The 2:00 Minute Warning

Along with others, I’ve been watching the coverage of the horrific and barbaric attack on Israel and subsequent events. Our thoughts and prayers are with those affected by the conflict.

Truth be told, in light of these events, it has been a bit difficult to produce this week’s Two Minute Warning. That said, we all have businesses to run and thus, it makes sense to consider what the future looks like as a result of these attacks and Israel’s response.

What we're witnessing now may well qualify as a “Black Swan” event. This is a concept addressed by Nassim Nicholas Taleb in his business classic, “The Black Swan – The Impact of the Highly Improbable.” Taleb posited that there are rare and unpredictable events, or outliers, and these outliers have an extreme impact. He also noted the human tendency to either inappropriately rationalize or use our psychological biases to try and find simplistic explanations to answer the “What happened?” question.

There is a chance that this Black Swan event could result in higher oil prices and have an impact on global supply chains and the cost to move freight in 2024. How much of an impact is unknown, but if Iran follows through on their threats to retaliate if Israel follows through on their promise to wipe out Hamas, the price of oil and diesel fuel could skyrocket.

Recently, I read some very interesting articles that addressed this issue. For example, one article noted that if Iran were to try and shut down the Straits of Hormuz, that would be a huge problem since approximately 17 million barrels move through the Strait (or 20 to 30 percent of the world's total consumption) on a daily basis. Another article talked about the strategic value of the Suez canal and how the world would be affected if traffic in the Canal was disrupted, or worse, even shutdown.

When oil prices surged over 3% last Monday amid fears that the conflict could lead to disruptions, you had to wonder: “Where do we go from here?” Interestingly, oil prices receded later in the week, but there are many mixed opinions about the price of oil and no telling what's ahead.

One of the things that we encourage and that we can help shippers do is to consider what supply chain areas, beyond the price of fuels, could be impacted by this Black Swan event.

At the National Industrial Transportation League’s outstanding Annual Conference last week I had the opportunity to discuss all these things with top executives from some of the biggest transportation carriers in the country. They noted that higher costs to reposition assets could drive some carriers out of business. While these carriers can use a fuel surcharge to cover the cost of fuel on freight they move, they have to eat the cost of fuel when they have empty miles. So the price of fuel could be yet another factor which is pushing carriers out of business. Then capacity will be tighter and this will drive rates up. Their comments echoed other industry reports that several owner operators are struggling.

This is just one Black Swan event that could impact your supply chain and freight costs. But over the years we've seen other Black Swan events. It’s interesting to note that the companies that have done the best in managing through these crises had a couple of things in common. First, they had a written Supply Chain and Logistics Plan. And second, they had engaged in various in scenario planning exercises that asked various “What If” questions.

With that thought in mind, let me ask: Does your company have a written supply chain plan and have your engaged in scenario planning exercises to understand your options and alternatives? Now is a great time to get started on this if you haven’t already.

If you’re in need of help, we encourage you to 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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