What Happens to the Global Supply Chain When War Breaks Out?

Military Canons! Defense During War Times!
Facebook
Twitter
LinkedIn
Pinterest

The global import and export industry, still reeling from the Covid-19 impact, is now dealing with the consequences of war. After growing geopolitical tensions in 2021, Russian President Vladimir Putin ordered an invasion of Ukraine on 24 February 2022. So let’s look at the impact on the global supply chain.

Europe-Asia supply routes

The horrendous humanitarian crisis has already made clear that the Russia-Ukraine battle will have sweeping implications for many supply chains. Specifically, those who are in the line of fire – so to speak, are ground-based freight networks transferring goods between Europe and Asia by rail and road.

The irony is that in 2021 the chaos caused by COVID rocked the container shipping industry, with shippers moving goods via the Europe-Asia trade routes via railroad and other freight options. Last year, rail operators transported nearly 1.5 million containers on 1,200 freight trains a month between Europe and China. Many of these routes traverse Russia, Belarus, and Ukraine to Western European end-points. Unfortunately, the current crisis has made this area too risky for rail freight. Once again, traders are desperately looking for alternative routes. The containerized shipping industry is still overwhelmed by shipping delays, port congestion, record-high freight costs, and more difficulties.

Global sanctions – oil and gas

The invasion sparked a global economic response. Many countries imposed sanctions against Russia, and prominent brands pulled out, with Coca-Cola and McDonald’s the latest to leave. However, the main focus is on oil and gas.

The US and UK announced a ban on Russian oil and gas and imports. At the same time, the EU aims to stop its reliance on Russian gas by seeking alternative suppliers and expanding clean energy. US President Joe Biden said the move targeted “the main artery of Russia’s economy.” Russia’s energy exports are a crucial revenue source, and the country is the world’s third-biggest oil producer. Nevertheless, Western consumers will feel the impact, and petrol prices are already at record highs in the US and UK. However, Venezuela could dramatically raise its oil production, eventually replace Russian oil and at least fulfill the current needs of North America. Of note, Russian officials blame rising oil prices on Western sanctions on Russia and not on Russia’s invasion of Ukraine.

In response, Russia threatens to cut off its primary gas supply to Germany, which it says will have disastrous consequences for the worldwide economy. In addition, Russia also announced plans to ban exports of certain raw materials and commodities. As a major exporter of metals and agricultural, shortages could be hard-hitting for many dependent countries, even impacting the global food supply chain. For instance, Russia exports more than $6 billion of wheat annually. In addition, it is a crucial producer of vast amounts of the critical raw ingredients for fertilizer products used in the crop grown worldwide.

Shipping in war

After what shippers have experienced with COVID, the current situation spells significant fallout. Also, it will trigger a ripple effect throughout the global supply chain – more supply shortages, delivery delays, and confusion around suppliers and shipping options.

Shipping by sea is also at risk. Shippers may face insurance termination in specific situations during a war, according to the Nordic Marine Insurance Plan (NMIP) document. The NMIP document, which is regularly updated, offers an extensive explanation of marine insurance coverage and termination in the event of war

In short

When the Russian-Ukraine crisis hit, global supply chains were beginning to recover from the COVID-induced chaos, while many businesses have still not. Both situations have exposed the gross interdependence of global supply chains and their fundamental weaknesses.

However, COVID and the Ukraine crisis have made many take action in reconstructing their supply chain – be it by near-shoring or reshoring and investing in technological advancements such as automation. As a result, it is sufficient to say that the global supply chain will look very different for many businesses in the next few years.

stay in touch!

Subscribe to receive our monthly newsletter and some professional tips!