This year feels like the point where several geopolitical and technological flashpoints will become turning points. As uncertainty gives way to even more uncertainty, how can we truly be on top—as much as possible—of these developments and ensure our supply chains continue moving?
Written by Henrik Batallones
We in the supply chain sector have always been more keenly aware of the impact various disruptions around the world have on our operations, more so four years after COVID-19 virtually shut down the whole world. By now we know quite intimately how a “black swan” event—now there’s a term that probably wasn’t in our vocabulary before 2020—could impact our work both in the short term and in the long term. Service and solution providers have used the threat of “disruption” as a key selling point for their wares. It has also become fodder for industry events like ours, or think pieces in industry magazines like this one.
It’s not that there ever was a risk of “disruption” being an empty word thrown around to evoke urgency. We are still early in the “post-COVID” times, after all. The long-term effects of the pandemic have yet to fully pan out, as we decidedly return to some semblance of normality. So we should also be keenly aware of the issues brewing around the world that will impact our work in the coming months and years—and it goes beyond one-off disruptions like the collapse of the Francis Scott Key Bridge in Baltimore, which is set to slow down global trade, or the reliably constant stream of natural calamities countries like the Philippines faces.
So far, 2024 has been characterized by several geopolitical flashpoints that either threaten to, or have disrupted, the worldwide movement of goods. It’s interesting to note how many of these have roots that go back years, if not decades. The Russian invasion of Ukraine, for instance, can be traced back to the collapse of the former Soviet Union in the 1990s, the expanding influence of NATO and the European Union in former Soviet republics since, and the rise of nationalism in Russia. Vladimir Putin, the country’s strongman leader, justified the “special military operation” as necessary to protect Russian interests, characterizing the expansion of NATO—a Cold War-era military alliance designed to counter the USSR—as an existential threat.
The first attacks were in February 2022, and back then observers believed the fall of Ukraine would come in a matter of days or weeks. However, as of this writing, the conflict continues, with heavy losses on both sides. It has become a litmus test for where other countries stand ideologically in the 21st century: while Western countries such as the United States, the United Kingdom and EU member states have sent supplies (but not forces) to assist the Ukrainians, other superpowers such as China and India have chosen not to intervene directly—although the former’s close ties with Russia have been treated with some suspicion.
However, the impact on supply chains has been more profound. Ukraine and Russia are two of the world’s major producers of wheat. The war has obviously meant the former’s supply can’t be moved out to the rest of the world; the latter’s supply has also been subject to economic sanctions. Global prices rose by 20% in the immediate aftermath of the war; while they have normalized since, they remain elevated, with other factors such as climate change also playing a role. Efforts to normalize the supply of wheat, such as the Black Sea grain initiative brokered by the United Nations, have proven fickle, if ineffective. The war has also somewhat impacted global trade routes, with major Ukrainian ports being the target of several Russian attacks, and air traffic being diverted to avoid the risk of missile attacks.
The renewed conflict between Israel and the Hamas movement in Gaza also has an ongoing impact on our supply chains. The Palestinian militant group’s attack on Israelis on October 7—and Israel’s unrelenting, almost scorched-earth response—threatens to bring the greater Middle East region into yet another wider military conflict, with skirmishes between other Palestinian forces and other countries such as Lebanon flaring up in the later months of the conflict. This would inevitably lead to further uncertainty in the region, notably in oil prices, which will lead to an increase in global transport costs.
The most obvious disruption stemming from the conflict in Gaza would, of course, be the attacks of Houthi rebels in Yemen on Western ships traversing the Red Sea, ostensibly in solidarity with the Palestinians. Several cargo ships have been the subject of drone attacks; the first fatalities from these are actually Filipino seamen. The US and UK have made retaliatory attacks, citing the need to ensure the free movement of goods, especially in an important shipping route like the Red Sea. Nevertheless, the uncertainty has forced shippers to take longer routes around Africa to avoid attacks, leading to longer delivery times and higher costs. A later attack on the Iranian consulate in Syria has also been blamed on Israel, the broadest indication yet (as of this writing) of how a wider regional conflict may escalate.
