Egypt Unrest and Supply Chain Impact

A Wall Street Journal article (January 31, 2011) analyzes the potential impact of the unrest in Egypt on the global supply chain for oil and cotton. If the Suez Canal were closed, oil from the Middle East would take 10 more days (and have to travel 6000 more miles) to get to the US, thus driving down stocks and driving up prices. The article claims that a 10 % oil price increase could decrease global GDP by 0.25 % and hurt the nascent US recovery. World cotton prices are expected to rise to exceed their already record levels if Egypt cotton exports are impacted due to security issues. But wheat prices in Chicago’s markets were reported to have fallen in anticipation of worries about Egypt’s ability to pay for its wheat imports, thus affecting US farmers. These reverberations across the supply chain suggest how closely the global supply chain knits together suppliers across the globe. But if buyers adjust away from Egypt’s constraints, will they return as things settle down or will the impact on Egypt last a while ? Will retailers further shift away from cotton apparel if they anticipate further cotton price increases ?

1 Response to Egypt Unrest and Supply Chain Impact

Gerlinde Mikolik says:

February 2, 2011 at 2:17 am

The actual political situation in Egypt influences the supply chain for several products ending either in price increases like oil or cotton or to decreases in price like for wheet. As a consequence retailer will either look for new sources in other countries or will look for alternatives. In the apparel industry designer replace cotton with other materials. In future when the political situation is stable and the risks can be estimated retailer will return to Egipt if the cost structure is low enough to provide high margins for the industry.