Today (April 2), more than 30 countries are expected to meet to discuss the Strait of Hormuz crisis. The countries will convene virtually to discuss the escalating crisis in passage way.
It’s a crucial moment for the world’s supply chain: as well as for food and beverage. The waterway is essential for global oil flow: but also for other commodities.
Tea troubles
Right now, tea is the commodity most impacted by the closure. Many markets in the region have a strong tea culture: with the UAE, Iraq, Iran and Saudi Arabia among the largest importers of tea.
Packaging is also under strain. With plastic production relying on oil, the pressure on oil’s passage through the straight has implications for plastic packaging.
Coffee is potentially a commodity that could be affected: while prices have been declining thanks to bumper crops in Brazil and Vietnam, logistics around shipping and higher fuel costs could have a knock-on effect.
And that highlights the real issue for the beverage industry: most of the effects of the conflict are indirect, making it tricky for beverage companies to predict the outcome and plan around different scenarios.
Take, for example, fertiliser. Key peak planting season has arrived: and this is not a season that can be pushed back and delayed.
Disruption and soaring fertilizer costs are hitting just as farmers in the US, Brazil and India are making critical purchasing decisions.
That’s when critical beverage categories that could be affected as costs continue to rise.
“Coffee and sugar remain relatively well supplied, but rising energy and fertiliser costs are making both more expensive to produce,” Steve Blough, chief supply chain strategist at Infios, an intelligent supply chain execution solutions company, told us.
Uncertainty creates disruption
However, Blough emphasises that the biggest problem for beverage companies at the moment is knowing that disruption could happen at any moment.
“In terms of supply, we’re not seeing widespread shortages of key beverage inputs like sugar, coffee or tea at this stage: but there are clear signs of strain in how these commodities are sourced and moved globally,” he said.
“Disruptions around critical routes, such as the Bab el-Mandeb Straight, a strategic chokepoint into the Red Sea and Suez Canal, are increasing transit times and freight costs, which is already feeding through into higher fuel and insurance pricing.”
And for beverage companies, planning for the future has become a headache.
“For beverage producers, the issue is less about availability today and more about reliability tomorrow,” continued Blough.
“With routes lengthened by 30% or more, supply chains are becoming slower, more volatile, and more expensive to manage, increasing the risk of cost inflation and putting pressure on margins over the coming months.”
