By the close of 2022, the world found itself amid more active conflicts than at any other point since the turn of the century. This upward trend of geopolitical conflicts continued unabated through 2023, causing business leaders to brace for impact. 

This surge in active conflicts propelled geopolitical tensions to the forefront of businesses’ attention. According to Oxford Economics, 36% of companies ranked geopolitical tension as a primary risk factor. This has surpassed financial concerns and fears of credit supply constraints. Over 60% anticipate it posing a significant threat over the next five years.

What can external intelligence tell us about the perceived and known risks posed to the fast-moving consumer goods (FMCG) industry? We analyzed the risk landscape across premium content sources using our AI-powered solutions.

Key Findings:

Now, let’s dig into the data.

What’s Happening: Global Overview of Key Maritime Chokepoints & the Disruptions to Supply Chains

global overview of maritime chokepoints and conflicts
Chart 1: Global Overview of Key Maritime Chokepoints & the Disruptions to Supply Chains (source: Signal AI)

The primary area of concern lies in the Middle East, particularly in Yemen. Houthi forces, aligned with Iran, are systematically targeting vessels believed to have affiliations with Israel. The situation in the region escalated since the Hamas-led attack on October 7, followed by Israel’s military campaign.

These are the latest in this long line of global conflicts impacting key shipping routes. Beyond the Middle East, this conflict’s repercussions echo around the world.

Impact of the Red Sea Conflict: Increase of Travel Time & Costs

The proximity of the Israel-Hamas war to the Red Sea and two vital maritime chokepoints – the Suez Canal to the north and the Bab el-Mandeb Strait to the south – fuel apprehensions about potential disruptions to the global supply chain.

The security of the Red Sea supply chain and shipping holds global economic significance, serving as a crucial trade conduit connecting Asia, Europe, and the US.

With 30% of worldwide container traffic coursing through the Suez Canal, any substantial threat to its safety could reverberate across oil prices and impact the availability of Asian-manufactured goods in the Western market.

Approximately half of the container ship fleet that regularly traverses the Red Sea and Suez Canal has since avoided the route due to the perceived threat of attacks.

As of December 2023, a tally revealed that 299 vessels, with a combined capacity for 4.3 million 20-foot containers, have either altered their course or intended to do so.

A Red Sea Ripple Effect 

However, opting for diverted journeys around Africa (through the Cape of Good Hope) can result in up to a 25% increase in travel time compared to the Suez Canal shortcut between Asia and Europe.

This strategic shift not only imposes additional costs but also holds the potential to raise consumer prices across various goods, such as food and oil – which poses a specific threat to the FMCG industry.

Each conflict creates a rippling effect impacting many other areas, which could, down the line, act more like a tsunami. For example, because of the distraction of the Houthi attacks, Somalian pirates have now been reportedly attacking ships after a decade-long hiatus. As reported by Reuters, “Their raids have extended the area in which insurers impose additional war risk premiums on ships.” Insurance industry officials say this impacts the costs up to the hundreds of thousands of dollars for a typical seven-day voyage through the Gulf of Aden and the Red Sea.

Which Geopolitical Conflicts Require the Most Focus for Risk Teams?

Tension, Velocity, and Prominence Scores of Key Events

Tension score and velocity score ranking for geopolitical conflicts
Chart 2a: Tension and Velocity Scores of Major Geopolitical Conflicts (source: Signal AI)

In Chart 2a, the tension score denotes the net negative sentiment of perceptions in the media around a given topic. The velocity score measures the increase in mentions within news media articles. 

When we look at the news coverage about conflicts globally (meaning not specific to FMCG), the top three concerns are 1. Russia x Ukraine, 2. Israel x Palestinian territories, and 3. Iran.

The top three events specific to the FMCG industry are 1. Russia x Ukraine, 2. China, and 3. Yemen.

How does global prominence compare with risks to the FMCG industry?

When we look at the full scope of global news coverage surrounding geopolitical conflicts for 2023, mentions of the FMCG industry are minimal.

Despite escalating tensions in the Red Sea and the broader Middle East, media coverage of the conflict’s impact (which includes the Israel-Hamas war, the Houthi attacks, and the tensions in Iran), coverage specific to the FMCG industry registered at a mere 1%.

Chart 2b: Comparing the FMCG Industry to Global Coverage (source: Signal AI)

However, in Chart 2b, you’ll see despite receiving relatively little attention, the impact of the Red Sea conflict on supply chain stability was enough to radically shift the focus of conversations about the FMCG industry.

Initially, coverage of the FMCG industry focused on manufacturing and corporate controversies. This shifted in the second half of the year to center around global conflicts, particularly those in China, Ukraine, and the Red Sea region. 

