The shock that reaches you started three tiers down

When a trade route closes, the first question in the room is simple: are we exposed? It sounds like an easy one. For most companies, it isn’t.

McKinsey’s latest risk survey found that 95% of companies have visibility into Tier 1 risk, but only 42% can see beyond it. That gap used to be an inconvenience. Today it’s where the risk lives.

This year has made the point painfully clear. The UN has reported falling trade in energy, fertilizers, chemicals, plastics and aluminium through the Strait of Hormuz. None of those may appear on your purchase orders. They do appear in the materials your suppliers’ suppliers depend on.

You can’t manage what you can’t see. The companies that come through the next shock best won’t be the ones who react fastest. They’ll be the ones who already have the map.