China’s stance on Ukraine ‘clear as mud’
As the war in Ukraine remains chaotic, many key industries are bearing the brunt with unintended consequences
The world is facing severe supply disruptions. However, some countries are harder hit than others.
Speed of delivery is a key metric in supply chains and it has never been more critical when it comes to the Russia-Ukraine crisis.
Ukrainian forces need military assistance as soon as possible to counter Russian aggression. So, with major disruptions, sanctions and a war, how does Ukraine get its supplies?
What makes military supply chains different from commercial supply chains?
Peter Jones of prological advice joined a panel with Brittany Coles and The Ticker’s Holly Stearnes.
The supply chain expert says that in the military supply chain, it’s absolutely critical that things happen the way they’re supposed to happen.
“It’s a very big part of alt forces’ strategies to disrupt their particular enemy’s supply chain because it means people aren’t fed and water can’t get through, not to mention the weaponry and other types of military support infrastructure, so there’s actually a pretty big difference at that first base level where people’s lives are at stake,” Peter says.
He goes on to say that the second tier is in commercial supply chains, and in times of war nations tend to “open the checkbook and whatever else is necessary. So from a financial point of view, this support is given as much as possible with domestic commercial supply chains, this commercial imperative must always be taken into account.
How are goods transported to Ukraine and Russia in the midst of war?
There are sanctions against Russia, global companies boycotting. So what does the supply chain landscape look like for shipping and air freight?
Peter breaks this down into two elements.
At local level
Peter starts with Crimea, which is basically Russia’s main gateway, into their country, and then out of Ukraine. These local territories will be greatly disturbed.
At the World level
Peter says that Russia accounts for only about 1.5% of the global movement or products in and out of Russia.
“So at this global level, Russia doesn’t have a big impact in terms of the volume going through the networks, and Ukraine only has half a percent. So at that local level, it’s huge, because nothing can come in and out, because of the disrupted ports,” he says.
“But internationally, this factor by itself will not have a huge impact. Following on from this though, where the big impact will impact global shipping is firstly the energy crisis as is in the process of being created.
The energy and jobs crisis is brewing in the ports
Ships are one of the biggest consumers of crude oil in the world. With Russia being the second largest oil exporter in the world, Peter says commercial pressure on companies will impact global trade.
On the other side, there is employment.
According to the World Maritime Chamber, around 15% of the world’s seafarers in merchant navies come from Russia, just over 10% and from Ukraine just under 5%. This therefore represents 15% of a global employment group from the two countries in conflict.
“Global shipping companies are going to be in conflict over their ability to continue to employ Russian employees. And the Ukrainian government is bringing more and more of its men back to Ukraine to take care of the nation. So these two elements will have a huge impact if this conflict lasts for a long time.
What about China?
Peter says global shipping is still a long way from recovering from the events of 2020.
When worldwide demand fell off a cliff, shipping lines took the opportunity to retire their old equipment, as it came with new taxes and fees being applied due to emissions regulations.
“So they said rather let us apply these taxes and fees, here is an opportunity, we are going to get rid of the ships, the demand came back very, very quickly and unexpectedly, but the ships had been removed. So that’s one of the issues that has led to a lack of demand,” says Peter. “Then we put the overlay on top of this closing port, with the empty containers in the wrong places. All of these issues are still very present today due to COVID.
Now, with the emergence of the situation in Ukraine and the return to China, and the things that are happening there, these problems are going to be magnified even further.
The question is how long will this disruption last?
So with global shipping, the general thoughts were until a month ago, maybe around the middle of 2024, the third quarter of 2024.
Peter says the industry has really been turned upside down due to the war and the new shutdowns in China.
“If the Ukraine Russia scenario lasts several months, then this schedule will be pushed back until 2025/2026.”
The implication of this is that countries can get what they need to run the nation from a government perspective.
Peter is based in Australia and says he has heard a lot about outsourcing more manufacturing and being self-sufficient as a nation.
“So what these issues will lead to is just that the conversation will escalate again, at government level and in boardrooms as they try to figure out what their risk profile looks like in terms of duration, in our opinion, of this scenario between Russia and Ukraine will last,” says Pierre.
He thought we might well see a return to much more national security from the perspective of making and maintaining sovereignty.