The Red Sea disruption, including targeted attacks on cargo ships and the severing of undersea data cables, continues to create significant challenges for global supply chains. This crisis has resulted in an approximately 80% decline in Suez Canal volumes since May 2024, and with around 12-15% of global trade passing through the waterway, this represents a substantial drop.
These disruptions are increasing pressure on supply chain leaders to navigate conflicting priorities to manage budgets and maintain customer satisfaction, operational efficiency and sustainability goals. In order to tackle these challenges, leaders need to strike the balance between three key conflicting priorities to build a more resilient and adaptable supply chain.
Cost management versus operational efficiency
This has become the primary challenge for supply chain leaders to address. Rerouting ships from the Suez Canal to the Cape of Good Hope adds approximately 4,000 miles to a journey, and increases fuel consumption by nearly 30% per trip, driving up costs. Recent data suggests shipping costs on some routes have surged by as much as 40%, with insurance premiums escalating by up to 20% due to the heightened risk of attacks in the region.
The key considerations in balancing cost with operational efficiency include the nature of the materials and goods, customer expectations and supply chain flexibility.
Potential mitigation strategies to balance these two conflicting priorities include segmenting supply chains and strategic inventory positioning. One strategy to balance these conflicting priorities is segmenting materials and goods based on criticality and risk (for example, critical or time-sensitive versus commodity or low-value). Dynamically allocating the most cost-efficient route per segment can then mitigate delays and optimize costs. Another is strategically positioning inventory closer to key markets will reduce the impact of disruptions; however, this will require more working capital. Nevertheless, a recent Gartner study indicates that 43% of companies are revisiting their inventory positioning off the back of the latest disruptions.
Sustainability goals versus business continuity
The rerouting of ships has led to a significant increase in carbon emissions, adding tension to the balance between sustainability goals and business continuity. The additional 4,000-mile journey around the Cape of Good Hope creates a 20-30% increase in carbon emissions per voyage, which is at odds with global sustainability commitments. The International Maritime Organization (IMO) estimates that maritime shipping is responsible for about 2.9% of global greenhouse gas emissions – a figure set to rise if alternative routes continue to be used.
To address this, businesses can adopt greener technologies, such as biofuels, liquefied natural gas (LNG), and ammonia-powered vessels, which reduce emissions on longer voyages. Carbon capture systems can also trap CO2 before it is released.
An alternative solution is the Northern Sea Route (NSR), which offers a shorter, more cost-effective path through the thinning Arctic ice, reducing the need for icebreakers. However, this route comes with environmental concerns for the Arctic ecosystem and geopolitical risks due to its proximity to Russia.
In the short term, businesses can invest in carbon offsetting programs to balance increased emissions; in the longer term, innovations such as green shipping corridors and route optimization software can help reduce fuel consumption. Nearshoring and reshoring strategies also provide ways to lower emissions and improve resilience by reducing dependence on long maritime routes.
Ultimately, balancing sustainability with business continuity will require thoughtful planning and new approaches to mitigate risks to both sides in a disrupted supply chain.
Short-term gains versus long-term resilience
The tension between pursuing short-term gains and building long-term resilience is a critical consideration for supply chain leaders. Organizations with a short-term focus insist on cost-cutting measures to maintain profitability, just-in-time inventory practices, and a reliance on single-sourcing for cost efficiency. Meanwhile, to build long-term resilience, leaders need to invest in supply chain visibility and risk management tools, build redundancy and flexibility into the network, and develop strategic partnerships with suppliers and logistics providers.
To balance these competing priorities, companies can adopt several strategies. One effective approach is scenario planning, where regular analyses of potential disruptions are used to identify areas where resilience investments will offer the highest returns. Another is phased implementation, which gradually improves flexibility and redundancy while still meeting short-term goals.
Moreover, financial flexibility through contracts can play a crucial role. Structuring agreements with suppliers to include flexible pricing, volume adjustments, and risk-sharing clauses can help companies manage unexpected changes without resorting to single-sourcing or cost-cutting measures that compromise resilience. Developing collaborative ecosystems with suppliers, customers, and even competitors can distribute risks and costs, reinforcing the supply network.
By thoughtfully managing these strategies, supply chain leaders can create networks that balance short-term performance with the long-term goal of resilience, ensuring both profitability and adaptability in an unpredictable world.
Ashray Lavsi is principal with Efficio; Hanako Tsuchiya is a manager.
