How War, Inflation and Rising Material Costs Are Causing a Supply Chain ‘Squeeze’

Even as manufacturers struggle to fashion long-term sourcing strategies in line with the changing geopolitical landscape, they face more immediate problems: the rising cost of materials and lengthening supplier delays.

War in the Middle East is driving inflation around the world and having a direct impact on supplier cost and delivery times. In April of this year, manufacturing output grew at its fastest rate July, 2021, according to the May edition of the Global Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global Market Intelligence. At the same time, however, supplier delays, as measured by the PMI’s Supplier Delivery Times Index, were at their worst since 2022, and input costs were spiking.

The April surge in output was less encouraging than might first appear. S&P Global attributed it to a buildup of inventories, triggered by concerns over rising prices and supply scarcities, and certain to fade in the coming months.

“Supply chain delays are exerting additional upward pressure on prices as supply exceeds demand for many goods, exacerbating the impact of higher energy and shipping costs due to the war,” the report said.

The PMI calculates its delivery times index, which measures the time taken for suppliers to deliver inputs to factories, by surveying purchasing managers in some 44 countries. It asks whether their delivery times are slower, faster or unchanged on average compared with the previous month.

The resulting supply chain “squeeze” causes Spencer Penn, chief executive officer of LightSource, an artificial intelligence-driven procurement platform for direct materials, to describe 2026 as a year that’s proving to be “just as turbulent, if not more so, than the start of the COVID era.”

Transportation costs are soaring, he notes — ocean freight is up 150% and air cargo 40% — driving up the cost of procuring and manufacturing goods abroad.

On top of that is the ever-changing tariff situation, driven by President Trump’s employment of virtually every trade law at his disposal to impose duties on nearly all U.S. trading partners. His initial actions didn’t greatly move the needle on supply chain costs because businesses were hesitant to overreact to what they hoped was a temporary situation, Penn says. Since then, it has become increasingly evident that the tariffs are here to stay, notwithstanding the U.S. Supreme Court’s invalidation of those imposed by Trump under the International Emergency Economic Powers Act (IEEPA). Since that ruling, he has turned to other laws to make up for the loss. And the tariffs have begun showing up in the increased cost of goods, both at the factory and on the retail shelf.

When volatility replaces stability, supply chains are unable to squeeze out costs through techniques such as Lean manufacturing and just-in-time delivery of parts to the factory. They would rather add inventory to the books than risk being out of materials caused by a sudden stoppage, Penn says.

For global supply chains, predictability has gone out the window. Penn describes the current state of the economy as “weird.” Many companies struggle to maintain margins, while a tiny number of tech leaders experience record capitalization. The SpaceX initial public offering raised nearly $86 billion, and although the company’s stock has since declined, its value is still far in excess of any traditional industrial manufacturer. (Ford Motor Company, for example, currently has a market capitalization of just over $56 billion.)

Meanwhile, the huge demand for new data center and AI capacity is “sucking all the air out of the room,” Penn says, sending memory prices soaring and further contributing to higher supplier costs.

With volatility apparently here to stay, suppliers are baking the increases and uncertainties into their pricing. “When you start to see it more on a quarterly or annual basis,” Penn says, “folks start to look at raw input costs and renegotiate existing contracts.”

As they extend into the foreseeable long term, current market trends promise to have an even more dramatic impact on industrial supply chains. Many old-line manufacturers will have to seek alternative uses for their production capability. Penn points to Ford repurposing its automotive batteries to provide energy storage for AI data centers. Corning, famous for making Gorilla Glass for iPhones and other mobile devices, also makes plastics and fiber optic cables to connect graphical processing units (GPUs) to the data centers.

Looking to the more immediate future, S&P Global said there could be a drop in supplier prices as inventory builds burn off. When and whether that happens, however, depends on the duration of the Middle East war, and the energy and supply chain disruptions that it’s caused since the onset of hostilities early this year.

More bad news could be on the way. “With a lengthening of supply chains generally taking around six months to feed through to higher consumer prices inflation … we can already expect a marked upturn in household inflation rates in the months ahead,” S&P Global said.

At that point, it won’t just be supply chains feeling the squeeze.