The cost of disorder

This article is part of In conversation about sustainable finance & emission reduction systems, a new series by Diego Balverde. You're reading volume four of the The collateral crisis series. Here is volume three

Prologue

Disorder is no longer a geopolitical headline happening somewhere else. It is now a direct operating cost embedded in freight, energy, insurance, inventory, working capital and credit conditions. For almost three decades, the global economy relied on a simple promise: stable routes, relatively cheap energy, predictable delivery times and abundant financing for businesses able to scale across borders. 

That promise has been broken. More than 80% of world trade by volume still moves by sea, but the sea no longer works under the same assumptions. In recent stress periods, traffic through critical corridors fell sharply, shipping routes between Asia and Europe were forced to absorb detours of 10 to 15 additional days, fuel use per voyage increased between 20% and 40% on some routes, and war-risk insurance multiplied several times over. 

Freight rates that once looked normal at 1,500 to 2,000 dollars per container surged into ranges of 6,000, 8,000 and even 10,000 dollars during periods of acute disruption. That extra cost does not stay on the ship. It moves into the port, into the warehouse, into the factory, into the invoice and then into the balance sheet. 

What used to be an efficient chain is becoming a permanently frictional chain. And when friction stops being exceptional and becomes structural, growth slows, inflation hardens and credit becomes more selective.

Routes are no longer moving goods; they are moving risk

For years, global production decisions followed a linear logic: produce where labor is cheaper, transport reliably and finance the cycle at manageable rates. 

That model begins to fail when a shipment must travel thousands of extra nautical miles, remain in transit for two more weeks, pay more insurance, consume more fuel and hold more inventory on water. A diversion around the Cape of Good Hope can add roughly 3,500 to 4,000 nautical miles on certain Asia-Europe routes. That is not simply a transport inconvenience. It is a working capital shock. A company that normally turns its inventory eight times a year and loses one or two rotations because of disruption can see its working capital needs rise by 15% to 30%. That trapped capital is not generating productivity or margin. It is merely a financing disorder. If container costs also move from 2,000 dollars to 8,000 dollars, the effect becomes devastating for sectors with already thin margins. A business operating on a 6% to 8% net margin can lose most of its profitability on logistics alone without having made a single operational mistake at the plant level.

The same applies to exporters. A terminal with longer dwell times, weaker coordination, congestion at truck access points, slower loading windows or poor energy performance increases the full exit cost of a product. Once that product becomes more expensive to move, it becomes less competitive even if its production cost is unchanged. A port does not need to collapse to destroy margin. It only needs to become slower, less efficient and more energy-intensive in a world where every additional hour and every additional ton of fuel now carry financial consequences. That is why logistics is no longer just transport. It is balance-sheet risk in motion. 

Companies without scale, treasury strength or highly optimized processes are no longer merely less efficient. 

They are less financeable.

Expensive energy is the fastest transmission channel of disorder

Energy is the mechanism through which geopolitical stress turns into economic damage. In energy-intensive sectors such as fertilizers, aluminum, steel, chemicals, ceramics, glass and certain food-processing operations, energy can represent between 30% and 70% of total cost. When energy prices rise 30% to 40%, total costs can rise 10% to 25% depending on the process. Europe has already experienced power prices above 200 euros per megawatt-hour on multiple occasions, with peaks that completely altered industrial competitiveness. Gas prices have corrected from their most extreme highs, but the new floor remains well above the old normal. 

That matters because businesses do not invest, hedge, hire and borrow based on one-week peaks. They invest based on the range of plausible costs they may face over the life of a contract or the maturity of a loan. When energy becomes more volatile and structurally more expensive, planning itself becomes more fragile.

The financial consequence is immediate. A plant operating with a 12% operating margin can fall to 5% or zero under a sufficiently large increase in power and gas costs. If that same plant also faces higher freight, more expensive insurance and refinancing at higher rates, the business can move from profitable to financially stressed within a few quarters. Once EBITDA declines, debt-service coverage weakens. When debt-service coverage falls from 3.0x to 1.8x, the discussion with the bank changes completely. The bank no longer evaluates expansion. It evaluates survivability. Energy does not need to bankrupt every firm to generate systemic danger. It only needs to compress the cash flow of enough firms at the same time. That is how sectoral pain becomes banking pressure. And that is why disorder in energy is not a market inconvenience. It is a systemic multiplier.

