Estimated reading time: 5 minutes

In December 1773, a ship carrying chests of tea from England was about to dock in the Boston Harbour when it was boarded by over a hundred American Colonists protesting a tax on tea imposed by the UK. The men, some dressed in Mohawk disguises, threw all 342 chests of tea on that ship and two others overboard, for a total of 96,000 pounds of tea, amounting to over £1 million in damages. This insurrection has come to mark the beginning of the American Revolution.

The Boston Tea Party is one of the most famous and earliest examples of a supply chain disruption, destabilizing the economy and affecting the political and economic landscape of the world for centuries afterwards. While modern supply chain disruptions tend to be less dramatic and include fewer feathered headdresses, they often contain the same key elements: external events affecting a key trade route or area, with a ripple effect on other areas of the supply chain and affecting the entire economy. 

Modern problems for a modern supply chain

While some challenges from the 18th century seem all too relevant today, the modern world has brought about new sources of disruption: extreme weather events caused by climate change, cyber-attacks, strikes, and political instability affect supply chains at all levels, contributing to fragility and uncertainty. 

The problem of supply chain fragility is rising exponentially: a recent report by the Business Continuity Institute in partnership with Zurich Resilience Solutions found that almost 80% of organizations experienced disruptions in their supply chains this year. This is a 12.4 percentage point increase from the previous year, with 11% of firms experiencing more than 10 incidents in 2024. 

The same report found that 37% of firms don’t measure costs or earnings loss resulting from issues in their supply chains, most of them citing complexity in reporting and a lack of transparency in their supply process as the reasons. 

Recent supply chain struggles

As will be clear to anyone who’s been reading the news, the past few months have not been easy for global trade. Tensions in the Middle East related to the Israel-Palestine conflict have led the two key straits joining Europe and Asia, Suez and Hormuz, to become dangerous territory. 

Houthi-backed pirates from Yemen have been attacking cargo ships in the Suez canal, forcing ships to add up to 17 days of travel time to travel via the Cape of Good Hope; South African ports, which had already been facing delays this summer due to outdated machinery and crumbling infrastructure, are struggling to take the extra load. As tensions between Iran and the West rise, the strait of Hormuz, linking the Persian Gulf to the Arabian Sea and the rest of Asia, is also at risk; if a geopolitical development made both routes become impassable, global trade would take even more of a hit. 

One-off events such as extreme weather or cyber incidents, much faster-developing and unpredictable than geopolitical issues, have not been helping. Hurricanes in the US this autumn have put shipping and road routes in Florida at risk and temporarily stopped production at two North Carolina mines that produce up to 90% of the high-purity quartz needed for semiconductor production. 

The Crowdstrike cyber incident, albeit short-lived, ground much of air travel to a halt, highlighting just how dependent the world travel and shipping industry is on just a few fragile systems. A drought in the Panama Canal, which has led to capacity limits and decreased transits, has not been significant until now but could worsen this winter during the dry season. Any one of these risks on its own could be consequential for the global supply chain; together, they create an incredibly complex, impossibly fragile infrastructure that is hard to monitor or predict. 

Supply chain finance and insurance: a way to help?

Supply chain disruptions directly and tangibly affect clients of trade finance firms and insurers but in a slightly different way than ordinary companies. While trade finance institutions have a wide and diverse enough credit base that they rarely experience turmoil because of one supply chain issue, they are vulnerable to wider regional and industry trends, especially when several incidents overlap at once.

Multiple supply chain issues in one period of time, like what we are seeing now, can lead to several companies defaulting on their loans at once, disrupting the cash flow of a trade finance institution. Supply chain issues and the rising shipping costs that come as a result of these issues can also discourage would-be exporters and importers, affecting demand for trade and invoice finance. 

Beside being affected by supply chain disruptions, trade finance institutions and insurers also have a unique opportunity to support firms through the challenges while also expanding their own operations and increasing earnings. More and more firms are leveraging insurance to protect themselves against supply chain disruptions: almost half of all companies have acquired some amount of coverage in 2024, up from just 37% a year earlier, and the number is only expected to grow as the global trade environment becomes more uncertain.

Financing for new suppliers

As HSBC explains in a new report on building resilient supply chains, supply chain finance can also play a central role in strengthening firms’ resilience, shifting the risk onto the credit institution: “Supply chain finance decouples the financial supply chain from the physical supply chain,” said Ajit Menon, US Head of Sales, Portfolio Management & Distribution at HSBC Global Trade Solutions. 

On a more basic level, trade finance, and especially supply chain finance, lets firms move away from the fragile “Just in Time” model that proved disastrous during the pandemic and instead build up their stocks and become more resilient. This can prove crucial in the case of shipping bottlenecks, for example, enabling companies to adapt to delays and trade route diversions they know about in advance and experience minimal changes in output.

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Before the dockworkers’ strike in the US East Coast that started on 1 October, companies had been stockpiling products and preparing for delays. This meant that the strike, which ended up only lasting three days, had a barely perceptible impact on the US economy—contrary to cataclysmic forecasts, which were based on a longer strike and companies being caught unawares. This shows that being prepared for supply chain disruptions matters, and supply chain finance makes that possible. 

In the long term, building supply chain resilience often means diversifying suppliers, having backup trade routes, and increasing transparency – all things that would not be possible without trade finance. 

Supply chain practices like nearshoring, which are gaining traction for their benefits at improving transparency and reducing risk related to geopolitical and shipping route disruptions, depend on smaller firms in the target countries getting the financing they need to set up an export operation.