NEW YORK (AP) — Small business owners nationwide are feeling the economic pinch from the ongoing Middle East conflict, as shipping routes become disrupted, transportation costs climb, and customers reduce spending due to rising gas prices.
The impacts are widespread: a footwear company can’t get shoes delivered from Vietnam on schedule, a California pistachio operation has millions in product stuck at sea, a Missouri lawn care business is buying extra fertilizer before prices jump higher, and an Illinois electronics retailer is watching fuel costs eat into profits.
Business owners acknowledge that pandemic-related supply chain problems were more severe, but they worry about what extended warfare could mean for their operations.
“The costs are rising, the routes are changing, and capacity is tightening. It’s all happening at the same time, and that’s a perfect storm for small businesses,” said Brandon Fried, executive director of the Airforwarders Association, a trade group for U.S companies that move cargo through the supply chain on all modes of transport.
According to the U.S. Department of Agriculture, America leads global pistachio exports, with Iran ranking second.
Jared Lorraine serves as chief operating officer at Nichols Farms in Hanford, California, where his family has grown and processed pistachios for four generations. International sales account for roughly half their revenue, with shipments going to Europe, China, and growing markets in the Middle East.
The practical shutdown of the Strait of Hormuz has blocked deliveries to multiple customers. When hostilities began, Lorraine estimates approximately $5 million in pistachios became trapped on vessels, preventing delivery to buyers in Saudi Arabia, Iran and the United Arab Emirates.
“While much of the public attention has been focused on oil, which is significant, really, the destruction of the food system is I think equally as serious,” he said, adding 70% to 80% of food in the Middle East is imported.
Following the U.S. bombing of Iran on February 28, Nichols Farms found about $5 million worth of pistachios aboard ships that became stranded, according to Lorraine. The company successfully redirected some shipments: one cargo load was unloaded in Jeddah, Saudi Arabia, for truck transport to the UAE. Two additional loads reached an Omani port after being transferred to smaller containers in India. However, $3.5 million worth of product remains at sea.
“A lot of it has just been in limbo,” Lorraine said. “It’s literally been sitting idle for the last three weeks and we’re just saying, OK, what do we do?”
Matthew Tran founded Birchbury, a Los Angeles-based footwear company specializing in minimalist shoes, also called “barefoot” footwear. His company manufactures in Vietnam and distributes to customers throughout the U.S., U.K., Australia and Canada.
Under normal circumstances, Tran spends roughly $3,500 for each shipping container from Vietnam. Since the conflict began, that cost has doubled to approximately $7,000 due to route changes and increased insurance expenses. Delivery times have also extended by three to four weeks.
“It’s kind of like a traffic jam,” he said about the shipping time. “So even though it doesn’t seem like it would directly affect me because I’m going from Vietnam to America, it does affect me when there’s more congestion.”
While he noted that COVID-related supply chain problems were more severe when operations completely stopped, he expressed concern about the war’s duration.
“They always say the wars are going to be short, but they’re never short,” he said. He worries about customers having less money for discretionary spending since gas prices have surged.
“Customers don’t understand, but also their gas prices just went up, too, right?,” he said. “People just don’t want to spend money at the end of the day because they’re like, ‘Oh man, gas is up a lot.’ Buying another new pair of shoes is secondary to being able to go places with your car.”
In Kansas City, Missouri, Jake Wilson operates Top Class Lawn Care, maintaining nearly 400 properties throughout the metro area. The Strait of Hormuz closure has disrupted fertilizer markets, since Middle Eastern countries provide approximately 30% of worldwide fertilizer exports, according to the International Fertilizer Association.
Wilson launched his company in 2011 and has developed solid relationships with suppliers. Within days of the conflict’s start, two suppliers contacted him via email, warning of upcoming price increases and recommending advance purchases.
Price volatility poses challenges since roughly 70% of his clients agree to annual lawn care contracts with upfront payment at year’s beginning.
He wants to avoid returning to customers mid-season asking for additional money due to fertilizer cost increases.
“It’s kind of on me to try to get out ahead of it, the best I can, so I could still try to be profitable while keeping prices where I quoted at the beginning of the year,” he said.
Typically, he purchases fertilizer quarterly, ordering two or three months before application. Currently, he’s attempting to secure supplies through fall and into year-end, essentially doubling standard orders.
“I don’t want to wait till summer and go to my supplier and they either say, well, we don’t have any product available or what we do have is now 60%, 70% more expensive than what it was quoted in early spring, or first of the year,” he said.
Rising fuel costs have one electronics retailer reconsidering complimentary shipping policies.
Abt Electronics in Chicago consumes an average of 25,000 gallons of diesel and 30,000 gallons of gasoline monthly to operate more than 650 delivery vehicles, according to Jon Abt, the retailer’s co-president.
With gas prices climbing, Abt expressed concern about maintaining free shipping and delivery for orders over $35.
“It’s an eye-opening expense, ” Abt said. “It will affect the cost of making deliveries. This will also hit the shipping companies we use for out-of-state deliveries,”
While Abt hasn’t received March fuel bills yet, he plans to absorb costs temporarily while monitoring market conditions and competitor responses.
He added, “We like delivering things for free, and I think customers expect it.”
