Industry Players Highlight Impacts of Russian-Ukrainian Conflict on Logistics and Supply Chain
As Russia’s invasion of Ukraine continues, subsequent logistics and supply chain impacts continue to evolve in parallel.
Over the past few days, since Russia advanced into Ukraine, there have been myriad impacts on logistics and supply chain operations, in the form of: rapidly rising oil prices and gas, shippers and carriers implementing contingency plans; a shutdown of port operations in Ukraine, which the Wall Street Journal says could disrupt vital shipping routes that transport much of the world’s wheat and other agricultural products; and several global freight and logistics service providers have halted service to and from Russia and Ukraine.
Given the fluidity, uncertainty and turmoil this situation has created, things are anything but predictable, save for a fair amount of speculation and forecasting, as to how things will go. can unfold in the short term and also how long this conflict could last and continue to favor the unknown in a sense.
Simon Geale, executive vice president of procurement at Proxima, a supply chain consultancy, observed that supply chains are volatile and logistics providers were unprepared for the impact of the conflict in Ukraine. , as it far exceeds the other risk factors predicted in 2022.
“The pandemic, extreme weather and price volatility were all on the agenda, but now all eyes are on Ukraine as the Russian invasion wreaks havoc on supply chains already strained,” Geale observed. “It is now imperative that the world plans for the short and long term consequences as the situation evolves.
In the short term, Geale explained that the exodus of Russian investments and the SWIFT legislation seriously complicate payments. And he added that prices in all areas were soaring, from energy to transport to manufactured goods.
“For example, Russia and Ukraine produce 29% of the world’s wheat supply and Russia alone accounts for 40% of palladium, which is used for automotive and electronics production. Several car factories have closed in Germany as semiconductor shortages are further exacerbated,” Geale said. This is probably just the start of the disruption. Global dependence on Russia for certain products such as wheat and sunflower oil is exposed and goods that are transported through the Black Sea will face significant difficulties. Shipping from Ukrainian ports has all but ceased and, as airlines warn of closures of Russian airspace, transport costs will skyrocket, rendering some routes unusable.
Additionally, Geale noted that companies must now consider how the sanctions imposed on Russia could have a long-term impact.
“With sales and trade with Russia increasingly ceasing, procurement managers need to create lasting solutions if the sanctions become permanent and ultimately isolate the Russian market from global trade,” he said. “Increased production from other countries will lessen the impact of the crisis, although it will take a few months before the effects are felt. Fuel production in countries like Saudi Arabia may increase while nuclear is also a medium-term energy option.Other raw materials can come from South Africa (Palladium) or in particular from the United States and Canada (wheat/gas).However, many markets operate at full capacity and such changes will take time and increase costs.”
On a logistical level, Geale stressed the need to look at how companies can create routes that avoid the area, saying supply chains can no longer ignore geopolitical risks in Europe as conflict must become a fundamental pillar of supply strategies.
Data provided to ML by Chicago-based FourKites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms, showed a significant drop in imports to Russia, for the week of February 28, when the invasion of Ukraine has begun.
Data from FourKites indicates that Russian import volumes fell 28% from the week of February 21 to the week of February 28, with oil and gas down 12%. And he also noted that the manufacturing and retail sectors were the hardest hit, down 56% and 28%, respectively, for the same period.
FourKites also made the following observations:
- FourKites continues to see an increase in delayed shipments to the region. Among LTL shipments traveling to Eastern Europe, delayed shipments have increased by 20% since before the invasion began;
- As of March 2, export dwell times for all European ports have increased by 25% since February 17; Transhipment dwell times for European ports increased by 43% over the same period;
- FourKites saw the largest increases in ocean dwell time in consumer packaged goods (CPG) and food and beverage (F&B), where dwell times in Europe increased by 55% for FourKites customers between February 17 and March 2;
- Dwell times were impacted across Europe, with dwell times up 41% in Western Europe, 6% in Eastern Europe, 26% in Southern Europe and 17% in Europe from the North between February 17 and March 2; and
- Ocean freight rates are skyrocketing beyond their already record highs. FourKites predicts a 20 to 40 times increase in ocean freight rates. This is already the case – while shipments from Shanghai to Rotterdam were under $2,000 two years ago, some freight forwarders were posting rates of $54,000 for a single container immediately after the invasion. Air freight prices are also rising.
“With regard to imports into Russia, the volume of shipments to Russia fell – already down 17% week-over-week on March 2 compared to February 17,” he said. . “This is due to several factors, from penalties to dangerous routes. Many shippers pulled out after facing dangerous conditions at ports, including friendly fire. And as popular sentiment against the violent incursion crystallizes, individual retailers and major brands are also opting out of doing business with Russia.
A research note written by Eric Oak, director of research for global trade intelligence firm Panjiva, pointed out that fallout from the conflict is likely to ripple through global supply chains and impact economies of the world. Eastern Europe and beyond.
“First-order effects may come from growing economic sanctions imposed by the United States and other countries on Russia, and widespread disruptions in Ukraine,” Oak wrote. “From a U.S. economic perspective, imports from Ukraine were up 28.7% year-over-year in the fourth quarter of 2021. The disruptions are expected to be felt across all industries, but the majority of US imports from the country fall into the metals category: 59.7% in 2021. This was up 61.8% year-over-year in the fourth quarter; February data will likely point to a decline in growth. Companies that import metals, mainly pig iron, from Ukraine include Nucor Corp., Eusider SpA and Steel Dynamics Inc., whose imports increased by 68.1%, 66.0% and 16.0% d year-on-year in 2021, respectively. These sources are likely to be disrupted in some way if the conflict continues.
Reactions to the dispute from Tim Fiore, chair of the Institute for Supply Management’s (ISM) Manufacturing Business Survey Committee, and Tony Nieves, ISM’s Management Services Business Survey Committee , were somewhat tempered, given the uneven and changing situation at the time.
“I don’t know if the situation in Ukraine is going to affect us too much,” Fiore said. ” It is too early to tell. I don’t think any nation has ever been cut off from the international banking system like Russia has been and, by extension, Ukraine has been as well. They are not major trading partners with the US, even with Europe, outside of energy and aluminum, corn and wheat, and some specialty minerals like titanium. There’s usually plenty of inventory in other parts of the world for that anyway. The biggest headwind here is for oil to rise above $100 a barrel…this could actually be a good thing as it could spur reinvestment in the US and drive refining to 13 million barrels a day again petrol.
Nieves noted that any challenges arising from the conflict for the service-based economy pale in comparison to the manufacturing sector, which he said is at the forefront of what is happening.
“Resources flowing through Russia and Ukraine are barrels of oil, things needed to make chips like steel, natural gas and other things,” he said. “Things like that will go through the supply chain and eventually hit us for things like fuel prices, which we’re already seeing, and all the petroleum-based products, as well as steel, chips, and it will affect car production as well. It’s more of a trickle-down effect on services after first hitting manufacturing.”
About the Author
Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handlingand Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight forwarding and material handling industries on a daily basis. Contact Jeff Berman