Conflict in the Middle East has disrupted shipping through the Strait of Hormuz and the Red Sea, forcing businesses to reassess how they keep imported products moving. With Gulf Cooperation Council countries importing around 85% of their food, reliable transport is essential. Abu Dhabi-based retailer Lulu Group is one company that has turned to costly air freight, chartering cargo flights from India, Sri Lanka and Australia to keep shelves stocked.
At Nestlé, import-export teams created what Regional Treasurer Nora Naadu Sena describes as a “war-room scenario”. Digital tools tracked vessels, identified affected cargo, and established alternative routes. For Sena, whose remit covers Africa, the Middle East, Pakistan and Turkey, maintaining supplies to support nutrition and wellness remains a priority.
The impact of the crisis on African markets has been less pronounced, with shipments routed around the Cape of Good Hope. But in the Middle East, “land routes have become very important,” Sena says. Geographical proximity and established road networks support alternative routes, although delivery times can be less predictable.
For Sena, this raises a practical treasury question: do individual markets need to hold more stock or fund purchases earlier? During the early stages of the crisis welcome support came from international banks, which were quick to offer additional finance. However, after checking local cash forecasts against available bank facilities, Nestlé found it could manage requirements with existing facilities.
Not all businesses had Nestlé’s financial headroom. Torbjørn Soltvedt, Principal Analyst for MENA at Verisk Maplecroft, says some heavily indebted Gulf conglomerates, particularly in food, faced severe cash flow pressure in the conflict’s first months. Conditions differ by country, but greater use of letters of credit, new trade finance facilities and central bank intervention have eased some initial pressure.
Treasury also needed to keep outgoing payments flowing. For Nestlé, where payments are managed through centralised service centres, “technology provided great comfort.” To reinforce business continuity arrangements, one international bank confirmed it could process payments through alternative locations, including London, using Nestlé’s existing SWIFT integration.
Collections proved more difficult. Bank branch closures in affected markets prevented distributors from making payments. “We couldn’t get collections from the distributors…and that meant we couldn’t sell to them,” Sena says. Within a week, new bank relationships and accounts were established to support the business. This reinforced the importance of agility and “having the right mix of local and international banks”. Local banks may be better placed to handle rural collections in Africa, but banking diversity also matters in more developed markets.
Risks beyond the shipping route
More crude oil may be passing through the Strait of Hormuz, helped by tanker capacity, new pipelines, storage and shipping workarounds – and state-backed operators are willing to bear the risks of moving it. But that does not necessarily signal a broader recovery. “It remains a very different story for refined products, fertilisers, chemicals…it’s still a pretty severe disruption,” Soltvedt says.
In its 24th September update, Hapag-Lloyd reported that a vessel would skip its scheduled Jeddah stop on 20th September, with cargo instead due to be unloaded on 7th October – 17 days later. For importers, this can extend the gap between paying suppliers and collecting sales proceeds and increase working capital needs.
Insurance costs are another complication. Reuters reported on 24th September that quoted war risk premiums for Saudi-linked tankers calling at Yanbu had risen to around 3% of vessel value, from less than 1% in early July.
Higher costs are also filtering through suppliers. Soltvedt says polymer prices remain elevated compared with pre-conflict levels, while higher shipping costs and longer voyages for automotive parts from China are pushing up insurers’ claims costs. “It’s something that affects a lot of supply chains around the world,” he says.
For treasury, the questions are whether forecasts capture higher purchasing costs and delivery delays, and facilities cover the resulting funding needs.
Agility and resilience
Verisk Maplecroft’s view, says Soltvedt, “is that things won’t go back to normal this year.” The run-up to the US midterm elections could be a flashpoint. Renewed Iranian attacks in the Strait of Hormuz, alongside a broader Houthi campaign in the Red Sea, could disrupt both routes simultaneously. Although not his base case, he believes companies should be prepared.
“We need to consider what alternatives there are for tomorrow and start building those scenarios both internally and externally,” Sena says. Treasury needs to understand plans across sales, procurement, supply chain, logistics and IT before assessing funding requirements. Knowing which banks can maintain collections, offer alternative payment arrangements and provide finance matters too.
Those preparations depend on close relationships. Suppliers need confidence that Nestlé will continue to support them through disruption. Meanwhile, regular communication with Sena’s five regional CFOs and their finance teams helps to understand market priorities and support working-capital initiatives. “This is where treasury becomes an effective business partner,” she says.
Looking ahead, Sena’s priorities are clear: “Get close to the business, understand what the business needs, then work to deliver top and bottom-line value.”
