The Russian invasion of Ukraine is adding new troubles to the world’s already stressed supply chains

Madrid, April 22, 2022.- The supply chains of Europe, and much of the world, have been affected by the Russian and Ukrainian War. In the following information published by several economic organizations we find the useful diagnosis for transport and logistics companies

The immediate effect on the supply chain has been the sharp rise in the prices of commodities. This will be exacerbated by supply delays and stoppages from the two countries and the surrounding regions. Sanctions against Russia, e.g., excluding its four largest banks from SWIFT, will put additional pressure on supply chains.

Logistics has been chaotic, expensive, and delayed ever since the pandemic began. A prolonged military battle and wider political instability will worsen already existing supply chain logjams.

Costs for all modes of transport will spike as a result of increased fuel costs, airspace bans, and market volatility. 336,500 TEUs (twenty-foot equivalent units) of cargo were transported from China to the E.U by rail in the first half of 2021. Now, this volume will have to be transported via ocean or air instead of rail, which will cause ocean freight rates to rise from $10,000/container to $30,000/container. Airfreight rates and times may increase three- to four-fold (1).

In the long run, the Russia-Ukraine conflict has the potential to have an extended impact on supply chain strategies. The rising cost of manufacturing output and supply chain execution will force difficult choices on production and pricing, while reduced manufacturing will lead to further price inflation. Rising prices for consumers may reduce the market appetite for goods, especially nonessential and luxury items, which could be a catalyst for higher inflation.

The delays, shortages, and rising prices may also lead to negative effects such as:

  • Damage to company brands and image reputation
  • Liquidity and delayed cash flows
  • Drops in customer confidence and market share
  • Loss of revenue – 64% of respondents in the GEP 2021 Cost of Supply Chain Disruption Survey reported losses between 6% and 20% (2)

Businesses that are not proactively planning for, and executing supply chain risk management processes will be the worst hit.

How To Ride the Wave of Supply Disruptions

Addressing the Present. To soften the blow in the short term, supply chain leaders will have to:

  • Set Up a Cross-functional Team: Develop and implement robust mitigation plans for different scenarios working alongside cross-functional teams.
  • Assess Impact of the Crisis: Businesses across industries will be affected by the crisis. Organizations must analyze the range of factors – from the geographic location of their key suppliers and rising commodity and fuel costs to demand volatility, increased cyber threats, and cash flow – to gauge the extent the Ukraine crisis will impact them.
  • Manage Supplier Relationships: In large-scale disruptions such as these, suppliers will be inundated with an avalanche of requests. Companies need to ensure that their requests remain relevant and focused to allow suppliers to function effectively.
  • Consider Portfolio Realignment: Businesses should consider their product portfolio, gain a realistic understanding of what can and cannot be manufactured in the (near) future, and consider manufacturing reinvention as a potential solution.
  • Supply Chain Redesign: Redesigning the supply chain to increase flexibility and resilience and to include early warning functionalities will help companies manage suppliers competently and safeguard the business against risk. Capabilities such as end-to-end visibility, scenario planning, what-if analysis, and demand sensing will enable supply chains to deal with unforeseen events quicker and better.

The modern supply chain needs modern tools to help companies assess, monitor, and proactively act upon risks. From developing strong mitigation plans to increasing flexibility, empower your supply chain to ensure disruptions don’t end up having dire consequences for your organization.

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