The latest US tariffs on 60 countries, introduced this week, highlight that trade barriers are becoming an enduring element of the global economy rather than a short-lived interruption. DP World’s intention to construct a new port on the UAE’s east coast reinforces this view. By developing an alternate route that avoids the Strait of Hormuz, the Dubai-based port operator is reacting to the ongoing interruptions caused by the Iran war.
Read also: Why Geopolitical Shifts Are Rewriting the Rules for Defense Aerospace Sourcing
There is also a takeaway for businesses: when the very feasibility of a vital trade route is questioned, merely redirecting cargo is inadequate. DP World demonstrates that a fundamental reassessment of supply chain design is required. The Iran war has consistently hampered commercial shipping in the strait. For decades, firms assumed these problems would be fleeting, but they can no longer hold that belief. The period of making minor adjustments to supply chains is finished; when geopolitical forces alter trade dynamics, companies must overhaul the supply network itself.
Donald Trump’s most recent tariff barrier is the most vivid example of this transformation. The President has also intensified US attacks on Iranian targets in recent days, bringing the two countries closer to full-scale war. The consequences reach far beyond shipping to global commerce. Until recently, the Gulf region seemed well positioned to gain from the restructuring of worldwide supply chains, with the UAE and Saudi Arabia drawing increased attention as manufacturing and assembly centers. The disruption in the strait has undermined that outlook.
This follows a series of supply chain disruptions, including the coronavirus pandemic, the war in Ukraine, and the reintroduction of broad US import tariffs. These consecutive shocks mean that companies must engage in much more extensive scenario planning, as they can no longer assume that current trading conditions will continue unchanged. Examining the effects of the strait’s repeated blockages, it is evident that some firms are more prepared than others. In the pharmaceutical sector, for instance, some companies have rushed to obtain alternative medical supplies and raw materials because costs surged and stockpiles ran low. Others were more ready because they had already distributed inventory and even manufacturing across several nations.
So what does a supply chain overhaul actually involve? It means reconsidering where goods are produced, assembled, and transported, extending well beyond identifying a different shipping lane. Lego serves as a strong example: over the last ten years, the Danish toy maker has gradually broadened its production base across Europe, Asia, and North America. This not only moved manufacturing nearer to its customer markets but also reduced its vulnerability to issues in any one area. The key point is that such choices cannot be made quickly. Factories and production networks require years, even decades, to build and reconfigure. Consequently, a supply chain strategy now often outlasts the business strategies it is meant to support.
This is altering how companies optimize. For many years, supply chains were designed to minimize costs, but now executives must balance those savings against the profits and market share they could lose when disruptions force customers to turn elsewhere. A more streamlined supply chain is not automatically a more resilient one. The ongoing competition for AI memory chips underscores this point. An input that businesses once took for granted has become a significant bottleneck, compelling them to secure supplies years ahead. Apple’s recent statement that rising memory costs will push it to increase prices illustrates how supply has become a competitive edge rather than just a procurement matter.
It also shows that supply is now shaping corporate strategy as much as demand does. This change is prompting a fresh discussion in boardrooms. Chief executives have traditionally evaluated supply-chain teams based on how aggressively they reduced expenses. Now they are being asked to determine: how much revenue can you safeguard when a disruption occurs? A factory might be more expensive to build in one location compared to another, but if it ensures product flow when trade routes are blocked, the additional cost quickly justifies itself. In this sense, a costlier supply chain can be more profitable if it keeps goods available. The lesson for chief executives is that the expense of redesign must be measured against the revenue and market share lost when a supply chain fails.
Not every company has arrived at this understanding. Many still hesitate to shift production because it demands long-term investment, and geopolitical crises often seem short-lived. However, boards should be less inclined to accept that risk. Increasingly, they need to grasp the danger of inaction. And they should begin asking a straightforward question: are we saving pennies only to lose dollars? Carlos Cordon is professor of strategy and supply chain management at IMD.
Read also:
