The supply chains have been fragile since the beginning of the pandemic, and this military conflict between Russia and Ukraine is only exacerbating the situation for several companies in various industries, especially those reliant on energy resources.

The Impact- Global dependencies on businesses in the Ukrainian region is now being felt

The Russian military invasion in Ukraine, a large country situated at the nexus of Asia and Europe has led to the cancellation or rerouting of some flights, thus putting pressure on cargo capacity and raising concerns about further disruptions in the supply chains. The clash has put at risk global supplies of products like aluminum, platinum, sunflower oil and steel. The situation has led to a rise in energy prices, further raising shipping costs.

Organizations with complex global supply chains such as automakers are witnessing the aftermath of this ongoing crisis. For instance, Volkswagen has announced that shortages of parts would force it to slow down production at its main factory in Wolfsburg and various other German plants. Even BMW is looking at curtailing its production at its facilities in Austria, Germany, and Britain.

According to a report from Dun & Bradstreet, worldwide 374,000 businesses rely on Russian suppliers, out of these 90 percent of businesses are based in the US. Approximately 241,000 businesses depend on Ukrainian suppliers and 93 percent are based in the US.

The report observed that “Businesses around the globe continue to grapple with inflation brought on by the pandemic as well as commodity price increases brought on by disruptions to the supply chain.”

“Amidst the ongoing volatility are the new consequences arising from the Russia-Ukraine crisis that could leave the world facing extended reductions to energy supply, severe sanctions that will likely impact food security as well as rare metal supplies needed to sustain production of key technologies.”

“All this coupled with a significant humanitarian crisis makes the unrest even more complicated,” the report stated.

Russia’s war against Ukraine is being felt especially hard in the following industries-

Natural Gas & Oil 

The most adverse impact of this crisis will be felt in European countries that are beneficiaries of Russian natural gas and oil. About 41 percent of Europe’s natural gas supplies and approximately 34 percent of crude oil imports come from Russia.

Uncertainty over the crisis, however, will lead to a surge in natural gas and oil prices across the globe, even if additional supplies outside Russia come to the fore. This will be detrimental to oil importers, however, oil-exporting countries will benefit.

Industry Metals

The global production of metals such as nickel, aluminum, iron ore, and copper ore are led by Russia and Ukraine. They are the main suppliers of metals for Europe, about 90 percent of neon, used for chip lithography comes from Russia. The global trade of palladium, an essential component for global chip manufacturing, has also been impacted by this development that has led to an increase in its price by 80 percent.

Therefore, the continuing tension in the region could push the global chip production and supply process into an unfathomable crisis. The automakers, phone and electronic device manufacturers, and many other sectors that are reliant on semiconductor chip manufacturing can be at greater risk due to the conflict.

Transportation and Logistics

Another industry that will bear the brunt of this clash is the transportation industry since it has the highest energy intensity of all major industries. Besides that, export controls and restrictions are creating issues as not only customs authorities but even the freight forwarders have to make themselves aware of the new rules about thousands of various products and technologies that are traded between the EU and Russia.

During the pandemic, the shipping costs surged to more than 300 percent in 2021, due to ports and border restrictions across the globe. Now, due to the scarcity of new containers the shipping costs will continue to rise.

Furthermore, the train lines for cargo between China and EU through Belarus and Ukraine are presently disrupted. This is critical in both directions for imports of raw materials and components as well as export of finished goods. Air transport has also been affected, the closure of Russian airspace to Western airlines has led EU logistics companies to halt shipments till further notice. The shipments to Ukraine and Belarus have also been impacted.

Logistics and transportation are key to wide range of industries from processed food to advanced industrial manufacturing and affect particularly those that depend on inputs from various parts of the world.

Agriculture and Food

Russia and Ukraine are some of the largest producers of food items across the globe. Both account for over 25 percent of the world’s trade in wheat, about 80 percent of sunflower oil exports, and about 20 percent of corn sales.

The sunflower oil shortage could affect makers of potato chips and the cosmetics industry. Ukraine is the second-largest exporter of wheat and if the conflict is prolonged the disruption will certainly trickle up through the supply chain, resulting in a higher cost for consumers for several products that contain wheat, especially in Europe, the Middle East, and North Africa. The food prices have soared due to the disruptions in the global supply chain, snowballing the risk of social unrest in poorer nations.

Russia also produces large amounts of nutrients, like phosphate and potash that are key ingredients in fertilizers, which enable crops and plants to grow and if that is removed from the field for some crops that could result in less yield.

How is the world reacting to the crisis?

Global shipping giant Maersk has recently announced that it would temporarily suspend all shipments to and from Russia by air, ocean, and rail, except for food and medicine. Similar suspensions have been announced by Hapag-Llyod, Ocean Network Express, MSC, and other world’s major carriers.

International organizations are also trying to comply with widespread financial sanctions and exports controls imposed by the US, Europe, and several other countries that have placed restrictions on the movement of money and goods from and to Russia.

