The ripple effects of the Russian-Ukrainian war are testing global economies

The Russian-Ukrainian war is having an outsized impact on the global supply chain, impeding the flow of goods, fueling dramatic cost increases and product shortages, and creating catastrophic food shortages around the world, experts say during a a virtual symposium hosted by MIT. Transport and logistics center.

The disruption of supply and demand for goods is worsening the already unsustainable human toll of the conflict, which shows no signs of abating.

The Russian invasion of Ukraine in February 2022 may have been the straw that broke the camel’s back, but it was not the only factor contributing to the current global supply chain crisis, said the symposium panelists. Significant supply chain disruptions began to occur during the heat of the trade wars in 2018 and 2019 and were pushed into new territory during the COVID-19 pandemic, continuing to this day.

While the focus remains, as it should, on the tragedy of human casualties and the destruction of Ukrainian territory, the Russian invasion triggered sanctions and other obstacles that hampered critical logistics and road operations. commercial.

The resulting ripple effects threaten the supply of critical food resources like wheat and increase the possibility of global famine.

Simultaneously, the disruption in the flow of electronics, raw materials and spare parts from China and other countries has seriously hampered global trade positions, forcing companies to recalibrate and in some cases completely reconsider their chain. long-standing supply chain and their partner ecosystems.

“Supply chain managers need to think carefully about opportunities and risks when looking for new sources while considering how to coordinate the move from one source or mode to another,” said Joachim Arts, researcher affiliated with the CTL and associate professor at the Luxembourg Center for Logistics. and supply chain management. “If not carefully coordinated, it could lead to all sorts of whiplash effects in global supply chains.”

Food supply in crisis

One of the most alarming supply chain issues resulting from the Russian-Ukrainian war is food shortages, particularly acute in low-income countries in Africa. Ukraine and Russia account for around a third of global wheat production and a quarter of barley production, not to mention around 75% of sunflower oil supply – all essential products to feed humans .

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Ukraine and Russia account for around a third of the world’s wheat production as well as around 75% of the sunflower oil supply.

The combination of Russian sanctions, blocked Ukrainian ports and the inability of Ukrainian farmers to work the fields is creating a perfect storm that forces governments and businesses to find new ways to work together to avoid a humanitarian crisis, says Chris Mejía Argueta, director of the MIT SCALE network in Latin America. In fact, Russia’s blockade of Ukrainian ports is considered so damaging that EU foreign policy chief Josep Borrell recently called it a war crime.

“If we have a shortage of the world’s most common commodities coupled with climate change issues, that’s when we need to start changing our mindset and finding ways to work together. with each other to make a difference,” said Mejía Argueta.

This reset involves establishing alternative suppliers, forging public-private partnerships and leveraging advanced analytics to predict food waste and identify opportunities to divert resources to shore up the global food supply, he said. he adds.

China-Europe routes disrupted

Another victim of the Russian invasion is the state of the transport routes linking China to Europe. Soaring gasoline prices increase transportation costs for all modes of transportation. The rail route connecting the regions, which became highly competitive during the height of COVID-19, especially for industries valuing shorter lead times such as automotive and electronics, has now stalled. This is especially true for the main corridor which crosses Russia, Belarus and Poland before continuing to Germany, France and other European countries.

“If you changed your product allocation [during the pandemic]you can’t just reverse that decision, [which has] caused a lot of problems in the automotive industry,” said Pascal Wolff, assistant professor at the Ningbo China Institute for Supply Chain Innovation at SCALE Network. While some companies are redirecting product traffic to an alternative rail route, most are reverting to ocean freight mode, he said, which takes longer to get goods to market.

Almost Inevitable Supply Chain Makeover

Given the obstacles, panelists said now is the time to reassess supply chain positions and make adjustments. They offered the following suggestions:

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Consider alternate sourcing. As governments and businesses can no longer depend on traditional suppliers, it is time to diversify partners or find alternative supply methods. Although changes are necessary, there are ramifications. “As you change suppliers or modes of supply, your lead time may increase, and when your lead time increases, there will be temporary shortages,” Arts said.

Capitalize on new opportunities. For entrepreneurs, there is an opportunity to fill the gaps created by volatility, creating new business models and potentially improving the lives of others.

Businesses need to start collaborating through business coalitions and other joint partnerships to increase their capabilities, said Mejía Argueta; where possible, they should move from a global set to a localized set of providers, although this is not always possible or optimal, panelists acknowledged. “If you know you need to collaborate with others to increase capacity, start doing it,” Mejía Argueta said. “It’s important to start working, not in silos.”

Understanding that quantitative approaches can help, but there are challenges. While modeling can help optimize supply chain changes, this approach has limitations. Most supply chain models assume a steady state, which is not applicable for redesigning something that is in transition. “Decision makers need to shift to systems thinking and have multiple goals and KPIs in mind when designing supply chain networks,” Wolff said.

Accept that this is the new normal. Planning can only get you so far in a world order that continues to be ever-changing. Therefore, the key to sustaining growth in these uncertain times is to develop best-in-class agile skills. “You can’t plan everything,” Wolff said. “Few people saw this war coming or anticipated the pandemic. It’s difficult, but companies must strive to become agile organizations. »

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