How the Globalised Supply Chain is Shocked by the Ukraine War

10 March 2022

On 24 February 2022, Russia launched an invasion of Ukraine, escalating the Russo-Ukrainian War that began in 2014. Western allies immediately began to impose sanctions on Russia, and took steps to block Russia from the international financial messaging system, SWIFT. While the war is creating a devastating loss of life within Ukraine, the impact of the conflict is being felt around the world as the war wreaks havoc on global supply chains which are already struggling to recover from the Covid-19 pandemic.  

Supply chain professionals foresee unprecedented negative effects on people’s livelihoods and the global economy as a result of the war. A report published by CIPS Supply Management suggests that global supply chains will see inflationary effects for a conservative 12 months, even if the war were to end tomorrow.

This is not surprising, as the two nations at war, Russia and Ukraine, are major players in the global supply chain. A report on CNBC states that the two countries account for 29% of the wheat market globally and are also big suppliers of metals and other commodities such as such as oil, gas, aluminium, palladium, nickel, and corn. Ukraine accounts for 16% of global corn exports and 12% of wheat, according to Reuters. International food costs have reached a 10-year high as a result of the deteriorating crisis in Ukraine, according to RAU.

Read: Column: Ukraine’s unmatched corn crop gains encroach on rival exporters

Maersk recently reported that the war in Ukraine has seen some carriers impose war risk surcharges as fuel prices skyrocket and shipping routes in that region are scrapped as a result of the conflict and biting sanctions imposed by both Western and Asian superpowers. The Supply Chain Resilience index 2021, Q4 Report found that additional commodity price rises are expected throughout 2022 as a result of Russian actions in Ukraine, this on the back of a 12% increase seen in Q4 2021.

Shoshana Kedem, from the Africa Agribusiness & Manufacturing, Energy & Resources, suggests that these increasing commodity prices will result in winners and losers throughout Africa and the rest of the globe. Such an outcome is arguably the same as that seen with the Covid-19 pandemic. It is anticipated by the Parliamentary Budget Office (PBO) in South Africa that other major suppliers of platinum group metals (PGMs), such as South Africa and Zimbabwe, may very well see increased demand that could drive tax collections from the mining sector. Oil exporters such as Nigeria and Angola are expected to reap rewards stemming from the oil price increases, while Africa’s biggest consumers of wheat, including Egypt, will be hard hit says Yvonne Mhango, Head of Africa Research at Renaissance Capital. However, such interruptions and sanctions on a global scale hurt the poorest of the poor even more. Overall, the negative outcome is increased transport and food expenses in Africa as a result of rising energy prices. News24 reports that the Automobile Association (AA), warned that while the outlook is unclear, prices of fuel may rise. Already, for the first time in history, as from the 2nd of March 2022, 95 octane fuel will cost more than R21 a litre inland, at R21.60, while it will cost R20.88 a litre on the coast, the first time it has broken the R20 a litre barrier.

Read: How will the Russia-Ukraine war affect Africa?

While the Covid-19 pandemic risk strategies are being actioned, and yet to be really tested, organisations must pivot once again and prepare perhaps for a prolonged hit on the supply chain.

Inteos risk mitigation approaches against conflict includes:

  • Determining the inventory and labour levels that will be necessary in the near to medium term;
  • Collaborating with key suppliers on business continuity plans; and
  • Switch to, or qualify for, alternate sources for key products and services.

According to a recent study by Mckinsey, businesses can expect supply chain disruptions lasting a month or longer now to happen every 3.7 years on average. Whilst supply chains bear the brunt of natural disasters, cyber-attacks, trade wars, Brexit, the Covid-19 pandemic, and the Ukraine war, it is still unknown how long this invasion will last but will undoubtedly impact Ukraine and Russia most. Once again companies must pivot and adopt a range of options for improving resilience across the supply chain. It is envisaged that supply chain executives will opt for analytics and artificial intelligence, the Internet of Things, advanced robotics, and digital platforms.  Mckinsey says, that these technologies will drive scenario testing, evaluate trade-offs, increase transparency, quicken reactions, and even alter production economics.

Written by Staff Content Writer, Raymond Moyo.