This week has seen a two-week ceasefire announced by the US and Iran. Iran has agreed to temporarily re-open the Strait of Hormuz: although movements remain limited.
But the situation is far from stable: and there are many unanswered questions about what happens next.
Food and beverage companies have to accept that uncertainty will continue.
The impact on food and beverages
Key food and beverage commodities have been affected in different ways by the Strait of Hormuz closure.
However, for most food and beverage manufacturers, the closure of the Strait of Hormuz has brought three overarching challenges.
First is packaging: with the Middle East an important source of polyethylene and aluminum.
The second is fertilizer. That’s been a concern for any crop around the world: whether barley for beer or grains for snacks.
And the third impact is simply the cost of getting products from A to B: with oil prices soaring.
But for many commodities in food and beverage, the effects of the conflict are indirect: making it tricky to predict the outcome and plan around different scenarios.
Food and beverage supply chain professionals, therefore, need to understand many complex dynamics to understand what may happen next.
Be prepared
While the ceasefire brings hope that commodities will start moving again, nothing is certain.
And the situation is changing almost daily.
That takes a lot of agility in thinking and planning, says Brent Hasenkamp, SVP of Manufacturing, CPG & Industrial Distribution, of supply chain specialists o9.
Rather than predict what will happen next, supply chain professionals need to anticipate a whole range of possible eventualities: right down to how they’ll affect finished products on shelves and the price consumers pay for them.
“What is critically important is to think about how you can dynamically run various scenarios,” he said.
“At a certain point, if costs remain where they are, you have to pass them on to consumers. But if they come back down, it’s a different scenario.
“So you need to consider a number of different scenarios that you can execute upon, because nobody can really forecast what is going to happen in the next two weeks, week, or 24 hours.
“But you can’t sit idly by: and you need to have a plan based on the different scenarios that could unfold.”
Strategic decisions
Planning, therefore, is critical. But companies also have other tools at their disposal. Sourcing is an important one: if supply chains are reliant on the Middle East, how can they become more geographically diverse?
Then there’s the timing of purchasing commodities: reducing purchases when costs are high; or increasing purchases when costs are favourable.
And ultimately, it could be about reconstructing portfolios. If there are products where margins have been cut dramatically, strategic decisions may have to be made.
But ultimately, companies who are able to think creatively are those that will come out of the crisis the best.
“We’ve already seen this play out in a different environment: in COVID, and other supply chain disruptions,” said Hasenkamp. “Organisations that have built up a playbook on how to act from a resiliency perspective are much better positioned than organisations that are just managing this with a firefighting mechanism.
“Companies that are prepared for that will be able to take advantage of any opportunities, and mitigate some of the impacts, versus others that cannot.”
While the Iran crisis and the closure of the Strait of Hormuz has thrown many industries into turmoil, the only certain thing is uncertainty.
Companies that prepare for all scenarios around the Strait of Hormuz will also find themselves better prepared for any other future crises that can - and inevitably will - arrive.
