LEGACY Insights: Global Supply Chains Brace for Impact of Potential Russia-Ukraine Conflict

LEGACY Insights

In February 2022, we wrote about Russian troops massing along the Ukrainian border, and how logistics professionals were left to watch the situation unfold with bated breath.

As of this writing, we know that Russia has indeed invaded Ukraine, and even with the pandemic doing a number and adding stress on supply chains, the escalating, violent conflict in Ukraine is adding to that stress (watch the video to the right >>).

Our writing in February described how the Russo-Ukrainian crisis has been unfolding for the better part of three decades, but tensions escalated in 2021 when Ukrainian President Volodymyr Zelensky - under pressure from Russia to implement 2014 and 2015 Minsk agreements - urged North Atlantic Treaty Organization (NATO) leadership to put Ukraine on a timeline for membership.

This prompted swift backlash from Russian President Vladimir Putin, who - amongst other demands - asked that Ukraine be permanently barred from NATO membership.

Despite promises from Russia that it has no intentions of invading Ukraine and diplomatic efforts from the U.S., the U.K., and nations across Europe, the situation remains balanced on a razor’s edge - and the potential fallout for global supply chains could be severe.

According to a recent report from Global Trade magazine, should Russia invade Ukraine, global supply chains could experience the following impacts:

• Commodity price increases: As the main supplier of natural gas to the European Union (EU), supply pressures could lead to a dramatic increase in both natural gas and oil prices. Food inflation is also a risk, as Ukraine is one of the world’s largest exporters of corn, wheat, barley, and rye. Finally, Russia controls significant copper reserves and is a major producer of nickel and platinum, which could drive up costs within the metal market.
• Firm-level export controls and sanctions: U.S. and European exports control on Russian energy producers, mining and steel market firms, and financial organizations could further exacerbate commodity cost inflation.
• Cybersecurity collateral damage: Escalating tensions could trigger Russian cyber aggression similar to that of the 2017 NotPetya attack on Ukrainian tax reporting software, which brought down Maersk’s IT infrastructure and cost companies a combined $7.3 billion.
• Geopolitical instability: Should the situation devolve into war, Europe could experience a refugee crisis as Ukrainians seek safety from the conflict, and countries throughout Africa and Asia - which depend on Ukraine for wheat imports - could face increased food insecurity and rising costs.

Jeff Berman, Group News Editor for Logistics Management has an interesting article titled “Industry Stakeholders Highlight Logistics and Supply Chain Impacts of Russia-Ukraine Conflict.”

Berman states that given the fluidity, uncertainty, and unrest this situation has created, things are anything but predictable, at this point in time, save for a healthy dose of speculation and forecasting, as to how things may play out in the short-term and also how long this conflict could last and continue to foster the unknown in a sense.

Simon Geale, executive vice president for procurement, for Proxima, a supply chain consultancy, FourKites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms, Eric Oak, research director for global trade intelligence firm Panjiva, Tim Fiore, Chair of the Institute for Supply Management’s (ISM) Manufacturing Business Survey Committee, and Tony Nieves, of ISM’s Management Services Business Survey Committee, provide excellent viewpoints of the logistics and supply chain impact of the Russia-Ukraine conflict.

Tinglong Dai, an expert in global supply chains, has added to Berman's article with a fascinating contribution titled “Russia’s War with Ukraine Could Permanently Reshape the Global Supply Chain” - a must-read.

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