Businesses seek ways to adapt to Middle East conflict disruptions

Businesses seek ways to adapt to Middle East conflict disruptions

Rising logistics costs, surging input prices and prolonged shipping times are emerging as major challenges for businesses amid escalating tensions in the Middle East, experts said at a recent business forum.

Former Vietnamese Ambassador to the US Phạm Quang Vinh, a member of the Government Advisory Council, speaks on developments of the Middle East conflict at the forum. — VNA/VNS Photo

The discussion, titled “Middle East conflict – impacts on businesses”, was organised by the HCM City Business Association (HUBA) last week, drawing attention to growing concerns over global trade and supply chain disruptions.

According to Phạm Quang Vinh, former Vietnamese Ambassador to the US and a member of the Government Advisory Council, the conflict has entered its fourth week with no clear signs of de-escalation.

While geographically limited, its global repercussions – particularly on energy markets and trade flows – have been significant.

Even under an optimistic scenario where the conflict subsides within a month, lingering consequences are expected.

Delayed contracts, disrupted supply chains and damaged oil infrastructure will take time to recover, requiring businesses to prioritise risk management in the near term, Vinh noted.

Representatives from the city Department of Industry and Trade identified four sectors most affected by the ongoing instability.

The electronics industry is facing the sharpest decline in growth expectations, with projections revised down from 14 per cent to around 9 per cent.

The textile and garment sector, highly sensitive to cost fluctuations and delivery timelines, may see growth slow to approximately 4 per cent.

Meanwhile, agricultural exports are grappling with rising logistics costs and potential quality deterioration due to extended transit times.

The wood and furniture industry is also under pressure from both increased transport expenses and weakening global demand.

Legal risks in international contracts have also come into sharper focus.

Businesses are being urged to carefully review force majeure clauses, as geopolitical instability makes such provisions increasingly relevant.

Many disputes are currently settled through international arbitration centres, often based in Singapore, where Vietnamese firms may face disadvantages due to limited experience in contract negotiation and drafting.

Experts stressed the need for companies to proactively negotiate dispute resolution mechanisms, including the option of domestic arbitration, to better safeguard their interests.

Despite the challenges, rising energy costs are also accelerating a shift towards greener alternatives.

Similar to how the COVID-19 pandemic boosted e-commerce, the current energy shock is expected to drive investment in renewable energy and electrification.

Việt Nam is seen as having strong potential in this transition, particularly in solar and wind power.

Major energy projects planned in areas such as Cần Giờ, Bà Rịa–Vũng Tàu and Long Sơn could help businesses reduce reliance on fossil fuels and stabilise production costs over the long term.

From a business perspective, Phạm Văn Việt, chairman of Việt Thắng Jean Co., Ltd., highlighted a sharp increase in freight rates.

From March 22, the cost of shipping a 40-foot container is expected to rise to between US$4,500 and $5,500, following the addition of multiple surcharges, including war risk insurance.

For the textile sector, raw material costs account for roughly 52 per cent of total costs under ODM and FOB models, rising to as much as 70–80 per cent for processing-based businesses.

Prices of chemicals and processing materials have surged by around 18 per cent, placing additional strain on manufacturers.

Although export turnover in the first two months of the year rose by 12.6 per cent–outpacing overall industrial growth in HCM City–prospects for the remainder of the year remain uncertain.

While businesses have expanded into markets such as Japan, Canada and ASEAN countries, the US and EU still account for 55–60 per cent of total exports, leaving firms exposed to external shocks.

Seasonal factors further complicate the situation. Delays in delivery can lead to inventory backlogs that may take years to clear, as seen during the COVID-19 pandemic.

To mitigate risks, many companies have opted to split orders into smaller batches, despite higher operational costs.

Logistics providers are also under mounting pressure.

Former Vietnamese Ambassador to the US Phạm Quang Vinh, a member of the Government Advisory Council, speaks on developments of the Middle East conflict at the forum. — VNA/VNS Photo

Đào Trọng Khoa, chairman of the Việt Nam Logistics Business Association (VLA) and vice president of the International Federation of Freight Forwarders Associations (FIATA), warned that developments around the Strait of Hormuz are posing serious challenges to global shipping.

Sea freight costs have surged by between 54 and 72 per cent, while war risk insurance premiums have doubled or even quadrupled, reaching up to $1 million per vessel transiting the area.

Major shipping lines such as MSC, Maersk, CMA CGM and Hapag-Lloyd have either suspended routes or rerouted vessels via Africa, significantly extending transit times.

Some carriers have also invoked “voyage termination” clauses, allowing cargo to be discharged at intermediate ports, with additional costs borne by cargo owners.

In some cases, vessels have been forced to wait near the Strait of Hormuz for weeks before turning back, severely disrupting supply chains.

New multimodal transport corridors combining sea and land routes have been introduced.

However, transit times from Southeast Asia to the Middle East have increased to 40-45 days, compared to just 10-15 days previously.

The role of transshipment hubs such as Dubai has also diminished.

Air freight has not been spared. With several airspaces closed, airlines including Emirates, Etihad Airways and Qatar Airways have temporarily suspended operations, with capacity currently recovering to only around 60 per cent.

A recent survey conducted by the Việt Nam Logistics Business Association between March 3 and 11 found that 80–90 per cent of businesses have been affected at moderate to severe levels, with 42 per cent identifying cost volatility as the biggest challenge.

Three key pressures were highlighted: rapidly rising but unpredictable costs, unstable transit times, and difficulties in meeting delivery commitments.

Many firms are reluctant to raise prices for fear of losing customers, opting instead to maintain long-term partnerships based on shared risks and benefits.

In response, FIATA has recommended three core strategies: strengthening contract risk management, enhancing real-time operational monitoring, and improving communication with clients.

Logistics firms are advised to develop flexible transport plans with alternative routes, regularly update surcharges, review Incoterms, and promote multimodal transport solutions.

At the same time, digital transformation and green transition are seen as essential for improving efficiency and reducing costs.

For cargo owners, building contingency plans, diversifying markets and strengthening coordination with logistics providers are considered critical to mitigating risks.

“The Middle East crisis is not only driving up logistics costs but also forcing global supply chains to restructure towards greater flexibility and multimodal integration,” Khoa said. “It presents both challenges and opportunities for businesses to adapt and enhance their competitiveness.” 

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