THE IMPACT OF THE UKRAINIAN CONFLICT ON THE SUPPLY CHAIN22/07/2022
If the COVID-19 pandemic disrupted the global supply chain, the conflict in Ukraine is putting it under a serious strain. According to a recent report, just over 600.000 businesses worldwide rely on Ukrainian and Russian suppliers. With such a high number in mind, it is easy to understand how the ongoing war is creating barriers in the market that damage the flow of commodities: mainly wheat, corn, sunflower seed but also oil, gas and semi-finished iron products. Despite the long-term effort to make the whole logistics system more efficient by implementing integrated supply chain management solutions, it seems that now the sector has to face another major setback.
It is not just about the significant geographical shift in supply and demand; issues are arising also because of the current economic situation. The World Bank reports that both Ukraine and Russia are sinking into a deep recession. With limited supplies, prices are on the rise almost on a weekly basis. As a result, consumers worldwide are feeling the pain of the surge in inflation thus significantly reducing demand for goods.
On the other side, the rising fuel costs and higher price of transport equipment make transport costs increase while logistics becomes more and more complex. On land, re-routing south via the Trans-Caspian route seems to be the only viable option in order to avoid the Eurasian railway that currently represents more than 5% of total eastbound-westbound container traffic. As for airfreights, with Russian freighters out of global service and closed airspaces, routes between Europe and destinations like Japan and Korea are redirected to avoid Russian airspace. In both cases, longer hours are needed, possible stopovers are to be taken into account and – more generally – inefficiency and longer lead times must be somehow expected. The same applies to sea freight, as the war in Ukraine entails avoiding numerous ports and vessels.
In this time of uncertainty, best practices can help create an agile supply chain to withstand possible future disruptions. From risk-based assessment processes – to identify specific risks that could impact the productivity of the supply chain – to an improved use of data and analytics, we should all be more prepared to make informed decisions, especially during unexpected events. Supply chain resilience may also be fostered by stipulating longer contracts with suppliers and transport partners besides investing – if possible – in own containers and transport capacity.