Since last November, the Red Sea area has been affected by a series of attacks, undermining the stability of one of the most active trade routes globally, through which 21% of international trade passes. The effects from an economic point of view were immediate with a 40% drop in the volume of commercial traffic traveling through the Suez Canal, according to the latest estimates of the United Nations, elaborated in an analysis by iBanFirst, a fintech operating in the multicurrency payments market. Egypt is among the countries most at risk with a loss of 315 million dollars. The impact on cereal trade is enormous, if we consider that approximately 4.7% of EU wheat imports pass through the Bab El Mandeb Strait, an important international trade route.
“The blockade of the Bab El Mandeb Strait is forcing ships to make longer journeys: today containers take up to 15-20 days longer to reach their destination, with an increase in costs related to transport, which can necessarily have repercussions on prices for consumption – explains Michele Sansone, country manager of iBanFirst Italia – With the risk of disruptions in other crucial areas, such as the Strait of Formosa, used by semiconductor companies, the Strait of Hormuz, for oil, and the Bosphorus Strait, for grain, the relocation of commercial activities to closer areas to the target market will be the direction that will be followed in the coming years. In this situation, the reduction of exchange rate risks will become an increasingly fundamental aspect for companies that want to enter those markets with long-term strategies, avoiding unexpected fluctuations”.
In addition to impacting costs and delivery times, the circumnavigation of Africa entails a dual series of consequences, of an economic and strategic nature. “From an economic point of view, the increases in transport costs translate into higher costs of imported products, while the loss of international traffic determines lower revenues for ports, logistics and related companies and for the State, to which the VAT revenue from imports is intended – he adds the lawyer Sara Armella, founder of the Armella & Associati firm, specialized in tax and customs law, with offices in Milan and Genoa – We are witnessing the third serious crisis of international trade and of the integrated production model, starting from components, semi-finished and finished products, the production of which has been delocalised to China, Vietnam, India, Korea and other Asian countries. A further push towards reshoring, i.e. the widespread tendency to bring many of the productions delocalized so far back to the Italian and European context, according to a production model that is consolidating in numerous areas of our economy. Large and small companies cannot wait months for product deliveries, jeopardizing their production or consolidated commercial relationships and have turned to looking for suppliers in geographically close areas, in Europe, Turkey or in the Balkan and North African countries, reversing the route of globalization”.
“The World Economic Forum talks about ‘polycrises’ – he continues Giuseppe Coco, partner of the Ughi e Nunziante law firm – A situation where present and future risks merge into ‘clusters’ of interrelated global risks whose overall impact exceeds the sum of each part. To address this situation in a structural way, Italian companies should start by equipping themselves with good governance, an indispensable condition even just to be aware of the risks on the horizon. And also to seize the opportunities that also arise from instability. In many industrial sectors, a nearshoring policy is underway, with the repositioning of activities in geographically closer regions, which is allowing many Italian companies to return to the center of interest of international operators”.
Andrea Beretta Zanoni, Endevo partner and full professor of business strategy at the University of Verona, comments: “In Europe over the last 20 years, Italian productivity has grown less than that of France and Germany: hence a historically more modest growth in Italian GDP. The current geopolitical situation is causing high levels of volatility, slowing down investment choices which are more urgent than ever.” Zanoni goes into even more detail: “In general, volatility and uncertainty are never friends of medium-long term choices, and specifically inflation, which especially for Europe has geopolitical origins, has forced central banks to tighten policy monetary with the inevitable consequences on the cost of capital. In this scenario, Italian companies will need entrepreneurial courage and strategic clarity to make the necessary investment choices to avoid losing competitiveness”.
Delays in supplies demonstrate the now pressing need for businesses of all types for technologies that provide visibility over the entire end-to-end supply chain, also to evaluate inventories and mitigate price spikes. The Red Sea emergency is only the latest of a series of disruptive global events that represent a “call to action” for organizations that must now definitively abandon traditional obsolete and closed “siloed” systems to adopt standardized and structured digital solutions to support the supply chain that provide traceability based on data, allowing you to remain agile when disruptive events of all kinds occur.
For Daniele Civini, head of sales Jaggaer, “companies able to quickly identify and guarantee alternative sources of supply and different transport possibilities have a greater chance of responding effectively to crisis situations such as that of Red Sea or Panama Canal, where lower water levels due to drought impact the number of ships that can pass, a further critical issue for global shipping.” “Businesses must adapt quickly, with tools that enable ongoing resilience. Cutting-edge technological solutions integrated with international infoproviders capable of offering information on the risk levels of the various supply options and the possibility of creating ‘what if’ scenarios that take into account the numerous variables involved in contexts such as the current one, become essential tools for taking informed, conscious and timely decisions,” he concludes.
Because geopolitical risks are destined to increase, with increasingly frequent and less contingent fluctuations that influence the commercial choices of companies, as shown by the latest quarterly data published by ISTAT on trade with China, for example, where exports are collapsed by 57.7% in February 2024 compared to the previous year. “Trying to talk about a form of ‘geopolitics of uncertainty’ as a condition from which to redefine strategies of supply or mitigation of contractual risks, in the context of the current border crossings of goods and in the relationships between company, logistics systems, market and customs, could represent a winning, if not even necessary, interpretation”, he completes the reasoning the lawyer Valentino Durante, head of the Area dedicated to International Business Law at the Casa&Associati law firm. A topic that will find space for discussion and debate on April 12th in an event on the topic in Marghera, in the province of Venice.