As 2023 was coming to a close, many commentators in the supply chain and logistics space were warning of the potential for further geopolitical instability to come our way in 2024. Few nonetheless predicted that the Red Sea crisis would unfold in the way it has done before new year.
Amid these very valid concerns about how the geopolitical situation could disrupt supply chains, we reached out to a number of industry specialists to learn what the existing issues are and what is being done behind the scenes to ensure supply chains are as robust as they can be in the circumstances.
The continuing impact of Russia’s invasion of Ukraine Although the crisis in the Middle East and the Red Sea has understandably made all the headlines of late, it is by no means the only conflict creating supply chain barriers at this moment in time.
A number of the persons we spoke to are still primarily concerned by the developments caused by Russia’s invasion of Ukraine.
This was understandably the case for Oleksii Taranenko, CBDO of private postal operator Nova Post. In the case of Taranenko’s employers, Russia’s military action means constant, day-to-day disruptions.
“In addition to the physical inaccessibility of certain transportation routes, Russia’s war against Ukraine is provoking a rise in the cost of insurance for both goods (cargo) and vehicles. This definitely affects the cost of logistics, both exports and imports of goods,” Taranenko told Trans.INFO.
Taranenko added: “Shelling and the aftermath of hostilities cause damage and destruction to transportation networks, ports, warehouses, terminals, and other infrastructure used to deliver goods and services. As a result, the transportation leverage is forced to increase, which again increases the cost of logistics and, accordingly, the cost of goods for the end consumer.”
Jakub Lewczuk, head of EU and China rail freight at Asstra, a Polish 3PL, also emphasised the disruption caused by Russia’s aggression against Ukraine.
“Due to the introduction of sanctions, some goods can be delivered to Kazakhstan, but cannot transit through Russia and Belarus. This largely limits the possibility of transport and extends the delivery time and the value that must be spent on transport. As a result, goods imported to Kazakhstan are more expensive than the same goods imported before the sanctions were introduced,” Lewczuk told Trans.INFO.
However, as stressed by Joanna Wojnarska, Tender Manager at the Polish branch Raben Transport, geopolitical uncertainty across the globe can create problems, even if conflicts or trade barriers are far away from home: “In the context of geopolitical threats, changing international relations and trade conflicts may lead to the introduction of trade barriers, increased tariffs or even the introduction of sanctions, which may disrupt the free flow of goods through supply chains. Additionally, political changes such as armed conflicts can introduce uncertainty about the future of trade agreements and regulations, which in turn affects companies’ business strategies.”
Moreover, besides the situation in Middle East and the Russia – Ukraine war, Xeneta Chief Analyst Peter Sand has said it is not possible to rule out conflict in Taiwan: “Political turmoil and wars are ongoing and we are now seeing conflict and heightened tension across the Middle East. Further conflicts in other parts of the world, for example Taiwan, cannot be ruled out and may yield significant and lasting impacts on shipping,” said Sand, in Xeneta’s 2024 Ocean Freight Shipping Outlook report.
Meanwhile, regarding potential issues at ports caused by the crisis in the Red Sea, Forto CCO Dr. Fabian Struck told Trans.INFO: “The big challenge the industry will have to manage will take place at the destination ports in Europe, when the Red Sea will be passable again. We will have to deal with both vessels arriving after being rerouted and vessels coming directly through Suez. This will be a tough bottleneck next to the lack of equipment and vessel capacity in Asia in January.”
Cyber attack threats In addition to the obvious dangers of Red and Black sea shipping, the possibility of cyber attacks in another risk according to Mike DeAngelis, Senior Director of International Solutions at FourKites: “Other security related risks worth monitoring in 2024 will be the potential for further cyber related incidents (such as the recent cyber attack against DP World Australia),” DeAngelis told Trans.INFO.
So what action is being taken amid these threats to supply chains?
