When Supply Chains Break, Economies Follow: Lebanon Under Pressure
By Hassan Sinno – RDCL Board Member

Lebanon is, by structure, an import-dependent economy. From raw materials to finished goods, the private sector relies heavily on global supply chains to sustain industrial activity, construction, and trade. In such a model, disruptions in logistics are not peripheral, they are existential.

Today, amid escalating regional tensions, these supply chains are no longer merely under pressure. They are being fundamentally reshaped by risk.

A Sudden Repricing of Risk
Shipping lines operating in the Middle East have reclassified the region as high-risk. This is not a symbolic designation; it carries immediate and measurable consequences. Under force majeure clauses, carriers are repricing their services, prioritizing route safety over contractual predictability, and transferring a growing share of uncertainty onto cargo owners.

For Lebanese importers, this translates into a stark reality: both the cost and reliability of bringing goods into the country have deteriorated simultaneously.

Three Layers of Disruption
The current situation is not a single shock, but a combination of overlapping disruptions:

1. Direct Cost Inflation in Freight
War risk surcharges, typically ranging between USD 1,500 and USD 3,000 per container, have become standard. Additional emergency or bunker-related charges further increase the burden.

Compared to just two months ago, freight costs are now two to four times higher, depending on origin and carrier.

2. Breakdown of Logistics Predictability
Beyond cost, reliability has eroded. Cargo is being rerouted across multiple continents, delayed without clear timelines, or discharged at intermediate ports without prior consultation. Importers are then required to arrange onward logistics independently, often at prohibitive cost.

In extreme cases, the cost of recovering already-paid goods approaches the value of the cargo itself. Yet recovery remains unavoidable.

3. Upstream Price Transmission
Rising oil and gas prices are feeding directly into industrial production. Suppliers worldwide are adjusting prices upward, typically between 7% and 15%, to reflect higher energy, transportation, and raw material costs. Previously agreed orders are being revised, while new contracts increasingly transfer unforeseen costs to the buyer.

The Compounded Impact on Lebanon
For Lebanon, the implications are particularly severe:

• Imported Inflation: Landed costs have increased by 15% to 50% within weeks, inevitably pushing prices upward in the local market.
• Working Capital Strain: Businesses must finance significantly higher inventory costs, with limited access to affordable credit.
• Weakened Demand Environment: The ongoing conflict is also weighing heavily on tourism — a key source of seasonal demand and liquidity. A weaker-than-expected tourist inflow reduces consumption across multiple sectors.
• Price Competition Intensification: n this softer demand environment, businesses cannot fully pass on increased costs. Competition intensifies, leading to price wars that further compress margins.
• Margin Compression: Many importers are already absorbing part of the increase to maintain client relationships, eroding already thin margins.
• Supply Risk: Delays and unpredictability threaten the continuity of supply across sectors, from construction to manufacturing.

Rising costs combined with weakening demand is among the most challenging environments for any import-driven economy, particularly one as fragile as Lebanon’s. It threatens business continuity, not just profitability.

A Fragile Buffer
In some cases, existing inventory has temporarily softened the blow, allowing companies to limit price increases. But this buffer is finite. As higher-cost shipments replace older stock, further price adjustments, become unavoidable.

What Lies Ahead
The outlook remains highly uncertain, and hinges on three variables:

• The duration and escalation locally and of the regional conflict
• The trajectory of global oil and gas prices
• The behavior of shipping lines and insurance markets

If current conditions persist, stabilization may occur but at a structurally higher cost base. If the situation deteriorates, further disruption is inevitable.

A Call for Awareness and Coordination
Lebanon’s private sector has historically demonstrated resilience under extreme conditions. However, resilience should not be mistaken for immunity.

What is required today is:

• Awareness of the scale and speed of ongoing changes
• Coordination between private sector stakeholders
• Engagement with policymakers to mitigate secondary impacts, particularly on liquidity and trade facilitation

In a country where imports are the backbone of economic activity, safeguarding supply chains is not a technical concern, it is a national priority.

If left unaddressed, these pressures risk weakening the very private sector that continues to sustain Lebanon’s economic activity.