Russia’s invasion of Ukraine creates myriad supply chain issues and challenges

The supply chain-related impacts of Russia’s invasion on Ukraine are already significant, due to a whole host of different factors, to be sure.

Among those factors, according to various reports, are increasing oil prices, which could be hedged as the White House considers releasing oil from the nation’s strategic oil reserves, should prices escalate, according to a New York Times report, with Russia is the No. 3 producer of oil, after the United States and Saudi Arabia, pumping roughly 10% of the world’s demand.

The Wall Street Journal reported how various companies with operations in Russia and Ukraine have established contingency plans, due to the fallout of the conflict, which has “halted or slowed production and supply chain operations in Ukraine.

And it added that the biggest immediate supply chain-related impact is on ocean shipping, with Ukrainian authorities having closed the Odessa port and commercial shipping into and out of Ukraine having mostly ceased, as well as “highlighting concerns that the conflict could disrupt vital shipping routes that carry much of the world's wheat and other agricultural products.” 

Various high-profile logistics and supply chain services providers have issues customers advisories, detailing how the conflict is impacting operations.

Copenhagen, Denmark-based A.P. Moeller Maersk, an integrated container logistics services provider, stated: “Due to the current situation in Ukraine that has seen Maersk stop accepting bookings to and from the country until further notice, our teams have been working around the clock to find solutions that suit our valued customers and their cargo. Your supply chain is of the utmost importance to us and we are doing all we can to keep things moving despite the circumstances.”  

Maersk also noted that its services to and from Russia – including AIR and intercontinental rail (ICR) services, which do not pass Ukraine—currently remain available but are potentially subject to change as things develop.

UPS said that it has suspended all shipping services to and from Ukraine, as well as international shipments with a destination address in Russia.

“Export services from Russia and domestic services in Russia are currently operating,” said UPS. “Packages in transit that cannot be delivered will be returned to the sender where possible. UPS will re-establish service as soon as it is practical and safe to do so.”

FedEx said that on light of the current circumstances, FedEx and TNT services will be temporarily suspended in and out of Ukraine until further notice, adding that shipments already in transit will be temporarily held in its network.

A research note published by analysts in Gartner’s Supply Chain Practice, Koray Köse, Senior Director Analyst, and Sam New, Senior Principal Analyst, in the days leading up to Russia’s invasion, posited that possibilities range from an extreme scenario—a military conflict that would have disastrous effects on supply chains—to severe economic sanctions that would create volatility, and impact production capacity and critical logistics routes.

“Even a stalemate positioning would drive further unpredictability into supply chains, especially in key industries such as high-tech electronics, semiconductors, energy, rare earth minerals and other key materials,” they wrote.

The Gartner analysts said they see six supply chain issues organizations will face if escalations continue over Ukraine, including:

• Key material shortages;
• Material cost increases;
• Production capacity impacts;
• Demand volatility;
• Logistics route and capacity constraints; and
• Cybersecurity breaches

“We expect severe shortages of hydrocarbon, critical minerals, metals and energy,” they wrote. “Prices for those items will likely spike, thanks to both the shortages and behaviors such as irrational buying and protectionism. This will, in turn, impact manufacturing operations up- and downstream as much as raw material mining. Additionally, important logistics routes such as the Black Sea route and rail and roads east to west and vice versa will be impacted and result in delays and disruption. Spillover to Chinese ports and other key transportation nodes is also expected. Supply chain leaders need to evaluate vulnerabilities based on different scenarios now, so they can start to create redundancies and alternatives.” 

U.S. Chamber of Commerce President and CEO Suzanne P. Clark said in a statement that Russia’s invasion of Ukraine is a serious breach of international law, a violation of Ukraine’s sovereignty, and an affront to our steadfast belief in a world where democratic countries, following the rule of law and the free enterprise system, can be free and prosper.

“The business community will continue to support the Administration, Congress, and our allies to ensure a swift and meaningful response to Russia’s aggression,” said Clark.