A potential geopolitical flashpoint closer to home is China’s stance on the South China Sea. Their “ten-dash line” claims almost the entirety of the sea, overlapping with territorial claims and exclusive economic zones of neighboring countries such as Vietnam and the Philippines—not to mention Taiwan, which China has long claimed to be one of its provinces, and which has been the subject of increasingly strident calls for reintegration from Beijing. We Filipinos have seen, over and over, our resupply missions to our soldiers stationed in Ayungin Shoal subjected to intimidation and harassment, most recently a sustained water cannon attack that has led to injuries. This, despite a ruling from the United Nations acknowledging the Philippines’ claim to its own exclusive economic zone in accordance with international law.
While both sides seem keen to avoid direct military conflict, one can’t help but think it is a possibility. China, of course, has been more aggressive towards Taiwan, holding military exercises near the country in a bid to assert its dominance. Observers continue to gird for the possibility of direct military conflict in the region, which could draw in other global powers like the United States. That would definitely mean more disruption, particularly in electronic supply chains, where Taiwan is an important player.
It is not a stretch to think that any potential conflict in the Philippines’ immediate northern neighbor may spill over to the South China Sea, and that would certainly lead to major disruptions in a major shipping route serving Southeast Asia. At the very least, our economy—highly reliant on imports from neighboring countries, most notably China—will suffer as the movement of goods is hindered by military conflict. Our major trade gateways in Luzon—Manila, Subic, and Batangas ports—will be directly impacted, and goods may be potentially forced to other international ports in the country such as Cebu, meaning massive upheavals for established manufacturing networks and increased costs.
The potential disruptions to global supply chains are not just physical, however. Recent years have seen several movements in the geopolitical landscape that could have an impact in the movement of goods. The rise of protectionist policies across the world come in various forms—from calls for more self-sufficiency on one end, to antagonizing other countries on the other—is contributing to a sense of uncertainty, particularly to companies that rely on global or regional sources. The rise of nearshoring and reshoring may be driven by economic and financial considerations on some companies’ part, but it is undoubtedly also influenced by policy-making.
One thing that characterizes this other type of geopolitical disruption is the lack of trust between countries, and the role policies and public pronouncements play in the domestic political arena. The ongoing trade war between the United States and China stems from both mistrust and the belief of both countries that they have to be on top of the leaderboard. It has certainly ramped up in recent years, with strident rhetoric from former US president Donald Trump, later continued in more subdued form by his successor, Joe Biden, as well as from the development of Xi Jinping Thought and its emphasis on ensuring Chinese national security.
While globalization meant the imposition of tariffs on foreign goods is now largely frowned upon, the trade war has manifested itself in other means. One only has to look at how the two superpowers are sparring in the technological front. The rise of artificial intelligence and the advancement of networking technologies has led to what can be called a new arms race, with companies from both countries seeking to gain practical advantages and countries looking to undercut rivals through policies, again in the name of national security. Take western countries’ response to allegations that Huawei hardware powering their 5G networks is being used to spy on them, or more recently, the American government’s calls for ByteDance, the owners of the wildly popular social network TikTok, to sell their American interests or be banned completely in the country.
On the other hand, tech manufacturers such as Apple, who rely heavily on global supply chains—including manufacturers in China—both for components and final products, are compelled to rethink their supply networks to reduce disruption. The company behind the iPhone has recently shifted some of their manufacturing to India, citing the need to reduce their dependence on a single country. Concerns about industrial espionage have also played a role, as both manufacturers and governments are keen on keeping their know-how within trusted territory.
