Global commodities have been caught up in the headwinds of multiple stresses, from the pandemic’s legacy issues around supply chains, to rising inflation and Russia’s war in Ukraine. With both soft and hard commodities under pressure, the market is increasingly volatile. Barclays and GTR brought together trade experts to discuss the impact these challenges are having on commodity supplies and costs, and the resulting shift in value chains globally.


Roundtable participants

  • James Binns, global head of trade and working capital, Barclays
  • Tedd George, founder and chief narrative officer, Kleos Advisory
  • Elizabeth Stephens, managing director, Geopolitical Risk Advisory
  • Shannon Manders, editorial director, GTR (moderator)


GTR: What are the current global geopolitical and socioeconomic factors driving the biggest commodity supply chain changes? What have been some of the associated consequences for the commercial, operational and financial health of commodity supply chains?

Stephens: The pandemic led to significant supply chain disruptions, not just in the commodity sector, but across the board. During Covid, we saw a resort to nationalism by almost every government in the world.

To compound that, we have the Russian invasion of Ukraine, the direct impact of which has been ongoing commodity supply chain pressures, particularly for goods exported from Ukraine, Russia and Belarus. Potash is one example, and we’re seeing a shortage of fertiliser across Europe and further afield. Grain is another example, with both Russia and Ukraine being major producers.

Another compounding factor, because of the ongoing geopolitical tensions, the world is moving back towards spheres of influence. We thought that had ended with the Cold War in 1991. But now we’re starting to see the world dividing between China and the US. During the pandemic period, China increased its control over Hong Kong, perhaps while the rest of the world was distracted. While we may now say that we’re moving out of the pandemic, those tensions are increasing.

With the Russian invasion of Ukraine, we saw the West impose the fastest sanctions in history, including on the Russian Central Bank, which was an unprecedented move. That tells investors, including those in the commodity sector, that the world is going to operate in a very different way going forward.

This whole situation makes it very difficult for supply chain managers, who are trying to enhance the resilience of their supply chains, having had weaknesses exposed by the pandemic.

The fact that commodities are mined or grown in certain countries places limitation on how these supply chains can be re-orientated. But, for example, with China controlling approximately 60% of global rare earth metals, the US is now stepping up production in that space and looking at how it can gain access to more resources globally. There will be massive shifts in supply chains driven by these kinds of decisions. Climate change, too, is fundamentally altering commodity supply chains.

George: Up until the end of 2019, we had become used to incredibly efficient and globalised supply chains. ‘Just in time’, lean supply chain models had been working well for many years. Having said that, if you think back to the severe flooding in Thailand in 2011, which crippled the hard drive supply chain, you could say we didn’t learn our lesson about concentration risk.

The pandemic revealed the fragility of supply chains, and today we continue to see an immense increase overall in supply chain risk. We’ve not yet recovered.

At the same time, we’re dealing with issues in the workplace, such as the ‘great retirement’ and ‘quiet quitting’, which is impacting companies’ ability to get back up to scale again.

We also have logistical problems like containers piling up at ports, which drives up shipping costs. Let’s also not forget what happened with the Ever Given, which blocked the Suez Canal for nearly a week in 2021. Elsewhere, levels on the Rhine River dropped sharply in the summer of 2022, as they did in 2018, preventing vessels from navigating the waters. Given that 80% of Germany’s commodities traffic uses the Rhine, this caused huge disruption to the economy.

Generally speaking, global supply chains are stressed, and with all these and other well-documented geopolitical factors, they’re just not getting better.

Binns: Over the last few years, there has been a confluence of many different – and frequently changing – factors that have created a lot of volatility and unpredictability across supply chains. There’s been an interesting interconnection between many of these risk factors.

There’s also an interrelation between commodities. For example, Ukraine is a major global producer of neon gas, which, as it happens, is a by-product of the Russian steel industry. It’s also a key ingredient in the manufacture of semiconductor chips.

In another example, the UK is potentially facing another shortage of carbon dioxide, which is a by-product of fertiliser production, which in turn is a process highly dependent on gas, and the cost thereof, because it requires heat. So, many sectors are interdependent.

Climate change is a significant factor and is already having an impact on supply chains. Tedd mentioned the Rhine, and there are numerous other examples. Extreme temperatures in India in 2022 impacted its wheat crop, leading the government to ban wheat exports for a period, which drove up prices. Similarly, in China, drought reduced levels on the Yangtze River, impacting hydropower, which had knock-on effects on electricity supplies and manufacturing capacity. This may also have influenced commodity cycles, given China’s role as a smelter and refiner in the global minerals trade.


GTR: How are nations and companies sourcing new trading partners and routes to secure the supply of soft and hard commodities, for example, the sourcing of raw materials needed in industrial value chains? What changes have we seen within global commodity supply networks?

