McGrathNicol chairman Jason Preston says businesses need to ensure supply chains are protected

The Middle East is tinderbox, election tensions are ramping up in the US and globally, and if businesses don’t protect their supply chains they will pay the price, says McGrathNicol.

Geopolitical tensions in the Middle East and the US election are a risk to supply chains. Picture: Getty Images

Businesses must understand supply chains and ensure they are protected ahead of what could be one of the most volatile periods for geopolitical risks, says advisory and restructuring firm McGrathNicol.

Its warning comes ahead of critical elections globally and tensions mounting in the Middle East and Red Sea.

McGrathNicol said geopolitical risks were a potential thorn in the side of supply chains for Australian businesses two, years after Covid-19 caused widespread disruption.

The resilience of supply chains have been tested since Iran-backed Houthi rebels in Yemen stepped up a campaign of attacks against commercial vessels in the Bab-el-Mandeb strait, following Israel’s response to the October 7 attack on the country by Gaza-based Hamas.

McGrathNicol chairman Jason Preston told The Australian 2024 was poised to be one of the most volatile years from a geopolitical perspective in some time, particularly due to tensions in the Middle East, but also impending elections such as the US presidential race – which is likely to be a rematch between President Joe Biden and former president Donald Trump.

“We’re seeing some of that geopolitical risk translate into more real impact as we look at the supply chain,” Mr Preston said.

McGrathNicol chairman Jason Preston. Picture: Britta Campion.

He said unfolding events in the Red Sea were a cause for concern to supply chains globally, and although it might not be to the same extent as caused by the pandemic, it was one companies should take seriously.

“It is a question of how much the geopolitical risk that’s around at the moment will translate into a supply chain,” he said.

“It can really affect the businesses here, whether it be in a context of cost or just availability and I think that’s a bit of a risk for (2024).”

Disruption in the Red Sea prompted the US government to request Australia send a warship to the region to assist patrols and protect the shipping lane that connects Europe to Asia. The federal government, however, declined the request to send a ship.

Last week US navy helicopters were launched to repel an attack by militants on a ship owned by Maersk. As a result the Danish shipping line has halted all of its cargo movement through the area until further notice.

Mr Preston said what good companies were doing at the moment was understanding what supply chains looked like and what sort of factors could impact them.

“Once you understand that well, then it is question on what you can try to do to mitigate that,” he said. “And that’s not always easy.

“But we’ve got a recent example (Covid-19) where there was obviously significant impact of supply chains and we saw how that impacted businesses and how it was responded to.”

Mr Preston said companies could look at alternate sourcing and diversifying their supply base, but also about how contracts with customers were done so that they were not in a position where, if there was a significant uplift in input prices, it couldn’t be passed on.

“It’s very hard if you don’t understand your supply chain to plan for adverse geopolitical outcomes,” he said.
Covid-19 caused widespread disruption to supply chains; an array of government-imposed restrictions and a lack of essential workers resulted in companies being unable to keep up with demand.

The new-car market was one of the most heavily affected by a backlog causing a blowout for delivery times.