Ukraine Crisis Creates New Strains On Global Supply Chains

Fragile and sensitive supply chains are facing new challenges in the aftermath of Russia’s invasion of Ukraine. But as bad as things are now, they are likely to get worse for hundreds of thousands of businesses around the world.

According to a new report from Dun & Bradstreet, the international domino effect of global dependencies on businesses in the Ukraine region is already being felt.

Why? Because 374,000 businesses worldwide rely on Russian suppliers—90% of these businesses are based in the US. About 241,000 businesses rely on Ukrainian suppliers and 93% are based in the U.S., according to Dun & Bradstreet.

The report observed that, “Businesses around the globe continue to grapple with inflation brought on by the pandemic as well as commodity price increases brought on by disruptions to the supply chain.

“Amidst this ongoing volatility are the new consequences arising from the Russia-Ukraine crisis that 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 a significant humanitarian crisis makes the unrest even more complicated,” the report noted.

U.S. Weighs Ban On Russian Energy Imports

According to Reuters, “The Biden administration is weighing cutting U.S. imports of Russian oil and ways to minimize the impact on global supplies and consumers, the White House said on March 4, as lawmakers fast-track a bill that would ban Russian energy imports entirely.

“’We are looking at ways to reduce the import of Russian oil while also making sure that we are maintaining the global supply needs out there," White House spokeswoman Jen Psaki told reporters at a briefing. The White House remains in contact with U.S. lawmakers over the issue, she said.”

Initial Impact

"The greatest risk facing global supply chains has shifted from the pandemic to the Russia-Ukraine military conflict and the geopolitical and economic uncertainties it has created," Moody's Analytics economist Tim Uy wrote in a report Thursday.

“Moody's warned that the Russia-Ukraine crisis will ‘only exacerbate the situation for companies in many industries,' especially those reliant on energy resources.”

Dun & Bradstreet said the crisis has the following immediate implications for companies and organizations:

• This potential to widely exacerbate Europe’s energy crisis.
• The ripple effects of U.S., UK, and EU sanctions on Russian companies further cripples an already weakened global supply chain.
• Disruption of trade routes, freight costs, inaccessibility of critical raw materials could derail economic growth and add to inflationary pressure.

The company said Russia’s war against Ukraine is being felt particularly hard in the following industries, which have few—if any— alternatives for obtaining the materials and resources on which they depend.

Natural Gas

Approximately 41% of Europe’s natural gas supplies comes from Russia; an alternative source of natural gas could be liquified natural gas (LNG) imported from the U.S., Qatar, or Nigeria.

Crude Oil

Approximately 34% of Europe’s crude oil imports come from Russia; alternative suppliers could be Saudi Arabia, Iraq, or the U.S.

Industrial Metals

Russia and Ukraine lead the global production of metals such as aluminum, nickel, copper, and iron ore, and are the main supplier of metals for Europe; alternate sources are geographically distant but could be South America, China, or Japan.

Approximately 90% of neon, used for chip lithography, originates from Russia; alternative sources are not readily available.

Agri-Commodities

Russia and Ukraine account for more than 25% of the world’s trade in wheat, about 20% of corn sales, and 80% of sunflower oil exports; alternative sources for wheat could be U.S, Canada, France; alternative sources for corn could be U.S., Argentina, or Brazil; alternative sources for sunflower oil could be Turkey, Netherlands, or Hungary.

Advice For Business leaders

‘Pursue A Better Understanding’

“With the sanctions and diminished access to commodities at hand and supply chain disruption to consider, business leaders would do well to pursue a better understanding—leading to better management— of their supply chains," Dun & Bradstreet’s report said. “In the near-term, companies can rely on their alternative suppliers to fill resource gaps in their supply chain.”

‘Embrace Data And Technology’

Philip Melson is the global lead for retail consulting at artificial intelligence company Fractal Analytics. He recommended that, “... retailers need to find a way to embrace data and technology to help them navigate shifts in supply chain capacity so that they can try to find the best value they can.

“In addition, retailers also need to find ways to better optimize pricing dynamically so that they can keep pricing as feasible as possible for customers while also delivering some kind of margin,” he said.

Flexibility And Agility

"Simply put, retailers need to work very flexibly and remain agile given that the country is in a very dynamic state. Optimal logistics routes will have to be continuously updated as conditions and navigability of roads change on a intraday basis and destinations for inventory and labor will shift based on where the population may be moving as a result of the conflict. Therefore, the best way for retailers to successfully navigate this crisis is to 'remain on their toes,” Melson concluded.

 

This article was written by Edward Segal from Forbes and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.