Ukraine crisis overtakes Covid as biggest threat to global supply chain
We are now two weeks into the Russia-Ukraine war. As the war continues, more and more companies are ceasing operations in Russia, wreaking further havoc on an already incredibly disrupted supply chain.
Productivity in Ukraine’s export sectors has dropped severely, with grain and wheat yield reducing majorly. Before Russia’s invasion, over 60.0% of Ukraine’s exports of grain and wheat went to former Soviet Republics such as Russia, Kazakhstan and Belarus, all major allies of Russia. Ukraine currently holds 11.0% of the world’s grain market – increasing its grain production by 32.0% in 2021 to 85.7m tonnes – and 55.0% of the sunflower oil market. These sectors will be severely impacted by the ongoing conflict in the country. Neighbouring countries such as Poland, which have received huge influxes of refugees, are also showing signs of struggle; VW’s Polish units recently announced it was halting production amid supply chain problems caused by the Ukrainian war.
Re-building after catastrophes such as this war will also come at a great financial expense. In addition, rebuilding efforts will be hindered not only by a shortage of supplies, but also soaring commodity prices. In the medium-term, oil and gas supplies are also running low for Ukraine, with the geopolitical landscape subject to incredible volatility. Raw materials are also seeing shortages, with Ukraine’s trade infrastructure already having taken a large hit that will have large implications down the line for the country regardless of the outcomes from the horrific conflict.
Core metals are also experiencing rocketing prices. Russia produces 14.0% of global aluminium, and, with all factors put into perspective regarding economic sanctions, this will only reduce and cause supply shortages in the future. To add, with a largely reduced number of road freight and trucks making their way into and through Russia, its productivity has started to steadily decline. In Ukraine, with rockets and missiles causing sustained damage to buildings, roads and other infrastructure, the physical act of moving materials across the country has reduced by almost 80.0% in most areas and ceased altogether in the other 20.0%.
Electronics is likely to take the largest hit in the near future, as Russia supplies over 40.0% of the world’s palladium, one of the main resources in the production of semiconductors. Computer chips also require neon, of which Ukraine produces over 70.0% of the world’s total supply. In addition, the two major purifiers for Russian and Ukrainian neon are in Odesa, an area where access is now virtually impossible. Disruption of such supplies is an illustration of the wide-scale global impact the conflict will have, reaching corners of the world presumed to be untouched by the invasion occurring in eastern Europe.
An Achilles Q4 2021 shows data for global supply chains forecasted a tumultuous start to the year, the situation in Ukraine notwithstanding. With the additional tension from the conflict, this will only increase. The restrictions imposed on Russian finances and businesses by the West have caused complete disruption to Russian supply chains, as well as sustained damage to the Federation’s economy. As of March 8 2022, the Ruble is valued at ₽1/$0.0073, entering freefall amidst the sanctions levied on the Russian economy by entities such as the EU, USA, UK and even Switzerland, putting aside its long-standing neutrality in the face of these dreadful acts.
The extent to which local and global supply chains and economies are becoming impacted by the war is slowly becoming clearer. A glimmer of hope is that many regular civilians across Europe are coming to the aid of the refugee issue in western Ukraine, which is reducing human congestion across these normally busy trade and trucking routes. For now, however, the Ukrainian people remain under an unprecedented threat. According to Forbes, the Russia-Ukraine crisis could leave the world facing extended reductions to energy supply, severe sanctions that will likely impact food security as well as rare metal supplies needed to sustain production of key technologies. All of this, coupled with the humanitarian crisis, complicates this unrest further.