Two forces drive businesses around the world; supply and demand. Both forces are pegged on the availability and accessibility of products and services to ensure customer satisfaction. Any disruption in either of them, supply or demand, has significant effects down the value chain. Sometimes there might be supply and no demand, but the typical scenario is where there is demand and no supply.
Many aspects play a role in ensuring a successful supply, among them logistics and transport. Logistics companies enable the handling and movement of products from one place to another either through offering transport services by land, rail, sea or air to Ports services , and warehousing services. Disrupting any of these logistics services have a ripple effect to the supply chain and eventually send shockwaves across the various global economic sectors.
Despite the critical role played by the logistics industry in the global economy, the past two years have been a nightmare for this sector and entire supply chains. The advent of the Covid-19 pandemic disoriented the world in terms of trade, handling and movement of goods, services and people. These movement restrictions by the different countries due to the pandemic told of an imminent collapse of the once vibrant global economies as supply chains were significantly disrupted. Income generation through trade was at risk!
As the pandemic continued to sweep across the world, the invention of the Covid-19 vaccines was a silver lining. Global economies started opening up and supply chains were once again restored. People, goods and services could now move from one point to another albeit with some level of caution and guidelines. Businesses that had shut down due to supply chain disruption began to revive their operations. At last, there was light at the end of the tunnel, and the whole world had hope again.
But even before businesses could enjoy the fruits of this return to normalcy after the deadly pandemic, the Russian – Ukraine conflict happened in February 2022. The ongoing conflict between the two countries has once again negatively impacted the global supply chain and the logistics industry more than one can imagine. With the conflict seeming far from over, the challenges in moving goods and services might worsen.
To put numbers into perspective, about 374,000 businesses across the globe use Russian suppliers, while about 241,000 businesses use Ukrainian suppliers. According to stats in the Dun & Bradstreet report, about 91.5 percent of these companies are based in the United States of America, but the aftershocks are being felt worldwide.
The raging conflict between the two countries has had its effects spread beyond both Russia and Ukraine and significantly disrupted the global shipping and freight sector. For instance, the Russian army has cut off shipping routes and disrupted flight networks, leading to logistics firms suspending their services and forcing those trying to remain afloat to increase their rates to survive.
The logistics industry cannot survive without fuel. This was the first industry to be severly hit by the shocks of the Russian-Ukraine conflict. It is essential to mention that the fuel industry is what runs the world, and anything that disrupts its supply touches the nerve centre that keeps the world 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 commodity was nowhere to be accessed. The extreme fuel prices occasioned by the conflict have affected various sectors down the value chain. Freight and shipping companies have had to increase their rates to cushion themselves from the skyrocketing fuel prices.
The global shipping and the transportation sector, upon which the logistics industry is premised, has been hit by the conflict. Shipping and freight companies primarily rely on the products imported from other countries. To avoid going under, companies in this sector have been rerouting ground, ocean, and air shipping to avoid Russia and minimize fuel costs and delays.
However, this has led to longer transportation times and higher shipping costs for consumers. Cargo flights have been avoiding flying over the Russian and Ukrainian airspaces, leading to longer flight times and more fuel consumption.
As the conflict continues, experts have said that the fuel price is expected to continue rising hence affecting all other sectors down the value chain. The logistics sector will continue feeling the heat, and people in business should prepare to incur more costs in order to keep their enterprises afloat.
The writer is Siginon Group’s – Group Managing Director