Sabinsa Global CEO and Managing Director Shaheen Majeed and Nuherbs CEO Wilson Lau said the impact of disruptions around the Strait of Hormuz has been more pronounced in shipping than in oil prices thus far.
Lau said Chinese botanical supply chains have been relatively insulated from the direct impact of the Strait of Hormuz, but disruptions are affecting botanical shipments sourced from the Middle East and Africa.
“The logistics of those herbs such as hibiscus is taking a lot longer to get to wherever it needs to go next because of these disruptions and uncertainty,” Lau said.
For ingredient manufacturers, however, the cumulative impact of rising costs can be significant.
“It can be terrifying, to be very honest,” Majeed said, describing the multiple costs that can build up as raw materials move through the supply chain.
He said companies face higher costs for raw materials, labor, tariffs and shipping, while unexpected freight disruptions can force companies to turn to air transportation.
“If you can’t get it out by sea, we’re going to have to take it by air – and they really gouge you,” Majeed said.
Lau said seemingly small increases in freight can compound as ingredients move through multiple stages of the supply chain.
“What seems to be a very small number actually becomes a very big number that is very unclear, uncertain,” he said, adding that there are a lot of “hidden costs” that prop up, such as storage fees when it comes to freight arrangements. He explained that carriers may initially offer a set price that includes several days of free storage, but that window is increasingly being shortened and as a result, companies are being forced to pay storage charges after having just hours to collect their goods.
Both executives said companies are responding to many of the challenges by reassessing inventory, suppliers and geographic concentration. Sabinsa has seen customers move toward primary, secondary and tertiary suppliers, while Nuherbs is seeing brands rationalize their product portfolios.
Lau said companies need greater communication and visibility with suppliers rather than relying entirely on just-in-time inventory.
“The key really is communication,” he said. “Predictability, stability is what you’re really aiming for.”
Majeed said diversification also needs to be balanced against geopolitical risk in new markets, arguing that simply moving production to another country is not necessarily the answer.
Ultimately, both Lau and Majeed said the industry cannot afford to sacrifice quality as it navigates rising costs and uncertainty.
“There is no substitution for quality,” Majeed said.
To hear more about the impact of geopolitical tensions, tariffs and freight costs on the global ingredient supply chain, listen to the NutraCast above or on your preferred podcast platform.
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