Inflation is no longer only monetary; it is physical

A large part of economic debate still treats inflation as if it were mainly a monetary overheating problem. But a rising share of today’s inflation is generated by longer routes, higher transport premiums, more expensive electricity, more expensive fuel, higher insurance and larger amounts of immobilized capital. Transport alone can add 3% to 8% to the final cost of many products. Energy can add 10% to 20%. Insurance, compliance and risk premiums can add another 2% to 5%. That means a significant share of current price pressure does not come from consumers demanding too much. It comes from the system needing more fuel, more days, more coverage and more money to move the same goods. Raising rates can cool demand, but it does not shorten a shipping detour, refill a canal, lower war-risk insurance or stabilize a geopolitical corridor. This is why inflation falls more slowly than expected in a world of disrupted logistics and expensive energy.

That creates a dangerous asymmetry. Firms pay more to operate and more to finance themselves at the same time. Households lose purchasing power while businesses lose margin. Central banks may keep rates higher for longer in order to avoid inflation becoming entrenched, but that also makes every inventory cycle, every credit line and every refinancing event more expensive. The result is an economy that does not simply grow slower. It grows with less oxygen. And once enough firms begin to operate with squeezed margins and tighter financing, the problem no longer belongs only to the real economy. It enters the credit system.

Implementation and value capture

The only serious way to respond to structural disorder is to convert inefficiency into measurable financial improvement. This is where operational efficiency stops being a technical issue and becomes a capital strategy. If a port cuts idle time by 20% to 25%, improves equipment utilization by 15%, reduces energy consumption by 10% to 15% and redesigns access windows, loading flows and coordination points, the effect is not confined to operations. It reaches cash flow. Better cash flow means lower perceived risk. Lower risk can translate into a reduction of 50 to 150 basis points in financing cost. On a debt structure of 100 million euros, that difference means 500,000 to 1.5 million euros per year. That is not sustainability theater. That is financial value capture.

The same applies across logistics and industry. If an operation cuts empty routes, reduces fuel per ton moved, lowers waiting times, digitizes monitoring and documents reductions in cost and emissions, it becomes more defensible to lenders, investors and counterparties. This is where models like BalGreen have real relevance, not as decorative language but as a practical framework to identify where money is being lost, where energy is being wasted, where friction is embedded and how that friction can be removed, measured and translated into lower risk. In a world where disorder acts as a hidden tax on the entire system, documented efficiency becomes a form of financial protection. The market will not reward vague intentions. It will reward proven reductions in cost, volatility and exposure.

Analysis

The serious debate is no longer whether instability exists. That is obvious. The real questions are harder. How much of current inflation is no longer driven by demand at all, but by a structural premium on disorder? How many companies are still budgeting against a logistics model that no longer exists? How many industrial balance sheets still appear healthy only because the full cost of disorder has not yet been repriced into financing and collateral? What happens if the next shock does not arrive through one channel but through several at once: energy, routes, insurance, rates and working capital at the same time? Can the banking system really continue to evaluate firms as if risk were still mostly sector-specific rather than correlated across multiple cost channels? What happens to investment if the future is no longer discounted under assumptions of efficient global movement but under assumptions of permanent friction? Are we witnessing the birth of a world in which competitiveness depends less on producing cheaply and more on enduring expensively? And if that is true, how many current asset valuations are still built on a version of the world that is already gone?

The most uncomfortable question is the simplest one: is the system still growing, or is it merely spending more time, more fuel, more debt and more insurance to maintain the same level of movement? Because if the answer is the second, then this is not a temporary slowdown. It is a decline in structural quality. And when a system loses structural quality, crises do not always begin with collapse in prices. Sometimes they begin with credit becoming more selective, liquidity becoming more conditional and value shifting toward those who can demonstrate lower friction.

Conclusion

My conclusion is direct. Disorder is no longer an external shock. It is now part of the base cost of the global economy. It is in energy, in logistics, in inflation, in rates and increasingly in credit. That means future growth will not depend only on producing more or selling more. It will depend on operating with less friction in a structurally more expensive environment. Whoever can reduce idle time, unnecessary energy use, wasted fuel, coordination failures and process instability will capture margin, protect cash flow and remain more financeable. Whoever cannot will keep absorbing cost after cost until the business model stops being defensible. That is the real dividing line.

So my conclusion is not defensive. It is strategic. The next economic order will not reward those who describe chaos best. It will reward those who can turn friction into savings, savings into stronger cash flow and stronger cash flow into better access to capital. That is where value will move. Not to the largest player automatically, but to the player that can prove it operates with greater discipline in a more unstable world.