Car parts, chips, sunflower oil: war in Ukraine threatens new shortages

The conflict is also crippling huge commodity exports from Ukraine and Russia, driving up the price of oil, natural gas, wheat and sunflower oil. Shipping from Ukrainian ports, an important corridor for grain, metals and Russian oil shipments to the rest of the world, has all but shut down.

Carriers and airlines have warned that the decision by several European countries to close their airspace to Russia, as well as Russia’s tit-for-tat retaliation, will increase the cost of flying cargo from Europe to Asia, potentially would make some routes commercially impractical. Western sanctions—particularly banning some Russian banks from the SWIFT global financial payment system—will make it cumbersome for many companies to do any kind of business with the country, even in areas that may not be approved. Used to be. There is also the risk of sanctions if individual Russian commodity players, or Russia, retaliate by stopping the supply of its products.

Economists and business leaders fear it will affect supply chains that depend on components from Russia and little-known items such as neon gas and palladium, critical materials for making semiconductors. Industries such as car manufacturing have already been disrupted by the easing of pandemic lockdowns and increased demand following persistent production bottlenecks.

The threat of rising prices on top of already high inflation adds another challenge to interest-rate-sensitive businesses: figuring out whether the world’s central banks will accelerate their recent moves toward tighter money, or if If they see a big risk then back out. global recovery.

The US and its allies “issuing sanctions on Russia will have a cascading effect not only on Russia, but on the whole world,” said Don Tiura, president of Sourcing Industry Group, a US-based trade body. Western politicians and experts in the sector believe that while they will have an impact on their own economies, the sanctions will prevent Russian President Vladimir Putin from moving elsewhere.

Last week oil prices hit $100 a barrel for the first time in eight years. Aluminum is up more than 20% so far this year and Russian-dominated palladium is up 26.7% over the same period. Wheat futures trading in Chicago jumped 12% last week to its highest level since 2012.

Some officials caution that it is too early to know how long-lasting the shock to supply chains will prove to be. They say the effects of the war and sanctions are still unclear, that many companies can rely on stocks of parts and raw materials, and that Ukrainian wheat is mainly exported after the harvest beginning in August. . Companies have come back from crises faster than previously anticipated.

The car industry, which has long relied on extended cross-border supply chains, was among the first to feel the brunt of the latest economic chaos. Leoni AG, which manufactures wire systems in Ukraine that it sends to European auto makers, last week closed two of its factories in Ukraine and sent home about 7,000 workers.

The next day, Volkswagen AG said it could no longer receive wiring systems produced in Ukraine and would cease production at plants in Zwickau in East Germany, the most important factory in VW’s push into electric vehicles, and Dresden. for several days a week. VW said it would have to lay off more than 8,000 employees by the time it could resume production.

Within hours of the invasion, car companies dependent on China and parts of Eastern Europe were forming a task force to plot alternative routes. A VW spokesperson said, “Ukraine is not the center of our supply chain, but suddenly we learned that when this part is missing, it is.”

Ukraine has 22 foreign companies, such as Leoni, which operate 38 factories that manufacture accessories for the automotive industry, wire harnesses, electronics, seats and other products, according to UkraineInvest, a government body that directs investments in the country. promotes.

“We have no problems today, but it is too early to tell if we do have any problems,” said a spokesman for Mercedes-Benz Group AG.

Disruptions in commodity and raw material supplies from Russia and Ukraine could lead to global semiconductor shortages that are already traded around the world. US semiconductor makers import neon gas, the chemical compounds hexafluorocyclobutene and palladium, which are used to make the chips, almost entirely from Russia and Ukraine, according to Tekset, a research group that deals with the important chemicals used in manufacturing. Analyzes dependencies on materials.

According to JPMorgan, Russia’s MMC Norilsk Nickel PJSC mines 40% of the world’s palladium, which is also used in catalytic converters to reduce vehicle emissions, as well as about 11% of global nickel production in stainless steel and Used to make electric vehicle batteries. Russia mines about 4% of the world’s cobalt, another battery component; A quarter of its vanadium is used in steel making; and 3.5% of its copper, according to the US Geological Survey.

Caroline Phillipson’s breakfast food company, Your Unbelievable Bowl, recently carried a large shipment of raw materials including nuts, seeds, berries and buckwheat, some of which come from the Black Sea region, but any current supplies have been snapped up. escaped the flare. Like many officials, she is viewing events in Ukraine with horror, troubled by the loss of life and worried about the potential for further inflationary pressures. Supply-chain issues have added about 20% to the cost of its Northeast England-based business in the past year.