George: The rare earth metals example is interesting because it gets to the heart of the problem. The truth is that rare earth metals are not that rare – they’re quite common in the earth’s crust. But they’re found with other minerals, so are costly to mine and difficult to extract. The irony is that they’re used in many green technologies but produce vast amounts of toxic waste when mined. Up until recently, China was producing the bulk of rare earth metals, and the rest of the world was happy for China to shoulder the environmental externality. But ever since these metals have been recognised as a strategic resource, the US has stepped up efforts to rival China’s dominance.

With these shifts, it often boils down to the price that countries are prepared to pay to secure the supply of commodities. Because, for example, you can extract gold from seawater if you want to. But do you want to go to that effort and expense, or do you want to source gold from where it’s easier and cheaper?

When shifting commodity networks, the trouble is, when you have a producer of an important commodity, such as gas from Russia, its presence in the market becomes crucial because it is directly plugged into countries like Poland and Germany. You can’t just switch it off and shift over to something else overnight.

If you look at other industrial inputs and agri-goods like grain, countries have been able to diversify their sources. But everyone’s been searching for these alternative supplies, which has pushed up costs across the board. That’s a huge problem when it comes to food supplies, as so many countries, especially in developing markets, are dependent on food imports.

But the narrative is also changing. Up until very recently, everyone was talking about the end of coal-fired power plants and any associated financing. Now Germany, one of the most developed nations in the world, is poised to bring back brown coal-fired power stations – the dirtiest of them all. Elsewhere, there’s been a surge in interest in Senegal’s gas reserves, which were not remotely appealing a few years ago but which are much more attractive now given the situation with Russia and high international prices. So there are opportunities, but they cannot be realised overnight.

Stephens: I have a client who requires cobalt in the products they manufacture, and they are heavily reliant on the Democratic Republic of the Congo (DRC). The issue with DRC is that while it’s a very reliable supplier, its government has a poor track record in rule of law and human rights. The extraction of cobalt has been linked to child labour. My client has had various dealings with the mines in terms of trying to improve working practices. This is being driven by the EU’s draft European Supply Chain Act, which will oblige companies to foster sustainability throughout their supply chains. If the company continues to work with the DRC, that may become an issue when it’s importing products into the EU.

The challenge with this kind of pressure is that new regulatory requirements are often vague at best, which makes finding suppliers that meet these obligations very difficult. It’s all the more complicated when companies don’t know who their third and fourth-tier suppliers are. Nevertheless, the world is going to have to adjust to this legislation.

Binns: When it comes to the practical logistics, as supply chains shift, this has a knock-on effect on infrastructure needs. The world of trade had been set up to operate in the same way for the past few decades, and now things like shipping routes and port facilities and so on are under stress and will have to adapt.

For example, when it comes to some commodities like gas, the impact of Russia’s war in Ukraine means that alternative methods of not only sourcing gas, but delivering it, must be found.

Linked to all of that, another interesting trend is governments around the world becoming more involved in offtake agreements and longer-term contracts to purchase foodstuffs and vital commodities, such as gas. This activity could intensify if we continue to see climate change impacting the supply of grains and other agri commodities, and governments take measures to ensure the procurement of these goods for their citizens. The subsequent impact will, of course, be supply issues in other parts of the world in terms of the availability and the price of those commodities.


GTR: Policymakers have touted the need to boost supply chain resilience by shifting trade away from ideological foes, such as Russia and China, in a trend referred to as friend-shoring. What are the logistical and cost implications? Will trade become more fragmented as a result of these geopolitical imperatives?

Binns: We’re seeing the emergence of regionalism in place of globalism and, with it, friend-shoring – often amongst regional blocs. The government offtake agreements and longer-term procurement arrangements that we just discussed are part of that.

It’s not only about where those commodities are sourced, but also where that raw material is then processed. Regional blocs are establishing more processing, refining and warehousing facilities to enable that. We’ll have to see how Asia’s China-led Regional Comprehensive Economic Partnership starts to exert itself.

The UK is no longer part of a region, so where it fits into all of this going forward is an interesting dilemma.

It might give the UK the fleet of foot to be able to establish bilateral trade agreements. But those may become more difficult to establish given the rise of regionalism elsewhere in the world.

At the same time though, it’s worth remembering that these changes are not going to happen overnight. Supply chains take years to put in place.

George: Sometimes, regardless of ideologies, it’s just too difficult to disentangle certain supply chains. Take something like the iPhone, which has a complex global supply chain that includes both China and Taiwan, with the latter producing the chips that the former assembles into iPhones. What would become of these processes if the two nations were to be in conflict? There’s often a common interest that ensures these systems remain on track.

Stephens: Throughout history, states that have been at war have continued to trade out of necessity. That’s what has made the current sanctions on Russia unprecedented, with the West deciding it will do everything it can not to trade with Moscow. Usually, a pragmatic economic approach is taken – but not this time. It’s made China incredibly nervous – its US$3tn in foreign exchange reserves went overnight from being an asset to a liability. China is concerned about the steps the West will take if there were to be a conflict with Taiwan. This is taking war in a different direction – it’s now full-on economic warfare.

