The Russia-Ukraine war conflict and its effects on supply chains

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A severe crisis of fossil-based fuels, minerals, metals, energy, and even food could be on the way. The prices of those products are likely to skyrocket because of shortages, impulse buying, and protectionism, affecting the manufacturing operations, supply chains, and the physical distribution of these commodities, states CETYS Expert.

After almost two years of weathering the effects of the pandemic, global supply chains now face an environment that will once again test their resilience. The global supply is about to face unpredictable behaviors because of the armed confrontation between Ukraine and Russia.

“At this time, it is difficult to predict how the situation will develop. The possibilities range from an extreme scenario, a military conflict that would have disastrous effects on the supply chains, to severe economic sanctions that would generate volatility and affect the ability of world production and critical routes for logistics,” said Dr. Bertha Martínez Cisneros, Dean of the Bachelor of International Logistics program at CETYS University, Mexicali Campus.

Even, she reflected, a position of stagnation would generate greater uncertainty in supply chains, especially in industries such as high-tech electronics, semiconductors, energy, rare earth minerals, and other materials.

According to Gartner and other international consultancies, six problems can be identified that companies will face in their supply chains if the escalations in Ukraine continue:

– Shortage of key raw material.

– Increases in material costs.

– Effects on production capacity.

– Demand volatility.

– Capacity restrictions and logistics routes.

– Cybersecurity violations.

On behalf of the global business community, the Secretary-General of the International Chamber of Commerce (ICC), John W.H. Denton, has stated that Russia’s invasion of Ukraine will have significant repercussions for global supply chains in the coming weeks and months. The likely impact on energy and food markets is already being felt, but there is a deeper risk of global manufacturing disruption across several sectors.

Food inflation is also a supply chain disruption risk. Russia and Ukraine together contribute about 30% to the world wheat export market. Ukraine, the granary of Europe, is on track to become the world’s third-largest exporter of corn, and Russia is the leading exporter of wheat. Ukraine is also one of the principal exporters of barley and rye.

Apart from grain production, these two countries are world leaders in the production and export of metals such as nickel, copper, and iron. Other raw materials, such as neon, palladium, platinum, and various chemicals products, especially derivatives and petrochemical products, are also manufactured and exported in large quantities from Russia and Ukraine.

Ukraine has become a supplier of essential metals and raw materials for global value chains, mainly in the production of semiconductors, automobiles, and medicines, which would be seriously affected by the interruption of commercial activities.

“To understand the complexity of global supply chains, consider 2,100 US companies and 1,200 European companies that have at least one direct supplier (tier 1) in Russia. Over 450 companies in the US and 200 in Europe have top-tier suppliers in Ukraine; the numbers increase as we move from direct providers to indirect relationships (Level 2 or 3). More than 15,100 companies in the US and 8,200 European companies have Tier 2 suppliers based in these countries. And at level 3, we would consider 190,000 companies in the USA and 109,000 companies in Europe”, said the Dean.

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