The 2:00 Minute Warning

The situation in the Red Sea continues to deteriorate.

Four weeks ago, a vessel was struck that ultimately sank. And about two weeks ago, another vessel named the True Confidence was struck and caused the loss of life for three sailors on board. This event marked the first fatalities involved in Red Sea shipping related to the conflict.

An article in this week’s Wall Street Journal on Monday, "Two Canals, Two Big Problems—One Global Shipping Mess" highlighted what makes this situation so unique and why your supply chains may be more exposed than you realize.

Basically, you have two major canals – the Suez Canal and the Panama Canal – that are having problems simultaneously. In the Suez, it’s the Houthi conflict discouraging passage. In the Panama Canal they’re experiencing record droughts and ships are queuing up to get through. Send us an email if you’d like a copy of the article.

Unfortunately, this situation highlights that there are a lot of things that can go wrong with your global supply chain. Our friend and associate Jonathan Mond posits that these issues could easily increase your inventories and prolong your order-to-cash cycle. That will increase your working capital days which reduces your operating profit and company value. With stability decreasing around the globe, your company needs a supply chain contingency plan more than ever!

This isn’t just my opinion. This is an opinion that was emphatically stated by Robert Gates, the former Secretary of Defense and Director of the CIA, when he spoke at the Journal of Commerce Trans-Pacific Maritime (TPM) Conference last week. He directed attendees to understand that the world they’re living in is not the same one as before and contingency planning is more essential than ever before.

WHAT DOES THAT MEAN FOR YOUR COMPANY?

This means that you must have a contingency plan that clearly states your options and alternatives when supply chain anomalies cause issues that will cost you money and create risk for your business.

If you’re thinking “I’m not at risk because my company doesn’t use ocean shipping” then let me share a quick anecdote. I was at a summit last week with about a hundred CEOs and Presidents and some of them communicated, “Mike, I’m not worried because we don’t have a lot of container traffic.” Here’s what they weren’t considering – it could still be a critical issue if any of their suppliers – suppliers you depend upon to keep your doors open, depend on ocean shipping.

WHAT SHOULD YOUR COMPANY DO NOW?

As Robert Gates noted: You have to be concerned and address the issue of supply chain risks because supply chain disruptions can have significant negative impacts on your company's operations, financial performance, and reputation.

As an industry thought leader on supply chain risk management best practices and contingency planning, TranzAct can provide support and expertise. We have helped scores of companies like yours realize strategies and plans to manage risks effectively and maintain business continuity in the face of unforeseen events, especially as market and global conditions change.

If you need help taking action and determining the correct next steps, we have a structured and tested process for quickly evaluating your supply chain risks and prescribing remedies.

I encourage you to talk to us about our Rapid Assessment – it’s a diagnostic review that will help you understand issues and risks in your supply chain, but also those in the supply chains of your suppliers that ultimately could affect your company.

It’s incredibly important at this time that you follow the advice of Robert Gates. So if you’d like to develop a contingency plan that will protect your company . . .  call us, we’re here to help – and to protect your supply chain!

Give us a call at 630-833-0890, send us an email, or schedule a time to meet.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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