RISK MANAGEMENT
Identify and discuss five impacts of the Russian invasion of Ukraine on the global supply chain.
Answer:
This study focuses on how the Ukraine-Russia conflict would affect supply networks and financial markets that are still recovering from the effects of the COVID outbreak. Global economic interdependence is highlighted by the immediate responses to the Russian invasion. The sanctions placed on Russia aim to freeze 80% of the country's banking assets, which will have far-reaching consequences for the global supply chain. According to the Adekoya, (2022):
The Russian government has also begun the process of leaving the WTO. Each of these long-term tendencies suggests that Western-aligned markets are becoming increasingly decoupled from the Russian economy. The following are some of the current and potential effects of this dissociation (Boungou, 2022).
Impacts on Food and Agricultural Markets
Ukraine and Russia export wheat, barley, fertiliser, and sunflower oil. Because they're no longer made, their derivatives will cost more (Mbah, 2022). The UN World Food Program has halved emergency food rations to Yemen, Egypt, and Lebanon. Even in Africa, impacts are anticipated. The UN has warned that already high food prices will continue to climb, and the G7 has said that Russia's aggressiveness has caused one of the worst food and energy crises in recent history, threatening the world's most vulnerable (Kausar, 2022).
Impacts on Shipping
Shipment delays and port overcrowding have been brought on by COVID-19, and the conflict in Ukraine is making problems worse. Canadian Royal Bank: Delays and a growing shortage of shipping containers are being brought on by congestion at major ports. Network supply adjustments made by businesses will boost traffic (Adekoya, 2022). Although U.S. ports on the East Coast aren't accustomed to handling this much wheat or exports, they may make up for Europe's shortfall. This could delay the shipment of goods by causing congestion at East Coast ports. Insurance companies are raising premiums as a result of the conflict's increased risk, which drives up transportation costs (Boungou, 2022).
Impacts on Supplies of Energy, Critical Minerals, and Other Materials
Over a quarter million customers in the Americas and Europe buy from Russian and Ukrainian companies. Western countries continue to rely on Russian energy and minerals despite Russia's lack of supply chain integration compared to China (Kausar, 2022).
Despite tightening global supplies, the Biden administration has had little success convincing Saudi Arabia or the cautious U.S. oil and gas industry to increase production. Tighter supplies and higher energy costs affect food and agricultural production across the supply chain (Mbah, 2022).
Impacts on Technology Services
The Ukraine crisis has impacted global products and services supply lines. Top engineers and computer experts in Ukraine have fled the violence. U.S. corporations with CIS suppliers may need to rethink their connections with Ukraine, Russia, and Belarus. Demand for engineers and computer scientists before the war. In recent years, competition for top staff has made it harder for organisations to hire (Boungou, 2022).
Impacts on Trade and Investment with China
Global supply networks can be interrupted if the Russian invasion of Ukraine affects relations between China and the West. Sanctions imposed by the US and its allies on Russia may be against Chinese law, the Chinese Commerce Ministry warns (Kausar, 2022). The Chinese market would react poorly, and MOFCOM's Unreliable Entity List might be expanded as a result. Companies are forced to take sides by the US and China. Decoupling and changes to the supply chain are fueled by the fact that many Chinese businesses have chosen not to invest in the United States and that many American businesses are looking for suppliers elsewhere (Adekoya, 2022). The “zero-Covid” policy in China has made matters worse. Major population centres will see repeated, protracted lockdowns as a result, which would harm China's ports and industry.
Discuss mitigation strategies for each of the impacts
Answer:
The fallout of Covid-19 has put supply networks to the test once more, this time in Ukraine. The battle has heightened the significance of securing supply systems against interruptions. And so, businesses are adjusting their procurement strategy to rely less on suppliers in Russia and the rest of the former Soviet Union. The supply chain has felt the immediate and severe effects of rising commodity costs like those of gasoline and diesel. Businesses throughout the world are frantically looking for fresh supplies of raw materials and additional workers to meet rising consumer demand (Adekoya, 2022).
