Reed Smith: How to Prepare for Supply Chain Shockwaves

Share
It remains to be seen what sanctions the Trump administration will impose in Russia, if any. Picture: Getty Images
James Willn, Partner at Reed Smith, says international companies must remain vigilant in anticipation of potential sanctions policy changes in the US

Sanctions are a powerful tool in our increasingly interconnected world. But, while effective in achieving diplomatic goals, they can wreak havoc on global supply chains and, ultimately, procurement processes.

James Willn, Partner at international law firm Reed Smith, says it's critical for international companies to remain vigilant, as even the most minor disruptions can lead to wider ripple effects on procurement, resulting in crippling economic consequences.

James Willn, Partner at international law firm Reed Smith

What might President Trump's return to office mean for US sanctions policy?

President Trump has historically approached sanctions through a transactional lens, often using them as leverage in negotiations to achieve favourable economic or political outcomes. He might continue to view sanctions as a tool for deal-making rather than a long-term foreign policy mechanism. Trump’s previous presidency showed a reluctance to confront Russia aggressively, despite Congressional mandates. 

A new administration might weaken sanctions on Russia, particularly if aligned with other geopolitical goals, such as shifting attention to China. His withdrawal of the US from the Iran nuclear deal (JCPOA) and "maximum pressure" campaign suggest a possible hardline stance on Iran, likely with expanded sanctions against Iran to curb its nuclear ambitions and regional influence.

Trump has historically supported US energy independence and may ease sanctions that restrict American energy companies from competing globally. However, sanctions targeting energy competitors like Russia or Iran could remain in place if they align with US energy goals.

His sanctions policy is likely to be guided by a pragmatic, deal-oriented approach that prioritises US economic and strategic interests. Key sanctions regimes could see shifts based on geopolitical priorities, with a likely focus on China, Iran and energy policy. However, his unpredictable style and preference for unilateralism might lead to greater volatility and strain international partnerships. Businesses and governments would need to remain agile to adapt to such a dynamic and transactional approach.

US President Donald Trump

What positives can imposing sanctions bring in an interconnected world? 

Imposing sanctions in an interconnected world can have several potential positive outcomes, depending on their design, implementation and objectives. 

Sanctions are often seen as tools to achieve foreign policy goals, promote international security or influence behaviour without resorting to military action and offer a means of exerting pressure on countries, organizations, or individuals without the costs, risks and human toll of military interventions. When implemented effectively, sanctions can act as a useful deterrence against nations or groups seeking to engage in illegal or harmful activities, such as money laundering, trafficking and cyber attacks.  

Sanctions may also be used to encourage and incentivise political or behavioural change by governments. In October 2023, we saw the US temporarily lift certain sanctions against Venezuela following a political agreement between Venezuelan President Nicolás Maduro and the opposition. However, in April 2024, the US announced that it was reimposing sanctions on Venezuela after determining that President Maduro and his representatives had not fully met the commitments made under the agreement.

Targeted sanctions may also protect human rights abuses, support civil movements and strengthen alliances and partnerships, particularly when sanctions are coordinated (such as the Oil Price Cap restrictions collectively imposed by the G7 countries, the EU and Australia against Russia).

Youtube Placeholder

Why can sanctions have a detrimental impact on supply chains, including procurement processes?

Sanctions can have a detrimental impact on supply chains and procurement processes due to their restrictive nature, which often disrupts the flow of goods, services and financial transactions. These disruptions can affect businesses' ability to operate efficiently and lead to broader economic consequences. 

Sanctions often lead to:

  1. Longer lead times: Businesses must find alternative suppliers or routes, causing delays in procurement and delivery.
  2. Higher costs: Diversifying suppliers or sourcing from less optimal locations increases procurement expenses.
  3. Compliance-related expenses: Companies face added costs for due diligence, legal advice and monitoring compliance with sanctions laws.
  4. Banking and financial restrictions: Many sanctions target financial systems, which disrupts global banking networks. This can create liquidity problems in the supply chain, particularly when banks refuse to process transactions due to sanctions.
Companies can employ a host of strategies to mitigate risk. Picture: Getty Images

What strategies can companies deploy to mitigate risks in a volatile environment? 

To mitigate such risks, companies should implement a proactive, flexible and adaptive strategy which may include:

  1. Diversifying supply chains: Source from multiple suppliers and avoid over-reliance on a single supplier or region to minimize exposure to disruptions.
  2. Nearshoring or onshoring: Shift sourcing closer to home to reduce risks related to geopolitical instability or long-distance transportation.
  3. Building strategic reserves: Stockpile critical inputs to buffer against supply chain shocks.
  4. Enhancing compliance and monitoring systems: Invest in advanced compliance and risk management systems which automatically track regulatory changes, screen sanctioned entities and flag potential risks.

How can companies prepare in the event of sanctions being imposed?

In order to prepare for future sanctions, companies should:

  1. Develop a comprehensive sanctions compliance programme and establish clear policies: Create and implement policies to comply with international sanctions regimes (e.g., OFAC, UN, EU, UK sanctions) and update these policies regularly.
  2. Centralise oversight: Assign a dedicated sanctions compliance officer or team to oversee efforts and ensure alignment with regulations.
  3. Regular training: Train employees, especially in procurement, legal, and sales, to recognise and address sanctions-related risks proactively. 
  4. Re-evaluate contractual agreements: Review and potentially renegotiate contracts with suppliers and partners to ensure sanctions provisions are adequate and suitable.
  5. Invest in compliance and monitoring systems: Advanced systems will assist in screening against counterparties and identifying potential risks, including new sanctions.  

Explore the latest edition of Supply Chain Digital and be part of the conversation at our global conference series, Procurement & Supply Chain LIVE.

Discover all our upcoming events and secure your tickets today. 


Supply Chain Digital is a BizClik brand. 

Share

Featured Articles

The Panama Canal and its Crucial Role in the EV Supply Chain

Supply Chain Digital examines the Panama Canal's vital role in the EV supply chain amid geopolitical tension and global trade volatility

Q&A: JP Lauer at GEP Europe Tour 2025, Amsterdam

Supply Chain Digital caught up with JP Lauer, Vice President Consulting at GEP, during the first leg of the GEP Europe Tour 2025 in Amsterdam

Blue Yonder: Optimising Cold Chain Operations for RealCold

RealCold, a key player in cold chain services, is deploying Blue Yonder’s Warehouse Management solution to digitally transform its operations

This Week's Top Five Stories in Supply Chain

Digital Supply Chain

Nestlé and sennder's Bid to Decarbonise Logistics

Logistics

What Does Rachel Reeves Speech Mean for Supply Chain?

Operations