Geopolitical Risk & Global Supply Chains
Retail in the United States is a 7 trillion-dollar industry that employs millions of Americans, and it is supported by a complex web of global supply chains. While necessary and advantageous to the competitiveness of the industry, this worldwide supply chain network makes geopolitical issues more likely to increase risk and cause disruptions.
Many large U.S. retailers have stores in other countries, but virtually all companies source materials from around the world to bring the best merchandise to consumers. Managing massive global networks requires a complex risk breakdown structure to account for the uncertain state of geopolitics, tariffs and climate events in the world today. Strategies to assess risk vary from retailer to retailer but there are common elements.
- Diversified sourcing portfolio: Diversification helps spread risk exposure as retailers seek to mitigate the risks or challenges with a particular country. Geopolitical issues, U.S. policy priorities, and trade disputes have significant implications for retailers’ sourcing decisions. For example, tensions in the U.S.-China relationship, coupled with increased U.S. import taxes on Chinese goods have created conditions that have accelerated many companies’ already-ongoing diversification initiatives. Large retailers may source from as many as 40 countries; much like a stock portfolio, diversification helps spread the risk.
- Responsive supply chains and logistics: The crisis in the Red Sea is the latest example of a distant regional issue that has immediate and significant impacts on global commerce. The last Suez Canal disruption in 2021—caused by a single ship that ran aground in the canal—cost the global economy $10 billion a day in lost productivity. Savvy retailers have built supply chains that are responsive to localized flare-ups, e.g., labor disputes, and they adapt and reroute to ensure that merchandise still gets to retail stores and American consumers on time. Today, while container ships are avoiding the Red Sea, retailers are mitigating impacts in a variety of ways, including by diverting to trans-Pacific trade lanes, utilizing the constrained Panama Canal, and opting for air freight.
- Collaboration with partners: Lean global supply chains require close partnership with both suppliers as well as logistics service providers. This is a critical element of a responsive supply chain. For example, the increasing turmoil in the Red Sea continues to cause delays that may add ten to fourteen days to the transit time. This disruption has compelled retailers to work closely with vendors to accelerate production timelines and it also demands a collaborative relationship with carrier partners, to ensure retailers can reroute and shift volumes to mitigate disruption.
An increasingly volatile world requires that retailers build—and continually evolve— their supply chain risk structure. Retailers will be exploring geopolitical risks and global supply chains at this month’s RILA LINK Retail Supply Chain Conference, with core content focused on issues retailers need to prepare for, and what leading retailers are doing now to ensure their supply chains are resilient and ready to overcome current and future supply chain constraints. Join us at www.rila.org/LINK.