The P&L Doesn’t Care if It was Geopolitical
… Neither will the Customer
Thanks to one war or another, Russian oil is (mostly) off the open global market, Iran’s oil blocked and the other Gulf petro-states are at three quarters the old capacity. And somehow, said dumpster fire is going to present you with a bill.
One problem with today’s geopolitical dumpster fire is that launching attack drones at oil tankers is so much more distracting than a turf war between shipping and procurement - which is more likely to blow up your quarter. Procurement negotiates with suppliers, logistics books shipments, finance monitors margins and sales promises customers that prices and delivery dates will hold. Every node in the network is working fine - the danger lies in-between them. A conflict disrupts energy supplies, raise crude prices and make diesel more expensive. Shipping risks can tie up vessels, force less efficient routes and increase freight costs. Carriers adjust surcharges. Suppliers revise quotes. Delivery times go pear-shaped. The effects rolls through the businesslike a tedious P&L blitzkrieg.
In short, the headline tells you what happened, but it’s an invoice that will tell you where the bomb landed.
Follow the Money, Not the Missiles
The trick isn’t to predict the future perfectly or even well, I’d argue that we’re witnessing a whole flock of Nassim Taleb’s Black Swans. More useful is knowing what parts of your model depend on conditions remaining constant and what happens when those conditions change. And finally, when a change demands a decision. I follow this stuff for a living, I have some solid theories on what - or who - is to blame for the diesel and gasoline prices. To sort out the knock-ons, you need an observable development, not a grand political theory.
1. The Event: What Actually Changed?
The point A to point B problem is that energy flows and shipping markets have been affected by conflict and security risks around important maritime trade routes - diesel prices have risen sharply, tanker freight has surged, and transportation has gotten expensive enough to threaten the economics of some trades. That tells you that conditions have changed, but not what to do about it.
One business buying fuel directly, one paying a carrier's surcharge, an importer negotiating ocean freight and a manufacturer receiving goods under a fixed-price supply agreement all face different exposures. Your task is to establish which prices, routes, contracts and operating conditions have actually changed.
2. Exposed Assumption: What Did You Take For Granted?
A budget might include a transportation allowance without specifying what happens if diesel rises by 30% or 50%. Right now it’s vibrating around 59% above the pre-war price, so you are out of range. Consider a customer contract with fixed the selling price while leaving freight costs variable or a procurement policy dependent on reliable replenishment and low inventory. Individually, neither is strange, nor particularly risky. together, they leave you exposed to conditions that nobody treated as a strategic risk.
For a distributor, the vulnerable assumption might be simple: Continue delivering our products at the budgeted cost without changing prices or operations. Test that assumption by asking:
What must remain true for the plan to work?
Which of those conditions does the business not control?
What happens to the economics if one changes?
How early would management recognize the failure?
Despite what the analysts will say, you really can’t predict the future - certainly not going off all the big data from before the global systems started to go haywire.
3. Consequence: Where Does the Shock Appear in The P&L?
Consider our distributor sending 100 truckload-equivalent shipments of 600 miles each per month. Using FreightPlus’s truckload fuel-surcharge schedule, the increase added $234 to a standard 600-mile shipment compared with that March baseline. A company moving 100 such loads each month would face an additional $23,400 in additional monthly expense. As well as some painful choices:
Absorb the expense and gross profit falls, other things being equal.
Raise prices and customers may resist or switch suppliers.
Consolidate shipments and transportation costs may decline, but service may deteriorate.
Increase inventory and delivery reliability may improve, but more cash becomes tied up in stock.
The fuel surcharge is only part of the story. Suppliers raise prices to cover their transportation costs. Delayed deliveries force expensive alternatives. A cheaper supplier becomes more expensive once transportation is included.All these factors are not only reacting to you, but each other. Like a cluster bomb, the same event hits different places simultaneously, but not in the same way. The challenge is to quantify those effects before committing to a response.
4. Decision Trigger: When Should Management Act?
Companies should not restructure their supply chains every time oil prices rise. Nor should they wait for quarterly results to discover a problem that began months earlier.
A useful trigger combines a measurable signal - a threshold that matters - and a prescribed response. For example, the signal might be a fuel surcharge remaining materially above budget or a product’s landed cost is approaching its minimum acceptable margin. The response: review pricing, renegotiate freight terms or investigate alternatives. A separate trigger might be deteriorating carrier reliability that prompts qualifying other suppliers or increase stock for critical inputs.
The thresholds must reflect the business's margins, contracts and risk tolerance. A thin-margin distributor cannot tolerate the same cost variance as a company selling highly differentiated products.
5. Management Response: Change the Economics, Not Just the Spreadsheet
Once a trigger is crossed, management can renegotiate freight arrangements, adjust prices, consolidate shipments, improve load utilization, qualify alternative suppliers or increase inventory selectively. Or wait - a costly permanent change made in response to a temporary shock may be worse than absorbing a short-lived expense.
Either way, distinguishing between an assumption that has temporarily failed and one exposed as structurally unsound is critical. Dependence on one supplier, one route or a cost structure with no room for volatility may call for a different sourcing strategy, pricing policy or market position. Scenario planning helps.
The Field Guide
A great deal of what 4717 does is connecting external shocks to a management decision that is incremental and reversible. Markets are volatile, and as with a lot volatile things, there is an art to ignoring something while keeping an eye-one it at the same time. You don’t need to predict the next military escalation, sanctions package or shipping crisis. You do need to know which of your plans are dependent on conditions remains the same, what happens if they don’t and when you need to do something about it.
What you need to do is map an event from the headline with clear decisions on your assumptions that are reversible in the face of an unknowable future and to steer clear of that place where you’re actively avoiding accounting, legal and possibly your major investors.
At 4717, we connect geopolitics, markets, and technology to the decisions businesses actually face. Have a market shift, expansion decision, or uncomfortable business assumption you're trying to work through?
