It is clear that the Russian-Ukrainian war, which began in late February, has already started to affect the global economy. Throughout this crisis, humanitarian concerns have been at the fore. Loss of life and increased suffering is the most tragic effects of war, and it is imperative to note that economic relations are of secondary importance in comparison. With that said, the e-commerce community should, however, take the time to consider how the conflict might affect their businesses and what they can do to mitigate adverse outcomes.
In response to the war, much of the world has rallied around Ukraine and struck Russia where it hurts most: it's economy. Skyrocketing gas prices are only one of the effects of this conflict. The economic sanctions the war has prompted have put pressure on supply chains, creating immediate and lasting effects on the rest of the world, whom are still struggling to recover from slowed freight and shipping issues that developed in 2020 due to Covid-19. The sanctions against Russia have caused a mass exodus of millions of companies from the country, whether they purchased goods from Russia or had bases there. Similarly, US companies have decided to stop shipping goods to Russia. It is evident that this war has affected more than those involved and will continue to affect the global economy.
Ukraine's economy and clientele are among the many assets that help the European economy function. Many American companies depend on materials like fuel, oil, wheat, and wood from Russia or Ukraine. Because of this, the rest of the world has to compensate for the disruption of these vital exports. Global supply cannot keep up with demand. Other countries with similar resources have to produce more than they’ve ever had to. Naturally, with the ways of supply and demand, the price of everything will go up further, contributing to inflation.
Here are three significant ways war impacts e-commerce:
Safety and Security
One of the biggest concerns for suppliers in that region is the safety of their employees. From small parcel shippers or e-commerce companies, many are deciding to pull shipments from the war-torn area. Companies such as eBay, Sendle, Nestle, UPS, FedEx, and many more have announced halting services. Some companies have said that they will continue to pay their Ukrainian employees and help support them in other ways throughout the war. Security concerns affect trade routes, especially routes that run through Ukraine and Russia, known as the Eurasian Land Bridge. In 2021, 1.5 million cargo containers were shipped by rail west from China to Europe. If the trade that once went by rail were added to ocean freight, it would mean a 5% to 8% increase in an already congested supply chain.
Increased Shipping Costs
Globally, the same forces affecting the supply chain also drive up gasoline prices. When gasoline costs rise, small packages become more expensive to transport. Regardless of carrier size, expect all carriers to increase their rates or impose fuel surcharges. FedEx Express, for instance, informed customers it would increase the peak surcharge for many international parcels and freight shipments by 14.5% due to recent supply chain disruptions caused by the Russian invasion of Ukraine.
The United Nations Conference on Trade and Development (UNCTAD) reports, “Long-standing effects of rising food prices are hard to predict… but a UNCTAD analysis of historical data sheds light on some troubling possible trends.” A trend comes with significant political events and the agri-food commodity cycles, such as the Arab Spring in 2011 and the 2007-2008 food riots. On top of the companies putting a pause on their businesses in that area, consumers worldwide are stressed in the face of civil unrest. This amount of industry and economic uncertainty means that consumers fear the worst. This could lead to less spending, impacting the worldwide economy.
Now, if you own an e-commerce company, you are probably unsure of how even to combat these challenges. While we don’t necessarily know what will happen, and much of this situation is out of our hands, we can do a few things. In an environment where goods and materials are being sourced from unusual places abroad, businesses may encounter delays in obtaining inventory. E-commerce companies should evaluate their supply chain risk and make inventory decisions based on this evaluation. To avoid last-minute delays on orders, encourage customers to begin shopping as early as possible. Several shoppers are still suffering from the consequences of pandemic-induced shortages. As stated above, there could be a decrease in consumer demand, but on the other hand, the conflict in Ukraine may cause consumers to purchase goods out of panic. E-commerce businesses will benefit from determining if their products are in high "necessity" demand. Furthermore, online sellers should provide realistic delivery deadlines even before customers make their purchase to be aware of the crisis and not blame you if the timeline is extended. Real-time tracking of your parcels allows you to take action before customer impact occurs. To keep shipping costs as low as possible even with increased shipping surcharges utilizing tools like Real-time Rate Shopping will be essential.
At DesktopShipper, we are dedicated to supporting the e-commerce industry through these trials and tribulations. The entire world is watching this unfold.