Almost every supply chain chokepoint has geopolitics dominating the discussion. From the Panama Canal to the Suez Canal to the South China Seas and Greenland, geopolitics and supply chains have circulated in the news. For companies to be successful navigating this VUCA (volatility, uncertainty, complexity, and ambiguity) rich environment, they must roll out forward-thinking, innovative supply chain strategies.

Supply Chain Chokepoints

There are several chokepoints in the global supply chain. What are the geopolitics dominating the conversation? Here are a few timely examples:

• Panama Canal: CK Hutchison, a conglomerate founded by a Hong Kong billionaire owns the terminals at both the Atlantic and Pacific sides of the Panama Canal. A Chinese consortium made up of state-owned China Communications Construction Company (CCCC) and China Harbour Engineering Company (CHEC) is building a bridge above the Panama Canal. Thus, there are concerns that China could control the Panama Canal which is the key waterway connecting the Atlantic and Pacific. The critical importance of the Panama Canal was highlighted with the recent water shortages that reduced shipping capacity by 50% at its peak. The U.S. military also use the Panama Canal, making it vital to national security. Does anyone in your end-to-end supply chain cross the Panama Canal? Refer to our video Supply Chain Byte on Panama.
• Suez Canal: The Suez Canal has dominated headlines since Iran-backed Hamas invaded Israel. Another Iran-backed group, Houthi rebels, started attacking ships in the Suez Canal. Thus, container ships and tankers have been delayed, re-routed around the southern tip of Africa (adding miles, costs, and extended time to the trips), and diverted to other routes (such as from Asia to California and railed to the East Coast). Houthi rebels have scaled back their attacks yet they still remain. Is anyone in your end-to-end supply chain dependent on crossing the Suez Canal?
• Exploding pagers: Related to the war in the Middle East between Israel and Iran-backed groups, supply chains were highlighted when 5000 pagers exploded in Lebanon. Pagers of Iran-backed Hezbollah exploded, killing 9 people and injuring a few hundred. Do you know each of your end-to-end supply chain partners?
• South China Seas: There have been escalating tensions in the South China Seas. These range from China and Taiwan tensions to the Philippines and more. For example, a Chinese military helicopter flew within 10 feet (3 meters) of a Philippine patrol plane over the South China Sea which could have been catastrophic. The South China Seas is a major trade route and critical chokepoint in the supply chain.

Panama Canal Chokepoint Solution on the Horizon

CK Hutchison has agreed in principle to sell its controlling stake in a unit that operates the two ports in the Panama Canal, thereby mitigating the risk of China control of the waterway. A consortium that includes the U.S. asset manager BlackRock and Swiss investors have agreed in principle to purchase. When the U.S. sold the Panama Canal to Panama for $1, a condition of the treaty required that it remain neutral, and so this is a key step in the process. From a supply chain point-of-view, it means that companies have one less concerning factor and can largely rely upon continued neutrality of the Panama Canal in when setting supply chain strategy and evaluating network design and risks.

Impacts for the Supply Chain

Geopolitics have been entwined in the global supply chain. Companies must assess several critical factors as they evaluate their supply chains and set supply chain strategy.

• Supply chain visibility: Companies must understand their end-to-end supply chain. What is the country of origin of critical materials, components etc.? Do you know past your direct supplier? Who are your 3rd or 4th tier suppliers?
• Backup sources of supply: An immediate priority is to gain backup sources of supply. They cannot be in name only if you want to mitigate risk, meaning you must purchase on a regular basis from your backup sources of supply. Read our recent article on the importance of this topic.
• Diversify your supply chain: Source new suppliers in different regions, diversify from key chokepoints, source and/or develop alternate materials and pursue other strategies to diversify your supply chain.
• Reshore and/or expand local manufacturing: Gaining control of your supply chain is proving critical in the current turbulent geopolitical environment. If your product has a low labor component and/or can be redesigned to have a low labor component, pursue local manufacturing with gusto!
• Nearshoring/ friendshoring and regional supply chains: Regional supply chains will prove key to mitigate risks and support growth plans. Regional partners such as Canada, Mexico and the U.S. can align to mitigate geopolitical risks with agreements such as USMCA and expand integrated supply chains as they make sense. For example, aerospace supply chains are integrated with each country performing specialty roles in collaboration with each other.
  Vertical integration: We are also seeing a trend to vertical integration to maintain control, reduce delivery lead times and accelerate product upgrades and new product introductions.
• AI & Advanced technologies: Pursuing artificial intelligence and other advanced technologies such as 3D printing/ additive manufacturing and digital twins, local and regional manufacturers can produce custom products on the fly and automate additional tasks to reduce costs, improve quality, and increase service levels.

Perform a quick assessment of your end-to-end supply chain, evaluate key risks and chokepoints, and determine which geopolitical events are most relevant and impactful on your supply chain. To read more about what experts think you should consider including from the geopolitical standpoint to craft tomorrow’s supply chain today, refer to our special report, FutureScape. We advocate designing tomorrow’s supply chain today although rolling it out in segments so that you gain quick results while moving in the right direction. You can always evolve as conditions change, but you must get started moving forward.

Last but not least, start designing and rolling out a SIOP (Sales Inventory Operations Planning) process to help you navigate changing conditions nimbly and stay ahead of critical business needs. For example, as your sales mix changes, you might need to reallocate production at your plants, source an additional supplier, put together a capital expenditure request for new equipment or cross-train resources to the jobs required for future requirements. To read more about the SIOP process and how to successfully roll it out, download our complimentary book, SIOP: Creating Predictable Revenue and EBITDA Growth.

If you are interested in reading more on this topic:
Impacts from the Threat of Tariffs in the Supply Chain

© Lisa Anderson