As Covid slows, war leaves logistics in turmoil
Two forces drive businesses around the world: supply and demand. These two strengths rely on the availability and accessibility of products and services to ensure customer satisfaction.
Any disruption in either supply or demand has significant effects on the value chain. Sometimes there can be supply and no demand, but the typical scenario is where there is demand and no supply.
Many aspects play a role in successful procurement, including logistics and transportation. Logistics companies enable the handling and movement of products from one location to another by offering transportation services by land, rail, sea or air to port services and warehousing services.
Disruption to any of these logistics services has a ripple effect on the supply chain and eventually sends shockwaves through various economic sectors globally.
Despite the critical role played by the logistics industry in the global economy, the last two years have been a nightmare for this sector and all supply chains. The advent of the Covid-19 pandemic has confused the world in terms of trade, handling and movement of goods, services and people.
These restrictions on movement by individual countries due to the pandemic have revealed an impending collapse of once vibrant global economies as supply chains have been significantly disrupted. Income generation through trade was threatened!
As the pandemic continued to spread across the globe, the invention of Covid-19 vaccines was a silver lining. Global economies have started to open up and supply chains have once again been restored.
People, goods and services could now move from one point to another, but with a certain level of caution and guidelines. Businesses that had shut down due to supply chain disruption have started to reopen. Finally, there was light at the end of the tunnel, and the whole world had found hope.
But even before businesses could reap the rewards of this return to normalcy after the deadly pandemic, the Russian-Ukrainian conflict occurred in February 2022.
The ongoing conflict between the two countries has once again negatively impacted the global supply chain and logistics industry more than one can imagine. With the conflict looking far from over, the challenges of transporting goods and services could worsen.
To put the numbers into perspective, around 374,000 companies around the world use Russian suppliers, while around 241,000 companies use Ukrainian suppliers. According to statistics from the Dun & Bradstreet report, about 91.5% of these companies are based in the United States of America, but the backlash is being felt around the world.
The raging conflict between the two countries has had its effects extended beyond Russia and Ukraine and has significantly disrupted the global shipping and cargo industry.
For example, the Russian military has cut shipping routes and disrupted flight networks, leading logistics companies to suspend services and forcing those trying to stay afloat to raise fares to survive.
The logistics industry cannot survive without fuel. It was the first industry to be hit hard by the shocks of the Russian-Ukrainian conflict. It is essential to mention that the fuel industry is what runs the world, and anything that disrupts its supply hits the nerve center that keeps global economies going.
Kenya was among the countries that faced the worst fuel shortage in history. There was no fuel supply. People had money to buy fuel, but the goods could not be found. The extreme fuel prices occasioned by the conflict have affected various sectors down the value chain.
Freight and shipping companies have had to raise their fares to protect themselves from soaring fuel prices.
The global shipping and transportation sector, on which the logistics industry relies, has been affected by the conflict.
Shipping and freight companies mainly depend on imported products from other countries. To avoid bankruptcy, companies in this sector have rerouted land, sea and air transport to avoid Russia and minimize fuel costs and delays.
However, this has resulted in longer transportation times and higher shipping costs for consumers. Cargo flights avoided flying over Russian and Ukrainian airspace, leading to longer flight times and increased fuel consumption.
As the conflict continues, experts said the price of fuel is expected to continue to rise, affecting all other sectors in the value chain. The logistics sector will continue to feel the heat and business people should be prepared to incur more costs in order to keep their businesses afloat.
Kipturgo is Managing Director of Siginon Group