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Organisations are looking for alternative sources of supply
As commodity costs rise, firms scramble to find new suppliers. Because Ukraine and Russia are big maize and wheat producers, bread and other staples may cost more. Russia sells the most of all three major fertilisers, driving up worldwide prices. If solutions aren't found immediately, food crises could hit Middle East and North Africa (Boungou, 2022).
Metals, plastics, and semiconductor chips all affect the creation of medical equipment. EU and US sanctions threaten 45% and 15% of Russia's palladium and platinum exports, respectively.
Labour shortages
Organizations today face intense pressure to increase their workforce and diversify their supply chain. In the wake of the conflict, Eastern European countries have seen a decline in their labour force, which has driven up wages and inflation. A total of 198,123 (19.5%)? Russians and 76,442 Ukrainians make up 10.5% of the world's shipping workforce, per the International Maritime Organization (ICS). Many businesses are looking to South and Africa as alternatives to Eastern Europe for labor-intensive tasks. Important especially for the agricultural and farming sectors, which rely heavily on seasonal foreign workers to carry out tasks like crop harvesting (Boungou, 2022).
Production and importation disruption
Since 2020, worldwide supply and demand have been disrupted, causing distribution network shortages. Increasing consumer demand in industrialised countries has boosted Asian exports. Port closures at Chinese enterprises and a labour shortage in importing countries have caused supply delays and a lack of boats (Adekoya, 2022).
Backlogs and stranded cargo at Western ports have exacerbated the container scarcity. War has impacted air, sea, and rail cargo transit. The virus, gasoline, and driver shortages have already affected the supply chain and will undoubtedly affect the final mile of delivery.
Risk management is no longer optional
The fifth trend is a greater emphasis on risk management as a result of rising costs, the need to create workable substitutes, the possibility of logistical disruptions, and the dearth of skilled labour and raw materials. The current crisis has highlighted the need for organisations to increase supply chain transparency, particularly in identifying and reducing subcontractor risks (Kausar, 2022). Organizations respond and adapt to possible shocks by knowing the answers to seemingly straightforward queries like “Who are our suppliers' suppliers?” and “Where do our vital raw materials come from.” Supply chain managers will place an emphasis on clear communication and storm readiness (Adekoya, 2022).
Weathering the storm
The Russia-Ukraine conflict has caused supply chain disruptions and worries about key corporate services. Businesses must plan for a number of possible future outcomes by considering how the climate may change (Mbah, 2022). Many organisations lack the visibility, planning maturity, governance, personnel, and real-time analytics needed for supply chain risk management, resilience, and cost-effectiveness. Assessments are crucial. To diversify the supply chain, consider new resources, production changes, and sourcing tactics.
Risk assessments of major vendors and short- and long-term personnel and inventory evaluations help reduce supply chain interruptions. Assess existing and potential sanctions' impact on your company (Kausar, 2022).
References
Adekoya, Oluwasegun Babatunde, Johnson Ayobami Oliyide, OlaOluwa Simon Yaya, and Mamdouh Abdulaziz SalehAl-Faryan. (2022), Does oil connect differently with prominent assets during war? Analysis of intra-day data during the Russia-Ukraine saga. Resources Policy 77: 102728.
Boungou, Whelsy, and Alhonita Yatie. (2022), the impact of the Ukraine–Russia war on world stock market returns. Economics Letters, 215: 110516.
Mbah, Ruth Endam, and Divine Forcha Wasum. (2022), Russian-Ukraine 2022 War: A Review of the Economic Impact of Russian-Ukraine Crisis on the USA, UK, Canada, and Europe. Advances in Social Sciences Research Journal 9: 144–53.
Md. Kausar Alam, Mosab I. Tabash, Mabruk Billah, Sanjeev Kumar and Suhaib Anagreh. (2022), the Impacts of the Russia–Ukraine Invasion on Global Markets and Commodities: A Dynamic Connectedness among G7 and BRIC Markets. J. Risk Financial Manag. 2022, 15, 352. https://doi.org/10.3390/jrfm15080352 https://www.mdpi.com/journal/jrfm.