by Jonathan Scott, Managing Director
The Illusion of Normalisation
As we enter the third quarter of 2026, I think we are seeing quite an interesting shift in the global debate. The acute panic that defined the spring, when news feeds were dominated by blocked straits, soaring freight rates and emergency diplomatic summits, has started to give way to something that looks, on paper at least, like recovery. Oil prices have backed away from their peaks, shipping lines have adjusted their schedules to longer routes, and financial markets, always eager to find reasons for optimism, have started talking about normalisation. Looking at the headlines alone, it would be quite easy to conclude that the worst has passed and the global economy is beginning to settle back into its old rhythm.
I think that conclusion is premature. What we are seeing at the beginning of this third quarter looks much more like structural adjustment than a return to a stable world order. The initial shock of any crisis is always the part that attracts attention because it is immediate and dramatic. What interests me more is what happens afterwards, because the consequences tend to be quieter, more persistent and ultimately more expensive. Supply chains have not necessarily healed. In many cases, they have simply adapted to higher baseline costs, longer transit times and greater uncertainty.
I also think there is a big difference between a system that has recovered and a system that has simply absorbed damage. Drawing down safety stocks to keep factories running is not really a sign of health. It means one of the buffers that protected the system has disappeared. Companies can reroute ships, find alternative suppliers and pay higher insurance premiums, but all of these solutions come at a cost. What I will be watching closely during Q3 is whether some of these temporary adjustments start becoming permanent features of the global economy. Financial indicators can settle down remarkably quickly, but the physical world underneath them moves at a much slower and less flexible pace.
Capital Flows and the Return to Tangibles
One of the things I am watching most closely as we move into Q3 is how capital is responding. For years, capital allocation was based on the assumption that liquidity could solve most supply problems. If you needed raw materials, components or energy, you paid the market price and expected somebody to deliver them. There might be temporary shortages or price spikes, but the underlying assumption was that the global system remained available to anyone with sufficient capital. I think the events of the first half of 2026 have seriously challenged that assumption.
We are already seeing signs of capital moving away from that confidence in financial abstraction and towards physical security. I do not think it is a coincidence that precious metals and hard assets have remained strong even while central banks and financial markets have attempted to project calm. When trust in the wider system begins to weaken, gold and physical commodities start to look different. They become less about short-term speculation and more about possessing something tangible that does not depend entirely on another institution, financial system or supply chain functioning as expected.
I think we are seeing something similar with industrial commodities. Copper, critical minerals and specialised chemical inputs increasingly need to be secured rather than simply ordered when required. The just-in-time philosophy that dominated global industry for decades is being challenged, particularly in strategic sectors, by a much more defensive just-in-case approach. Companies and sovereign funds are securing direct off-take agreements, investing in processing capacity and building larger strategic reserves. To me, this looks like capital relearning a very old lesson: a financial contract is only as useful as the physical corridor that allows the underlying asset to reach you. You can own the contract and have the money to pay for it, but if the ship cannot pass through the strait or the processing facility loses power, the piece of paper does not solve the problem.
The View from Above: What GIS Reveals
This is where I think spatial analysis becomes particularly important. One of the habits of traditional macroeconomics is to look at supply chains as financial flows, trade statistics or national averages. Those measures are useful, but they can also hide the physical reality underneath them. Economic activity does not happen in an abstract space. Everything happens somewhere, at a specific geographic coordinate, and everything that moves between those coordinates depends upon physical infrastructure.
When I look at trade through spatial data and satellite telemetry, the picture often looks very different from the financial headlines. A shipping route might officially be described as reopened or successfully diverted, but spatial analysis shows what that diversion actually means. Ships travelling the long route around Africa are not simply adding a few days to a journey. They are changing port call patterns, putting additional pressure on regional bunkering hubs and creating bottlenecks at secondary ports that were never designed to handle these volumes. The trade still moves, so on a spreadsheet the problem can appear to have been solved. On a map, it becomes obvious that the problem has often just moved somewhere else.
This is something we see constantly in our work at ScottGIS, and I think it is one of the reasons GIS is becoming more important to strategic decision-making. A pipeline is not simply an asset sitting on a balance sheet. It passes through particular elevation profiles, geological conditions, political jurisdictions and border regions. A processing plant is not simply a figure for production capacity. It depends on a local water supply, a particular electricity grid, transport infrastructure, labour and often a surprisingly small number of roads or rail connections. Once you start looking at assets spatially, you begin to see dependencies that are very easy to miss in financial analysis.
For me, this has always been one of the most useful things about spatial data. It has a habit of stripping away the narrative and showing where the friction actually lives. Sometimes it is a port gate, sometimes a bridge, a railway junction, a river crossing or a processing facility that very few people noticed until it stopped functioning. I think the disruption we have already seen in 2026 is pushing spatial analytics beyond being primarily an operational tool for logistics managers. It is increasingly becoming part of capital risk assessment because understanding the value of an asset now requires understanding the physical systems that allow that asset to function.
