The conflict and tension between Russia and Ukraine are negatively affecting the international supply chain. The war has cut off many important shipping routes, forced logistics companies to suspend services and skyrocketed air rates. However, how long this process will take and how large it will remain to be seen? In this article, we would like to address the influence of the intensity of war looms in international supply chains.
Congestion, backlog and rising costs
Most exports are now transported by water. However, the intensity of the war makes the shipping lanes and access points to sea trade inaccessible because, in Ukraine, military forces have blocked the entrance leading to a large number of Cargo ships waiting to be able to move. This congestion shows no sign of abating. Besides, the increasing intensity of war also caused many companies in the supply industry to temporarily suspend delivery services due to fear of damaged goods. Container shipping operations have now stalled with a lot of cargo stuck at seaports.
In addition, the situation of transportation by air is also facing many similar difficulties. Countries have to change flight routes because Ukraine’s airspace is closed, so air freight rates are skyrocketing, significantly reducing the number of goods moving through air transport. The international supply chain is being severely negatively affected.
Big risks for manufacturing industries
More worryingly, the international supply chain has been affected by production shutdowns as flights have been canceled or rerouted, which has also caused a chain effect and disrupted supply in other fields. If input materials and fuels such as platinum, aluminum, sunflower oil, crude oil and steel are not supplied in time, factories are at risk of shutting down. Escalating tensions have also sent energy prices soaring, pushing transportation costs higher than they are now.
Besides, Ukraine has so far been the supplier of about 50% neon gas and 40% krypton gas to the world, these are two indispensable by-products in the production of electronic chips. The international supply chain disruptions due to the current war are making this item unable to reach manufacturers, making it very difficult to deal with component shortages, late deliveries and higher raw material costs. This means that companies depending on chips, such as automakers, also face production delays.
Alarming shortage of sea transport manpower
The international supply chain may also be disrupted by a shortage of human resources in the production and transportation stages. Ukrainian and Russian seafarers account for 14.5% of the global shipping workforce. Concerns about the safety of the crew and rising insurance premiums to bring ships to Ukraine or Russia have also discouraged shipowners from accepting shipments to these two countries.
In addition, the payment of wages for seafarers should also be maintained through the international banking system. However, the US, Canada and their European allies have simultaneously disconnected major Russian banks from the SWIFT global payment system, which connects more than 11,000 banks and financial institutions in more than 200 countries and territories. As a result, international supply chains are under great threat.
As businesses around the world begin to breathe a little easier as the Covid pandemic eases, international supply chains are being forced to play a round of Russian roulette. Tension has also been the cause of the crisis over the past two years. Empty containers are piling up at various ports, empty sailing is common, and shipping costs are skyrocketing, which has severely impacted international supply chains.
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