“I can only imagine it getting much worse after that, with much higher energy costs, and transportation costs, material costs, all going up,” she said.

The problem of transportation is getting worse day by day. At least 22 tankers are blocking the Kerch Strait, a major Russian-controlled waterway, as ports remain closed, according to shipping trackers. Greece, which operates a quarter of the global tanker fleet, is urging shipowners to pull their ships from Russian and Ukrainian waters in the Black Sea, a choke point for many major commodities.

According to Commerzbank AG, Russia and Ukraine combined account for about a third of the world’s wheat exports, 19% of its corn exports and 80% of the world’s sunflower oil, and much of it flows through Black Sea ports. which are currently closed. Rising grain prices are mainly of concern to countries in the developing world, such as Egypt and Indonesia, which are dependent on shipments and where food prices were already rising.

A seaplane chartered by Cargill Inc., one of the world’s largest food suppliers, was hit by a projectile off the coast of Ukraine in the Black Sea on Thursday. Minnesota-based Cargill, which operates an export terminal in Ukraine, said the ship was seaworthy and no one was injured.

Oleg Solodukhov, a partner at the Kyiv-based shipping consulting firm Charterers, said a cargo of steel had been unable to leave the Ukrainian port of Mariupol because Russian forces had placed mines at sea. He added that another cargo of iron ore could not leave the port of Ugen, east of Odessa, because the facility was closed by Ukrainian authorities.

ArcelorMittal said the blockades are helping to prevent local steel operations, such as ArcelorMittal SA’s giant plant, from restocking raw materials and exporting its wares.

Ferrexpo plc, a major exporter of iron-ore pellets for the steel industry, said it could not take cargo from the port of Pivdenyny in south-west Ukraine. According to a person familiar with the matter, global steelmakers such as Japan’s Nippon Steel Corp and Austria’s Voestalpine AG, which buy these pellets, scramble for alternatives.

A spokesman for Voestalpine said it is difficult to assess the effects of the situation in Ukraine, but the company has inventory and will use other suppliers. Nippon Steel did not immediately respond to requests for comment. Market data suggests that Ferexpo is smaller than the largest iron ore miners, but its product is so specialized that finding an immediate replacement will not be easy.

To the west along Ukraine’s Black Sea coast, the Ukrainian government closed the port in Odessa after the invasion began, leaving Germany’s Hamburger Hafen and Logistics AG, or HHLA, the last two containers at its terminal before the last of its 480. The ships left to be hastily processed. The employees left.

Philip Swains, who runs international business for HHLA, said the port’s closure would be another blow to Russian trade, which has declined in the quarter since Moscow’s annexation of Crimea in 2014.

If the port remains closed for a long period of time, he said, “getting food and people’s necessities into the country will be a problem. Ukraine is Europe’s bread basket, so the first thing Europeans will notice will be food prices.” “

Since last year, major port congestion and difficulties in finding ships to bring goods from Asia to the West have prompted some companies to put cargo on trains traveling from China to Europe via Russia.

The voyage becomes important as an alternative to already disrupted sea routes, said Glenn Koepke, a senior vice president at FourKites Inc., a Chicago-based freight-tracking technology supplier. Mr Koepke said more than 300,000 containers, measured in 20-foot equivalent units, were transported by rail from China to the European Union in the first six months of last year.

Freight forwarder US-based Flexport Inc said it has stopped accepting bookings for Russia-bound Asia-to-Europe freight rail service.

Airfreight in the region is also coming under pressure, the company said, with Flexport’s cargo carriers that typically fly over Russian and Ukrainian airspace between Asia and Europe, now taking a longer route over the Middle East. Russian airspace is the fastest route for flights between Europe and the Pacific Rim.

As of Sunday, countries including the UK, Poland and Bulgaria had banned Russian airlines from their airspace, according to flight-tracing service Flighttrader24.

Several freight forwarders, including Denmark-based DSV A/S and Germany-based Deutsche Post DHL, a unit of Deutsche Post AG, have closed offices to and from Ukraine.

French logistics operator Geodis said on Friday it expects further airspace closures or airline-specific restrictions that could lead to delays, capacity reductions and rate increases. On Sunday, US-based shipping giants FedEx Corp and United Parcel Service Inc suspended shipments to Russia, having previously stopped doing so in Ukraine.