Ukraine's invasion was one of the uncertain times that placed the global economy on the verge of death. Undoubtedly, the attack proved that the world is only a global village whose members depend on each other for sustainability and business continuity.
Who thought a disruption in Ukraine would cause a global disruption of inflation rates, transportation, and the global supply chain? Even with the thought, there was no convincing way to explain the effects of such a disruption until Putin invaded Ukraine.
Times of crisis and uncertainties demand new ways of doing business. With the advent of Covid-19, companies that relied entirely on their physical presence needed help to take ground to establish their online presence and ensure continuity.
Also, the business that had established its online presence had to invest more in visibility and reaching new audiences. Then some companies lost it all and needed to learn how to progress since they lacked the capacity and strategy to sell to a virtual audience.
On the other hand, some business owners have invested their time and finances in establishing their brand online and offline and even had backup strategies for sustaining their business.
The pandemic had adverse implications, and even up-to-date, some businesses are still recovering from the effects. However, it was also an eye-opener to coping with change and preparing for uncertain times.
This article discusses how Blackthorne can create a seamless way of importing a year after the Ukraine invasion. But before then, which gaps have the war started for Blackthorne to bridge and help you prepare for uncertain times concerning importation?
Ukraine's invasion challenged the movement of commodities from Ukraine as the main shipping port, including blockades at the port of Odesa. The supply of oil and grains also declined, leading to increased inflation rates and freight rates.
Such disruptions affected the global supply chain in various ways, as discussed below:
Ukraine and Russia are the leading suppliers of grain and oil. With the declining supply, organizations were forced to think of alternative sources of their imports to avoid the looming food insecurity, especially in the Middles East and North America.
The Middle East and North America are the major importers of oil and grains from Russia and Ukraine. Also, Russia is a leading exporter of major fertilizers, an implication of increased cost of input for domestic agricultural productivity and potential food insecurity, and failure to look for alternatives.
UNCTAD reveals that, between 2018 and 2020, countries across Africa imported over $3.7bn in wheat (about 32% of total African wheat imports) from Russia and another $1.4bn (12% of total wheat imports) from Ukraine.
These figures suggest that if the war persists, it will continue to undermine agricultural production and trade activity in Ukraine and Russia, leading to severe impacts on the grain trade and global food insecurity.
In addition, the importation of plastics, metals and semiconductors which are used in the manufacturing of medical devices is also expected to shift from Russia, a significant source of platinum (15%) and Palladium (45%), to Asia and America, following the EU and US sanctions.
Although the shift in the sources of imports may be short-term, the goal is to ensure a sustainable supply. Undoubtedly, the transition has accompanying expenses since it implies new prices, policies, and legal procedures.
Also, the shift may not happen soon since the dependency on imports from the Black Sea region is irreplaceable. For instance, 67% of wheat consumed in the Republic of Congo is imported from the Black Sea region.
However, it is prudent to seek alternative sources to avoid the perceived food crisis due to importation disruptions in Ukraine and Russia in the long term.
40% of Europe’s gas is imported from Russia. The overdependency on Russia has seen increased gas and oil products across the globe which also contributed to the increased food prices. Russia is a leading supplier of crude oil (14%) and natural gas (9%) globally.
With a projected 7% increase in the price of crude oil, exports are expected to drop while the cost of transportation and production continues to rise. Also, natural gas is a crucial constituent of ammonia fertilizer. The rising cost of natural gas translates to a higher cost of fertilizers with a low supply.
Considering that the Ukraine invasion took place a year after Covid-19 had shaken various businesses and the global economy generally, it's been difficult coping with the abrupt inflation rates, especially in developing countries.
While the energy industry isn't the only industry suffering the increasing prices due to low supply and high demand, it plays a critical role in the production and the cost of raw materials, contributing to the increased food prices and related products. Hence, a global logistical disruption.
Ukraine invasion has disrupted critical areas of logistics movement, from airline restrictions to the Black Sea blockage-the main shipping point to and from Ukraine. Such disruption has seen a shortage of containers, stranded containers, and significant backlogs.
Connections between Europe and Asia have been disrupted, and commodities leaving Europe or Asia must be rerouted to avoid Russian airspace. The Russian rail transport is even slower since vessels must be checked for sanction compliance, and more suspected sanctions may finally cripple the rail transport.
International trade has been challenged since the beginning of the Russia-Ukraine war. Besides the export restrictions, sixty-seven trade policies were imposed, making compliance a daunting process and risking detainment at various shipping points.
