The war with Russia will deepen supply chain problems and further increase EU companies’ logistics costs.
Because of the reckless actions of one man, one dictator, the world economy is facing another severe blow. Covid-19 and supply chain disruptions have not yet subsided. The companies’ logistics departments have just learned to deal with the challenges posed by the pandemic. The light at the end of the tunnel seemed to be already visible… But it was not written because the unthinkable happened. It happened… a war in Europe! For us Europeans, war is the greatest evil. The loss of human life – unforgivable!
It is difficult, but we will try to focus only on business challenges. And in particular on the ability of logistics departments to limit their losses from this terrible war and the descending new Iron Curtain to the east. Because what lies ahead (and is already happening) are even higher fuel prices and rising inflation!
What are the biggest challenges that companies’ logistics departments and supply chains will face?
Russia’s natural gas and the EU’s dependence on it
The EU economy is heavily dependent on Russian natural gas, and it is no secret. Russia is the largest supplier of natural gas to Europe, providing more than 35% of the old continent’s demand. In response to the sanctions, the Kremlin government has already cut gas exports to the EU and is likely to suspend it permanently. Replacing it with American, Middle Eastern or other gas at this stage will not help Europeans much. The price is much higher. This will lead to new, even more serious logistics and supply chain costs for companies.
The price of electricity for industrial purposes, on which the price of the end product largely depends, has also risen sharply. And the trend is to continue in this direction. The dependence of some EU economies on Russian energy sources, such as Germany, Italy, Bulgaria, Slovenia, Macedonia, Hungary, Croatia, etc., far exceeds this average of 35%. More than 55% of the gas needed by Germany for industrial purposes is provided by Russia. Over 70% of Bulgaria’s energy needs are provided by the Russian Federation. However, countries such as Bulgaria, Slovenia, Slovakia and some others, without thinking about their possible huge economic losses, immediately supported Ukraine with all their forces at this difficult time. Decent behavior to be encouraged.
The new Iron Curtain has fallen! New disruptions and problems in supply chains. Rising logistics costs
The war that Russia started in Ukraine has, in fact, already put Russia and its closest allies in complete isolation. If you have had any assets, businesses, commercial purposes or plans related to this (no doubt) huge market – cancel them (if you haven’t already) and forget about for a long time. The world will not easily and quickly forgive Russia, much less Putin. And since at this stage these two subjects seem inextricably linked – there is only one solution.
Another extremely important factor must be taken into account. And its name is: China. How will one of the two super economies in the world react and on whose side will it position itself? China has always been restrained and wise enough in its decisions regarding military conflicts. And despite some declared support for the Kremlin regime, China is unlikely to threaten its own future by siding entirely with Putin’s Russia. Rather, they will be restrained to the last and look for ways to further improve their own geopolitical situation. Any other behavior would be dangerous and unproductive for China. And they know it.
What is the solution? What steps can limit the losses of companies’ logistics departments?
3 ways to reduce your logistics costs
Aim for full end-to-end visibility. This will ensure you the highest return on investment and investment security.
A) Avoid (at least for the near future) entering into trade deals with companies and businessmen based in Russia, Belarus, Kyrgyzstan and several other former Soviet republics.
The reason: the sanctions imposed on Russia will inevitably affect the union republics closest to the Kremlin regime. All EU countries have already closed both their air and land borders to Russian goods and products. In response, Russia did the same for EU companies and closed its airspace. And if you haven’t looked at the world map recently – now is the time to do so. Russia is huge in territory (11 time zones) and it is practically impossible to get around it. I.e. all countries east of Russia will also be largely isolated from EU countries. Deliveries to and from them will be extremely difficult. Therefore, emphasize advance planning in the implementation of each new business transaction. Play different possible scenarios, based on location, economic and energy dependencies, as well as who owns the companies with which you will enter into business relations.
B) In the future, factors such as distance and location of delivery will be of great importance given the ever-increasing fuel prices and the availability of the new Iron Curtain east of Russia.
You need to be sure that all payments will be able to reach you without any problems. Find out not only where the company is located, but also who its real owners are (a large number of Russian businessmen are listed by name in the sanctions).
Orient (if possible) to business entities and countries closer to you (as a distance). This will minimize the risk of disruptions in your supply chain. Of course, this may not be a workable solution for a long time, but at least in the near future it will protect you from big losses.
Create a crisis management department
Respond quickly to threats to your business. If for some reason – a pandemic or military action – your supply chain is subject to disruptions, shortages of basic raw materials, labor shortages – take action immediately. The situation with Russia will not be resolved quickly, even if hostilities cease immediately. Sanctions will continue until the regime changes in Russia. The Iron Curtain is already a fact…
According to many studies (including the Capgemini Research Institute), a quick response in such crisis situations is crucial. Respond quickly and your chances of protecting your supply chain will increase.
Flexible logistics = sustainable supply chain (Pooling management)
During the pandemic, many companies suffered not only from dfisruptions in their supply chains, but also from the accumulation of overproduction in warehouses. Consider increasing the logistics products you need, such as pallet boxes of various types (cardboard, plastic, wood or metal). Our recommendation, as experts in this field, is to focus on both types of pallet boxes: reusable (folding plastic pallet boxes) and one-way cardboard pallet boxes. Why?
The first type will work for you when transporting goods over a shorter distance, where the distance does not greatly affect the price of the final product. Folding plastic pallet boxes will save you extra money, especially on the way back.
If you need to transport the product a few hundred or thousands of kilometers from your factory or warehouse, one-way packaging is without a doubt the preferred solution. Send and forget.
And for businesses for which every expense is currently unbearable and can not afford to buy more expensive reusable pallet boxes, our experts will introduce you to some elegant and safe ways to convert one-way cardboard pallet boxes into reusable ( with the possibility of use up to 2 years).
Foldable racks are also a very good solution for your storage spaces. These racks can be quickly and easily added or removed depending on your needs.
Fast reaction and flexibility at every stage of the logistics process will provide your supply chain with the necessary resilience. It sounds simple, but the implementation requires certain decisive steps at the level of company management and logistics departments. Establishing a team for crisis management (and prediction) is one of these mandatory decisive steps. This team should include both people with good business management skills and narrow logistics specialists. Consult with logistics experts such as Zamko, Rotom and other proven EU companies offering good logistics products and solutions.