The news: Conflict tied to the Iran war is the biggest stressor on global supply chains since the pandemic, according to two separate indexes.

• The Federal Reserve Bank of New York’s Global Supply Chain Pressure Index jumped to its highest reading in nearly four years in April.
• The World Bank’s Global Supply Chain Stress Indicator is also at levels last seen during the height of the pandemic-era supply chain crisis, with over 2 million twenty-foot-equivalent container units (TEUs) affected as of April—up nearly 50% YoY.

Zoom out: Beyond the physical disruption to shipping routes, companies are on the hook for skyrocketing fuel costs.

• Maersk CEO Vincent Clerc told Bloomberg that higher oil prices will add $500 million to the company’s monthly expenses, which it will fully pass on to customers.
• UPS and FedEx increased fuel surcharges and introduced additional fees for international shipments this month, while DHL raised domestic fuel surcharges for ecommerce deliveries by 14 cents per pound.
• Procter & Gamble expects a $1 billion after-tax hit if Brent crude remains around $100 per barrel, while Unilever, Kimberly-Clark, and Reckitt also forecast a sharp increase in input costs.

War-related shortages are also forcing some companies to reformulate products and packaging.

• Shiseido is exploring plant-based substitutes and alternative suppliers as it confronts dwindling supplies of naphtha, a petroleum derivative used in moisturizers and makeup.
• Japanese potato chip manufacturer Calbee will remove colors from its packaging due to the naphtha shortage.
• Procter & Gamble is prepared to reformulate products if it can’t source materials—but warned that doing so would raise costs.

The consumer impact: With input costs rising so dramatically, most companies will likely pass along some added expenses to consumers. But households have even less of a cushion now than during the pandemic and are displaying even greater price sensitivity in light of soaring energy bills.

Consumers have paid an extra $37.9 billion in gas and diesel costs since February 28, averaging out to roughly $289.44 per household, according to Brown University. Those costs disproportionately affect lower-income households, who are spending a higher proportion of their pay on gas even as they embrace public transport or carpool.

Inflation is accelerating—even before supply chain costs are factored in. The Consumer Price Index rose 3.8% YoY (0.6% MoM) in April, with energy costs accounting for over 40% of the MoM increase. April also marked the first time in three years that inflation outpaced wage increases. Real average weekly earnings declined 0.2% on both a MoM and YoY basis, per the Labor Department.

Implications for the retail industry: The war in Iran is the latest supply chain headache for retailers. Companies are being forced to swallow higher production and transportation costs while also adapting products to ingredient shortages. Faced with rising expenses and uncertain demand, retailers are moving cautiously: Monthly import volumes are expected to fall below 2025 levels for much of the year, according to the National Retail Federation’s Global Port Tracker.

While elevated oil prices would increase topline retail sales, according to our forecast scenario, that growth would come at the expense of consumer discretionary spending as more dollars flow to necessary purchases like food and gas.