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Top CEOs fear volatile supply chains are now the new normal

by SuperiorInvest

The container ship Ebba Maersk, operated by AP Moeller-Maersk A/S, leaves the port of Suez and heads towards the Red Sea after passing through the Suez Canal in Suez, Egypt, Saturday, April 6, 2013.

Kristian Helgesen | Bloomberg | fake images

DAVOS, Switzerland – Top CEOs are closely monitoring tensions in the Red Sea and warning that this type of volatility in supply chains is likely to remain.

Yemen’s Houthi rebels have attacked commercial ships sailing through the Red Sea since November. The militant group, which has ties to Iran and is sympathetic to the Palestinian cause, claims the attacks are a response to the ongoing war in the Gaza Strip.

The United States and the United Kingdom have launched a series of strikes aimed at stopping attacks and protecting commercial ships. However, tensions are so high that several cargo ships have stopped transiting the region and instead transport goods through Africa’s Cape of Good Hope. The detour adds about 10 days, making it longer and more expensive to move items from Asia to Europe and vice versa.

Jesper Brodin, CEO of Ingka Group, told CNBC this week at the World Economic Forum in Davos, Switzerland: “I think in recent years we are used to living in more turbulent times and of course it is unfortunate to see that we have another disruption in the world.”

When asked if this volatility was the new normal, he said: “I would say yes, in recent years we have accepted the fact that the world is more dynamic and more turbulent.”

Ingka Group operates some of the IKEA stores and Brodin said that currently, unlike during the Covid-19 pandemic, stock “is full, so we are in good shape.”

Supply chains were greatly disrupted during the pandemic and subsequent recovery, given restrictions and border closures. Although there has been a rebound in the sector, recent conflicts, climate change and a complex geopolitical landscape in general are leading to higher freight rates and a rethinking of the efficiency of certain processes.

Tobias Meyer, CEO of DHL, shared his concerns about the new normal of supply chains.

“What we have is continuous disruptions,” he said. “We have a problem in the Panama Canal, we have a problem in the Red Sea. And these are the things that are piling up and there is some concern about it.”

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“We’re going to see continued volatility,” he told CNBC on Wednesday from Davos.

He added that during 2024 and 2025 the world will continue to see volatility “because the sources of disruption are very active.”

Volatility in supply chains could mean higher prices for consumers and more headaches for central bankers, who have been facing high inflation since 2022.

“The geopolitical situation is not very good,” Thomas Jordan, governor of the Swiss central bank, told CNBC on Wednesday.

“If there is an escalation in the Middle East or Eastern Europe… that could easily have an impact on energy prices, on the general sentiment of the economy, it could have an impact on the exchange rate, on inflation , etc. And then we have to see how we can react in the best possible way,” he said.

“We have a risk management approach in our monetary policy, we will take these risks into account and then find the best way to react to those developments,” he added.

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