In only a few weeks, the situation in Ukraine has led to a humanitarian crisis that has shocked the world. A crisis that is expected to create ripple effects throughout global trade networks for months or years to come.
Since the start of the conflict, we’ve been keeping a close watch on international commerce disruptions with an eye for what matters to logistics and supply chain industry professionals. Here’s what you need to know.
Russia, Ukraine, and the Global Supply Chain
Both Russia and Ukraine are major economies with a strong presence on the supply chain. It’s no surprise that a prolonged conflict between them will lead to shortages, shipping delays, and other trade disturbances.
As significant producers of raw materials, they’re central for both regional and global trade. They’re also situated along major trade corridors, both across Eastern Europe and on the Black Sea. The likelihood of swift and serious supply chain disruptions brought on by sanctions, blockades, and the conflict itself is growing by the day.
In the last few weeks we’ve seen some changes come to pass already:
Increases in fuel prices – Russia accounts for around 10% of the global fuel supply. While only a small fraction of that oil finds its way to American shores, Russia is a key supplier for European markets. Uncertainty surrounding the near future of Russian oil exports has roiled commodities markets and led to a series of price spikes in recent weeks.
While producing more oil stateside is possible, domestic production can’t be ramped up fast enough to offset immediate price hikes. The U.S. will have to rely on other sources to increase access to oil, a thorny geopolitical issue in its own right. A lot of shippers and carriers – not to mention independent long-haul truckers – are feeling the pinch already.
Increase in transportation costs – On average, the price for diesel fuel in the U.S. has jumped 28% (or roughly $1.12 per gallon). As diesel fuel accounts for 15% to 25% of the total cost of operation and remains the primary source of fuel for Class 8 trucks, prices have followed suit.
In rate agreements for less than truckload (LTL) carriers, there’s a surcharge for the percentage of total cost or rate per mile depending on a DOE reported average price of ultra-low sulfur diesel. This rate has fluctuated in recent weeks, and unfortunately, we expect to see that continue. As fuel prices go up, so do transportation and shipping costs.
There are also some serious questions about the weeks and months to come:
New material shortages – Embargos on raw materials from Russia could lead to serious supply chain disruptions in North America and Europe.
Russia produces a significant portion of the world’s nickel, copper, aluminum, and rare earth metals that are critical to the defense, telecommunications, and renewable energy sectors. This could add to existing inflationary pressures on prices for products like electric cars, smart devices, solar panels, lithium batteries – and may slow the adoption of green energy solutions at the ports.
Cyber security demands are increasing – Cybersecurity has been a hot topic for supply chain companies in recent years. A few high-profile ransomware attacks on major logistics firms in recent years have put a spotlight on the weaknesses of many mission-critical organizations. Now, there’s all the more reason for concern.
All supply chain companies should take steps to mitigate cyber risk, from looking for systemic vulnerabilities to assessing the cybersecurity practices of third-party vendors to testing incident response plans. There’s also an increased risk of cyber attacks not only on individual companies but on the infrastructure itself. Companies that wish to partner with organizations at the port should prioritize drayage providers and 3PLs that take cybersecurity seriously.
The big question marks – Disturbances in the web of transnational exchange networks can’t be easily anticipated. Many of the supply chain disruptions of tomorrow will come from things that we can’t plan for.
A prolonged conflict could put a number of large infrastructure projects, from gas pipelines to overland portions of China’s Belt and Road initiative, in limbo. It could lead to shortages in minerals that are essential for powering the green energy transition at ports – or could expedite the transition to hydrogen technology with high fuel costs. There’s no surefire way to know from where we stand now.
International commerce will need to be flexible and strategic for the weeks and months ahead. It’s best to have third-party vendors, especially 3PL partners, that have experience navigating challenging times on your side.
Even when the world is uncertain, a 3PL partner like Globecon at the Port of Los Angeles can be your guide and make sure your shipments get where they need to go. We provide a number of portside services, from drayage to port warehousing and freight forwarding, to help you anticipate changes before they become costly bottlenecks.