A lesser known, but no less disruptive ripple effect from the original Chinese shutdowns is the global lack of containers for moving goods. As goods ceased moving from manufacturers to market, ocean shippers – through which the vast majority of the world’s freight is transported – reduced vessels at sea. As China reopened, the containers that were available left Asia for Europe and the US. Given the restrictions still in place at those locations, containers began to stack up at destination ports without returning to manufacturing sites. Without containers, nothing moved – and supply chains could not get moving again. In many cases, supply chains are still trying to catch up from these twin issues.
War in Ukraine
On 24 February 2022 Russia invaded Ukraine, which signalled the start of first major war on the European continent since 1945. The war has had a huge impact on supply chains across Europe, particularly in relation to the products and materials used in the manufacturing and construction sectors. Businesses are adapting to the challenges, but the key issues remain. Some of these are addressed below.
The loss of productive capacity in Ukraine
Ukraine had significant industrial capacity, particularly in steel production. Unsurprisingly the war has both destroyed infrastructure and diverted output to the war effort. This has significantly reduced Ukrainian exports. For example, in January 2023, steel exports were down c.60 percent on the year. Ukraine also produced about 45 -54 percent of the world’s neon, a gas used in the lasers that create semiconductors. The US sourced 90 percent of its neon from Ukraine.
Commodity shortages
Russia is a major commodities exporter. For example, Russia and Belarus produce about 10 percent of Europe’s softwood. Further commodities in which Russia has a significant stake include copper, aluminium, bitumen, and asphalt. In addition, the US. imported substantial proportions of key metals, such as platinum, nickel, and titanium from Russia. The international sanctions on Russia and Belarus have hugely impacted the supply of these materials, emerging and ongoing problems with no real end in sight.
Seafarer shortages
Ukrainian nationals make up approximately 4 percent of global seafarers (Russians comprise even more). Given the situation in Ukraine, a number of Ukrainians are not able to take up contracts, thus reducing the supply of seafarers. Further, at the outbreak of the war, 94 vessels (mostly grain ships but other cargo ships as well) were trapped in Ukrainian ports. This has exacerbated problems with a shortage of merchant shipping capacity.
Energy crisis
Europe’s energy policy over recent years has left it vulnerable to shocks. For example, Germany (a major industrial nation) relied on natural gas for 27 percent of its energy, of which more than half was sourced from Russia. Across the continent as a whole, Russia supplied approximately a third of Europe’s oil and 35 percent of its natural gas.
When the war in Ukraine started and Russia was hit by sanctions, energy prices in Europe rocketed. These problems were exacerbated by other oil-producing nations deciding not to increase supply to fill the gap. The effects of this were felt widely and particularly by businesses with high energy demands.
The result was huge cost inflation, together with supply chain issues as some producers went out of business or suspended production. For example, some of Spain’s largest cement producers suspended production in March 2022.
The worst of the energy shock might be over as European gas prices recently fell to their lowest level since July 2021. However, given the levels of geopolitical uncertainty, future shocks cannot be ruled out.
