Gartner: Priorities for CSCOs Amid Israel-Iran Conflict
As the conflict involving Israel and Iran continues to disrupt trade routes and logistics hubs, Gartner has set out three pressing actions for chief supply chain officers (CSCOs) to take.
The consulting giant contends that CSCOs should:
- Assess and mitigate their exposure to new global transportation bottlenecks
- Prepare CFOs for continued supply chain cost volatility
- Review supply chain resilience strategies
David Gonzalez, VP Analyst in Gartner’s Supply Chain practice, explains: “As the conflict between Israel and Iran oscillates, CSCOs must leverage the resilience they have built in recent years, recognising that the global significance of this region makes it nearly impossible to avoid adverse impacts, even if only indirect.”
Mitigating new transport bottlenecks
The Israel-Iran conflict is creating added strain on already-challenged shipping routes.
Container traffic through the Red Sea and Suez Canal remains far below pre-crisis levels, as shipping lines reroute vessels away from the canal to avoid risk, resulting in longer lead times and higher costs.
What's more, heightened tensions around the Strait of Hormuz are bringing delays and congestion as shippers seek safer alternatives. Gartner's advice is for supply chain leaders to work closely with logistics partners to identify and manage new options.
Ports in the region, including Jebel Ali, Khalifa Port, Dammam and Haifa, are coming under growing pressure, with some experiencing service interruptions. For CSCOs, this means contingency plans must include alternative ports and route options.
Rail freight across Eurasia, connecting Asia and Europe, has also seen a rise in demand, leading to congestion and delays in securing bookings. While costs on these routes are higher, they can offer faster transit than sea routes around Africa.
Gartner says CSCOs should examine rail alternatives, weighing costs against delivery speed.
David continues: "Regardless of the status of the conflict, CSCOs should continue engaging with their ecosystem of partners to identify alternative routes, assess the viability of shifting volume to less impacted regional ports and consider multimodal transportation options for some goods after conducting a cost-benefit analysis.
"This conflict should serve as a catalyst for improving organisations’ supply chain resiliency plans over the long term.”
Preparing CFOs for cost volatility
Costs tied to supply chains are rising across energy, transportation, insurance and inventory. Gartner's take is that CSCOs must keep finance leaders informed of the pressures and prepare for higher spending.
The volatility of crude oil and liquid natural gas prices is pushing up fuel surcharges and energy costs, making transport more expensive. Longer shipping routes and delays mean higher freight rates, while insurance premiums for goods in transit also rise as risk levels go up.
To keep customer service stable, Gartner says higher inventory levels are needed, but this too adds cost.
One underlying issue is that underinvestment in supply chain technology has left many companies exposed.
New tools that improve visibility and risk management are needed, but CSCOs must make the case for such investments.
In this environment, tight collaboration between supply chain leaders and finance leaders is critical – not only to navigate ongoing volatility, but also protect customer service levels.
Strengthening supply chain resilience
The Israel-Iran conflict is testing the various resilience strategies companies have built up over the past few years.
Chief supply chain officers are advised by Gartner to identify where their supply chains are exposed, especially when it comes to raw materials or key suppliers, in a bid to keep finished goods moving to customers.
David recommends revisiting supplier networks and eliminating any dependency on one region or geography that could cause problems. Reviewing the product portfolio can also reveal weaknesses.
Ultimately, while many CSCOs have built strong risk mitigation plans, continued trade disruptions mean these plans should be tested again in order to reduce exposure and maintain business continuity.
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