The torpedo affect of the Ukraine conflict on supply chains. Is this just the start?

As Russia’s invasion of Ukraine goes on,  procurement professionals are keeping a close eye on logistics and supply chain-related impacts. 

Compounded by the COVID-pandemic delays to supply chain, issues are being felt in ANZ with price increases. But is this just the brining of the disruption? 

Simon Geale, executive vice president for procurement, for Proxima, a supply chain consultancy believes logistics providers were unprepared for the impact of the conflict in Ukraine. 

“The pandemic, extreme weather, and price instability were all on the agenda but now all eyes are on Ukraine as the Russian invasion wreaks havoc on already strained supply chains,” observed Geale. “It is now imperative that the world plans for both the short-and long-term consequences as the situation develops,” he told Logistics Management. 

Across the globe, the price of goods is soaring with petrol panic in Australia this week forcing prices at the pump to peak above $2 per litre. 

Geale added that prices across the board are soaring, from energy to transport and manufactured goods. For procurement professionals, this could loom as a large down-stream issue for purchasing strategies. 

“For instance, Russia and Ukraine produce 29% of global wheat supplies and Russia alone accounts for 40% of palladium, which is used for car and electronics production,” Geale said. 

Just the beginning of the pain?

“Several car factories have shut down in Germany as semiconductor shortages are exacerbated further,” he continued.

“This is likely just the beginning of the disruption. The world’s reliance on Russia for certain commodities such as wheat and sunflower oil is being exposed and goods which are transported through the Black Sea will face significant difficulties.” 

Businesses may need to consider how the sanctions placed on Russia might have a long-term impact – with a focus needed on long-term solutions. 

“Procurement leaders must create lasting solutions should the sanctions become permanent and ultimately isolate the Russian market from global business,” Geale told Logistics Management. 

“Increased production from other countries will mitigate the impact of the crisis, though it will be a few months before the effects of this are felt. Fuel production in countries such as Saudi Arabia can increase whilst nuclear is also a mid-term power option. Other commodities can be sourced from South Africa (Palladium) or notably the US and Canada (wheat/ gas). However, many markets are operating at capacity and such shifts will take time and push up costs.”

More cost impacts loom

ING reports the impact of higher prices in grain, vegetable oil and fertiliser prices leads to more cost inflation in food supply chains – complicating buying decisions and hitting consumers’ pockets. 

“It will mainly be felt by companies in the feed industry, the baking industry, brewers and producers of vegetable oils and spreads due to their heavy reliance on grains and oilseeds,” ING say. 

“Once their current procurement contracts terminate, companies don’t have many other options than to pay higher prices and try to pass them on to their customers.”

Higher transportation prices, more delays and disruptions could be on the way in another blow to global supply chains.

In the US, the ripple effects are expected in the coming weeks for logistics professionals. 

Supply Chain Quarterly reports transportation prices have been climbing since June of 2020, across transportation, warehousing, and inventory – hitting record highs over the past year. 

Logistics Manager’s Index (LMI)—which tracks logistics industry growth expect “broad and very strong upward pressure on transportation prices across the supply chain.” 

This may lead shippers and carriers to expect to pay more in the near term, with air freight. 

According to Garnter, the six key issues for the supply chain will be: 

• Key material shortages
• Material cost increases
• Production capacity impacts
• Demand volatility
• Logistics route and capacity constraints
• Cybersecurity breaches.