Attacks on shipping vessels and ongoing instability in the Strait of Hormuz are already having an impact on the United States, according to a Mar. 17 statement from Sanjaya Mayadunne, associate professor of decision sciences and management information systems at Georgia Gwinnett College.
The situation is significant because the Strait of Hormuz is one of the world’s most important oil shipping routes. Disruptions there can lead to higher global energy prices, which affect the cost and movement of goods worldwide.
Mayadunne said consumers are beginning to notice these effects. “You’re seeing energy costs, like gas prices, go up,” he said. “There are always disruptions of some type in supply chains and supply chain managers have become increasingly good at finding creative solutions to mitigate them. However, you can’t really innovate yourself out of rising energy costs. The unpredictability further hampers effective decision making.”
He explained that increased energy costs raise expenses for producing and transporting goods by water, land, or air. “That means shipping and trucking costs are going to go up. Large trucking corporations and ocean freight carriers can compensate to an extent because they have built in emergency fuel surcharges to their long-term shipping contracts that create a buffer. Smaller trucking carriers will get hit harder because they don’t have the leverage to absorb those higher costs and may have to take the hit directly.”
To manage such disruptions, suppliers often increase inventory levels. “If you can see that energy prices, which are volatile by nature, are going to rise more than anticipated due to something like the Iran conflict, then the fastest and easiest way for suppliers to mitigate that is to build inventory,” Mayadunne said. He added that existing stockpiles might keep prices stable temporarily but eventually higher production and shipping costs will reach consumers.
Georgia could be especially affected as it is home to the Port of Savannah—one of America’s busiest container ports—which distributes goods across much of the country. Mayadunne also noted potential impacts on agriculture: “Spring planting in Georgia has started,” he said. “Those higher costs will eventually hit the food supply, so consumers will see rising prices.” He pointed out that nearly half of global urea exports and about 30% of ammonia exports pass through the strait; any closure increases fertilizer prices.
Major disruptions like this have happened before; for example, when a container ship blocked traffic in the Suez Canal for six days in 2021. “That blockage cut off half the world from the U.S. market,” Mayadunne said. “Had it gone on longer, one option would have been rerouting ships. While that gets products to port, it also means higher shipping costs and lost time, which is also money when it comes to supply chains.”
Despite these challenges, Mayadunne sees opportunities for improvement: “With challenges, there are opportunities,” he said. “These problems shine a light on weaknesses in supply chains. That offers supply chain experts the opportunity to innovate and strategize for greater efficiency.”