The Western governments have made a move to exclude certain banks in Russia from using the SWIFT messaging system, limit Russia’s central bank’s ability to support the ruble, cut-off shipments of high-tech goods and freeze the global assets of Russian business leaders and politicians.

According to the Biden administration, technology restrictions only would stop about a fifth of Russian imports. However, the impact on trade from the financial sanctions is likely to be even bigger, clamping down Russia’s imports from and exports nearly all of its major trading partners.

European countries continue to impose massive costs on Russia while cutting down their banks off to stop them from conducting financial transactions across the globe. The EU sanctions also include export limitations for dual-use goods and technologies, exports ban for space and aviation industry and additional defence technologies. 

However, the economic consequences of these steps are not clear so far. Russia accounts for less than 2 percent of global domestic product, therefore implications for other nations may be rather limited.

The domino effect on the global supply chains 

The global companies that have factories in Russia and Ukraine will have to bear a major brunt in case the conflict prolongs and the sanctions against Russia are further expanded. This will, in turn, increase the risk of creating a domino effect on supply chains that concern important sectors post the global pandemic.

The Russia-Ukraine conflict has disrupted the flight networks of the companies that use to deliver goods globally. Dozens of cargo vessels have been halted since the shipping ports around the Black Sea have been closed. However, more instant effects are likely to be felt in air shipments between Europe and Asia, which now have to divert around Russia’s airspace. This will lead to longer travel time and more spending on fuel.

According to an analysis by a logistics company, Flexport, flights along major trade routes have slowed somewhat. Longer travel time could create cascading backlogs and delays for industries that rely on airfreight, including semiconductors, electronics, and fast fashion.

The Russia-Ukraine conflict has added to the chaos to already burdened global supply chains

While the world is coming back to normal after the Omicron variant-driven chaos globally, a new challenge that has emerged seems to have no end in sight so far. With the fluid nature of what is happening on the ground and constantly changing nature of sanctions is only adding to the uncertainty.

The Russian military operation in Ukraine is cutting supply chains and setting off a clamber among the global companies to comply with new sanctions. The clash between two nations brings along new challenges after two years of pandemic-led disruptions for the global trade and economic system. However, the load of economic impact the Russia-Ukraine conflict will have on global supply chains will axis on how long the crisis lasts.

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The COVID-19 pandemic has put tremendous stress not only on the population but on economies across the globe. To effectively deal with this situation, much hope has been placed on creating a vaccine. Various countries and leading pharma players are conducting trials on potential COVID-19 vaccines worldwide, which could significantly slow the virus’s spread and ultimately eliminate it. However, while the creation of a vaccine will be historic, it is still not the final step. No matter where and who develops the vaccine first, the real challenge lies in providing the vaccine nationally and internationally. It is, however, a challenge we need to prepare for.

The global supply chain has already been stretched thin by the pandemic. The industries that drive goods around the world on planes, ships, and trucks will have to deal with the challenges of shipping an eventual COVID-19 vaccine from the drug makers to billions of people worldwide. But is the global supply chain ready for this challenge? Let’s explore 

The roadblocks ahead

Developing a vaccine in a shorter time-span is hard enough but distributing it across the globe offers a host of other challenges- from manufacturing vaccine contents to storage and packaging components, to cold-chain transit, global and domestic shipping, to distribution strategies. The road to creating and supplying the COVID-19 vaccine will be a long journey troubled with disruptions. Besides the colossal cost involved, the chances of failure are still very high.

However, this is not to say that it is not possible to do it faster than usual. More than 150 vaccines are in development worldwide, and many are in their third phase of trials. The hopes are high to bring one to market in record time to ease the crisis. The key to cross all the roadblocks is to be prepared.

Across the globe, pharmaceutical companies are receiving significant financial backing from their respective governments in their effort to create the vaccine for COVID-19. Therefore, expediting the complete process is not completely impossible.

Nevertheless, whether financial backing is provided or not, there is still no fool-proof method for developing an effective vaccine, and the timeframe still remains a bit uncertain. However, this does not prevent the planning of its arrival. The global supply chain must prepare a strategy to ensure that it reaches people in both a timely and safe manner. The suppliers must not be caught off-guard once the breakthrough is finally announced.

Julian Sutch, head of Emirates SkyCargo’s pharmaceutical division, estimated recently that a single Boeing Co. 777 freighter can carry 1 million individual doses of a vaccine. That means airlifting double-dose regimens to protect half the world’s population would require the space in about 8,000 cargo planes.

Large-scale preparedness is the need of the hour

The most important aspect of a vaccine is that it must be stored at an optimal temperature. The optimum temperature needs to be maintained right from the manufacturing through to the administration of shots. To fulfill this, the lead time between production and the final destination must be reduced.

As per a Bloomberg report, Health officials have said a vaccine that eventually comes to market will likely need to be maintained at 2 to 8 degrees Celsius (35.6 to 46.4 degrees Fahrenheit) throughout the shipping process. Some newer technologies could require more advanced freezers that can keep them at a frigid minus 80 degrees Celsius. Any deviation can ruin the shots.

