How supply chains can navigate renewed volatility

On the positive front:

• Global Supply Chain Pressure Index (GSCPI): GSCPI fell to 1.25 in June from 1.81 in May, easing pressures.
• Purchasing Managers’ Index (PMI): PMI reached 55.6 in July, the highest level in four years.
• Labor productivity: US labor productivity rose 0.8% in Q1 26, supported by output growth.

However, a few indicators suggest a strain on the economy:

• Global Container Freight Index (GCFI): Trans-Pacific freight rates remain elevated, up 234% and 231% since February.
• Rail network fluidity: Rail dwell times exceeded 20 hours, signaling persistent network bottlenecks.
• Freight rates: Truck spot rates rose 45%-51% year-over-year amid capacity constraints.

Shift toward reciprocal tariffs 

The US expanded its reciprocal trade approach beyond smaller economies, advancing tariff alignment frameworks with key partners, including the EU, Japan, the UK, India and Taiwan, alongside emerging economies. These countries accounted for over 30% of US goods imports in 2024¹, underscoring the scale of impact. The US further levied duties on imports from approximately 60 trading partners over allegations of inadequate forced-labor controls in supply chains, accounting for 99.4%² of total US imports.

The policy shift emphasizes bilateral tariff alignment, with negotiated reciprocal tariff rates generally falling in the ~10% to 20%³ range across major partners, replacing higher or more uneven pre‑agreement duties. These reductions are accompanied by targeted sector‑level concessions and clearer market access terms, particularly for industrial goods, autos, agriculture and technology‑linked exports.

Potential impact and organizational response

For organizations, the expanding scope of reciprocal tariffs increases cost volatility, compliance complexity and sourcing risk across major trade lanes, particularly US-EU and US-Asia corridors. Higher tariffs on intermediate goods may pressure margins and disrupt just‑in‑time supply chains.

Companies should proactively reassess tariff exposure by geography and category, diversify sourcing across tariff‑light jurisdictions, and strengthen trade compliance monitoring. Firms with flexible manufacturing footprints may gain advantage by reallocating production to countries covered by more favorable bilateral terms.

West Asia conflict 

US air cargo: The west Asia conflict has led to widespread airspace restrictions, forcing airlines serving US-Asia routes to take longer detours, operate with heavier fuel loads and reduce effective capacity. Major cargo carriers have imposed temporary fuel and demand surcharges on US air shipments linked to the region, reflecting higher jet fuel costs and operational risk. Industry assessments warn that air cargo rates on affected corridors could spike sharply if disruptions persist. Air freight rates are expected to remain elevated through H2 2026 as demand growth (+4% year-over-year in June⁴) continues to outpace constrained capacity, with limited widebody aircraft availability and ongoing disruptions reducing prospects for meaningful rate relief.

US ocean freight: Ocean carriers have enacted service suspensions, booking halts and vessel diversions following west Asia conflict. Several major lines have paused transits through the Strait of Hormuz and adjacent Gulf routes, while others are rerouting via the Cape of Good Hope, significantly extending transit times. The disruption has affected roughly 10% of the global container fleet⁵, directly tightening capacity available for US import and export flows and triggering immediate cost escalation.

US trucking freight: Trucking capacity contracted at the second-fastest pace on record in July⁶, as regulatory enforcement and limited fleet expansion tightened equipment availability, keeping freight rates elevated despite softer seasonal demand. 

Potential impact and organizational response

US air cargo: For US shippers, the conflict is translating into higher total landed costs, volatile surcharges and longer transit times, particularly for time‑critical lanes connecting Asia, Europe and North America. Organizations should prioritize essential stock keeping units, lock short‑term capacity where possible and closely monitor fuel and emergency surcharge mechanisms to manage near‑term exposure.

US ocean freight: Ocean carriers have introduced war risk and conflict surcharges ranging from roughly $1,500 to $3,500 per container⁷, materially raising US inbound freight costs. Firms should secure vessel space early, diversify routings and carriers, and reassess inventory buffers as extended diversions and congestion ripple through global networks. Ocean carriers are increasingly using fuel and contingency surcharges to offset rising bunker costs and geopolitical risks, helping sustain elevated freight prices even as spot rates begin to soften.

