Straits and the risk for procurement

The modern supply chain depends today more than ever on a few straits: the Suez Canal, the Strait of Malacca, Taiwan Strait, Panama Canal and Strait of Hormuz concentrate large parts of global trade. If disruptions occur there, transport costs, delivery times and uncertainties often increase within just a few days.

The past years have shown how quickly supposedly stable trade routes can come under pressure: The stranded "Ever Given" in the Suez Canal, attacks in the Red Sea, periods of drought in the Panama Canal or the tensions around Taiwan permanently change the risk situation. For CPOs, supply chain disruptions are part of the new reality.

Suez Canal: Europe's most important artery in trade with Asia

The Suez Canal remains one of the most critical trade routes for Germany. According to an Ifo study, in 2023 around 9.8 percent of all German imports passed through this canal. The geopolitical situation in the Red Sea has significantly sharpened the risk profile. Attacks on merchant ships led major shipping companies to reroute their routes via the Cape of Good Hope. As a result, transport times lengthen considerably. At the same time, freight costs, insurance premiums and the need for additional container capacity are rising.

For European companies, this has direct consequences: volatile delivery times, increasing safety stocks and tight production planning. In addition, alternative routes are changing existing port structures. While Rotterdam was long regarded as the dominant transshipment port, shipping companies are increasingly switching to ports in Germany, France, Portugal or Great Britain.

Risk profile Suez Canal

Risk profile: High

Type of risk: Geopolitical conflicts, military attacks, blockades 

Effects on supply chains: Higher transport costs, longer lead times, declining predictability, higher insurance premiums 

Particularly affected region(s) and product categories: Europe, including Germany. Including textiles, clothing, leather, electronic components, machinery 

Early warning indicators: Decline in Suez transits, surcharges for the Red Sea, escalation in the Red Sea

Strait of Malacca: Asia's underestimated bottleneck

The Strait of Malacca is one of the most important trade routes in the world. Up to 30 percent of global maritime trade is handled through this strait. For Germany, after the Suez Canal it is one of the most important sea routes. Several risks converge here: Many supply chains from China, Japan or Southeast Asia pass not only through Malacca but also through the Taiwan Strait and the Red Sea. If there are problems on one of these routes, a domino effect arises. Added to this are the discussions about possible transit fees, which had been initiated by Indonesia's finance minister. This has prompted insurers and logistics companies to model scenarios.

Risk profile Strait of Malacca

Risk profile: High 

Type of risk: Geopolitical tensions, infrastructural vulnerability, rising insurance costs 

Effects on supply chains: High dependency on Asian procurement markets, rising transport and insurance costs, increased volatility

Particularly affected region(s) and goods categories: Asia-Pacific as well as Europe; textiles, clothing, leather, electronic components, wood and wood products from Southeast Asia

Early warning indicators: Political statements by the riparian states, rising insurance premiums, expansion of alternative trade routes

Taiwan Strait: risk to Europe’s technology supply

The Taiwan Strait is increasingly developing into a strategic risk factor for global industry. Taiwan plays a significant role in the global semiconductor industry. High-performance chips are indispensable here for automobile production, mechanical engineering, medical technology and AI-driven business- and production processes.

An escalation around Taiwan would therefore extend far beyond the region. Even a small blockade could trigger massive supply bottlenecks. But the situation remains difficult to calculate. Military maneuvers, political escalations or sanctions could have short-term effects on global supply chains.

Risk profile Taiwan Strait

Risk profile: High

 Type of risk: Geopolitical conflict between China and Taiwan

 Effects on supply chains: Risks to semiconductor supply, electronics manufacturing and industrial production 

Especially affected region(s) and goods categories: Global, in particular Europe, USA and East Asia. Including semiconductors and microchips, computers, electronics, specialty chemicals

Early warning indicators: Military maneuvers, political escalation between Beijing and Taipei, developments at TSMC

Strait of Hormuz: Indirectly dependent, but directly affected

For Germany, the direct trade dependence on the Strait of Hormuz is comparatively low. Nevertheless, the strait remains highly relevant globally, as the current conflict shows.

20 percent of the oil shipped worldwide as well as large quantities of LNG pass through this strait. The blockades show that energy prices often rise immediately as a result. This also affects European industrial companies. In addition, indirect effects arise along other trade routes. Higher LNG exports from the USA, for example, increase the pressure on the Panama Canal and exacerbate capacity bottlenecks there. For procurement in Europe, the Strait of Hormuz is therefore often less a classic procurement risk than rather a risk in terms of an energy price shock.

Risk profile Strait of Hormuz

Risk profile: Low for Germany directly, very high globally 

Type of risk: Military conflicts, blockades, energy(price) crises 

Effects on the supply chains: Higher energy prices, strain on global transport networks, indirect cost increases 

Particularly affected region(s) and product categories: Middle East and global energy markets. Oil and LNG, helium, fertilizers, aluminum

Early warning indicators: Oil and LNG prices, military activities, diplomatic developments

The riskiest bottlenecks in global shipping traffic

Where do dangers threaten supply chains on the routes of seagoing freighters? We have identified critical bottlenecks.

Panama Canal: Climate risks are becoming a supply-chain issue

The Panama Canal is less critical for Germany. Trade flows between America and Asia are primarily directly affected. Nevertheless, the canal shows how strongly climate risks affect the global supply chain.

Periods of drought led to significantly fewer ships being able to pass through the canal. This resulted in backlogs, longer waiting times and rising costs. This becomes particularly problematic when additional LNG exports from the USA tie up capacity, as is currently the case due to the blockade in the Strait of Hormuz. For European companies, such developments usually have indirect effects. They affect global transport networks, container availability and energy prices.

Author: René Petri

René Petri is an expert in the field of procurement and supply chain management with more than 26 years of professional experience. As head of Germany at Proxima, he is responsible for the European expansion of the consulting company for procurement optimization and supply chain management. He develops strategies to make global supply chains more efficient, sustainable, and resilient.

Risk profile Panama Canal

Risk profile: Low to medium 

Type of risk: Climate change, drought, capacity bottlenecks 

Effects on supply chains: Delays, higher logistics costs, shift in global shipping flows 

Particularly affected region(s) and goods categories: North and South America as well as Asia; lithium carbonate and silver ores 

Early warning indicators: Water level of Gatún Lake, daily transit figures, LNG utilization

What procurement teams should do now

For CPOs, it is still not sufficient to evaluate suppliers only according to cost and quality. What will be decisive is how resilient the underlying supply chain actually is. Companies should systematically analyze their trade routes. Critical product groups require alternative sourcing strategies, iron reserves and realistic scenarios for geopolitical or climate-related disruptions.

Equally important is professional risk management with clearly defined early warning indicators. Those who continuously monitor transit figures, insurance surcharges, geopolitical developments and capacity data can react more quickly and better cushion supply bottlenecks.

The central insight is: straits have long since ceased to be a peripheral topic of geopolitics. They have developed into strategic influencing factors for procurement, production and security of supply in Europe.