Navigating cost pressures: Separating structural shifts from temporary premiums

In the current geopolitical environment, premiums in areas such as risk, supply chains, financing and human capital are driving up cost pressures. For businesses seeking to navigate and curb pressures, it is critical to separate structural shifts from temporary premiums, writes Majid Mumtaz.

Marine cargo war risk premiums in the Gulf corridor have moved from 0.15 percent to between 5 and 10 percent of hull value since January. For a $100 million tanker, that is a $200,000 voyage becoming a $1 million voyage. The line is visible. Finance teams are looking at it. The problem is the line they are not looking at.

Most property, business interruption, and liability policies in the UAE exclude war risk as standard. The marine premium covers the vessel. It does not cover the distributor’s warehouse if supply disruption forces a halt. It does not cover the margin lost when a force majeure clause activates and a supplier contract suspends. It does not cover the working capital cost of holding 90 days of safety stock instead of the 30 days the model was built around.

The companies currently treating this as a premium management problem are solving the visible cost. The exposure sitting directly on the P&L is the one with no insurance backstop.

The margin math is already in the room

FMCG distribution net margins in the UAE run between 3 and 7 percent. War risk surcharges are adding $500 to $1,500 per TEU, and landed cost increases across supplier categories are running at 4 to 5 percent per pallet. At the lower end of that margin range, the math works once. It does not work twice.

The operators who understand this are not primarily managing insurance spend. They are asking a different question: which cost pressures in this environment are permanent structural shifts, and which are temporary premiums that will normalise when the geopolitical situation resolves?

That distinction matters because the response to each is different. Temporary premiums you absorb or hedge. Structural shifts you build into procurement architecture. Treating a structural shift as a temporary premium is how a cost problem becomes a business model problem.

Where the unquantified exposure sits

At cloud kitchen and high-volume food service operations, the cost structure is built on supplier concentration and JIT delivery cadence. The assumption is that the system runs. When Jebel Ali yard density hits 92 percent and feeder vessel delays stretch to 10 days, that assumption fails and the business interruption exposure that should activate is excluded from the policy.

Force majeure clauses are being invoked actively across the Gulf corridor. Each invocation creates a gap: the contractual obligation suspended, the supply not arriving, the BI policy not responding. That gap sits on the operating statement as margin, not as an insured loss. It is invisible until the quarter closes.

The companies that will be in a structurally better position when premiums normalise are the ones using the current environment as the forcing function to do two things: identify which supplier relationships and logistics paths were built for cost efficiency in a stable environment and which can hold under the current cost structure, then renegotiate or diversify before the disruption period ends. The leverage to change terms is higher now than it will be when conditions stabilise.

The two-wave problem

There is a pattern in operating environments that move from disruption to normalisation. Companies that absorb the disruption passively come out the other side with the same cost structure, higher debt from the absorption period, and no durable advantage. Companies that treat the disruption as the signal to restructure come out with lower landed costs, diversified supplier geography, and procurement relationships renegotiated under conditions that favoured the buyer.

The wave that matters is not the disruption. It is who has restructured before the normalisation.

At this point in the cycle, the procurement conversations that matter are not about hedging the premium. They are about which suppliers, which routes, and which payment terms will hold under a cost structure where 4 to 5 percent landed cost increases are the baseline assumption for the next 12 to 18 months.

The finance teams treating that question as an insurance problem will still be answering it when the window closes.

What the current environment is showing

War risk premiums are a pricing signal from underwriters who have more information about tail risk than most operating companies do. When underwriters raise premiums 1,000 percent or exit a corridor entirely, they are not expressing a view about current disruption. They are expressing a view about the structural reliability of that logistics path.

The operational question is whether your cost structure, supplier geography, and working capital assumptions were built for the path that underwriters are now pricing as unreliable. If they were, the current premium increase is not the cost you are managing. It is the diagnostic.

About the Author: Majid Mumtaz has over 20 years of finance leadership experience in the GCC across consulting, multinationals, and scale-ups.