Retail fears rise over Middle East war supply chain costs impact

From petrol forecourts to fashion, costs are anticipated to climb in the coming weeks, delivering a blow to businesses and shoppers alike. Although the effect on consumers will probably not be felt for some months down the line, the extra burden is expected to be accounted for by retailers much faster.

One fashion retail chief executive told Retail Week that supply chain decisions affecting business costs and consumer prices would likely have to be made “within the next 48 hours” if conflict continues between the US and Israel against Iran, which has drawn in the Gulf states. 

The most immediate impact noticed by consumers is likely to be seen at grocers’ petrol pumps. Upward price movement could unsettle customers, whose discretionary spending decisions are influenced by how much they need to pay for essential goods and services.

Retailers have already navigated challenges in recent years such as weak supply chains and associated higher costs in the aftermath of the Covid pandemic, as well as disruption to trade routes such as through the Red Sea and Suez Canal following attacks by the Houthis in Yemen. The industry is girding itself for more of the same, despite changes to shipping routes towards longer journeys.

Potential disruption now includes higher fuel costs, vessel shortages, rerouting of cargo ships – including not stopping at some ports, resulting in shortages of particular clothing products − and foreign currency exchange volatility. In the event of ongoing conflict, the transport of non-essential goods such as fashion is expected to be deprioritised.

Looming delays of between three and six weeks in fashion, unless the fighting ends soon, mean that apparel retailers may achieve higher full-price sell-through rates this summer season as supply tightens, but higher prices later in the year may dent revenues.

One retailer told Retail Week: “There will be a knock-on within weeks. You’ll see it at the [petrol] pumps first, then in [general merchandise]. We want to protect consumers but there’s going to be a knock-on.”

One apparel chief executive said: “The mood seems to have changed just in the last 12 hours. There’s already concern that freight prices are going to rise.

“Freight partners are talking about switching to air, or combined sea and air. It’s just in the critical period for summer. What does it mean for our trading plan? In the next 48 hours we’ll have a better idea of what our costs will be. We won’t have to put our prices up immediately, but over the next few months prices will probably be pushed up.”