The Next Big Disruption of the Supply Chain Network
Turkey and Greece Clash Over Oil and Gas in the Eastern Mediterranean: 14 Actions to Take to Keep Your Cargo Moving and Your Supply Chain Agile and Resilient.
While the Mediterranean Sea as a whole has been the center of oil and gas explorations, it is in the Eastern Mediterranean Sea that massive gas fields exist. “According to a 2010 study by the US Geological Survey, the Eastern Mediterranean could hold as much as 122 trillion cubic feet of natural gas in total, equivalent to the reserves of Iraq.” However, the discovery of oil and natural gas in the region has reignited territorial conflicts between Turkey and Greece, both of whom are members of NATO.
Turkey has always felt that the Treaties of Sèvres and Lausanne were not only humiliating but that they stripped the country of valuable territory which is now very promising financially, economically, and logistically. In addition to Turkey and Greece, the discovery of gas affects Cyprus, Lebanon, Israel, Syria, Jordan, Egypt, and Libya. But for Turkey especially, it could be a means to leverage itself into a much stronger regional power.
In addition, Turkey felt that excluding it from the regional energy development talks in the Eastern Mediterranean, was a slap in the face. As a result, both Turkey and Greece are boosting their military presence in the Eastern Mediterranean Sea. There is no doubt that 2 events emboldened Turkey’s actions; the world is busy fighting the coronavirus and the strides made in technological advancement which made manufacturing and acquiring weapons a lot cheaper than what it used to be.
BCOs (Beneficial Cargo Owners) operating in this geopolitical climate should consider these long- term strategies:
-Rethink your supply chains by examining the geographical locations, financial and logistical strengths, weaknesses, agility, and resiliency of your suppliers.
-Add 2 to 3 weeks to your transit times. This will protect you from unexpected weather delays, blank sailings, removal of ships from service, or even the cancellation of sailings altogether if the conflict escalates and waterways and bridges are closed.
-Increase your lead time and inventory level, which may seem expensive at first, but will actually be less expensive in the long run, when you will be forced to resort to shipping by air in order to maintain high service levels and promises to customers.
-Review and revise your forecasts weekly.
-Increase your buffer stock and inventory when necessary; doing so won’t necessarily reduce your cash flow if you negotiate good credit terms with your suppliers.
-Build-in your budget increases in spend on ocean freight rates, BAF, and WRS.
-Assume the worst-case scenario and have alternative procurement sources should sanctions be imposed or should war break out.
-Account for the increases in duty should the alternative suppliers be located in countries subject to higher duty rates.
-Make sure that your cargo carries additional insurance coverage to mitigate war risk.
-Avoid the carriers whose ships carry the flag of the conflicting countries.
-Monitor the financial stability of all links in the value chain frequently, especially the stability of ocean carriers given the consolidations and reorganizations that have been taking place lately.
-Make sure that the air freight cost is accounted for and that your customer will accept the additional charges should you have to resort to airlift any cargo. Having these contingency plans negotiated and agreed upon in advance will eliminate delays, surprises, and even possible plant closures due to last-minute disagreements.
-Communicate, plan, and execute with internal and external stakeholders frequently. Constant communication cannot be emphasized enough. So is the frequent evaluation of all suppliers and service providers for products, services, and contract revisions if necessary due to the volatility and complexity of today’s supply chains.
-Stay abreast of events in the whole Middle East region given the daily geopolitical developments some of which may affect the movement of cargo between that region and the world.
This is a conflict that, at first sight, seems to be between Turkey and Greece but, in reality, it’s much more complicated than that because now the USA and the EU are involved. As a matter of fact, the EU is considering sanctions against Turkey.
The best course of action would be for the clashing countries to renegotiate the treaties that caused their grievances including but not limited to their territorial waters and the Law of the Sea.
Lastly, the latest military escalation was not the result of the discovery of gas only as it carries within its centuries of territorial and religious conflicts. Most importantly, this is happening between Turkey and Greece who at one time were glorious empires and who are intent on bringing that glory back.
Omar Kazzaz specializes in business strategy, BPI (Business Process Improvement) as well as supply chain design, planning and execution. He has 28 years of experience in international business, global logistics and supply chain.
Mr. Kazzaz is a long-standing member of the Global Thinkers Roundtable. In addition, he has been involved in numerous panel discussions on global trade and global logistics. His comments and articles on international trade agreements, global manufacturing and supply chain have been quoted in many publications.
Mr. Kazzaz holds an MBA in International Management from Thunderbird, The American Graduate School of International Management in Glendale, AZ, and a BA in German and Economics from The University of North Carolina at Charlotte. Besides his native Arabic language, Mr. Kazzaz speaks French and German.