Strait of Hormuz's potential supply chain impact
INSIGHT, Inc., a top international provider of supply chain planning solutions for the world's foremost companies, believes that substantial supply chain problems will result if conflict breaks out in the Strait of Hormuz, through which 20 – 30 percent of the world’s oil supply passes on a daily basis.
Of more immediate concern to supply chain managers is the impact on global oil markets. While the consequences of military action in the Strait would be severe, even the threat of conflict has resulted in significant crude oil price increases in the past few weeks.
Iran threatened last week to stop the flow of oil through the Strait of Hormuz if foreign sanctions were imposed on its crude exports because of its nuclear ambitions, a move that would almost certainly trigger military conflict. Many analysts believe that such threats are baseless, and that closing the Strait would be economically and politically damaging, not only to relations with the West, but also with such powerful neighbors as Saudi Arabia and the UAE.
Nevertheless, recent Iranian military activity in the area, a test of a new missile, and warnings to the US Navy that its carriers must stay out of the Gulf, have ratcheted up tensions significantly.
“The last thing that the world's fragile economy needs is a new confrontation in the Middle East,” said Dr. Jeff Karrenbauer, president of INSIGHT. “In the last week, we have seen tensions increase dramatically between Iran and the West. Open conflict in the Strait of Hormuz would be a nightmare for supply chains throughout the world, raising the cost of raw materials, manufacturing, transportation, warehousing, inventory…essentially every component of a supply chain.”
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Karrenbauer goes on to note the significant disruptions caused by the Japanese earthquake and tsunami and, more recently, the severe flooding in Thailand. Industries such as automobile and electronics have yet to recover.
“The evidence is overwhelming that disruption, whether random acts of nature or pre-meditated actions by intelligent adversaries, can have severe economic consequences,” he said. “In some instances, the enterprise itself can be at risk. Nevertheless, we still find that the majority of companies have spent little or no time planning for such contingencies. That is astounding, troubling and frankly, a significant management failure.”
INSIGHT is urging each company associated with the global logistics industry to demand a comprehensive supply chain risk audit and a corresponding set of mitigation strategies immediately, without waiting to see what happens next.
Edited by Kevin Scarpati
Elon Musk's Boring Co. planning wider tunnels for freight
Elon Musk’s drilling outfit The Boring Company could be shifting its focus towards subterranean freight and logistics solutions, according to reports.
A Boring Co. pitch deck seen and shared by Bloomberg depicts plans to construct wider tunnels designed to accommodate shipping containers.
Founded by Tesla CEO Musk in 2016, the company initially stated its mission was to offer safer, faster point-to-point transport for people, particularly in cities plagued by traffic congestion. It also planned longer tunnels to ferry passengers between popular destinations across the US.
The Boring Co. completed its first commercial project earlier this year in April. The 1.7m tunnel system is designed to move professionals between convention centres in Las Vegas using Tesla EVs. It says the Las Vegas Convention Centre Loop can cut travel time between venues from 45 minutes to just two.
Boring Co.'s new freight tunnels
The Boring Co.'s new tunnel designs would allow freight to be transported on purpose built platforms, labelled as “battery-powered freight carriers”. The document shows that, though the containers could technically fit within its current 12-foot tunnels, wider tunnels would be more efficient. Designs for a new tunnel, 21 feet in diameter, show that they can comfortably accommodate two containers side-by-side, with a one-foot gap between them.
The Boring Co.’s new drilling machine, dubbed Prufrock, can tunnel at a rate of one mile per week, which is six times faster than its previous machine, and is designed to ‘porpoise’ - mimicking the marine animal by ‘diving’ below ground and reemerging once the tunnel is complete.
Tesla’s supply chain woes
Tesla is facing its own supply chain and logistic issues. The EV manufacturer has raised the price of its vehicles, with CEO Musk confirming the incremental hike was a result of “major supply chain pressure”. Musk replied to a disgruntled Twitter user, confused as to why prices were rising while features were being removed from the cars, saying the “raw materials especially” were a big issue.
Car manufacturing continues to be one of the industries hit hardest by a global shortage in semiconductor chips. While China’s chip manufacturing levels hit an all-time high in May, and the US is proposing a 25% tax credit for chip manufacturers, demand still outstrips supply. Automakers including Volkswagen and Audi have again said they expect reduced vehicle output in the next quarter due to a lack of semiconductors, with more factory downtime likely.
Top Image credit: The Boring Company / @boringcompany