Back to insights
Article • 02/04/2024

The Red Sea Ripple Effect: How Global Conflicts Impact Retail Supply Chains

The Red Sea is a vital route in international trade. Geopolitical tensions have thrown this essential artery into chaos, disrupting the flow of goods between Europe, the Middle East, and Asia and sending shockwaves through the retail industry. Retail giants worldwide keenly feel the ripple effects of this crisis and new pressures on their enterprise risk management.

Our Signal’s AI-powered search engine sifts through five million daily documents across traditional news, podcasts, blogs, and social media in 75 languages and 150 markets. We analyzed external intelligence to identify the retail industry’s top risk factors due to geopolitical conflicts.

Here’s what our data revealed. 

Supply Chain disruptions loom as the primary risk factor for the retail industry in conflict-ridden zones

Our findings reveal that Supply Chain, based on volume and sentiment over time, is the primary risk factor for the retail sector in conflict-ridden zones, bearing a negative long-term forecast.

In regions affected by geopolitical conflict, these disruptions are potent enough to shift the broader industry-wide risk landscape, where governance emerges as the primary risk factor.

Industries historically more reliant on the Asia-Europe trade route, such as manufacturing, fashion, and aerospace, face heightened vulnerability to supply chain bottlenecks and shortages.

However, large retail companies aren’t spared by the Red Sea Crisis. Retail companies are seeing significant disruptions in global trade routes, affecting their operations and bottom lines. For example, companies like Ikea anticipate delays and shortages, prompting them to explore alternative supply routing options

Although threats to supply chain stability were the common denominator among all conflict-affected areas, they were most central in conversations related to the ongoing crisis in Yemen. Associated with these disruptions to the supply chain stability, we observed an increased risk factor of product incidents. The disruptions caused by Houthi-led attacks caused delays in the delivery of products.

The resilience of the retail industry’s supply chain helped mitigate short-term impact

The enduring echoes of the COVID-19 pandemic persist, and notably, its influence on crisis management within the retail sector may have proven instrumental in navigating current challenges. 

How did the retail industry adapt? Broad-scale inventory expansions across industries and lower demand have bolstered resilience against immediate supply chain disruptions. This mitigated the more immediate fallout from Houthi attacks targeting cargo vessels traversing the Red Sea.

However, over time, as businesses endeavor to find alternative shipping routes circumventing the Red Sea, consumers may bear the brunt of heightened prices. 

The long-term enterprise risk isn’t the timeliness of deliveries but the customer’s ability to afford escalating costs

Broader inflationary trends and the rising cost of living further compound this consequence, which dilutes the direct impact of supply chain disruptions from conflicts in the Red Sea region.

The disruptions in the Red Sea trigger a domino effect, leading to increased container spot rates and insurance costs. These escalating expenses translate directly into higher retail prices for consumers. Geopolitical tensions also influence crude oil prices, further complicating the situation for the retail sector globally.

Escalating costs

  • – A British Chambers of Commerce study surveyed over 1,000 UK companies, revealing that container shipping costs surged by up to 300%, leading to delays of up to a month. 
  • – Due to this, supply shortages and cash flow issues have arisen. For U.S. importers, shipments from Asia to the East Coast are particularly affected, with many rerouting through the Cape of Good Hope, resulting in increased fuel costs and mileage.
  • – According to our data, in the three months following the conflict’s onset, references to inflation surged by 25% in news media and by 30% on Twitter, compared to the three months preceding the start of the conflict.

Yet, the tableau grows ever more complex with the addition of geopolitical tensions emanating from other global conflicts, each injecting its unique flavor into the retail industry’s risk intelligence portfolio.

Key Global Events Impacting Enterprise Risk

The most impactful conflict by far was the strained situation between China and Taiwan, followed by the Russia-Ukraine war. These two conflicts have dominated headlines year-round, accounting for 85% and 11% of the conversation (see Chart 2).

The escalating tensions between Russia and Ukraine, alongside China’s actions towards Taiwan, have sparked intense debates in Western governments and corporate circles regarding a potential invasion or blockade of Taiwan by China. 

However, our data shows that policy discussions largely overlooked such a conflict’s economic and financial ramifications. 

The Taiwan Strait is another crucial route for global maritime trade, and Taiwan serves as a vital hub for semiconductor manufacturing. Any further crisis would impose significant costs on China, the United States, its allies, and the global economy.

The uncertainty surrounding U.S. reactions to the crisis, particularly amidst an election strongly influenced by foreign policy issues, further amplifies market volatility, compounded by the looming threat of sanctions. While financial sanctions could have an impact, the outbreak of military conflict would far exceed any financial measures. If the crisis and uncertainty were prolonged, significant effects on the real economy would likely materialize.

