Navigating geopolitical challenges in global supply chains

Global supply chains have experienced significant disruption in recent years, largely driven by an increasingly volatile geopolitical environment.

Regional conflicts, shifts in trade agreements, and economic sanctions have had profound effects on maritime transport and the broader supply chain; a survey by Gartner revealed that 40% of supply chains were impacted by recent geopolitical events.

These ongoing tensions raise critical questions about the direction of international trade, and put those working within the container industry in the crossfire of geopolitics.

Understanding the current geopolitical environment and its effect on the supply chain is therefore crucial in order to remain competitive. However, the situation is intricate, and industry professionals have been left to grapple with the challenge of navigating these complexities.

The Red Sea Crisis: A geopolitical flashpoint

One of the most significant geopolitical crises currently affecting the maritime industry is the Red Sea Crisis. Since December 2023, attacks on ships in the Red Sea have disrupted commercial shipping operations.

The crisis has had far-reaching implications for global trade. According to the World Bank, the longer routes required to avoid conflict zones have increased travel distances for cargo and tankers by up to 53%, leading to higher CO2 emissions due to additional fuel consumption.

From an economic standpoint, the crisis has driven up freight rates and shipping insurance costs, contributing to inflation and negatively impacting both regional and international shipping economies.

In response to the Red Sea Crisis, many forwarders have altered their trade routes, opting to navigate around the Cape of Good Hope. This change has introduced delays of 1-3 weeks, higher operational costs, and reduced availability as capacity is absorbed by the longer Cape route.

Despite these challenges, the crisis has created opportunities for carriers whose customers are proactively working to avoid supply chain issues by frontloading imports and paying premium rates to secure spaces. Some commentators have even speculated that the peak shipping season has arrived earlier than usual due to these dynamics.

Surging freight rates as a result have helped global carriers rebound from a lacklustre 2023. Maersk, for example, reported a $631 million increase in EBIT in its Ocean segment during Q2 2024, driven by supply chain disruptions resulting from the ongoing Red Sea/Gulf of Aden situation.

Similarly, CMA CGM noted in June 2024 that robust demand was bolstered by persistent geopolitical tensions, particularly the Red Sea crisis. Maersk has since raised its full-year profit guidance twice in one month, attributing the rise to higher container freight prices and further port congestion caused by the crisis.

These new opportunities naturally come with risks. Although customers seem willing to endure the disruptions for now, if the situation persists, many may begin to explore alternative modal choices to reduce costs.

For instance, the Loadstar recently reported that China-Europe rail freight volumes have continued their upward trajectory from 2023, recording an 11% year-on-year increase in the first half of 2024, with 1.23 million TEU moved.

A survey conducted by logistics consultancy firm Transport Intelligence supports this trend, with around 60% of respondents indicating they had made modal switches due to the Red Sea crisis. Specifically, 11.2% of respondents reported switching from sea to rail, while 17.2% switched from sea to air.

Globalisation versus Protectionism: The rise of economic nationalism

As geopolitical tensions escalate, the concept of de-globalisation—reducing global interdependence—has gained prominence in political discourse.

Protectionist measures are on the rise, as nations seek to protect domestic interests and decouple supply chains from countries of concern, particularly China. These measures are often driven by concerns over anti-competitive practices and data security, as well as the environmental impact of cross-border trade.

A recent example of protectionist trade policies is the U.S. Inflation Reduction Act (IRA), introduced by the Biden administration. Previously, a maximum tax credit of $7,500 was available for those purchasing new plug-in electric vehicles (EVs), provided the vehicle was produced by a manufacturer that had made fewer than 200,000 vehicles.

The IRA removed this cap but introduced new restrictions: to be eligible for tax credits, the final assembly of the EV must take place in the U.S. Additionally, EV batteries must contain at least 50% North American content by 2024, rising to 100% by 2028.

Mineral content from China and other “foreign entities of concern” must be reduced to 20% by 2026, replaced by materials sourced from “free trade” partners.

Professor John Manners-Bell,  author of ‘The Death of Globalisation’ and one of many speakers that attended Intermodal Europe 2023, remarked,

“The growing level of global political, economic, ethical, and environmental risk is encouraging many automotive manufacturers and suppliers to build more local and regional supply chains, in other words, near-shoring…what is clear is that supply chains, already uncertain and volatile, will become even more complex in the future as politics and ideological imperatives become as important as economic considerations.”

