Conflicts in Europe and the Middle East are creating headaches in the supply chain for Irish businesses, in the view of Neal Johnston, business consulting partner at EY Ireland. Costs on direct trade with the countries involved have increased and sanctions have presented challenges, he adds. However, the conflicts also have wider impacts on the supply chain, with indirect impacts on Irish businesses.
“The Red Sea crisis for example, which is a direct result of the ongoing conflict in the Middle East, has had a significant impact on global trade,” says Johnston. “Many shipping lines have suspended travel through the Suez Canal, diverting ships from Asia to Europe.”
Shipping giant Maersk has put the average increase in fuel costs due to these detours at 40 per cent.
“The issue in the Middle East is concerning to all exporters. Imagine driving from Cork to Dublin but you had to go up to Galway and Donegal to get there – you’d be giving out because of the length of time added and the amount of fuel you’d use,” says Port of Cork business development support manager Brian Dooley.
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“With all of our customers, they have seen serious increases in costs, particularly in fuel but also an extra 10- to 15-day transit time, depending on what part of Asia they are going to. There are serious issues there.”
Dooley says these issues are compounding the challenges already faced in efforts to make supply chains more sustainable.
“If the issue was resolved, it would decrease costs hugely. At the same time shippers are trying to change to more environmentally sustainable fuels. It’s cost on top of cost,” he adds.
Last year drought caused water levels in the Panama Canal to drop, slowing shipping. Similarly, water levels in the Rhine dropped significantly in the past two years, adding to shipping delays, while hydroelectric power had to be rationed in the south of China due to climate issues.
Such developments have driven attention towards creating a more sustainable supply chain globally, to mitigate the impact of climate change.
“Sustainability across supply chains has gained more traction in recent years due to the impact of climate change. The EU is making significant strides in this area by enacting legislation that will see sustainability come into sharp focus in the coming years,” says Johnston.
He expresses confidence in the measures Irish manufacturers have taken to deal with the disruptions they face.
“There is further work and advancements to be made in this area,” he adds. “The catalyst for these developments was likely the ongoing global trade disruption we have seen in the last decade.”
He also remains confident in the ability of Irish businesses to manage the supply chain challenges ahead but believes a change of mindset is required.
“The challenge facing most enterprises is finding the right balance between cost reductions and enhanced resiliency. Changing the narrative from a cost-centric to a value-led model may enable businesses to strike a healthy balance between the two.”