The Russia–Ukraine war has inflicted devastating impacts on world trade policies, commodities production and mobility, and supply chains/trade routes affecting importation in the following ways:
Think economic and financial analysis revealed that the conflict had caused significant damage to agricultural land, labour mobility and availability, and infrastructural damage, with farmers unable to attend to their fields or engage in harvesting activities. Thus, the eventual impact has been on wheat and maize, whose exports halted at one point.
Russia is among the vital players in the energy sector, accounting for over 12% of worldwide oil and gas exports. The conflict and its resultant sanctions have decreased oil and gas exports from Russia, increased petroleum prices, and led to a contraction in the global energy supply.
Sky News Australia warned that gas prices might rise by 50% if the war continues for the first time in history. Such an increase translates to economic strain in developing countries, with low supply and high demand.
Trade routes connect producers to consumers and allow the movement of goods to their final destinations. Over 98% of Ukraine’s crop products are exported via the Black Sea trade route.
China Agricultural Economic Review revealed that towards the middle of the war, the Black Sea came under a Russian blockade leading to a complete halt of Ukraine’s commodities flow into the market trade.
As a result, 50% of Russia's trade was disrupted, leading to the deterioration of the movement of goods, soaring food prices and decreased purchasing power among consumers.
Countries such as Egypt and Turkey, which heavily rely on grain imports from Ukraine and Russia, will be the most hit areas, with estimates projecting an increase of 30% in domestic prices. The report asserts that overall welfare would drop by 25%.
Meanwhile, it is argued that other significant producers of similar commodities, such as Canada, the US and Australia, could still benefit from the increasing prices. Nevertheless, whether increased prices are good or bad for some countries is still debatable in the marketplace due to its global effect.
Following the commencement of the war, governments across the globe, particularly in Europe, reversed course as countries entered into agreements, signing collaboration to either put pressure on Russia to cease the war or enhance the supply of certain commodities.
The main result of such agreements has been that traders and suppliers must contend with the never-ending trade restrictions in global business. For instance, most foreign trade transactions between Russia and its trading partners must pass through European/Western-dominated financial systems and face sanctions.
Since the sanctions have hijacked financial technology in Russia, global companies in the country are facing trouble continuing their business operations. As a result, companies have been forced to quit or change their supply and marketing strategies to bypass the challenges.
Brand Marketing highlights that notable companies such as McDonald's were forced to stop their operations in about 847 restaurants across Russia to comply with the new emerging trading conditions, whereas Unilever has stopped advertising, trade shows and its marketing operations.
The disruptions caused by the Ukraine invasion pose a challenge to IOR and global logistics service providers such as Blackthorne. From ensuring compliance with policies and restrictions to processing legal documentation and paperwork, Blackthorne can ease the importation through:
With the imposed restrictions and trade policies, ensuring compliance from source to destination can be challenging. You want to ensure all the licenses and documentation and your commodities are well labelled and classified; you have done your due diligence and obtained all the necessary permits.
Otherwise, you risk detainment or taking too long before getting the required documentation and licenses and finally accruing unnecessary expenses.
Blackthorne's IOR services can cater for processing the required documentation, permits and licenses and paying all the dues associated with importation to ensure compliance and easy transportation.
Using AI-driven intelligent routing, Blackthorne can identify the shortest route for commodities from source to destination. Intelligent routing can also tell impassable trade routes and routes that have been destroyed during the war.
Intelligent routing combined with real-time tracking will ensure that commodities are safely imported as you can tell how far until they reach their destination and how long it should take so that you can follow up on the challenge in case of any delays.
The low supply and rising food prices demand alternative sources of commodities. But suppose you haven't verified your legal entity in the source country. In that case, you need an IOR to help acquire the necessary permits and the technicalities for IT equipment as you establish your presence.
Working with an IOR will establish your entity with minimal involvement and cost. Blackthorne has established its presence in over 200 countries, is conversant with compliance procedures and has the technical expertise of IOR of over 20 years.
If you are importing data centre equipment, you want to ensure that the specifications are as indicated and that the equipment performs as expected.
Blackthorne has the technical expertise to ensure the equipment is tested, its quality approved, necessary documentation provided and of the desired quantity. After all, what need is it to spend so much on importation only to have equipment that doesn't meet your expectations?
Uncertain situations will always continue to knock but preparing for them in advance saves you a lot. From policy to technology changes, even government regulations, how prepared is your business?
Will you embrace the change and cope with minimal adjustments, or will you rebel and wish it never happened? If the war continues, developing countries will have to face importation competition with developed countries.
The approach of acquiring the commodities from the source to the destination will make a difference. The supply may be low, and the demand high, trade policies continue to increase, permits and licensing requirements multiplied, and other changes are yet to be perceived.
However, working with an established Importer of Record such as Blackthorne will relieve the importation headache.