Following months of troop formation, failed diplomacy, and deceitful intentions, the Russian military forces invaded Ukraine on February 24, 2022. As a result of the militaristic conflict, wide uncertainty exists pertaining to global trade. Supply chains still recovering from the pandemic will likely experience disruptions that have far-reaching consequences. It’s crucial for company executives to prepare their processes for impending market changes.
The supply chain industry has not only taken a hit during the COVID-19 pandemic; global political turmoil also has negatively affected trade. Since the current conflict has an impact on the supply chain industry, company leaders should review their strategy and implement changes based on lessons learned.
Likely Supply Chain Interruptions
Rising Transportation Costs
Global oil supply has remained tight from pandemic lows. As consumer demand has risen following ease of restrictions, gas prices have skyrocketed. Since Russia is the third-largest oil producer and second-largest oil exporter, their invasion of Ukraine only exacerbates the issue.
Fuel is an essential component to numerous supply chains, so any disruption will negatively impact processes. In a broader sense, already high freight costs have the potential to rise even more. The COVID-19 induced supply chain crisis will fall under greater pressure, as shippers will have to avoid the area of conflict for the foreseeable future.
Increased Electricity Rates
Just as rising fuel prices will significantly impact transportation, rising natural gas costs will also affect supply chains. Germany’s decision to halt the key pipeline connecting Russia to the European Union disrupts the availability of energy for numerous manufacturers, as natural gas has become increasingly important in generating electricity.
The low inventory of natural gas leads energy companies to charge higher prices for electricity, cutting into the profits of businesses throughout Europe. Manufacturers, retailers, and distributors will in turn charge increased prices for their products to preserve their bottom line. As a result, the global supply chain will experience economic impact at every level.
Raw Materials and Commodities
The raw material and agricultural products supply chains will face uncertainty as the conflict continues to escalate. Ukraine exports large amounts of corn, barley, rye, and sunflower oil throughout the globe, and Russia is the world’s highest wheat exporter. Food prices sharply increased in 2021, and the resulting inflation from the attacks will greatly impact global importing and exporting.
Food producers are likely to be under further pressure as the prices of key ingredients rise. If the harvesting and processing of commodities is hindered in a war-torn Ukraine, importers will likely struggle to replace supplies. The shortage will lead to higher food prices throughout the world.
Russia and Ukraine lead the global production of copper, nickel, and iron. The countries are also largely involved in the manufacturing and exporting of other metals, such as platinum, palladium, and neon. Key metals are used to create a variety of everyday products, including automotive exhaust systems, dental fillings, and smartphones. Any disruption in the metal market can lead to increased prices and limited availability.
Changes to Ocean Offerings
The invasion is also causing issues for ocean trade. Countries such as the United Kingdom have banned ships owned or operated by Russian companies or sailing under a Russian flag from entering their ports. Further, some of the world’s largest shipping lines are no longer traveling to Russia’s ports. Additionally, Ukraine closed its ports due to the conflict.
As a result, numerous ships are unable to deliver the cargo on board or pick up products, while others remain lodged at Ukrainian ports. Since Russia and Ukraine export large amounts of key products, nearly every company will have to implement alternate shipping routes away from the Black Sea and the Sea of Azov. Plus, as Russia is cut off from much of the world, they must rely upon Asian companies to send and receive goods.
The attacks on Ukraine have resulted in numerous innocent lives lost, cities destroyed, and the military forces weakened. Any warfare can lead to a humanitarian crisis as refugees flee their home country to escape the attacks, and it is no different with the current conflict. The rising prices of fuel and electricity, along with inflation of commodities, creates greater difficulties for countries wishing to assist those in need. New routes and strategies are required to ship products to the Ukrainian refugees.
Supply Chain Risk Management Strategies
Although the attacks could prompt material shortages, cost increases, demand volatility, logistics constraints, and ocean shipping difficulties, companies can implement key strategies to mitigate their supply chain risk. Extending your focus past immediate suppliers and stocking up on key materials can help your company navigate the potential risks. Additionally, diversifying your sources and logistics routes away from the conflict where possible will be critical.
End-to-end risk management is crucial in today’s market. Companies that develop and leverage risk response plans will increase the strength and resiliency of their supply chain. Doing so offers companies the opportunity to revolutionize their processes to better predict and navigate potential disruptions. Possessing the flexibility necessary allows you to anticipate issues and adapt to anything the market may bring, meeting deadlines and customer expectations.
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The growing conflict between Russia and Ukraine can significantly impact the already vulnerable supply chain industry. Schedule changes, sailing limitations and bottlenecks could be on the horizon.
In order to adequately address the risks that could affect your company’s processes, you need to analyze your existing strategy, identify discrepancies, and create new solutions. If you don’t possess the knowledge and experience to effectively manage your supply chain while simultaneously running your business, it’s critical to partner with a team that can handle your end-to-end operations. Our team of specialists at Global Gateway Logistics stay ahead of the curve and leverage deep industry knowledge to boost your supply chain.
If you’re looking for a partner to assist you with mitigating risk in your transportation strategies during the present global environment, contact us today.