Supply Chain Issues: The Russian Invasion of Ukraine

The Russian invasion of Ukraine may have repercussions for the global supply chain. Already battered by the Covid-19 pandemic, more shortages are expected as the war continues. Already price increases are happening across a few sectors. Russia is one of the world’s largest exporters of fuel and energy, with crude oil prices already over $100. However, there are other commodities affected.

Both nations are world leaders in the production and exporting of metals such as nickel, copper, and iron. Additionally, raw materials such as neon, palladium, and platinum as well as petrochemical derivatives and products are heavily manufactured and exported.

Shipping will also begin to feel the impact. Already, businesses have stopped operation in the region. A.P. Moller-Maersk has stopped accepting bookings to and from Ukraine. Fed Ex and UPS have also ceased operations in the country.

For American companies doing business with Tier 1 or Tier 2 suppliers in Ukraine and Russia will have ongoing issues. More than 1,100 US based firms have at least one Tier 1 supplier in Russia. Additionally, about 400 Us and European firms have at least 1 Tier 1 supplier in Ukraine.

Even if a company doesn’t have direct contact with a Russian or Ukrainian firm, the total increases dramatically when factoring in indirect relationships. Tier 2 and Tier 3 consist of over 5,000 American and European firms that work with Russian and Ukrainian companies. Over 1,000 firms are reliant on Tier 2 services from Ukraine and 1,200 are dependent on suppliers on Tier 3.

Companies are also finding out that even if distribution isn’t an issue, services such as IT can be affected. One company discovered a Tier 2 supplier had outsourced it IT and customer service systems to Ukraine. Software and IT services make up 12% of supplier relationships between US and Ukrainian/Russian companies.

Europe and specifically Germany will feel the brunt of the price increases and shortages, as well as parts of the Middle East, Eastern Europe, and Africa. Germany is in a unique position where they are reliant on both nations for energy consumption. Russian natural gas energizes their electric power grid, thus shortages from war or sanctions will cause a dip in the manufacturing output, further impacting the global supply chain.

To best navigate these uncertain times, improving visibility beyond their main suppliers as well as stocking up on key materials, as the continued war will have great impact on semiconductors, rare earth metals, and high-tech electronics. The ability to remain flexible and keep an eye on the bigger picture will be crucial to business success.