The Russian-Ukrainian war has already begun to impact the global economy and will almost certainly affect ecommerce companies.
The war’s most tragic effects are the loss of life and the dramatic increase in human suffering. Compared to these outcomes, economic considerations are minor. Nonetheless, business leaders should think about how the conflict could impact their companies and what they can do to minimize negative impacts.
The war’s most tragic effects are the loss of life and the dramatic increase in human suffering.
5 Impacts of War
Supply chain disruption. The Russian-Ukrainian war and its numerous associated economic sanctions could add pressure to the global supply chain, which has not recovered fully from Covid-19. A direct-to-consumer brand, for example, might use a manufacturer in the United States and feel safe from disruptions in central Europe. But what if that American producer buys components or materials from Europe?
Interos, a U.S.-based supply chain management firm, estimates that more than 300,000 American companies have supply chain dependencies in Russia or Ukraine. Russia is a significant exporter of fuel, oil, wheat, cereals, gems, cultured pearls, precious metals, copper, iron, and wood. These materials supply many companies in China, The Netherlands, Germany, and Italy, among other nations. As those businesses source materials and goods elsewhere, expect long lead times. Ecommerce companies may want to evaluate their supply chain risk and make inventory decisions accordingly.
Shipping surcharges. The same forces pressuring the supply chain also drive up gasoline prices worldwide. For example, in 2021, the average price per liter of gasoline in The Netherlands was USD $1.88, according to Statista, roughly $7.11 per gallon. In March 2022, the price in The Netherlands had risen to about $9.43 per gallon. In the U.S., the average price per gallon was $4.17 on March 8, 2022, according to USA Today.
As gasoline prices rise, the cost of transporting small packages goes up. So expect carriers such as UPS, FedEx, and the U.S. Postal Service to impose fuel surcharges or increase rates generally. FexEx, for example, was already surcharging 14.5% for fuel on Express services and 13.25% for Ground at time of writing. Surcharges are not limited to the familiar parcel carriers. Large fleets of container ships, such as Maersk, are already warning businesses of looming fuel and “war risk” price increases.
Consumer demand. The war has the potential to gut consumer demand. Imagine a consumer living in the United States. She is paying a lot more for gasoline than a month ago. She has seen the value of her family’s 401(k) head steadily down. Food prices are rising, and the situation in Ukraine is worrisome. Will this consumer make discretionary purchases? Probably not. That prediction might not come to fruition. But ecommerce leaders should consider how their products would fare if consumers saved more and avoided buying non-essential items.
Borrowing costs. The war in Ukraine could bolster inflation worldwide. The U.S. Federal Reserve has already increased interest rates, but rising prices from the war will likely increase them further. That, in turn, would drive up borrowing costs for companies and consumers. Thus ecommerce businesses should review their lines of credit to understand the impact of rate hikes.
Product stockpiling. The pandemic-induced shortages are a painful memory for many shoppers. The war in Ukraine might repeat the panic buying of goods by consumers. Online businesses might consider if their products fall into the “hoarding” category. If so, how would stockpiling impact the company?