LEGACY Insights: COVID Lockdowns in China, State of West Coast Ports, Russian-Ukraine Invasion

Global Supply Chain Braces for Impact of Russian Invasion of Ukraine

In last month’s Shipment, we were carefully monitoring the situation in Ukraine, sharing early predictions about the potential impact of Russian aggression, with particular attention to commodity prices, cybersecurity threats, and cascading geopolitical tensions.

Since the publication of that newsletter, the conflict has escalated into all-out warfare, with Russian President Vladimir Putin ordering the military invasion of Ukraine on February 24, 2022.

In the span of just weeks, multiple Ukrainian territories have fallen under Russian control; major cities - including the capital, Kyiv, Kharkiv, and Mariupol - have been subject to attack; the Ukrainian people have mounted a resistance that has been praised by the world over; anti-war protests have broken out across Russia, and there have been over 15,000 casualties and millions of Ukrainian citizens displaced.

The ripple effects of the crisis have been felt across all corners of the world. Complex global supply chains - already strained under the considerable pressure of the pandemic - have started to crack.

Google: “Russian Ukraine supply Chain”

Russia and Ukraine are major suppliers of an extensive list of raw materials, including sunflower oil; wheat; barley; corn; fertilizer; chemical elements such as neon and xenon; and metals such as palladium, platinum, aluminum, steel, and chrome.

With supply chains all but at a complete halt, automakers and semiconductor manufacturers face materials shortages, while rising food prices threaten the populations of poorer nations across Europe, North Africa, and the Middle East. Major companies such as Nestle, Mondelez International, Coca-Cola HBC, and Sumitomo Electric have shut down Ukrainian plants to avoid risk, while countless others - including Verizon, Pfizer, and Deutsche Bank - have suspended operations in Russia in solidarity with the Ukrainian people.

As noted, cargo flights between Europe and Asia have been canceled or rerouted around Russian airspace in observance of no-fly zone restrictions, increasing air freight fuel costs and prompting carriers to opt for smaller and lighter cargo loads as a result.

Though it’s early yet, these measures - as well as parcel and cargo carriers pulling shipments from Russia - are expected to stretch already limited air cargo capacity even thinner. And we would be remiss not to mention the conflict’s impact on the European energy market: Russia is one of the world’s largest producers of oil and natural gas, and so the crisis has also triggered a precipitous increase in fuel prices.

The full effects of the crisis remain to be seen, but with peace talks making only marginal progress, it is fair to say that shippers would do well to expect the conflict to continue for the foreseeable future and plan accordingly.

Note: Though the Russian invasion of Ukraine is certainly an important topic within the logistics industry, out of respect for the people directly affected by the conflict, we cannot have any sort of meaningful discussion about its economic impact without first acknowledging its human impact. There has been an incalculable loss of human life, and the situation is, by anyone’s account, a tragedy. The Legacy team stands with those impacted by the violence and hopes for a peaceful resolution.

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