Even then, there are wider shifts in the geopolitical and economic order that will mostly likely be actively resisted by certain parties. In Southeast Asia, manufacturing continues to move to Vietnam, citing rising labor costs in China. Other countries in the region like the Philippines are also girding for a slice of the pie. Singapore is also making a serious bid to become East Asia’s financial hub, catering to companies who are leaving Hong Kong in light of increasingly draconian regulations echoing Chinese mainland interests and restricting rights. Further out in the region, the rise of potential new global superpowers—such as India, which has already established a niche in the pharmaceutical and technology sectors—can be directly traced to this geopolitical rivalry.
This technological front has opened up new criteria determining a country’s competitiveness, from digital infrastructure and literacy, to protections on personal data and intellectual property. Cyber-resilience is increasingly becoming a buzzword as more and more businesses move to digital and cloud-based processes. New niches are opening up, allowing for countries to further make headways in an increasingly globalized economy, while displacing sectors that have long been seen as competitive advantages. The Philippines, for example, has successfully developed its outsourcing sector, but most jobs in the industry are being threatened by the advent of artificial intelligence—likely removing the need for living, breathing customer service agents.
Now the search is for countries that can securely host and handle the large amounts of data being gathered, generated and analyzed by these networks. The growth of data centers is providing opportunities not just for countries that have an established digital footprint, but also for those in the Global South like in Africa and South Asia.
The digital front has also opened up the possibility of new forms of conflict, from physical attacks on underground data cables that could disrupt cross-country flow of information, to hacking attacks on public and private systems. This is not limited to state actors: the rise of the malware-as-a-service model means identity thieves and scammers can deceive more people more easily. For businesses, the inability to combat these schemes could also lead to reputational damage.
Of course, digital disruption can also upend existing societal models beyond new forms of geopolitical conflict. We have already seen examples of companies laying off a large number of its employees, replacing them with AI processes claiming greater operational efficiencies and cost savings. With these emerging technologies poised to exacerbate existing inequalities among wealth classes and genders, the conversation on how governments can better take care of those displaced by these changes is beginning to emerge. There are, however, no solid solutions yet—this will all depend on what values a country holds dear, if you ask me—and it could lead to even more disruption and conflict, both internally and externally, in the coming years.
By its definition, us working in the supply chain can only react and respond to these disruptions. In some, such as the arrival of new, epochal technologies, we can take a more active role and plan ahead, but we are still bound by the constraints of available resources and support, as well as corporate priorities and values. In others, such as ongoing conflicts, we can only work around them—we are not policy makers who can directly influence the outcome of tensions in the Middle East, for example.
But in dealing with these things, we should remember the place we occupy in the grander scheme of things. Whether we are in manufacturing, retailing, logistics or other supporting sectors, we are not isolated from what else is going on in the world. We play an important role in improving the lives of the people around us: our customers, our employees and our partners—and this goes beyond the value our products and services give to them. Take the impact of our operations on the environment. Sustainability has become a buzzword in the supply chain sector not just because of its impact on our costs, or on the longevity of our business models, or on our standing with regulatory agencies. Our efforts to reduce our carbon footprint, for example, is in recognition of our role in, literally, building and maintaining a better world. This isn’t purely ideological: from our packaging choices to our pursuit of sustainable energy for our transport networks, we have a tangible impact.
It may not be easy to square our wider responsibility with more immediate business considerations, the very factors that drive our response to these disruptions. Concerns about costs, for example, will inevitably be top of mind when it comes to deciding how we deal with disruptions in the supply of raw materials, for example. But as we have seen in the last few years, the developments affecting our work now is just part of a long chain of events—and that tells us we can take a more proactive role to better our company’s competitiveness and allow us to generate more, and more meaningful value, to the communities we serve and the people we work with.
There are, of course, no one-size-fit-all answers. Not everybody has to think of, say, considering a different shipping route to get raw materials from halfway around the world. But there are two attitudes we should continue to espouse as we head deeper into this year—and the coming years—of further supply chain disruptions and geopolitical flashpoints.
