Middle East Conflict Hits Supply Chains Harder Than Yen Fluctuations
The recent surge in the Japanese yen's value against the US dollar has left many importers wondering if it will affect their trade costs. However, experts say this is not a supply chain story that should be worrying importers.
Washington and Tokyo spent an estimated $59 billion buying up the yen after it hit a 40-year low against the dollar. The goal was to stop excessive volatility and disorderly movements in the currency, not to touch trade terms.
A weaker yen can make Japanese goods cheaper for US buyers, but this effect is limited. Most trade is invoiced in dollars, so a currency swing barely moves a US importer's actual invoice in the short run. Exporters often hold prices rather than pass the discount along.
The real pressure on landed costs is coming from the conflict in the Middle East. The Strait of Hormuz, which carries roughly a fifth of the world's oil and gas, has been under pressure. As a result, bunker fuel in Singapore has jumped by 24% to $785 a metric ton, with marine gas oil up a third.
Ocean carriers are passing these increased costs straight through as emergency surcharges. For example, CMA CGM added $150 per container on long-haul services from August 1, while MSC added $289 per container on Asia-Europe lanes and ONE added $75 per container from August 15.
Air freight is also affected by the Middle East conflict. Carriers have pulled capacity over the region due to jet fuel spikes and airspace closures. This has reduced air cargo capacity and rates, both in and out of the region.
Brands are already feeling the effects of these changes. Portless reports that merchants have been asking about fuel surcharges and delayed shipments over the past few months, rather than worrying about monetary policy or currency fluctuations.
The lesson here is not to diversify just your factories, but also the way products move through supply chains. This means routing through multiple corridors and modes of transportation to avoid single points of failure.