HIGH POINT — As the ongoing regional war in the Middle East continues to send shockwaves across global shipping networks, the longer the conflict drags on, the more likely it is to drive up transportation costs and force companies to either rethink supply chain strategies or price in the new pressures.
Sunderesh Heragu, a Regents Professor of industrial engineering at Oklahoma State University who studies logistics and supply chains, said the eventual scope and duration of the conflict will determine how severely global trade routes are affected.ind
He told sister pub Furniture Today that two major risks stand out as instability and disruption continue.
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Shipping costs squeezed as capacity is limited
One of the most immediate risks involves the potential disruption of maritime routes in the Middle East, particularly if the conflict spreads to additional countries.
“Oil prices have already gone up,” Heragu said. How much they go up “depends upon how long the war continues and in what direction it escalates.”
If fighting expands to other parts of the region, including Yemen, it could threaten one of the world’s most important trade corridors.
“If the war continues to expand and involves other countries in the Middle East, for example, Yemen, that could threaten the transportation of goods through the Suez Canal, which accounts for 30% of the total container traffic and 15% of the world’s trade,” Heragu said.
Shipping infrastructure in the region has already come under attack, which could increase risk premiums for carriers and insurers.
“In addition, sea ports in the region have been attacked and will continue to be attacked,” he said. “This will raise the risk premium for container ship transportation.”
As a result, shipping companies may become more cautious about routing vessels through the area.
“Shipping companies are likely to renegotiate contracts and limit how much is shipped via the canal until there is some level of stability,” Heragu said.
If traffic through the Suez Canal declines, carriers may shift vessels to other trade lanes, including the trans-Pacific routes that handle a large share of U.S. imports, especially furniture. That could tighten vessel availability and increase rates across global shipping markets.
“Any shipping reduction via the Suez Canal will put pressure on shipments via the Pacific, raising prices and squeezing transshipment capacity for all,” he said.
Those higher transportation costs could eventually filter through supply chains.
“All these costs will mean the cost of raw materials and finished goods — furniture — will go up by at least 5%,” Heragu said.
Importers may look to diversify supply chains
If instability continues, companies may also begin reconsidering how they structure their supply chains and where they source materials.
Heragu said one strategy could be to diversify sourcing closer to U.S. markets.
“Companies should begin attempting to diversify sources for raw materials from other countries in the Americas,” he said.
Nearshoring could be part of that strategy, but it comes with complications.
“Nearshoring is a strategy to be pursued, but trade relations with countries in North and South America have been strained because of the high levels of tariffs imposed on ‘Liberation Day,’” Heragu said.
Other risk-management strategies also come with costs. For example, building larger inventory buffers can help companies ride out supply disruptions, but it can also put pressure on margins.
“Inventory buffering results in higher costs and customers may not be willing to pay even more for furniture given the inflation rates that persist today,” he said.
Long-term shipping contracts may also be less attractive in an environment marked by geopolitical and economic uncertainty.
“Given the uncertainty with respect to trade relations, geopolitical factors, wars, weather events, long-term contracts may not be an attractive option for many furniture companies,” Heragu said.
As the conflict continues, Heragu said companies across the supply chain will need to balance cost pressures with the need to maintain stable access to materials and finished goods.
