A supply chains expert at RMIT University is warning Australian fashion brands that the conflict going on in the Middle East could impact the way they trade in Australia and overseas going forward.
Professor Vinh Thai, whose remit covers logistics and supply chain management, said while the conflict doesn’t directly impact Australian fashion, there are a number of indirect impacts that could arise in the months ahead.
He said the tension at the Strait of Hormuz along the Southern Iranian border, where around 20 per cent of global oil trade passes through, is creating severe disruptions to maritime supply chains.
In turn, this is forcing ships to wait longer or reroute on much longer routes around Africa, which will lead to freight rate increase, “especially when shipping lines are adding war risk insurance and the imminent reshuffling of the fleet due to the disruption via the Strait and the Middle East region in general to their costs.”
Air cargo capacity is also constrained due to the closure of airspace in some Middle East countries, leading to disruptions of airfreight to and from the region.
“The current retaliation attacks from Iran have led to some damage randomly at non-military areas, such as commercial airports and shopping malls. This results in reduced consumers’ confidence in some Middle East countries which used to be considered safe havens for business.
A few fashion brands and retailers operate stores or have stockist accounts in the Middle East region. Designer label Zimmermann has five stores in the region, including in Kuwait, the United Arab Emirates and Saudi Arabia, while Camilla has a beach boutique in Dubai. Camilla, Rebecca Vallance, Zimmermann and a few others also stock their ranges at leading department stores across the Middle East.
Ragtrader has reached out to a few of these about how they are navigating the current war, including Zimmermann and Camilla. No response has yet been received.
Professor Thai pointed out that while most Australian brands have their manufacturing overseas, the above consequences of a prolonged war may result in longer lead times and late deliveries, as well as higher cost of materials and other inputs for production, given that petrochemical costs are directly influenced by the volatility of the crude oil market.
This will therefore affect retail prices both in Australia and overseas.
“Australian brands sold in the Middle East may be directly affected due to low demand in the region as stores closed, tourists vacated and customers’ confidence plummeted. Distributors in the region may also be more cautious with their ordering,” Thai said.
“A prolonged conflict with more severe disruptions of the global oil trade may lead to higher pressure for import-export costs, and is directly linked to inflation. This may result in consumers rethinking their budget priorities and tightening their spending on non-essential items, including fashion products.
“If this goes on, brands that use recycled or “circular” materials may have a competitive advantage.”
Australian Retail Council CEO Chris Rodwell told the peak body’s members in an email last week that the escalating tensions in the Middle East are already affecting key aviation and freight corridors in the region, with airspace closures and service disruptions.
“The broader risk, should conflict in the region persist, is the impact on freight rates, fuel prices and financial markets,” Rodwell shared. “Any sustained increase in transport, energy and insurance costs will place additional pressure on margins and, potentially, prices.
“We will continue monitoring developments and engaging with stakeholders to understand the implications for our sector.”