Commodity Watch: From Efficiency to Endurance, Why Trade Always Finds a Way

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI</strong><br><br>PRESIDENT OF GEMCORP CAPITAL ADVISORS LLC, PORTFOLIO MANAGER<br><br>Ahmad Al-Sati is Portfolio Manager of the Gemcorp Commodities Alternative Products strategy (GCAP) and President of Gemcorp Capital Advisors LLC, based in New York. He is responsible for leading Gemcorp’s commodities-focused investment strategy and overseeing the firm’s US advisory platform.</div></span></div><hr><p style="margin-left: 0" data-pasted="true">The Big Inch and Little Big Inch pipelines were built by the US to evade German U boats and move oil from Texas to the Northeast are a reminder that trade flows will always find a way (as discussed in an excellent paper by the Baker Institute: <a href="https://www.bakerinstitute.org/research/wars-and-pipelines-how-armed-conflict-has-driven-oil-logistics-diversification">Wars and Pipelines: How Armed Conflict Has Driven Oil Logistics Diversification</a>). The spice, after all, must flow (see the recent <a href="/insight/when-conflicts-disrupt-trade-routes-commodities-find-new-ones" data-channel-guid="bf0f72af-7483-48d9-90ec-b2f04a7cd593">Commodity Watch - When conflict disrupts trade routes, commodities find new ones</a>). Yet, after decades of focusing on efficiency, costs and just-in-time supply chains, we are increasingly subject to breakdowns, bottlenecks and failures.<br>&nbsp;<br>&nbsp;In 2018, two days after switching distributors, KFC’s UK franchisees started running out of chicken (an accident at the only distribution centre shut down the entire supply chain). Within a week, 70% of KFC franchises across England, Scotland and Wales shut down (Ireland and Northern Ireland kept the fried chicken flowing because they relied on a different distributor). We have seen this time and again during both small crises (the Ever Given ship blocking the Suez Canal) and large ones (COVID demand destruction where 94% of the Fortune 1000 were impacted). We have seen it in worries about critical minerals, refining largely controlled by one country, urea availability chokepoints shutdown by war and chips critical tech components concentrated in one place.<br>&nbsp;<br>&nbsp;Much like the Inch Pipelines, a new set of pipes (supply chains) must be built to address the heightened uncertainty from trade fragmentation from tariffs and multiple competing trade blocs, geopolitical risks, weather volatility, and competition for natural resources. Increasingly the focus is on creating supply chains that can withstand and adapt to unforeseen risks. These evolving supply chains will require redundancies such as multiple delivery systems and more inventory; they will require more warehouses closer to producers and consumers; and they will require multiple trade routes with perhaps more vessels to cover those routes.<br>&nbsp;<br>&nbsp;Resilient supply chains cannot be built without capital. Significant capital will be required for more ports, warehouses, refineries, LNG facilities, mines and factories. The cost of managing production and movement will also increase (think more inventories to weather dislocations or commercial relationships not based solely on cost). Thus, more working capital and working capital solutions will also be essential. Ultimately, the world is increasingly focused on resiliency even as it relies more on resources to meet the needs of its population and newest technologies (think AI resource intensity vs. that of information technology).&nbsp;</p><p style="margin-left: 0">Just in case is the new theme and capital is its lifeblood.</p>