Other factors will have to be taken into consideration, as well. For instance, the demand for the vaccine will likely outstrip the supply in the immediate term. Therefore, identifying the vulnerable sections of the population and prioritizing would be the key. Not only the supply of vaccines, but the supply of needles, syringes, and peripherals is equally vital for the success of a global vaccination effort.

Different companies often deliver these products; however, these components’ delivery will be crucial just like the vaccine itself. Most importantly, these items should not face any supply shortages which may create problems in administering the vaccine.

The Bottomline – Global supply chains must be able to look ahead and do so accurately

The supply chain integrity may seem like an unknown part of the pandemic-ending effort; however, it is a critical element of vaccine acceptance globally. Safeguarding the COVID-19 vaccines from diversion and falsification, cutting-edge traceability solutions, national-level support, and public-private collaboration will be needed. Emergency response always needs a well-coordinated, pragmatic, and agile action. 

FedEx, DHL, UPS, Deutsche Lufthansa AG, and other major players have expertise in delivering pharma cargo. The problem is not vaccine delivery but the volumes involved, which will require massive planning and a coordinated supply chain strategy to make an impact globally.

If this is done right, the COVID-19 response will leave a lasting legacy for more efficient and safer medicine supply chains for the future.

The post Is The Global Supply Chain Ready For A COVID-19 Vaccine? appeared first on ScaleUp Consulting..

Let’s take a look.

How China monopolized supply chains?

Until the pandemic raided us, the world overlooked the dangers of putting everything in the Chinese basket. As multinational companies remained obsessed with keeping the cost of production low, the western governments allowed colossal outsourcing of industrial and manufacturing capabilities in return for financial gains. China leveraged this opportunity and monopolized the global supply chains. 

China soon became the “world’s factory” and simultaneously developed a complex network of internal supply chains and interoperability. This made relocation more difficult, and as a result, the world became even more reliant on China.

China’s role as a dominant supplier of components and goods across nearly all industrial sectors- automotive, pharmaceuticals, technology, consumer goods, and equipment made it impossible to reroute the global supply chains. However, now with the disruption caused due to the coronavirus outbreak, the possibility of removing China’s dominance in global supply chains is being discussed.

How is the US pushing to remove the global supply chain from China?

According to a Reuter’s report, to remove global supply chains from China, the Trump administration is weighing the new tariffs to punish Beijing for its handling of the COVID-19 pandemic. The undersecretary for Economic Growth, Energy, and the Environment at the State Department, Keith Krach told Reuters that they have been working over the last few years to reduce their reliance on supply chains in China, but now they are “turbo-charging” that initiative. 

Ahead of the US presidential elections, President Donald Trump has stepped up recent attacks on China and has long pledged to bring manufacturing back home. In May 2020, the President even said that if US cuts-off ties from China, it would “save $500 billion”. The US government is working with countries such as India, Australia, New Zealand, Japan, Vietnam, and South Korea to take the global economy forward. According to Mike Pompeo, secretary of State, the discussions include- how to restructure the supply chains to prevent something like this happening again.

However, many analysts and government officials in the Asia-Pacific region in their interviews, which are in the public domain, have said that any big effort to restructure the global supply chains is still wishful thinking. It would not be easy to dismantle a rooted system when most of the companies are struggling to survive.

COVID-19 And Decoupling

Most likely, the COVID-19 outbreak will accelerate the change that was already driven by market forces as rising cost and wages in China in the last decade have led to an exodus of lower-value manufacturing, most of it to South-East Asia. This is despite the desire from a few in the Trump administration to begin decoupling the two biggest economies of the world as the US and China continue to spar over everything from pandemic to Hong Kong to 5G network.

Most importantly, many advantages of China being the global supplier cannot be easily replicated by many countries and regions. The US-China trade war has increased uncertainty and costs for the global supply chain, which has prompted a few businesses to move out of China or adopt a ‘China plus one policy’. However, what remains in China is production that has somewhat limited room to change significantly. Moreover, it’s a hard sell for companies. Many companies in the US have invested heavily in Chinese manufacturing and are largely dependent on China’s population for a big chunk of their sales.

Even if the US government uses executive orders to force US businesses to move out of China or impose exorbitant tariffs, it will be highly undesirable. For example, production may move somewhere else rather than return to the US due to years of stagnation in the production sector and structural change of the country into a service-based economy.

The slow-paced relocation of Apple’s production out of China and the Tesla opening factory near Shanghai are both testaments that China is a critical part of the global supply chain. Decoupling the two largest economies would not be an easy process.

Our View

As of now, the idea of ending China’s monopoly on the global supply chain lacks firm footing. The US State Department does not have jurisdiction over trade, and many Asian countries officials have said that there have been no formal talks. Diluting China’s role in the global supply chain will be a slow evolution as China holds the major manufacturing output, which is so huge that even a group of companies would struggle to do just a fraction of it.

It’s not easy to wave a magic wand and say “make it so”. So who would control the global supply chain in the post-pandemic-world – we will have to wait and see.

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