US truck freight: Rising trucking capacity constraints and elevated freight rates may increase transportation costs, extend lead times and reduce supply chain flexibility, particularly for time-sensitive and truckload-dependent shipments. 

US last‑mile delivery models

During H1 2026, US last‑mile delivery models came under renewed strain as cost pressures, service fragmentation and changing customer expectations reshaped execution strategies. Retailers and logistics providers are moving away from national, one‑size‑fits‑all networks toward regionalized and multi‑carrier delivery models, as scale alone no longer guarantees reliability or profitability, supported by retailers prioritizing faster delivery expectations (2.6 days vs. 3.4 historically⁸) and service resilience over traditional cost-focused procurement strategies.

Aggressive competition on price, particularly in e‑commerce, has intensified a “race to the bottom,” compressing margins for carriers and raising concerns over long‑term service quality, labor sustainability and network resilience. 

Potential impact and organizational response

For US supply chain functions, these shifts increase last‑mile complexity, cost variability and service risk, particularly for e‑commerce and time‑definite deliveries. Overreliance on ultra‑low‑cost carriers may erode reliability, while fragmented networks raise orchestration and visibility challenges.

Organizations should rebalance last‑mile strategies toward resilience over pure cost, combining regional carriers and selective insourcing. Strengthening carrier performance management, investing in delivery visibility and aligning service promises with execution realities will be critical as last‑mile becomes a primary driver of customer experience and margin outcomes.

Global economic outlook

Our EY-Parthenon outlook points to a meaningful but not recessionary global slowdown, with growth easing from 3.4% in 2025 to 2.9% in 2026 — down from our December 2025 forecast of 3.1% — before firming to 3.2% in 2027.

The more important story is not the size of the downgrade but the changing nature of the global economy. Before the Middle East conflict, the drag from tariffs, trade fragmentation and elevated policy uncertainty was partly offset by robust AI-related investment, supportive financial conditions and policy easing across several major economies. The conflict has introduced another supply-side shock through energy, commodities, shipping routes and financial conditions, adding pressure to an already complex operating environment. While a US-Iran peace deal could lead to lower inflation and stronger growth, uncertainty remains elevated.

Transactions, whether mergers, acquisitions or separations, are no longer isolated financial events. They have become one of the most powerful levers for business transformation, particularly within supply chain and operations, where a disproportionate share of value is unlocked or lost. EY teams’ experience across prior transactions indicates that 50% to 75%⁹ of deal value is typically driven or enabled by supply chain and operations decisions, spanning network design, sourcing, service models and execution discipline.

What makes transactions uniquely powerful is timing. Integrations and separations represent a rare window when the operating model is genuinely open for redesign. Choices that are politically difficult or operationally deferred in business‑as‑usual conditions such as footprint rationalization, supplier consolidation, service differentiation or governance resets suddenly become unavoidable. However, this window is narrow, and value creation is highly time‑sensitive, with most transaction value won or lost within the first 12 to 18 months.

Within integration, supply chain leadership determines whether value is captured or quietly erodes. Early clarity on operating model direction, whether to standardize, preserve or deliberately design hybrid models, sets the trajectory for cost, cash and service outcomes. In separations, the challenge intensifies. Supply chains must be redesigned, not merely disentangled, forcing explicit decisions on what is core, what must scale independently and which dependencies must be broken to build resilience from Day 1.

Recurring lever for growth

Transactions create opportunity but value is unlocked only through the operating model decisions made during the transaction window and the force with which they are executed. When strategic intent, execution speed and operating model design are not aligned early, transformation stalls as operational reality arrives too late.

As transaction volumes remain elevated and portfolio churn accelerates, supply chains are under growing pressure to move beyond episodic, deal‑by‑deal responses. Transactions are now a recurring lever for growth and resilience, not a one‑off disruption. This places supply chain execution at the center of enterprise value creation and makes repeatable transaction capability, clear playbooks, standing teams and proven execution cadence a critical competitive differentiator.

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