Energy and food supply crisisĀ
Already well documented is Europeās overreliance on natural gas and crude oil from Russia. Prices for gas have surged to record highs in recent weeks, causing a sharp rise in costs for European industry and inflicting severe pain on energy-intensive sectors from steel and aluminium to fertilizers and transport. This has increased pressure on companies to accelerate investments in renewable energy.
Another vulnerability is a dependence on Russia and Ukraine for key agricultural commodities. The two countries are the leading grain and sunflower oil suppliers to world markets, accounting for a 10th of wheat exports, 13% of corn and more than half of sunflower oil, according to UN Comtrade. Russia is also a key exporter of fertilizer and animal feed. The war is causing significant disruption to agricultural supply chains, threatening supplies and forcing sharply higher food prices.
Furthermore, Russia is a significant source of critical minerals, accounting for 30% of the worldās supply of palladium, 13% of titanium and 11% of nickel, as well as a major supplier of neon used for components in semiconductors. The soaring prices of minerals have forced big carmakers to cut vehicle sales forecasts.
The Ukraine conflict is part of a succession of supply shocks that are becoming more frequent and severe. The erosion of labor cost arbitrage because of rising wages, and soaring shipping costs and bottlenecks at ports, as well as heightened geopolitical risk from vaccine nationalism, Brexit and US-China tensions had already made some companies revamp their existing supply chain policies. There is also growing pressure on companies to reduce their carbon footprint.
Supply chain managers have been left reeling. Companies are developing multi-source procurement strategies, putting in place at least two suppliers in different locations that serve factories around the world, acting as a buffer against future supply disruption.
In addition, they are increasing the inventory they keep on hand and negotiating longer-term contracts with multiple suppliers in a significant shift away from the once dominant ājust in timeā supply chain strategy that lowered costs by keeping stock to a minimum.āÆ