War: A nightmare for the global supply chain

Introduction

The Russia-Ukraine conflict has affected the global logistics market on every level. This continuous war has led to an increase in prices of several commodities, affecting the international market. Commodities and industrial inputs, everything from wheat and oil to palladium and nickel, have been disrupted and prices have climbed. Transportation costs are increasing too. What is going to happen to the investor confidence and market volatility? To what extent will the energy crisis keep affecting us? In this brief article, we will examine the short-term and long-term implications for supply-chain operations and how this war-provoked crisis could keep on impacting supply-chain management.

What did Russia and Ukraine specialize in exporting before the war occurred?

Russia and Ukraine, two world leading exporters, were already holding a significantly high supply stock, in which the international markets depended on. Agricultural, fuel, energy, and fertilizer products are just some of the product sectors these two countries were specialized in. Prior to the war, Ukraine’s top exports were agricultural products (46%) followed by manufactured goods (42%). Ukraine’s main importers were the European Union (39%) followed by China (12.1%), Turkey (6%) and Russia (5%). On the other hand, Russia’s top exports were fuels and energy products (63%), metals (10%), machinery and equipment (7.5%) and chemical products (7.5%), with priority export destinations being China (12%), Germany (9%) and The Netherlands. Furthermore, it is worth mentioning that Russia holds about 25% of the world’s nitrogen fertilizer and Ukraine and Russia combined account for 28% of the global wheat production.

Food supply shortage and rise in prices.

The war exerted extensive pressure to numerous manufacturing giants such as Boeing and Ford, resulting to the suspension of their business activities. Hundreds of ships laden with wheat, corn, and other seeds, had been stranded at Ukrainian ports due to war restrictions to shipping in the Black Sea. This did not only lead to a rise in transportation costs, but also caused congestion and huge delays in cargo flows, exacerbating the international supply chain condition. These restrictive sanctions resulted to a shift in ocean transport. War-related uncertainties had a snowball effect in the European Markets creating higher container scarcity. Trade limitations resulted to steep price increases for many essential goods, such as grains, the price of which rose by 60% between February and May 2022. Natural gas prices rose by approximately 120-130% within a 6-month period since the beginning of the war. Coal prices also increased by 96% during the same period. The prices of some other consumer goods such as soybeans and corn crops of which Russia is the leading producer and exporter had been increasing ever since the attack. Consequently, further increases in the cost of fertilizers for crops and animal feeds are expected.  Although their prices were already high due to increased demand during the pandemic, they increased further after the war outbreak.

Russia, Ukraine Conflict Escalates, Ripple Effects Could Include Impacts on  Food Prices, Production, and Fertilizer - Farm Policy News

Conclusion

In summary, the Ukrainian-Russian war has reverberated through the world supply chain, highlighting vulnerabilities, and prompting a reassessment of global business strategies. The ongoing impact underscores the interconnected nature of the global economy and emphasizes the need for agile, diversified supply chain management in the face of geopolitical uncertainties. As a result, investor confidence has further decreased, also due to the uncertain nature of the war’s length and final resolution, facilitating the continuing global tensions that have made markets even more volatile. Furthermore, European countries may keep enacting conservative budgetary measures as a result of the uncertainty surrounding the war’s duration and outcomes. Governments might keep postponing investments on major infrastructure projects which affect the engineering and building industries. Private businesses in several sectors also become more conservative and postpone investments due to uncertainty.  The ongoing war has severe and unpredictable ramifications on a multitude of industries and global supply chain of goods, thus directly affecting governments, businesses and consumers worldwide.

Alexandros Emmanouilidis

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