Source: eKapija | Monday, 09.05.2022.| 14:55
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War in Ukraine and Logistics – “What Happens Tomorrow”, the Question That Bothers All Business People

Illustration
Illustration (Photo: Ververidis Vasilis/shutterstock.com )
When the war in Ukraine began, local media were flooded with images of our truck drivers who were blocked on the border with Romania for a few days. It was, however, only the beginning of the story of the effects of the war on the logistics of Serbia and the whole world.

Today, not even three months from the beginning of the war, there is no country that has not felt the economic consequences of the conflict. Supply chains, already seriously jeopardized by the pandemic, are being tested again, the transport is made more difficult, the inflation is growing and no one has a reliable answer to the question: “What happens tomorrow?”

It is not unusual for something that used to be an exception, rather than a rule, in the business world, to happen – for valid agreements to be terminated, mutually, but also unilaterally. How to do business under such circumstances? It is very difficult, the Chamber of Commerce of Serbia told us.

Transport costs continuously growing

Depending on the duration of the conflict, the effects will be felt, according to international experts, by the end of this year and perhaps the next one as well. Forbes warns that, in the long term, the impact of the war will be visible in the next decade in Europe, whereas the USA and the rest of the world will suffer considerably less.

We have already experienced a jump in the prices of food and energy sources, but we are looking at an even worse situation – the profitability of small and medium enterprises will be jeopardized, and the recovery of the world economy will be considerably slowed down, analysts believe.

Still, these are only estimates. The only thing that is certain at the moment is – uncertainty. That is what bothers Serbian business people the most at the moment, as revealed for eKapija by Nikola Rankovic, the senior adviser of the Center for Strategic Analyses, Analytics, Planning and Publications of the CCIS.

– At the moment, the biggest pressure is the increased uncertainty of business operations in the sense of “what happens tomorrow”, considering that the situation is unpredictable and significantly subject to change, even in short time intervals. The worsening relations between the Western World and Russia are not helping the stabilization and normalization of the business environment either, so the announced new sanction packages threaten to only make the operations of our companies more difficult, as well as their access to this market. The situation is practically unpredictable in the short term as well – our interviewee explains.

The high inflation jeopardizes business operations
The high inflation jeopardizes business operations (Photo: Pixabay.com/Geralt)


According to him, at the moment, the operations of our companies with Russia and Belarus is made considerably difficult, whereas the operations with Ukraine have practically stopped. As is to be expected, the transport prices are growing. Since the transport through the Black Sea is blocked in terms of access to the Russian market, what’s available now are the considerably more expensive alternatives in the form of road transport and other types of traffic.

– The transport of goods toward Russia is still functioning with the increasing risk in the treatment of cargo by the transit countries of the EU, considering that the goods are subject to more rigorous control by the regulatory organs of the EU. The situation is made additionally difficult by the blocking of certain border checkpoints, which increases waiting time at borders, but also the time spent in transit. Transport costs are continuously growing, considering the sudden growth of the oil prices, the waiting times at borders, the uncertainty regarding the functioning of border checkpoints, as well as numerous difficulties in hiring drivers who are ready to drive in that market due to an increased risk and the prices they’re asking, but also the impossibility of insuring the goods in transport – Rankovic explains.

Energy and construction sectors most jeopardized

The problems of Serbian companies are not much different from the challenges that the whole world is facing. The increasing difficulties in procuring secondary raw materials, replacement equipment and spare parts due to the high purchase prices, the high inflation, old agreements that are terminated unilaterally, new ones which are more difficult to be made, with short terms, advance payment clauses and long delivery deadlines, all these are items that companies now have to calculate into their operations, our interviewee reveals. The war has an impact on all industries, from chips to food and cars. However, not all industries are equally jeopardized.

– Certainly, the most affected industries are the sectors that, in the production process, predominantly use the raw materials and secondary raw materials whose price in the world market has been considerably growing in the world market in the past weeks (metals, natural gas, energy sources, fertilizers etc.). These are primarily the energy and construction sectors, but also all other industries, such as metalworking, chemical industry and many others. Still, it has to be noted that there are supplies of said products, but that, in case the geopolitical situation in Europe became more severe, this could prove to be a big problem that would also lead to consequences that are much more far-reaching than the current ones. It should also be pointed out that this crisis is of a “general” character and that it doesn’t just affect a certain sector of the economy, but that its effect is much bigger in scope and of a global nature – our interviewee warns.

Energy in focus since the beginning of the war
Energy in focus since the beginning of the war (Photo: nostal6ie/shutterstock.com)


Producers of agricultural and food products less affected by the crisis

That the crisis is general in nature is confirmed by some effects that no one has counted on. The International Chamber of Shipping has warned of additional disturbances in the supply chain due to the lack of workforce due to the war. According to them, Ukrainians and Russians comprise 14.5% of the global workforce in this sector.

There are also the slightly unexpected consequences to the European auto industry, so BMW and Volkswagen were forced to close their production lines in Germany due to the lack of the parts that the German company Leoni used to produce in Ukraine.

Still, there are fields which are less jeopardized in both the world and Serbia. Our interviewee reminds that the producers of agricultural and food products were looking for new markets even before the outbreak of the crisis, motivated primarily by business reasons, so they can be marked as an industry that is less affected by this crisis.

– Also, Serbia is an important producer and exporter of grains in this part of Europe, and, as such, it is independent when it comes to supply in the local market, so no form of shortages or supply halts should be expected to occur when it comes to said products in the local market. Also, the supply of gas (the existing agreement is valid until June this year) and electrical energy is stable and is carried out without a problem – our interviewee points out and notes that the CCIS, in cooperation with the Government of the Republic of Serbia, is intensively working on finding adequate solutions for the jeopardized segments of the industry.

What happens after the war – is state interventionism to follow?

The data of the company Interos, which specializes in risk management in supply chains, show that nearly 300,000 companies in the USA and Europe have suppliers in Russia and Ukraine. The war has shown how dangerous that can be, so experts predict that the crisis will quicken the transition from global to regional suppliers, which has already started due to the Chinese-American trade war and the pandemic. In the USA, they believe that the high price of transport and the broken supply chains, primarily due to the pandemic, and then also due to the war in Ukraine, could bring the production of chips back to the USA.

USA increasing investments in airports
USA increasing investments in airports (Photo: Rawpixel/shutterstock.com)


Also, analysts predict that the industry, on its own, will not be able to handle all the challenges and that governments will have to become much more involved. According to Harvard Business Review, in the USA, the federal and state governments are increasing investments in ports, airports and other infrastructure.

– The war in Ukraine has forced a large number of countries which operate with the warring states to find alternative trade partners, and the growing everyday tensions between the western countries and Russia are contributing to the increased uncertainty on the global level. The discrepancy between the supply and the demand is the main challenge for the most developed economies of the world, and as things currently stand, this process will continue in the upcoming period. The consequences of this crisis are far-reaching and it can be said with certainty that there is no country that is not more or less affected, that is, that doesn’t feel the economic consequences of this conflict – concludes Nikola Rankovic, the senior adviser of the Center for Strategic Analyses, Analytics, Planning and Publications of the CCIS.

Marija Dedic

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