As Russia’s invasion of Ukraine continues, it threatens international supply chains, who are still reeling from the prolonged COVID-19 pandemic and other disruptions that added to it. List of companies are rising which are halting operations in the region in response to the escalating conflict.
The attack is prompting key materials shortages, increase in material costs, demand volatility, logistics and capacity constraints besides cybersecurity breaches, according to experts. War is the last thing supply chains need now. Ukraine and Russia are important suppliers of raw materials and energy for many crucial supply chains.
The situation is grave considering that even companies without a Tier 1 or Tier 2 supplier connection in Russia or Ukraine can get effected as this has the potential to create some crippling disruption across industries from energy to agriculture. Oil prices, reached their highest levels in 8 years, and the trend is expected to continue, as Russia is the world’s third largest oil producer and the U.S.’s second-largest foreign oil supplier.
There is a risk of disastrous outcomes for supply chains. Severe shortages of hydrocarbon, critical minerals, metals, and energy are expected. Supply chains should be diversifying sources and logistics routes wherever possible and get ready for risk response plans for the most vulnerable supply chains.
The disruption can be looked by companies as an opportunity to improve their supply chain systems so they can better predict future issues. The important thing here is supply chain resiliency and flexibility.
Areas such as energy, food, transport, metal and microchips are likely to see trouble ahead. Several European countries are depending on Russian energy, especially gas through various vital pipelines. Europe has been reluctant to remove Russia from the international payments system SWIFT due to Russian gas reliance.
Natural gas in Europe has risen by 40 per cent, while metals including gold, aluminum, copper and nickel also spiked. Russia is a key seller of commodities to global customers, with Europe relying on the nation for about a quarter of its oil and a third of its gas.
War outcomes are predictable enough for companies to easily anticipate, while others are murkier, especially for companies without adequate visibility. Hike in freight rates, along with fuel costs, surcharges, and supply chain disruption is expected following Russia’s decision to invade Ukraine. A ripple effect is likely to increase delays and costs around the whole supply chain. For example, shippers from China to Europe may switch to sea to avoid the unpredictability of land routes. This mode is already under strain because of Covid-19, and Ukraine is likely to make that situation worse. For some suppliers, switching to air freight may offer a short-term solution, but this will increase costs significantly.