The recent events in the Middle East have put the world on edge as nerves fray and markets become skittish. The United States has accused Iran of the latest drone attacks to 2 key oil installations inside Saudi Arabia, causing immense damage to the facilities whilst dramatically impacting the country’s crude oil output and increasing the risk of supply disruption to the market. As a result, the United States has placed further sanctions on the Gulf State, further increasing political tensions and heightening risk in the marketplace.
Given the Middle East is a major player in supplying fertiliser to the world, political and trade uncertainties have raised the risk profile of marketing and delivering product. Many partners and allied nations of the US have followed suit by sanctioning Iran as a trade partner for their goods and services. With pressure mounting in the Persian Gulf, international logistics and shipping companies are finding it increasingly unsafe to position vessels to carry cargo in and out of the region. As less and less owners are willing to enter into these trades due to the heightened associated risk, the number of logistics providers has dwindled. Increased risk premiums have been embedded into freight rates and across trade routes.
So, what does this mean for countries relying on fertiliser imports from the Middle East? A short but complex answer: disruption throughout the entire Supply Chain. Planning, procurement, sales, operations, and cashflow/finance will all be affected. The cost to do business will increase and if things escalate, each trade or transaction will be scrutinised more closely than ever. Not only will insurance premiums to cover shipments and cargoes will go up, but regional trade shifts in procurement will need to be evaluated and assessed. Spot buying from other regions to cover existing domestic commitments may create short term displacement and disparity in the market. Large corporations will need to review their longer-term strategic direction and decisions as they look to best position themselves while navigating through these uncertain and disruptive times.
What impact will this have on growers and end users? Inevitably, these costs will be passed down to local farmers reducing their returns and gross margins. We’ve all seen the headlines of the US-China Trade Wars (which has not helped either side to provide security nor stability for their domestic economies) while we’ve seen ‘drought’ conditions 2-3 years running in parts of Australia. Bank lending has tightened dramatically with local farmers now cash strapped and looking at alternative lending avenues to assist and ensure their livelihoods are not impacted. Increasing global supply production in certain crops have suppressed commodity prices, making it more and more difficult to manage risk and generate returns. Conversely other crops have experienced structural tightening of their fundamentals with supply growth rates hitting a ceiling and demand in the energy sector ever increasing as we move towards a ‘greener’ world. All these factors and uncertainties have made global trade substantially more difficult in what should be a simple game of feeding and nourishing the world.
What can we do to better understand and handle what life throws at us? Be prepared, agile, and use the tools that are at our disposal to support the decision-making process. Collecting, collating, computing, analysing and reviewing data is as important as ever. Instead of looking through the rear-view mirror when driving, look through the windscreen to see what’s happening ahead so that you can react, respond, and position yourself to your advantage. Longevity and success will come to those who can plan and execute decisions faster and more effective.