.

With the Strait of Hormuz effectively closed to commercial traffic, carriers have been forced to discharge at alternative gateways and rely on overland solutions to bridge the gap.

In response, carriers across the region are hastily reconfiguring networks, working with governments and port operators to establish new inland and coastal corridors capable of maintaining cargo coverage into the MEG as hostilities continue.

All of this comes at a cost. Logistical rerouting, extended inland hauls and longer ocean transits are coinciding with sharply higher fuel prices as oil supply tightens.

What is already clear is that the disruption will reverberate far beyond the immediate shock, reshaping regional logistics and challenging the resilience of MEG trade long after vessels begin to move.

The longer the conflict lasts, the more investors price in economic damage. The impact of the box disruption will quickly be conflated with the wider economic impacts.

The expectation of days is now stretching into weeks and even a two-month conflict means high energy prices feeding through to global inflation and growth. If the war extends further, the implications shift from a temporary volatility shock to a structural supply disruption.

The ripple effect of this war will extend well beyond an energy crisis.

Richard Meade
Editor-in-chief, Lloyd’s List

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