The conflicts unfolding in Israel, Palestine, and Yemen account for 4% of the conversation (see Chart 2), as they erupted towards the end of the year.

Similarly, although geopolitical tensions were the common denominator among all conflict-affected areas, they occupied 1/10 and ⅓ of the conversation concerning the tensions in China and the war in Ukraine, respectively. In Israel and Yemen, geopolitical tensions occupied more than half of the conversation and were the leading risk factors in both locations.

The ripple effect broadens

The Red Sea crisis has thrown a wrench into global trade routes, posing new challenges for retail giants. With Yemen’s Iran-backed Houthi group targeting commercial ships, disruptions are looming.

Retailers feel pressure to diversify supply chains, invest in real-time tracking technologies, and develop contingency plans. However, these measures come with challenges and costs, necessitating strategic trade-offs between resilience and efficiency. 

Already, retailers are bracing for delays and resorting to pricier shipping methods. Brands such as Ikea and Abercrombie & Fitch expect setbacks, with Ikea highlighting limited availability and late deliveries. 

The Panama Canal, another vital route, faces challenges from environmental risk factors, reducing daily transits due to drought. This dual challenge of canal issues spells trouble for retailers, disrupting their supply chains and inflating costs.

Businesses often face unexpected risks that can harm their reputation, operations, and finances. With Signal AI’s reputation and enterprise risk management tools, business leaders can proactively monitor potential threats to manage enterprise risk before it affects business performance.

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

Research Methodology

Companies: We analyzed 31 retail companies from the Signal AI 500 ranking. This is the complete list in no particular order: Tory Burch, Dollar Tree, TJX companies, Trader Joe’s, Dollar General, Etsy, Crocs, Lowe’s, Kohl’s, Target Corporation, Walgreens, Costco, Marks & Spencer, Ebay, Macy’s, The Home Depot, Cars.com, Best Buy, CVS Health, Nordstrom, Bath & Body Works, Albertsons, Whole Foods Market, Ulta Beauty, Instacart, IKEA, Aldi, Rakuten, Kroger, Walmart, Shopify.

Search Parameters: We included only high-salience mentions of the companies listed.

Timeframe: Unless stated otherwise, this report looks at news media coverage from January 2023 to December 2023.

You may also like

View More
Article

Greenwashing to Greenhushing: Why ESG Remains a Key Reputation & Regulatory Risk

The rise of the Environment, Social, and Governance (ESG) movement as a pillar of corporate social responsibility has become synonymous with corporate reputation.  With purportedly good intentions or perhaps simply due to increased pressure, many organizations have included ESG goals in their strategic plans in recent years. As our Head of Strategic Solutions, Daniel Gaynor, […]

Read more
Article

Congress Approves TikTok Ban Bill: Here’s What Big Tech & Social Media Companies Should Monitor

Congress has approved legislation that may lead to a TikTok ban unless its Chinese owner, ByteDance Ltd., sells the app within a year.  Such a ban would reshape the social media scene, impacting giants like Meta and Alphabet, while ByteDance would likely contest the decision in court.  Why should Big Tech and social media players […]

Read more
Article

Eco-Warriors vs. Petro-Giants: Are Climate Activists a Reputational Risk to Big Oil?

Climate activists have been turning up the heat on Big Oil. From throwing soup at Van Gogh’s sunflowers to staging slow marches through London’s streets, their steadfast commitment to stopping Big Oil and other major polluters is evident. Have activist groups’ intensified heat sparked a blaze? Do these increasingly disruptive and PR-savvy protests pose a […]

Read more
Article

Greenwashing to Greenhushing: Why ESG Remains a Key Reputation & Regulatory Risk

The rise of the Environment, Social, and Governance (ESG) movement as a pillar of corporate social responsibility has become synonymous with corporate reputation.  With purportedly good intentions or perhaps simply due to increased pressure, many organizations have included ESG goals in their strategic plans in recent years. As our Head of Strategic Solutions, Daniel Gaynor, […]

Read more
Article

Congress Approves TikTok Ban Bill: Here’s What Big Tech & Social Media Companies Should Monitor

Congress has approved legislation that may lead to a TikTok ban unless its Chinese owner, ByteDance Ltd., sells the app within a year.  Such a ban would reshape the social media scene, impacting giants like Meta and Alphabet, while ByteDance would likely contest the decision in court.  Why should Big Tech and social media players […]

Read more
Article

Eco-Warriors vs. Petro-Giants: Are Climate Activists a Reputational Risk to Big Oil?

Climate activists have been turning up the heat on Big Oil. From throwing soup at Van Gogh’s sunflowers to staging slow marches through London’s streets, their steadfast commitment to stopping Big Oil and other major polluters is evident. Have activist groups’ intensified heat sparked a blaze? Do these increasingly disruptive and PR-savvy protests pose a […]

Read more
View More