Ongoing War and The Global Supply Chain

May 5, 2022
4 min read

Have you ever wondered how goods manufactured in one continent reach the other and become an object of daily consumption? No need to wonder, it's because of the global supply chain. Read about it and how it got disrupted because of the ongoing war.

Do you know everything about the things you use on a daily basis? Do you know who manufactures them and where do they actually come from? Do you know that the bamboo toothbrush you use has its bamboo supplied from none of the places around you? The headset you use has its parts supplied from a different nation, and its body comes from a different one. Do you know what binds this whole world together?

The reason why things produced in any nation come to you with this ease is due to "The Global Supply Chain". This supply chain is the reason behind the smooth functioning of almost a thousand companies. Even a single delay or disruption in this will lead to severe consequences like soaring prices, inflation, or even shutting down a well-established brand.

Right now, the world is facing some severe issues. As we read in the daily news headlines, two nations are at war at present. The Russia Ukraine war news has filled the whole internet, but do any of us realize how it is going to affect the daily lives of people who are living even a thousand miles away from the 'war-zone'? Does anyone realize how this war is gonna affect business and the global supply chain?

In this article, we are going to discuss the same. But, before moving ahead, let us have a closer and more detailed look at what the global supply chain is.

What is a Global Supply Chain?

The global supply chain is defined as a global system that functions as a producer of goods and services. This worldwide supply chain will include goods providers as well as customers from different countries.

The global supply chain, it can be argued, can span beyond continents and countries in search of and supplying goods and services. The flow of information, procedures and resources around the world will be involved in the supply chain implementation.

Global Supply Chain Importance

Global supply chains influence everyone everywhere, whether you own a little gardening store in a strip mall or a large manufacturing and supply conglomerate with operations on multiple continents. The small gardening business may buy all of its supplies from local vendors, but those sellers are likely to get them from someone who is based in a different place, which is often offshore. Global marketplaces provide lower costs, allowing for more cost-effective production. The decision to source items through global supply chains takes into account price competitiveness, delivery advantages, and other crucial selling considerations.

Global Supply Chain and The War

The Russian invasion of Ukraine and the sanctions placed on Russia as a result, and pandemic-related supply chain disruptions in China are the most recent developments to shake global supply chains. When combined with the trade war between China and the United States, as well as other pandemic and climate-related disruptions, it is certain to accelerate Western companies' efforts to reduce their reliance on China for components and finished goods and on Russia for transportation and raw materials, leading to more localized, or regional, sourcing strategies. If China decides to support Russia in the Ukraine crisis, it will just add fuel to the fire.

The energy sector is in a state of crisis as a result of rising energy prices triggered by Russia's invasion of Ukraine. Europe, which gets over 40 percent of its gas from Russia, is particularly susceptible. Since the beginning of 2021, the price of natural gas in Europe has increased tenfold.

Beyond increasing energy costs and the dreadful humanitarian crisis in Ukraine, Russia's conflict will have far-reaching consequences for the rest of the world. Russia's war is echoing across the highly connected global supply chain, sending shockwaves across the global economy.

Goods Affected By The War

The invasion hasn't just affected a single sector, but it has sent a wave of disruption across the world. Many of the products are in a state of unavailability, and this is affecting the production of other goods that consist of them.

Some of the goods whose supply is affected are:

Semiconductors

The ongoing semiconductor scarcity is likely to be prolonged as a result of the situation in Ukraine. More than 90% of the semiconductor-grade neon consumed in the United States comes from Ukraine, a gas essential to the chip-making process' lasers. Russia, on the other hand, provides 35 percent of the United States' palladium, a rare metal required in semiconductor manufacturing.

Corn

Moving up the supply chain, Russia and Ukraine account for 17% of the global corn market, which is a critical component in animal feed. As a result, not only will bread and pasta become more expensive, but so will chicken and pork.

Fertilizer Nutrients

To make matters worse, Russia is a major producer of several key fertilizer nutrients such as potash and phosphate. Severe disruption in the global fertilizer business will be unavoidable if Russia restricts the export of these minerals and chemicals.

Even if this does not occur, rising energy prices are expected to result in fertilizer shortages due to other factors. Ammonia, for example, is another major component of fertilizers that requires a lot of energy to make. Higher oil prices will make shipping fertilizers more expensive and probably more difficult, especially if global shipping routes are disrupted.

Fertilizers are used in over half of the world's food production. A disruption in fertilizer production and distribution as we approach the most important planting season in the Northern Hemisphere, would almost surely result in a global food supply deficit later this year. While this will most likely manifest as inflation in the industrialized world, food scarcity in many underdeveloped countries might signal the start of a humanitarian crisis.

Conclusion

The ongoing war between two countries isn't just their concern. There is a reason why your daily newspapers have headlines or news briefs related to the war. The reason is the supply chain is getting disrupted and because of this the consequences are ready to jump in.
We all as humans pray that this war ends as soon as possible not only because of the goods crisis but also for the sake of humanity.