Russia’s Invasion of Ukraine Impacting Supply Chains

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Ukraine
  • Ukraine crisis adds to snags in global supply chains
  • The Russia-Ukraine war creates new strain on the transportation industry
  • Western brands boycott Russia in response to the invasion of Ukraine

Russia’s devastating attack on Ukraine signifies one of the most dramatic shifts to stability in decades, with 1,611 civilian deaths and 2,227 injuries recorded as of today, due to the invasion.

The conflict in Ukraine is also negatively impacting the global economy. As a result, supply chains’ most significant risk has shifted from the coronavirus pandemic to uncertainties created by the Russo-Ukrainian war.

While the world will be relieved to have seemingly turned its back on the Omicron Covid-19 variant, the long-term consequences of Russia’s invasion of Ukraine remain unclear.

Several governments have imposed sanctions against Russia to stop Vladimir Putin’s incursion of Ukraine. However, the ever-changing nature of these penalties combined with the deepening humanitarian crises continues to paint a cloudy picture of the future.

According to Moody’s Analytics, the overall economic impact of the Russia-Ukraine conflict on global supply chains depends on how long warfare lasts. With official reports stating that Putin shows no signs of pulling back Russian troops, the outlook looks bleak.

Ukraine Crisis Increasing Strain on Global Supply Chains

It’s no secret that global supply chains have been in a delicate position since the onset of COVID-19, with the impact stemming from pandemic-related disruption resulting in:

  • Material and equipment shortages
  • Delivery delays
  • Increased cyber attacks
  • Shortage of skilled workers
  • Rising prices

Military conflict between Ukraine and Russia will deliver yet another blow to global supply chains, particularly those heavily reliant on energy resources.

Ukraine is the second-largest country in Europe, and the clash with Russia has already triggered flight cancellations, ramped up pressure on cargo capacity and sent oil prices skyrocketing.

The war also has also raised concerns over the supply of materials such as palladium, steel, platinum, aluminium, sunflower oil and nickel. Meanwhile, factories across Europe and Russia have been forced to close their doors.

Russian banks are now scrambling to open accounts in China to navigate international sanctions, while western businesses are scrambling to reduce their exposure to Russian markets and help colleagues and employees in Ukraine.

European states that rely on Russian oil and natural gas will be the worst affected in terms of the countries that stand to bear the brunt of the conflict. We’ve already seen oil prices rise exponentially worldwide, and ongoing uncertainty over the war will add upward pressure.

While inventory and reserves could help mitigate short-term supply chain headwinds, shortages will be inevitable if the conflict persists.

Several automakers have already felt the effects of international sanctions, with German multinational manufacturer Volkswagen reporting production delays due to material shortages. Fellow German luxury car manufacturer, BMW, said it had no choice but to reduce production at several facilities in Germany, Austria and Britain.

Other industries such as electronic device manufacturers face significant headwinds as the conflict squeezes the supply of neon gas which is found predominantly in Ukraine and is critical for manufacturing semiconductor chips.

Inevitably, the immediate logistics impact of the crisis will be felt by the transportation sector, which has the highest energy intensity indicator of all major industries.

Transport Tightens as Russia-Ukraine War Escalates

Shipping costs spiralled by 300% in 2021 due to disruption caused by the coronavirus pandemic, and ongoing pressures stemming from the 2022 Russian invasion of Ukraine will ensure prices remain elevated.

On March 8th, global shipping giant Maersk announced the temporary suspension of all shipments (except for food and medicine) to and from Russia by all modes of transport. Other international carriers such as Delta Airlines, CMA CGM and MSC have launched similar actions.

Transportation and logistics have become the heart of supply chains and are relied on by various industries, from retail to construction and pharmaceutical.

According to official statistics, Russia contributes to 20% of global trade in natural gas, and like Ukraine, it is a significant source of wheat, barley, corn and fertiliser.

