10 April 2023 The recent events related to the diplomatic crisis and military conflicts between Russia and Ukraine have left Brazilian companies, especially industrial ones, even more focused on foreign policy and the economy. Entrepreneurs and managers who are still dealing with the consequences left by the Covid-19 pandemic now face the challenge of reconciling and preparing their supply chains for the possible effects that could arise from the intensification of the conflict in Eastern Europe. Lack of raw materials, rising prices of essential products, and a drop in demand are some of the scenarios that could worsen in the coming days if the conflict is not resolved diplomatically. According to logistics experts, the war could impact the supply chain, directly affecting end consumers. Returning to the current context, we see similar difficulties in some sectors. In general, Brazil imports few products from Russia and Ukraine. Currently, around 2,400 companies in the country depend directly on the production factors and suppliers of the two countries in conflict. Globally, according to the CIAL Dun & Bradstreet business information report, more than 374,000 companies depend on imports from these nations. Although Russia (1.9%) and Ukraine (0.3%) represent less than 2.5% of imports on a global scale, both countries are among the largest exporters of inputs on the planet, particularly sunflower oil (59%), iron or non-steel products (26%), and wheat (26%). It is worth adding that Russia is the third-largest oil producer in the world and the world leader in natural gas reserves. Therefore, the impact of the war in Ukraine could affect the supply chain in various sectors, increasing the values and prices of basic inputs, such as industrial metals, agricultural products, natural gas, and crude oil, as well as impacting the transportation of goods and limiting the productivity of operations. Next, we will understand the main impacts on logistics triggered by the war in Ukraine, how they can affect your company, and how to take precautions in times of global insecurity. Main impacts caused by the war on the supply chain 1. Decline in investments and economic impact When the war in Ukraine began on February 24 with the Russian invasion, the entire world population was alarmed. As the days passed, the conflicts continued, and the attacks intensified, the economic scenario became more uncertain. In this situation, entrepreneurs, managers, and even the general population, which corresponds to the consumer segment, found themselves somewhat conservative regarding their investments. From the side of entrepreneurs, who were already cautious after the Covid-19 crisis and who this year planned to resume new investments, they are uncertain about the war in Ukraine. It is common for companies to ask themselves: “Is it worth investing in new projects now?” These questions can concern anything from building new warehouses to increasing staff or even acquiring new tools and technologies, as it is unknown what path the conflict will take. In this sense, it is natural to see a slowdown in investments and also the search for safe and conservative investments. However, experts consider this a crucial moment to seek solutions that increase business security and efficiency. In his speech at the XXV National Logistics Conference (CNL), Jim Tompkins, a thought leader on the supply chain and CEO of Tompkins International, argued that in scenarios of disruption, like the pandemic and now the war, companies need to be open to new ideas brought by digital transformation. According to Tompkins, we are experiencing “a reinvention process that everyone must face. The world is volatile, coexists with many complexities and uncertainties, and there is no room to resist these innovations.” The speaker also emphasized the importance of collaboration among agents and reiterated: “when you talk about digital acceleration, you talk about collaboration. And when you talk about digital acceleration and collaboration, you talk about logistics with excellence. And that’s it.” While entrepreneurs and companies take cautious measures regarding their financial investments, on the other hand, we have the foundations that support the market, the consumers, who also find themselves insecure in the current situation. In this context, relying on technologies that strengthen ties, increase security, and reliability in the company-customer relationship means being a step ahead, especially when uncertainties permeate society. 2. Reduction in maritime flow and port blockages The situation of port congestion, lack of containers, and ship delays had already been discussed during the coronavirus pandemic, and the projection was optimistic for the transport sector. However, the war in Ukraine has made this scenario more delicate. With the economic sanctions established in recent weeks, some major maritime groups have suspended cargo bookings for Russian imports and exports, and many ports have stopped receiving ships arriving from Russia. It is likely that new queues will be created at ports and warehouses affected by the lack of input reception. 3. Increase in transportation costs Another significant impact that companies and consumers have observed in the face of the conflict between Russia and Ukraine has been the increase in the price of a barrel of oil, today one of the main sources of energy in the world. With the economic sanctions adopted in response to the war in Ukraine, the availability of oil has been reduced, and consequently, its price has increased. This is because Russia is one of the countries that stands out in fuel production, being responsible for a significant portion of the supply worldwide. This increase generates a chain reaction: the rise in fuel prices causes an increase in the value of products and services, such as goods. Brazilian transport logistics is predominantly road-based, so it is practically impossible not to pass on excess amounts to the customer. However, this can be an obstacle in a context of high inflation and consumer insecurity. To “balance the scale,” it is essential for companies to seek ways to reduce internal costs, prioritizing process efficiency and better use of their resources. 