Russia-Ukraine Conflict Sets Off (Supply) Chain Reaction

How Russia’s invasion of Ukraine affects everything from exports to manufacturing to transport.

Supply chain issues are nothing new. During the pandemic, we saw:

• Warehouse shortages,
• Cargo ships stuck in canals
• Holidays burdened by stockouts

Now, the Russia-Ukraine war is adding new troubles to the global supply chain. Here’s what you can expect:

Exports

Foodwise, Russia and Ukraine supply:

• 26% of the world’s wheat
• 16% of its corn
• 80% of its sunflower-seed meal and oil

Non-foodwise, Ukraine supplies ~50% of the world’s neon gas, which is used to build semiconductor chips. And Russia’s the world’s largest exporter of fertilizer.

Many countries imposed damaging sanctions on the invader (including the US and EU), cutting off Russia financially. Meanwhile, Ukraine has been cut off physically.

Food items are not part of these sanctions. Meaning, grains and seed oil will continue to move, but not nearly as efficiently as before.

There’s also speculation on whether Ukraine will be able to plant spring crops. If they can’t, this could further diminish these resources’ availability in the coming months.

Manufacturing

Sourcing non-food exports from these countries, like potash and ammonia, poses other manufacturing challenges.

Governments and larger brands are scrambling to find affordable alternatives for these exports. And it’s causing a domino effect. For example, in Europe’s automotive industry:

• Volkswagen and BMW closed assembly lines in Germany thanks to a shortage of Ukrainian-made wiring harnesses (BMW has since resumed some of this production).
• Tire manufacturer Michelin said it will close some European due to logistic issues posed by the conflict.

But shortages of food-adjacent products (like animal feed and fertilizer) are more concerning dominos that have started to fall.

For instance, fertilizer soared to an all-time high (up 40% from a month ago, before the invasion). And the surge is drawing attention to how many farms rely on this particular Russian export.

Namely, soybean farms in Brazil purchase roughly half of Russia and Belarus’ potash fertilizer each year. Most of these farms’ yield is made into animal feed used by other countries.

Right now, these farms have 3 or so months of stockpiles left. And the farmers have been instructed to use less– if any–fertilizer this season by local authorities. But without this fertilizer (and coupled with droughts), these farms will have smaller yields.

This means less feed, smaller animals, and, consequently, higher meat prices. And the scarcity of these resources (fertilizer and feed) could put countries already experiencing food insecurity at great risk of food shortages.

Transportation

The conflict has caused oil and gas pricing to soar, and transportation costs will inevitably follow suit.

However, perhaps less obvious is the war’s constraint on Russian transportation. Particularly the country’s transportation of Asian-made goods.

Pre-pandemic, China manufactured 28.7% of the world’s goods (for comparison, the US accounted for 16.8%). And Russia’s railway distributed a majority of these items throughout Europe.

But in the past few weeks, international shipping companies have largely suspended their activities in Russia, bringing this trade to a standstill.

A lot of these products can be transported by air. But this option is much more expensive–especially because airlines would need to use routes that detour Russian airspace.

How you can prepare

While the war’s full impact on global food supplies is still murky, prices are already skyrocketing. And while some brands will hurt sooner (and more) than others, every brand will be impacted.

To prepare for these supply chain challenges, consider rethinking your sourcing and manufacturing strategies to favor localized solutions. This way, you reduce your exposure to global risks that often disrupt the larger supply chain.

However, if you can’t do this for whatever reason, stress test your supply chains to ensure your brand is resilient to these foreseeable chain reactions.