The world was thrown for a loop when Russian forces invaded Ukraine at the end of February 2022. The biggest conflict in Europe since World War II, it is first and foremost a humanitarian crisis. With thousands killed and millions fleeing the country, our hearts go out to the victims of modern war.
Unfortunately, the invasion has impacted the world beyond Ukraine. One serious repercussion is its effect on e-commerce around the world.
It All Starts With Sanctions
When Russia invaded Ukraine, the West, including the US, responded with economic sanctions. According to BBC, sanctions “are penalties imposed by one country on another, to stop it acting aggressively or breaking international law. They are among the toughest actions a nation can take, short of going to war.”
The US and its allies have cut off Russia’s access to SWIFT, which allows for smooth international money transfers, frozen the assets of all Russian banks, and have banned their citizens from interacting with Russia’s central bank.
They have restricted the import to Russia of dual-use goods (like chemicals, lasers, and computers which can be used by both citizens and the military), attempted to prevent Russia from importing anything that might help develop high-tech weaponry, and stopped the import of luxury items like high-end alcohol, jewelry, vehicles, and clothing. On March 11, 2022, the US announced that it would ban all gas and oil imports from Russia.
Russia in return has banned the export of over 200 different products.
A Disturbance In the Supply Chain
All these sanctions lead to a disruption of the supply chain. Not only sanctions, but simple interrupted manufacturing will have major effects as well. According to Interos, a supply chain management firm, about 300,000 US companies’ supply chains are dependent in some way on Russia or Ukraine.
Russia being a major supplier of oil, wood, precious metals, and wheat, other countries will have to look elsewhere for these necessary products. This will lead to longer lead times as different sources are hunted down and new deals struck.
Shipping Rates Will Increase
The Covid-19 pandemic has already left the US suffering from rising inflation. As a major supplier of oil is cut off from doing business with the US and countries around Europe, gas prices will increase yet again.
Large carriers have forewarned businesses that they will charge extra for fuel and “war risk” costs. Smaller carriers, the ones we use every day like USPS, FedEx, and UPS, are expected to impose fuel surcharges or just increase rates generally. When a company is moving large amounts of goods, these increased prices can have a huge impact on operating costs.
Demand Might Be Affected
The war could potentially crush consumer demand. As gas prices increase, not only that which you put in your vehicle, but that used to heat your home and deliver your purchases, people may opt to purchase less.
As essentials like gas and food increase in price, the average consumer may decide that he or she is not going to spend money on anything that isn’t necessary. Consider how your products would fare in a consumer economy such as this.
People May Stockpile (Again)
The beginning of the pandemic included wild, frustrating, and over-the-top “stockpiling” of goods. Consumers, worried that supply would be interrupted or that they would not have the ability to make purchases in the future, bought food, toilet paper, medicine, and cleaning products in industrial quantities.
As the conflict in Europe continues, this phenomenon may be ripe to repeat itself. Is your company ready for huge sales, and then perhaps a larger dip?
Considering Scenarios a Few Different Scenarios …
Wars are unpredictable. There are then, of course, dozens of theories on how things may go. Familiarize yourself with a few scenarios so that you are prepared for what may come.
- The conflict resolves quickly. In this scenario, commodity markets cease their upward climb relatively quickly. Central bankers make minimal changes to their recovery plans. The US and the EU see a slow in growth but continue to recover from the pandemic, slowly but surely. American businesses will be able to follow their pre-conflict plans for the most part.
- A longer conflict. Universal sanctions would cut off Russia from global trade, triggering a falling ruble and a deep recession in Russia. A major blow is dealt to global markets as disruptions to Russia’s oil and gas exports continues. As for the US, energy prices are high and the Fed is more dovish, meaning that they are more likely to lower interest rates to strengthen a weak economy.
- In the worst-case scenario, Europe’s gas supply would be completely cut off as Russia retaliated to its imposed sanctions. Europe would sink into a recession as Russia’s respective recession worsens. In the US, energy and commodity prices would spike and inflation would be substantial and harmful.
As the Russian-led conflict in Ukraine persists, expect to see some major disruptions in e-commerce. Sanctions against Russia will prevent US businesses from engaging with Russia’s central bank and the import of luxury goods to Russia.
As the West shuns Russia’s oil supply, prices at the pump and on your energy bill will increase. The cost of shipping will increase. Customers may begin to hoard and stockpile. Be aware of and proactive about these changing market conditions so you can keep your company safe.