4. Increase in food prices Just like the difficulty of shipping inputs by sea and the rise in fuel prices, the increase in food costs is inevitable. Brazil has a solid agricultural development chain and depends on the import of Russian fertilizers to ensure the country’s food security. According to an interview given to the G1 portal, the Minister of Agriculture, Tereza Cristina, stated that Brazil has sufficient fertilizer stocks for the next three months, which does not affect the current agro-food harvest. Additionally, negotiations with other suppliers, such as Canada and Iran, are already underway, and the search for new suppliers is a strategy to ensure that the sector does not face complications if the conflict between Russia and Ukraine drags on for a long time. 5. Widespread inflation increase Brazilian companies and consumers had already observed in practice the increase in the value of products in the country. This has been the reflection of recent years worldwide. However, it is likely that inflation will continue to rise at all levels. Among the affected products will be fuel and food, as mentioned earlier. The prices of oil, fertilizers, and important grains, such as corn and wheat, have increased considerably in the market and, in addition to influencing the supply chain of numerous industrial sectors, also affect transportation, influencing the prices of goods. We know how much shipping costs and delivery times are decisive factors when making a purchase, especially when it comes to e-commerce and hybrid sales strategies (omnichannel). Therefore, it is important to evaluate transportation and delivery logistics, consider the best way to reduce costs, whether by optimizing truck space, organizing shipping by region, or checking for areas of improvement in order and delivery route processes. How should my company behave in times of crisis? We have discussed the main impacts that the war in Ukraine can have directly or indirectly on your company, but how can supply chains face a crisis with caution and defend themselves from the threats that the current scenario offers the market? First of all, as logistics managers and entrepreneurs, there is the possibility of making decisions that support the common good. And it is in this difficult and unstable moment that supply chains have the opportunity to make a difference for their end consumers, through a few steps: 1. Prioritize your team Even though we are experiencing difficult times in various sectors, the entire world is going through this situation. In this way, stay informed, convey security, and communicate clearly to your employees and team who also have several questions. Talk about the company policy and how they manage the situation. After all, your employees may be insecure, and empathy is essential to maintain good working relationships, as well as motivation and productivity. 2. Reevaluate your suppliers In times of crisis, it is important to evaluate what your suppliers are doing for the common good and also the strategies they use to manage a delicate period. This is the time to align your company’s values with those of your suppliers, asking the following questions: how can possible problems be guaranteed and prevented? Are there emergency plans? What are the short, medium, and long-term strategies if the war in Ukraine impacts business more? Relying on secure suppliers allows your company to have solid strategies and a more reliable relationship with partners. Another option is to seek supplier diversification. It is likely that you have loyal partner companies today, but having a plan B can prevent your company from interrupting its activity within the supply chain due to a lack of inputs or shipping delays. 3. Regionalize your supply chain Global supply chains are still suffering from the consequences of the past two years, and as the world faces blockages in transportation and routes already used to access suppliers, the risk of partial or even total paralysis of operations is increasing. Considering this reality, one of the trends that is strengthening in the market is the regionalization of the supply chain. Driven by the Covid-19 crisis, the war in Ukraine has raised this issue again, meaning many companies are considering the possibility of bringing some of their activities closer, whether in countries, states, or cities closer to where the products are sold. According to research conducted in July 2020 by the Association of German Chambers of Industry and Commerce (DIHK), 40% of companies already have new and closer suppliers. Therefore, the regionalization of supply chains can prevent sudden interruptions in operations, as well as optimize resources and make processes more agile. 4. Optimize your resources and invest strategically Although the natural behavior in times of crisis is to be cautious with investments, it is possible to take smart and strategic actions that can generate better financial returns even in uncertain times. One bet is to rely on technology to optimize processes and make better use of your resources. Since it is not possible to escape high inflation, it is possible to find new ways to circumvent and reduce costs. 5. Stay updated Part of the responsibility of supply chain managers is to be aware of what is happening in the world and how their decisions affect the local and global economy. Therefore, read the news, watch the newspapers, and listen carefully to everything happening in the global economy. Create connections with your company’s scenario and the impact of new measures on results, suppliers, employees, and operations. 6. Lead with excellence Take initiatives and lead your team with excellence. Convey security, strategically analyze improvement opportunities, conduct business with purpose, be realistic about your influence, and make secure decisions while respecting, above all, the ethics and policies of your company. 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