(The next edition of Intermodal Europe is set to take place from 12 – 14 November at the Rotterdam Ahoy, Netherlands. You can register for free if you’re interested in attending.)

While the focus of protectionism is often the deteriorating relationship between the United States and China, the European Union has also imposed stringent trade defence measures against China, sparking concerns of an EU-China trade war.

In July 2024, the EU imposed tariffs of up to 37.6% on Chinese EVs, prompting China to threaten retaliatory measures, starting with an anti-dumping probe into EU pork imports. Commentators such as the EU Observer have voiced concerns that China may expand its retaliation list to include European big engine cars, dairy products, wine, and cognac.

Lower container volumes between warring countries are a primary impact of worsening geopolitical relationships, and the effect of rising tensions with the Eastern Bloc on global trade is already visible in the data.

According to the US-China Business Council, goods exported to China dropped by 4.3% in 2023, with semiconductor exports declining by several billion dollars.

However, altered trade dynamics also present significant opportunities for carriers who are looking to diversify their client base and expose themselves to new trade lanes.

Despite trade diversions, China’s share of global exports has remained steady at around one-third over the past decade, according to the Foreign Business Risk report.

Maersk reported a notable surge in imports from Southeast Asia, which compensated for most of the decline in imports from China. Additionally, China has successfully expanded its exports to regions like Latin America, the Middle East, Africa, and the Eastern Mediterranean.

For those interested in exploring these evolving dynamics and China’s changing position in the global economy, Intermodal Asia 2025 in Shanghai, scheduled for March 19-21, offers a unique opportunity to gain deeper insights into the region and connect with key industry players.

Decarbonising supply chains: Meeting environmental challenges

Environmental legislation, driven by international agreements and collaboration between nations to reduce emissions, is pushing the container industry towards net-zero goals. The European Green Deal is encouraging forwarders to adopt cleaner technologies, such as low-carbon fuels.

The upcoming FuelEU Maritime regulation, effective January 1, 2025, sets targets for the greenhouse gas (GHG) intensity of energy used on ships, with targets becoming stricter every five years.

The GHG intensity requirement applies to all energy used on voyages and port calls within the EU, and 50% of voyages in and out. Companies must either pay a FuelEU penalty or take action to reduce their GHG intensity to within the regulation’s limits.

Another option is pooling, where vessels that exceed their intensity targets can compensate for those that underperform.

These overarching regulations make it clear that shipping must go greener or pay the penalty. For carriers, this means rapid adoption of new technologies and greener fuels to avoid penalties and meet environmental targets.

Intermodal consistently highlights cutting-edge technologies at its exhibitions, with previous years featuring speakers from leading green tech companies like Greensee and Copeland showcasing their innovative sustainability solutions.

Future-proofing supply chains: Navigating the geopolitical landscape

Since the pandemic, ensuring that supply chains are resilient and adaptable in the face of geopolitical shocks has become increasingly important. According to the Global Cold Chain Alliance, many companies in the broader food industry have elevated the role of supply chain officer to the management level, underscoring the critical importance of resilient supply chains.

Looking ahead, the relationship between geopolitics and global supply chains is likely to strengthen. The next decade will likely see a reconfiguration of trade networks and the adoption of new strategies such as reshoring, near-shoring, and ally-sourcing within supply chains.

Technological advancements will continue to play a crucial role in mitigating the impacts of geopolitical instability and change. Innovations such as AI-driven logistics, blockchain for enhanced transparency, and real-time data analytics will empower industry professionals to make swift, informed decisions, optimising routes and managing risks more effectively.

Innovative technologies will also be essential for meeting sustainability legislation, with smart container and CO2 emissions tracking platforms helping carriers avoid additional fees.

As geopolitical tensions rise, cybersecurity will also become increasingly important for supply chain professionals, as the threat of cyberattacks grows. The focus will likely shift to ensuring that supply chains are not only resilient but also secure from external threats.

While the geopolitical landscape remains unpredictable, those who adapt and embrace innovation and new supply chain strategies will be best positioned to thrive.

Intermodal Europe 2024 is the premier event for those in the container industry to discuss and explore the future of maritime transport amid this changing geopolitical landscape. Every year thousands of individuals from across the container market and beyond gather to meet, do business and explore trends in the industry.

Attendees can gain essential insight by attending talks from expert speakers, as well as getting hands-on with the latest innovations entering the market from over 120+ of the world’s leading container transport companies.

For more information on attending Intermodal Europe 2024, please visit here. And, for more information about attending Intermodal Asia 2025, please visit here.

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