If the military conflict between Russia and Ukraine persists, this could threaten the summer wheat harvest season, which would affect food such as:

  • Bread
  • Biscuits
  • Cereals
  • Pasta
  • Pastries
  • Pizza

The risk to the food harvest is already filtering into prices. If food prices continue to increase, this could have a detrimental impact on the world’s poorest countries.

On March 5th, European Commission President, Ursula von der Leyen, stated that Europe and its allies were “resolved to continue imposing massive costs on Russia” to halt its action.

She added: “Cutting banks off will stop them from conducting most of their financial transactions worldwide and effectively block Russian exports and imports.”

Although there have been reports that Putin has no intention of withdrawing from the Ukrainian border, the Russian President could double back as international sanctions imposed on Russia could cripple the economy.

According to recent estimates by Capital Economics, Russia’s gross domestic product (GDP) could shrink by 5% in 2022, while JP Morgan analysts have forecast a sharper contraction of 11%.

Various financial institutions, including the US Department of the Treasury’s Office of Foreign Assets Control, Industrial and Commercial Bank of China, HSBC, Credit Suisse, Société Generale, have drawn punitive measures against Russia.

And many are prepared to expand those measures to prevent the circumvention of sanctions and deter aggression towards Ukraine.

White House Press Secretary Jen Psaki said the United States is prepared to ban all Russian flights. Meanwhile, the EU has tightened controls on cryptocurrency transfers, and the UK announced plans to halt Russian oil imports.

Western brands are also responding to the Ukrainian crisis, as the number of brands boycotting Russia is gathering momentum.

Western Brands Suspend Operations in Russia

Starbucks, Coca Cola, Pepsi and Mcdonald’s become the latest brands to boycott Russia in response to the darkening situation in Ukraine.

On March 8th, Pepsi announced the suspension of all advertising in Russia and halted drink sales.

McDonald’s has also temporarily severed ties with the country, shuttering its restaurants in 847 locations. The move, which commentators have described as “hugely symbolic”, is expected to cost McDonald’s £50 million a month.

In a message to staff and franchisees, McDonald’s Chief Executive Chris Kempczinski said:

“The conflict in Ukraine and the humanitarian crisis in Europe has caused unspeakable suffering to innocent people. As a system, we join the world in condemning aggression and violence and praying for peace.”

It comes after several other western brands cease operations in Russia. Some of the most notable include:

  • Apple
  • Airbnb
  • Ford
  • Ikea
  • Meta (formerly known as Facebook)
  • Mercedes Benz
  • Netflix
  • Nike

Several professional services companies have also cut ties with Russia, including KPMG, PwC, EY and Deloitte.

While we all hope for a peaceful resolution to the crisis, supply chain expert Katie Tamblin, chief product officer at Achilles Information, warns that even if the war were to end tomorrow, it would take 12 months to recover from ripple inflationary effects.

Although she encouraged companies that are in a position to boycott Russia to do so, she urged them to prepare for even higher commodity prices.

However, she remains confident that supply chains are better equipped to deal with disruption following the impact of COVID-19 and the digitisation of supply chain processes which has streamlined operations and enabled firms to respond to challenges more efficiently.

To mitigate risk, Tamblin advises firms to focus on:

  • Visibility – Know who your suppliers are, the products you depend on and outline any potential risks
  • Installation – Put plans in place to manage potential disruption
  • Agility – Understand your production schedule and assess whether you can shift production to something else for a short time to cope with shortages
  • Nearshoring – outsource logistics to a company or organisation that operates locally

 

If you think that outsourcing your order fulfilment could help your e-commerce business save time and money in 2022, it could be time to give Pointbid a call. At Pointbid, we take the time to get to know your business to ensure that we choose the right fulfilment strategy for you. From goods in, picking and packing, to timely shipping, we take care of the order fulfilment process from start to finish. If you’d like to know more, please do not hesitate to give us a call on 0121 326 7368.

 

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