Rising Freight Costs Threaten Small Businesses in Developing Economies

The Strait of Hormuz is more than a narrow maritime passage connecting the Persian Gulf with the wider world. It is a critical artery of global trade, carrying enormous volumes of oil, gas and other commodities.

Any prolonged disruption along the route can therefore send shockwaves through international markets. But according to the United Nations Trade and Development agency.

The consequences could be especially severe for small businesses, which risk being permanently pushed out of global supply chains even after trade flows eventually recover.

Small and medium-sized enterprises form the backbone of the global economy. They represent around 90% of companies worldwide and provide roughly 70% of jobs. Their importance extends beyond employment: in developing economies, smaller businesses often connect local producers, workers and consumers to international markets.

Yet their relatively limited financial resources make them particularly vulnerable when transportation, energy and compliance costs rise simultaneously. The disparity in trade costs illustrates the problem.

Small firms in developing economies already spend approximately 19.4% of the value of their imports on compliance, compared with 14.7% for larger competitors. This difference may appear modest under normal circumstances, but during a supply-chain crisis, additional costs can quickly become decisive.

A business operating on narrow margins may be unable to absorb delays, customs expenses, insurance increases or rapidly changing freight rates.

Financing creates another structural disadvantage. Smaller businesses face average borrowing costs of about 15.8%, substantially above the 10.3% paid by larger competitors.

When interest rates and transportation expenses rise together, access to working capital becomes critical. A major corporation may be able to finance inventory, absorb temporary losses or negotiate favorable shipping contracts. A small importer may simply run out of cash before conditions improve.

The Strait of Hormuz disruption therefore presents a risk that goes beyond temporary inflation or delayed deliveries. If smaller firms lose reliable access to international suppliers and customers, their absence could become permanent.

Larger companies may capture their market share, establish alternative supply relationships and strengthen their negotiating power with logistics providers. Once these relationships are established, returning to the global supply chain may be considerably harder for displaced businesses.

This creates a potentially damaging feedback loop for developing economies. Small businesses disappear or retreat into domestic markets, reducing competition and limiting export opportunities. Workers can lose jobs, local suppliers can lose customers, and governments can face weaker tax revenues.

Meanwhile, concentrated markets may become less resilient because fewer companies control a greater share of production and distribution. The warning also highlights why supply-chain resilience cannot be measured simply by whether aggregate trade volumes recover.

Headline statistics may eventually show that global commerce has returned to normal, while thousands of smaller firms remain excluded from the recovery.

Governments and international institutions therefore face a broader policy challenge.

Supporting vulnerable businesses through temporary financing, trade facilitation, lower compliance burdens and improved access to alternative logistics routes could help prevent a temporary disruption from becoming a permanent restructuring of global commerce.

The Strait of Hormuz crisis demonstrates that supply-chain resilience is not only about keeping ships moving. It is also about ensuring that the smallest participants in global trade have enough financial and institutional capacity to survive when those ships cannot. If they are pushed out, the economic damage may continue long after the disruption itself has ended.