As the Russian invasion of Ukraine extends into its fourth week, its effect on global supply chains—already beleaguered by the COVID-19 pandemic—is only just beginning.
“This is going to have a significant impact,” says Nada Sanders, distinguished professor of supply-chain management at Northeastern.
“I’m extremely concerned.”
Already, the war has caused cargo airlines to cancel or divert flights over the region, Russian and Ukrainian factories to close up shop, and energy prices around the world to soar.
It puts at risk global supplies of essential components for a number of goods, including platinum, aluminum, sunflower oil, and steel—components that will further exacerbate global shortages of vehicles and semiconductor computer chips, Sanders says.
Russia and Ukraine also account for about 30 percent of the world’s traded wheat, and prices for the crop have increased sharply since Russian President Vladimir Putin launched the invasion.
While both countries have some surplus available to ship, experts warn that prices will continue to rise because of the limited supply.
Very concerning for Sanders, however, is the expected shortage of vital raw materials for computer chips.
Russia and Ukraine are major sources of neon gas, used to feed lasers that print circuitry onto the chips, and palladium, a metal used in later manufacturing stages.
“Some suppliers are already looking for ways to recycle materials as a stopgap measure, but these are essential elements,” she says.
“These components go into so many finished products—the pandemic taught us just how essential semiconductor chips are.”
What goods can be moved around the world will ship at much higher costs, too.
“With this backdrop, we’re going to see massive increases in shipping rates,” Sanders says. “We’re expecting that shipping rates will triple, both for ocean carriers and airfreight.”
As a result of these major supply-chain disruptions, more companies will look to produce goods domestically, Sanders says. Global supply chains aren’t going anywhere, but they will change.
She expects that large companies will take a page from the book of Li & Fung, a Hong Kong-based supply-chain management operation, and build relationships with suppliers around the world.
The strategy helps Li & Fung pivot quickly when there’s a disruption in one part of the world, says Spencer Fung, who runs the company. Fung is a member of the Northeastern University Board of Trustees and a member of the advisory board for the university’s Center for Emerging Markets.
“You can think about having a portfolio of suppliers the way you have a diverse portfolio of stocks,” Sanders says.
But until businesses can catch up to the latest supply-chain shock, it’s likely that consumers will feel the pain. Sanders expects prices to rise across most industries, and sees a potential for a period of “stagflation,” that is, protracted periods of economic stagnation coupled with high inflation.
“And still,” Sanders says, “all this is the best-case scenario, in some respects, with this war. The outcomes could be so dire for so many that the supply chains would be the least of our worries.”
Written by Molly Callahan.
