Supply chains - a bad situation is about to get worse

Alongside the humanitarian disaster unfolding in Ukraine is a growing supply chain crisis that will affect industries and consumers around the world.

Context 

Ukraine and Russia are major exporters of agricultural products such as wheat, corn and sunflower oil. They are also important sources of various metals, including specialised materials like palladium and xenon, used to make catalytic converters and semiconductors for vehicles. 

Commodities and raw materials 

The combination of sanctions against Russia and conditions on the ground in Ukraine will affect supplies of commodities and raw materials. At an industry level, the effects of this war will be felt from car manufacturers to potato chip makers. At the consumer level, price rises for basic foodstuffs like pasta and bread are inevitable. Particularly alarming is the potential threat to this year’s wheat harvest in Ukraine; if that should fail, bread prices will rocket in the Middle East and North Africa, an area where the UN World Food Programme has already warned of an increase in food poverty. 

Logistics 

Major shipping firms, like Maersk, have announced they will suspend shipments to and from Russia, which will only add to the existing problems that have built up during the pandemic. “There’s still tremendous port congestion in the United States. Freight costs are very high. Factory closures in Asia are still an issue,” Jennifer McKeown, the head of global economics service at Capital Economics, told The New York Times.

Consider also that flights between Asia and Europe will now have to divert around Russian airspace, adding time and expense for manufacturers in sectors like fast fashion and electronics.

What it means for marketers

Just as the pandemic forced businesses and marketers into a rethink, so too will events in Ukraine. While companies will look to shorten supply chains where possible, marketers will have to address multiple issues. What will rising costs do for a company’s price positioning in a category? How will they communicate price rises to customers? What might slower and more irregular deliveries do to retailer/customer relationships? There’s a lot to consider in the coming months.

Sourced from The New York Times, Reuters [Image: Pexels]