In terms of patterns of trade, there will likely be more friend-shoring. But if we look at certain countries in the world, it’s difficult to know where they will ultimately align.

India, for example, is militarily aligned with Australia, the UK and the US. But in terms of the conflict with Ukraine, it is very happily buying discounted Russian oil, which is antagonising the Americans. Ideologically, I’d put it in the western friend camp, but it’s unclear how that will play out in the medium term.

We’ll likely also see countries, particularly the US, develop industrial policies to secure strategic production and manufacturing in a bid to defend national security. The Chips and Science Act is one example.


GTR: What is needed from trade finance to fund these shifts? Does the reconfiguration of supply chains drive an increased need for liquidity? What impact is this happening on working capital cycles?

Binns: First of all, due to higher commodity prices, the value of a shipment is much higher than it was before, particularly for certain commodities, such as oil and gas.

Clearly, that means that more funding is required to finance these commodities as well as working capital cycles.

At the same time, greater risk mitigation is required because there are higher levels of counterparty risk between the various trading parties, especially as companies seek to differentiate their supply chains.

Secondly, and this may be less of an immediate impact, as commodity supply chains diversify, so too do trading routes, which means that shipments may spend more time in transit at sea. That drives up financing periods, which again influences working capital requirements.

There’s been an increase in the need for working capital solutions, but also for more traditional trade finance products, such as letters of credit, which combine funding and risk mitigation and are more commonly used in the commodity sector because of the high value of shipments.

George: A lot of the work I do revolves around SMEs in emerging markets, particularly Africa, which continue to be desperately short of liquidity. This has always been the case, but the barriers continue to pile up, especially in the context of rising environmental, social and governance (ESG) requirements and reporting standards. Ultimately, there needs to be true innovation in this space.

Binns: There’s certainly a need for deep-tier financing of commodity supply chains, particularly for agri-goods. There’s a lot of talk about how greater collaboration and better leveraging of technology can realise the potential for deep-tier financing solutions. I think there’s a lot that could be done in partnership with multilateral development banks to properly understand how to support these needs more efficiently as well as embed ESG principles to drive the right behaviours. This will be an interesting trend over the coming decade.


GTR: How are rising interest rates impacting the financing of commodity supply chains?

Stephens: I have two clients in particular who have increased their inventory to the greatest extent they can over the last 15 months. That was sustainable until interest rates began to rise. They’re not stockpiling in the same way now because they just can’t afford the repayment terms – despite having good credit ratings.

Binns: The cost of funding is going up significantly, and will have a considerable impact on supply chains.

For many companies, it’s a two-step problem. There’s the need to go through very costly longer-term supply chain resilience programmes while simultaneously managing short and medium-term cost impacts driven by rising commodity prices and higher interest rates.

Stephens: When reconfiguring supply chains and making them more resilient, the issue is, how do we calculate what resilient will be, say, over a multi-decade horizon? Because if we take the most extreme projections of climate change, by the turn of the century, half the world’s ports, at least, will be underwater. So do we reconfigure supply chains now so that they’re viable for the next 10 to 20 years at a cost of trillions of dollars? And then do it again in a few decades? Or do we wait?


GTR: How will commodity supply chains evolve in three to five years?

Binns: I see companies focusing on shorter-term cost management and risk mitigation actions, while at the same time trying to understand and offset the longer-term strategic impacts of the current period of volatility. It’s an issue that many companies are dealing with, and a lot of effort will be devoted to achieving this balance.

Stephens: Governments, particularly in the US and China, will take firmer control over supply chains for commodities they consider to be part of their strategic interest. We’ve already seen that with the US policy aimed at chip manufacturing, and that will expand into other sectors, most likely certain types of pharmaceuticals as well as foodstuffs. Whether that results in regionalisation, friend-shoring or nations taking military control over the physical movement of goods, remains to be seen.

George: I’m optimistic in my outlook.

I think we’ll start to see a return to some of the efficiencies in supply chains. We won’t be back to where we were before the pandemic, but the idea that we’ll still be struggling along like this in five years is too bleak.

There’s clearly a recession underway in Europe and other developed markets, which means that eventually market forces will work their magic and there will be an easing of prices, although that may take some time.

Meanwhile, there’s going to be a much stronger focus on ESG impacts. The obvious one is carbon emissions but there are other issues, such as deforestation and plastic pollution of the oceans. This will all drive the need for circular production cycles. The social element of ESG, which often gets lost, will also become a lot more significant.

What is also going to become increasingly important is how we monitor ESG impacts. This is where all the technology that has been developed over the last few years, such as satellite monitoring of deforestation, for example, is becoming more mainstream and, as a result, less expensive.

It’s getting to a point now where most companies will be able to afford to track many elements of their supply chains. That’s going to be significant because everyone’s got to be able to prove what their impacts are, both positive and negative. That data, tied in with the financing that we discussed, should help make it possible for commodity supply chains to be more sustainable.


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