Apple’s war-created challenge grows

I recently discussed some of the many ways in which the ongoing failure to invest more in peace than in war in the Gulf region challenges Apple’s business. Sadly, today I get to follow that report up with market data to confirm the growing scale of the war-created problems generated by this dreadful conflict.

Force Majeure isn’t just about oil any more

Oil companies first attracted attention with declarations of ‘Force Majeure’ last week. It’s a status that means a supplier can fail to meet contractual obligations without reprisal as it is subject to circumstances beyond its control. These declarations are now being made across related industries.

While I cannot say if Apple’s component suppliers have been directly impacted by the following it is important to note that the supply chain challenges are generating big problems in industries that require access to oil.

• PCS in Singapore declared force majeure on 5 March.
• Polyolefin producer, TPC Singapore followed on 9 March.
• Yeochun NCC, South Korea’s largest ethylene facility, declared force majeure on 4 March.
• Formosa Petrochemical in Taiwan has declared force majeure. 
• Chandra Asri in Indonesia. TPIA in Indonesia. SCC Rayong Olefins in Thailand. Aster Chemicals in Singapore have all declared force majeure.
• Prices in standard stuff like polypropylene (plastics used in everything from medical devices to electrical insulation) are increasing massively.
• Huge shipping companies have halted export shipments from the region. Traffic through the Strait has fallen from 138 vessels each day to just three.
• Middle Eastern smelters including Qatalum and Aluminium Bahrain have halted shipments.
• Air freight costs have increased as much as 400%.
• While not necessarily linked to Apple, reports claim high-end semiconductors are stranded in the Middle East.

Energy cost increase are already impacting Apple partners – Foxconn Chairman Young Liu recently warned that higher oil prices are beginning to push up the costs of raw materials used in consumer electronics, threatening the thin profit margins of assembly partners.

Apple’s supply chain is also facing problems in the supply of LNG gas for manufacturing, which is widely used by partners in China and Taiwan for chip and hardware production. Finally, suppliers face higher logistics and insurance costs, the latter unlikely to fall until well after peace is declared, if it ever can be declared.

Peace is better for business

All of this is a house of cards and as they tumble it will take extensive effort to get these delicate supply chains working in harmony again, even once the conflict actually stops, if it ever can be stopped.

What’s worse is the extent to which the conflict shows, as Covid did before it, just how deeply every person in every nation already is connected.

UK Prime Minister, Harold Macmillan in one of his better moments said, “Jaw-jaw is better than war-war.”

But the challenge at this point is that unless something significant happens, none of the individual players in this unfolding global tragedy seems to have any serious plan to start talks toward peace, even if enough trust existed within these relationships on which to build it.