The Middle East Crisis: Events impacting the supply chain for foodservice distributors

Recent activity by Houthi rebels in Yemen attacking ships in the Red Sea has highlighted once again the vulnerability of the world’s supply chains. Much of global shipping needs to flow through strategically important restricted waters such as the Panama and Suez Canals.

The Red Sea is a critical maritime route for the transportation of goods, including food, between Europe, Asia, and the Middle East. Any disruption or attack on shipping in this region can have ripple effects on global trade and supply chains, including those related to food. This can lead to delays in the delivery of food and other essential commodities, affecting prices and availability in markets around the world. This vulnerability underscores the interconnected nature of global supply chains and the need for stability and security in key regions to ensure the smooth flow of goods.

The Risks are Increasing

Up to 12% of global trade passes through the Suez Canal, equivalent to 19,000 ships or 51.5 ships per day (Source: Suez Canal Authority 2020). Groundings are the most common incidents with 75 between 2010 and 2019, 28 of which were container ships. Incidents like the Ever Given, an ultra large container ship that blocked the Suez Canal for six days in March 2021 demonstrated all too well the impact on global supply chains. At the time, the drought-stricken Panama Canal compounded delays highlighting this vulnerability further.

Ever increasing ship sizes are leading to a higher accumulation of risk. The container carrying capacity of ships has increased 1,500% over the past 50 years. Despite the expertise of specialist salvage companies, dislodging a huge container ship that has run aground is no easy task. Sometimes the only option is to remove the containers to be able to refloat the ship making the operation a lot more expensive

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If ships are unable to pass through the Suez Canal, due to blockages or political unrest, they have the option of going around the Cape of Good Hope, but this adds 5,000 nautical miles to a typical journey from the Middle East to Europe and there is also the bad weather around the Cape to contend with. Smaller vessels may not have the capacity to sail those sorts of distances. This again adds both expense and time delays.

The attacks on shipping in the Red Sea has caused transport costs to soar as vessels are redirected away from this vital commercial route. While a multinational task force is providing an escort to merchant shipping, many are increasingly being forced to navigate the detours around the Cape of Good Hope. Exporters are now bracing themselves for bottlenecks around the world causing freight rates to spike and the potential for global disruption is once again evident.

How Important is the Suez Canal to the UK?

So just how important is the Suez Canal to the UK, particularly regarding food and agricultural imports?

In an article published by 365 Retail in 2021, they estimated that 55% of UK food supplies were generated domestically in 2019. A further 26% was imported from the EU, while the cumulative amount of 4% was drawn from continents including Asia, North and South America and Africa. They surmised that a substantial portion of this 30% will have been transported along the Suez Canal, including imports that have come directly from Africa and others that have been funnelled through the European Union.

The Challenges for the Foodservice Sector

As well as adding to costs for foodservice companies there is also the threat of time sensitive freight such as food being delayed. Highly sensitive to environmental conditions, this can cause degradation of quality and raise concerns relating to health risks associated with food contamination and other food safety related incidents. Ultimately this can lead to the untimely disposal of stock.

The limited shelf life of many food items demands regular supply and limits the ability to bulk buy as a preventative measure.

Food can also add complexity into the supply chain, as raw materials grown in one part of the world, may need to be processed in another, and combined with additional ingredients elsewhere.

What can be Done?

Limiting risks in the food supply chain involves implementing various strategies and practices to ensure the safety, quality, and reliability of food from production to consumption.

The ‘just in time’ (JIT) model that reduces the risk of spoiling, improves working capital through the avoidance of storing large amounts of stock and provides the ability to align stock levels with sales volumes can come under considerable pressure during global level disruptions. Given the complex, international nature of many food supply chains it’s impossible to remove all risk but there are steps that you can take to help minimise it.

Traceability and Transparency

Supply chain visibility is hugely important. Monitor and measure your exposure to geopolitical events across all supply chains and access points. Systems can be implemented to track the movement of food products throughout the supply chain, from farm to fork. This allows for quick identification of potential problem areas.

Supplier Management

Establish rigorous supplier management programs to monitor suppliers. Avoid putting all your eggs in one basket and diversify your supplier base if you can.  Using a single supplier concentrates risk and a wider supply network can help increase your supply chain resilience. Finding suppliers in different locations can reduce the risk of localised issues. Consider sourcing more locally to reduce dependence on global suppliers, especially during times of delays and unrest.

Collaboration and Communication

Make sure your supplier relationships are in good shape and foster collaboration and open communication among stakeholders, especially regarding supply chain planning and shared data. Understand where your inventory is along its journey through your supply chain and involve suppliers and other partners when planning to mitigate risks. This enables swift response to potential risks and facilitates effective coordination during crises or incidents.

Risk Assessment and Management

Conduct thorough risk assessments to identify potential hazards and vulnerabilities in the supply chain.

Develop risk management strategies to mitigate these risks and implement contingency plans to address potential disruptions. Plan for the potential impact of different scenarios to ensure business continuity. Build flexibility into your business processes so that they can adapt to minimise supply chain disruptions. You can’t plan and prepare for every scenario so prioritise by probability of impact, implement control measures and contingency plans for the situations that are most likely or would have the biggest impact on your business. Where possible run simulations, project impact of different factors and make use of advanced data analytics.

Review your supply chain risks annually or whenever supply chain changes are made. Develop strong organisational practices to anticipate shortages and prepare contingency plans. Be agile, especially when it comes to planning and consider taking on ‘safety stock’.

Technology and Innovation: Embrace technology and innovation to improve efficiency, visibility, and control in the food supply chain. This may include the use of data analytics, blockchain technology for enhanced traceability, IoT (Internet of Things) devices for real-time monitoring, and automation for streamlined processes.

Conclusion

Recent events in the Middle East have once again focused our attention on the vulnerability of global supply chains. With the increasingly large amount of trade that passes through restricted waters such as the Suez Canal and the increase in complex geopolitical challenges, food service companies must pay increased attention to the risks in their supply chains.

Actions can be taken to try and minimise these risks but demands a co-ordinated response between all suppliers in the chain. In addition to monitoring, measurement, collaboration and communication, foodservice companies should seek to diversify their supplier base wherever possible and look to local markets when they can.

The adoption and refinement of technology can improve these activities and provide data analytics and scenario modelling and ultimately help us to meet the evolving demands of the world that we live in.