Zooming in on the FMCG Industry

In less than three months, the prominence rating indicated the Red Sea conflict as a major event for FMCG companies.

Zooming in on the geopolitical tensions unfolding around the Red Sea, the focus becomes the Houthi attacks from Yemen, which dominate 58% of news coverage (the Israel-Palestine conflict accounts for 25% of news media coverage, and the remaining 17% to the growing tensions in Iran).

If we think of the Middle East supply chain threats as a red-hot threat to supply chains, there’s a smoldering concern about the breakdown of trade links with China.

In contrast to the broader global geopolitical risk landscape, these two conflicts within the FMCG sphere collectively attract 4.5 and 10 times more media attention, respectively.

Beyond the Middle East, the Russia-Ukraine conflict remains impactful. Escalating geopolitical tensions linked to the trade dispute with China and supply chain disruptions due to Houthi assaults in the southern Red Sea region are gaining notable prominence. 

3 Major Risk Factors Impacting the FMCG Industry: Supply Chain, Activism, & Product Incidents

Supply chain, Human Resources (HR) risks (such as strikes and whistleblowers), and product incidents constitute over 90% of media discussions on how geopolitical risks impact the FMCG industry globally. Supply chain, activism, and HR are the key risk factors, totaling 94% in discussions centered on the Red Sea conflict.

These risks, however, aren’t unique to the Red Sea conflict.

Are Supply Chains a Red Herring for the FMCG Industry? Boycotting and Activism Seem a Large Part of the Conversation

In addition to the supply chain risks discussed above, the heightened risk of boycotts is the common denominator across all regions.

Why is this?

It’s harder than ever for businesses to stay apolitical. They face increasing pressure from the public, investors, and other stakeholders to take a stance on the multiple conflicts worldwide. Several multinational companies have proactively boycotted or divested activities in conflict regions in response to the global outcry and media influence.

However, given the various economic powers associated with opposing factions in the Israeli-Palestinian conflict, companies find themselves stuck between a rock and a hard place as they grapple with criticism from both sides. Companies struggle to find a balance between the perception of being too pro-Israeli or excessively sympathetic towards Palestinians. 

For example, Turkey’s parliament decided to stop serving Coca-Cola and Nestlé products as part of a boycott against companies perceived to “support Israel.” Turkey, known for its vocal criticism of Israel’s military actions in Gaza, has consistently condemned Western support for Jerusalem.  

Top Companies Mentioned in News Coverage Associated with Geopolitical Conflict

Companies mentioned by Share of Voice in conversations around geopolitical risk
Chart 3: Top Companies Mentioned in News Coverage Associated with Geopolitical Conflict (source: Signal AI)

In the West, amid vocal support for Israel from US President Joe Biden, Starbucks faced controversy when its union, Starbucks Workers United, expressed solidarity with Palestinians on X, leading to a deleted post and calls for a Starbucks boycott. The coffee chain then sued the union, which countered with a lawsuit, as reported by ABC News.

Similarly, McDonald’s received criticism after an Israeli franchise offered free food to the military, while McDonald’s Malaysia, stating it was “100 percent Muslim-owned,” donated funds for humanitarian aid in Gaza.

Industry Outlook: 3 Critical Events in 2024 Could Jeopardize Global Supply Chain & Company Reputation

In 2024, our analysis shows global risk will revolve around three critical hotspots: the ongoing conflict in Ukraine, the Israel-Hamas war, and the strained situation over Taiwan.

Any escalation in these areas has the potential to significantly disrupt global supply chains, financial markets, security dynamics, and political stability. These conflicts pose a visceral threat to the sense of security and safety for individuals worldwide.

These events represent geopolitical crossroads, with major powers having vested interests, including oil and trade routes in the Middle East, stability and the balance of power in Eastern Europe, and advanced technological supply chains in East Asia. The stakes involve the risk of broader regional destabilization, the direct involvement of major powers, and an escalation to a larger scale of conflict. 

Beyond jeopardizing global supply chains, the unfolding conflicts in the Middle East also present significant risks to one of a company’s most important intangible assets: its reputation. The association with geopolitical unrest can influence public perception, consumer trust, and stakeholder confidence, emphasizing the need for robust enterprise risk management.

Time and again, unforeseen risks, the ‘unknown unknowns,’ impact businesses’ reputation, operations, and, ultimately, a company’s bottom line. Signal AI’s reputation and enterprise risk management tools are powered by AI to provide faster, more meaningful external intelligence. We empower C-suite leaders to anticipate, track, mitigate, and prioritize enterprise risks and potential threats before they impact business performance.

Learn more about our enterprise Risk Management tools and services here.