Embracing digitalisation and technology to find solutions In the opinion of DeAngelis, supply chain resilience will in part require access to timely and reliable transportation data and insights.
This view is also shared by Dr. Fabian Struck, who told Trans.INFO: “With the amount of diverging information out there and the potential consequences that carriers’ decisions can have on shippers, customers have to know where their shipment is now and where it will be in the next coming weeks: waiting to pass the red sea or on route for Good Hope? We are not talking here about replanning a single shipment, vessel or Purchase Order, shippers may have to completely rearrange their entire warehouse delivery or the planning of their sales. It is in such moments that you understand how important visibility is. And the best way to get visibility is to be able to follow your shipments on a global and digital platform.”
Raben’s Wojnarska also believes data analysis will be key, as well as the utilisation of technologies like AI and IOT, which can be used to monitor and forecast risks. This, in turn, allows for quick response to changing conditions.
Supply chain diversification One of those responses may be to increase supply chain diversification: “Diversification of supply sources is becoming a key element, and companies are trying to locate production in different regions of the world, while minimising dependence on one market or supplier,” Wojnarska told Trans.INFO.
Moreover, ING’s 2024 report in supply chains also expects diversification to become a prevailing trend next year: “The diversification of imports by advanced markets is a trend that is unlikely to reverse in 2024. Advanced markets have been gradually broadening their imports over recent years as geopolitical risks and supply chain problems have caused businesses to hedge their bets. This has mainly resulted in a lowering of the direct share of imports from China to the US but is not yet so prevalent in Europe. With geopolitical risks remaining significant in 2024, expectations remain for this trend to continue, with other Asian markets set to gain market share.”
Different routes will also inevitably be explored in order to get goods and raw materials from Asia to Europe. This is no surprise given the bottlenecks that can be expected at ports, and the both longer and more expensive Asia-Europe sea freight rates.
In addition, the situation in Ukraine could require companies to explore new routes. On this very topic, Sebastian Sołtys, President of the Management Board of LPP Logistics, told Trans.INFO: “Securing alternative supply routes is a way to reduce logistical complications related to the geopolitical situation. It is expected that tensions in this regard will continue. We are currently experiencing blockades on the Polish-Ukrainian border, which means difficulties in deliveries to e-commerce customers and in supplying the network of over 100 LPP stationary stores in Ukraine.” As for how LPP Logistics will react to potential disruptions in this area, Sołtys highlighted the need for quick decision making to avoid over-stocked warehouses:
“The key to minimising the impact of supply chain disruptions on business will be the organisation’s ability to quickly detect and respond to potential threats. It will therefore be important to maintain the right balance to protect ourselves in the event of disruption of supply chains and thus not to overstock warehouses.”
Alternative routes When it comes to alternative routes, the Middle Corridor is one such option. Nevertheless, Asstra’s Jakub Lewczuk told Trans.INFO that the route does have its limitations: “Moving the route south [to the Middle Corridor] requires significant investments in infrastructure and time for new international agreements regarding the transit of goods through these countries. If the infrastructure is improved, customs and formal issues between the Caucasian countries: Armenia, Azerbaijan and Georgia are sorted out, and more ships are built in the Caspian Sea, then perhaps this route will become popular. Additional investments are required from the European Union to avoid bottlenecks between the Black Sea and the EU. In particular, the port of Constanta in Romania and the railway and road lines in this region require expansion.”
Another possibility is to use a combination of sea and air, as explained by Fabian Struck: “UAE is one option, but another that is even faster and also easier from a geopolitical standpoint is to ship to India and then fly goods into Europe from there,” Forto’s CCO told Trans.INFO.
Improving cybersecurity Finally, as regards the aforementioned cyber security threat, Nova Post says it is taking action by creating backups among other things: “We’re taking into account possible cyber attacks on our infrastructure,” said Nova Post CBDO Oleksii Taranenko. “As part of our risk management, we are actively implementing system and database decentralisation, creating backups, including secure system backups.”