The first is to keep an open mind about both the opportunities and the pitfalls of any approach you take. Artificial intelligence, for example, can increase efficiency and unburden us from administrative and clerical tasks, allowing us to focus our energies on more intensive tasks. But concerns about its impact on employment—on lost jobs, particularly among blue-collar workers; on whether we have the ability to reskill them, and even whether the skills to be acquired truly matches with what these displaced employees can offer—are valid.
Personally, it’s in the middle ground between evangelism and cynicism where solutions can be made and innovation can be found. It is also here where we can forge stronger relationships with our partners across our supply chain, potentially leading to mutually beneficial solutions that do not just positively impact our bottom line, but pave the way for a better life for our customers.
The other is to embrace a culture of trust, and acknowledging it as an enabler of truly meaningful collaboration. This goes both ways. We have to be able to trust our partners so we can work closely with them on common goals, and also, we have to be worthy of the trust of both our partners and our customers. We have to make sure our processes and policies are done with integrity and do not actively harmor undermine other entities. We should also be vigilant to our exposure to geopolitical actors and developments which could impact our reputation not just among potential partners, but our customers as well. This is key especially now that our customers can directly sway our bottom line through social media campaigns calling out our actions and behaviors.
One challenge is to make sure that these attitudes are not just limited to the executive and management levels, where these decisions are made. These values should reach every level of your company. It’s particularly critical that those working at the lower levels also embrace these attitudes, as they are our frontliners in our efforts—and their failings, intentional or otherwise, will reflect on us. Any solution we implement, or opportunity we exploit, is only as good as those who are directly involved in it. Take, again, the example of artificial intelligence. Are we truly using technology to promote efficiency, or are we just exploiting low-paid workers to provide the impression of such—as was the case with the revelation that Amazon Fresh’s “Just Walk Out” relied on Indian workers to review videos of customers and their purchases—so we can increase profits?
These developments have been going on for months, even years—and some are arguably decades in the making. In one way this tells us we should have long been ready for these, with continuity plans, back-up systems and redundancies in place to ensure minimal disruption. Some of us would be further along the journey, while others would just be in the early stages. Wherever you may be at this moment, this year is the right time to think beyond immediate disruptions and understand our place in the grand scheme of things—and how, despite these challenges, we can still be able to provide more value to our companies and our customers. Let this year of geopolitical flashpoints be the year of turning points for your supply chains.
What is up ahead?
- Russia-Ukraine conflict: What observers thought would be a short conflict has reached an impasse two years on, and continues to threaten wheat prices and shipping routes.
- Gaza and the Middle East: Apart from the increasing civilian death toll, occasional skirmishes between Israel and other Arab countries threaten a regional breakout of violence.
- South China Sea: China’s enforcement of its claims to all of the major shipping lane has led to fears of potential armed conflict and trade disruption.
- Taiwan: China’s policy on Taiwan could disrupt major global supply chains, particularly those in the electronics sector.
- North Korea: Missile tests from Pyongyang reminds neighboring countries Japan and South Korea of ongoing tensions.
- Asian movements: Singapore is positioning itself as a new financial hub after concerns for Hong Kong’s freedoms, while Vietnam continues to bid for manufacturing roles.
- US-China trade war: Protectionist policies between the two superpowers will continue to disrupt the movement of goods, technology and information.
- Populist movements: Donald Trump is leading in US opinion polls before elections in November. Elsewhere, populist leaders continue to toy with protectionist trade policies.
- Cybersecurity: As more customers, businesses and governments go digital, the threat of cybercrime from state and private players loom larger.
- The disruption of AI: The speedy advance of artificial intelligence will trigger a shift in jobs, both administrative and creative—but no consensus ideas on how to help the affected.
- Ecological refugees: As global warming leads to more severe climate events, those from the worst affected countries may need to move to safer countries that may not be as welcoming.