Russia-Ukraine crisis to reshape supply chains, flatten world trade
The improvement in global supply chains has ended before it ever really began. The war in Ukraine will bring longer-lasting disruption and the trade outlook will bear the consequences of sanctions. Expect a new round of delays and protracted supply shortages
- Supply chains: a new round of challenges
- Russia and Ukraine: no major EU trade partners, but closely linked to several countries
- Sanctions are a blow for European trade with Russia and transit traffic
- Distortion of commodity markets and trade impacts supply chains the most
- Automotive sector already faces supply chain consequences
- Avoidance of Russian ports and mutual closing of air space leads to new inefficiency and less air cargo capacity
- What does this mean for supply chains and our trade outlook?
Supply chains: a new round of challenges
The war in Ukraine is putting global supply chains to the test again. Even before the conflict began, supply chain frictions had only improved marginally from the pandemic. While container handling had picked up significantly in many regions, schedule reliability – the actual on-time performance of individual vessel arrivals in ports tracked by Sea-Intelligence – dropped to 30.9%, marking a new all-time low. In terms of shipping rates, there has been some relief in the spot market, but the shift to long term contracts has meant that higher container tariffs are now locked in.
Russia and Ukraine: no major EU trade partners, but closely linked to several countries
The share of Ukraine’s global goods imports and exports only amounts to 0.3% each, while Russia’s export share is 1.9% and its import share is 1.4%. However, although the share in world goods trade is small for both countries, they are crucial oil, gas and grains exporters and have close links to Baltic states and other Eastern European countries, namely Lithuania, Bulgaria, Finland, and Latvia. On average, almost 40% of trade in these four countries was linked to Russia between 2015 and 2020, not only through goods imports and exports, but also through value added as partners in supply chains. Lithuania and Bulgaria have particularly close ties in this regard; Russian value-added as a percentage of final demand is roughly 6% in both countries. The trade share with Ukraine between 2015 and 2020 was far smaller, with Lithuania (1.9%), Hungary (1.7%) and Poland (1.5%) seeing the highest shares.
Sanctions are a blow for European trade with Russia and transit traffic
EU countries have banned exports of a range of high-tech products, equipment, materials, and machinery to Russia and extended the scope of sanctions to Belarus. These products cover at least 40% of the export package to Russia based on the EU sanctions list. Formal sanctions, in addition to extensive self-sanctioning, will have a strong impact on trade this year. Shipments to and from Russia have been banned, resulting in stagnating commodity flows. Due to the closure of Russian airspace, air freight traffic is being hindered. In addition, rail transport between Asia and Europe via Ukraine on the ‘Silk Road’ has been impeded, making transportation through both countries highly uncertain. In terms of tonnage, air cargo covers only 1% of world trade and the Silk Road takes 1-2% of container traffic between Asia and Europe. But in terms of value, this takes a much bigger share, as higher valued (consumer) products like electronics, pharmaceuticals and high-end agriproducts could be involved. According to the Kiel Trade Indicator, world trade could decline by 5.6% in February compared with the previous month, even though the conflict only started to escalate in the last week of February.