Oil disruption puts new cost pressure on consumer businesses

As the conflict in the Middle East continues, disruption is intensifying at one of the world’s most critical trade choke points: the Strait of Hormuz. This narrow waterway, which connects the Persian Gulf to global shipping lanes, carries roughly 20% of the world’s traded oil along with a significant share of global fertilizer exports.

With shipping in the strait effectively closed, the impact is rippling outward, driving up energy prices, potentially raising food input costs and forcing shipping routes onto longer, more expensive paths.

How can consumer businesses respond to this uncertain climate?

With cost pressures expected to intensify over the next 60 days, the window to act is narrow for many consumer businesses. Key considerations include:

• Lock in energy and transportation costs: When possible, businesses should negotiate fixed-price fuel contracts with logistics providers to reduce cost surprises. Shift more shipments to rail or consolidated freight where possible.
• Consider energy-efficient upgrades: Restaurants should specifically review the energy consumption of cooking equipment and consider implementing energy-efficiency upgrades, including evaluating solar for large locations.
• Diversify food and ingredient suppliers: Food prices are expected to rise following energy spikes due to the increased cost of ingredients, including cooking oils (especially soybean oil), beef and seafood, imported packaged foods, and wheat and corn, which are fertilizer-dependent crops. Businesses should add secondary suppliers, increase sourcing from regional producers, substitute flexible ingredients such as frying oils, and prenegotiate emergency supply contracts.
• Selectively increase strategic inventory: Shipping disruptions and rerouting can cause delivery delays. Businesses should stockpile sufficient critical nonperishable inputs such as cooking oils, shelf-stable ingredients, packaging materials, cleaning supplies and critical spare parts for equipment to bridge typical rerouting delays while avoiding spoilage risk.
• Adjust pricing early: With food inflation caused by energy shocks expected within 60 days, waiting too long to raise prices often compresses margins. Retailers should consider small, gradual price adjustments while maintaining price competitiveness on key traffic-driving items.
• Prepare for demand weakness: Energy shocks have historically reduced consumer discretionary spending. Apparel, home goods and luxury items often see demand drops. For restaurants, casual dining and delivery may weaken while value offerings may perform better. Businesses can prepare for this expected weakness by expanding value menus and combo deals, increasing loyalty promotions and adjusting workforce schedules accordingly to control costs.