Regional Fracture: The Gulf Between Asia and Europe
As we enter the third quarter, I think it is also becoming increasingly clear that this physical friction is not being felt equally around the world. The difference between East Asia and Western Europe is particularly interesting to me. Asian economies sit close to many of the world’s largest manufacturing clusters and critical technology supply chains, and countries such as South Korea and Japan have been strengthening raw material reserves, securing long-term energy supplies and protecting strategic industrial capacity. They are paying more for resilience, but they also have dense regional trade networks and substantial industrial infrastructure around them.
Europe, by contrast, faces what I think is a much more difficult structural problem. Its dependence on imported energy and raw materials leaves large parts of its industrial economy exposed to exactly the type of physical friction we are now seeing. Higher freight premiums, elevated energy costs and delayed inputs can be absorbed for a quarter or two, but I do not believe businesses can treat them as temporary indefinitely. If those costs remain elevated through Q3 and beyond, management decisions will start to change. Companies will defer capital expenditure, relocate production or close older facilities that no longer make economic sense. A business can probably tolerate an expensive quarter. It becomes much harder to justify an expensive decade.
I think this divergence will have an increasing influence on longer-term capital flows. Investors are paying more attention to whether a region controls its own resource inputs, whether it has dependable energy and whether its infrastructure can protect access to global supply chains. For years, efficiency was probably the dominant consideration in many investment decisions. My view is that security of access is rapidly becoming just as important. The cheapest location on a spreadsheet is not necessarily the cheapest location once geopolitical risk, energy security and physical vulnerability are included in the calculation.
The Limits of Adaptation
There is always a temptation to look at human ingenuity and conclude that businesses will simply adapt, and to some extent I agree. Businesses are extraordinarily good at finding solutions. They change suppliers, reroute cargoes, pay higher insurance premiums, increase inventories and use technology to squeeze more efficiency out of existing operations. But I think we sometimes talk about adaptation as though it were free. It is not. Every workaround introduces another layer of friction, and that friction eventually acts as a tax on economic activity.
One of the issues I think we are going to have to watch closely during Q3 is just how much cheap slack remains in the global economy. For decades, the system operated on something close to the assumption of zero-cost distance. Communications became almost instantaneous, shipping became extraordinarily efficient and open sea lanes allowed companies to concentrate production wherever costs were lowest. It was an incredibly successful model, and I think we sometimes forget just how unusual the geopolitical conditions were that allowed it to work so well. What concerns me now is that many of those assumptions are being tested at the same time, and we are only beginning to see what that means for the cost of maintaining global supply chains.
Replacing one highly efficient global supply chain with three or four regional, redundant and more heavily protected supply chains is certainly possible, but it requires enormous amounts of capital. It means duplicate factories, additional warehouses, larger inventories, higher freight charges, more processing capacity and greater spending on security. Much of that spending will appear in economic statistics as investment and growth, and it will undoubtedly create opportunities for some industries. But I think we should be careful about confusing additional expenditure with additional prosperity. If we have to spend considerably more capital to produce and deliver the same amount of physical output, we may have created more economic activity, but I am not convinced we have made ourselves proportionately richer.
Outlook for Q4 and Beyond
As we move further into the third quarter of 2026, my outlook remains measured and cautious. The immediate shocks that dominated parts of the first half of the year have faded, and that is obviously positive, but I do not think the underlying structure has returned to where it was. If anything, I believe 2026 is reminding us that physical geography still matters far more than we became accustomed to thinking during the peak years of globalisation. Capital can move around the world in milliseconds, but ships, minerals, pipelines, factories and energy cannot.
That difference between financial speed and physical speed is what I think matters most. A financial market can reprice risk almost instantly. A mine can take a decade to develop. A port cannot double its capacity because demand suddenly changes. A railway cannot simply be moved, and a refinery cannot be downloaded from somewhere else. Physical infrastructure responds over years and sometimes decades, which means there is inevitably a lag between recognising a problem and actually having the infrastructure required to solve it. I think financial markets often underestimate this lag because markets are accustomed to adjusting prices rather than moving physical things.
For businesses and investors, I think the message as we enter Q3 is fairly straightforward. We should not confuse quieter headlines with repaired systems. The companies, funds and governments that navigate the rest of 2026 and the years beyond successfully will, in my view, be those that understand where their physical dependencies actually sit. That means asking some very basic geographic questions. Where is the asset? Where does its energy come from? Which port does it depend on? Which road, railway, pipeline or border crossing keeps it functioning? What happens if one of those links disappears? These are geographic questions as much as they are financial ones, which is why I believe GIS and spatial intelligence will play a much larger role in investment and strategic decision-making in the years ahead.
I do not think the world has stopped moving, and I certainly do not think globalisation is disappearing. What I do think is happening is that we are beginning to rediscover how much physical infrastructure, capital and coordination are required to keep the system moving when some of the assumptions that supported it can no longer be taken for granted. The world is still connected, but those connections are becoming more expensive, more strategic and more vulnerable to geography. For me, recognising that difference is where real strategy begins.