Supply chains continue to be a major headache for business owners and operators. First, Covid caused unprecedented disruption and over the last year, the conflict in Ukraine has sent more ripples through global supply chains. Whilst events continue to evolve, the War appears set to continue, we thought we would take this moment to look at the impacts of the conflict on supply chains and look ahead at how firms have and can continue to adapt.
A year has passed and the conflict in Ukraine continues to send ripples through global supply chains. Whilst events continue to evolve, the War appears set to continue, we thought we would take this moment to look at the impacts of the conflict on supply chains and look ahead at how firms have and can continue to adapt.
Over previous decades, the world’s industries built a finely tuned system of just-in-time manufacturing and delivery which links our ‘globalised’ world through transport chains engineered for rapid and closely timed physical exchange. But as supply chains were recovering from the impact of Covid, the war crashed the system for Russia and Ukraine on a direct basis and businesses around the world indirectly through second or third tier suppliers.
Shipping companies suspended shipments to and from Russia. Exports destined for the belligerent countries are stockpiling. Firms relying on inputs from either country have had to seek alternative sources of supply. Some businesses have chosen to shorten supply chains by seeking less distant suppliers, thereby reducing their exposure to geopolitical events. Others are working to find new sources of supply in countries unaffected by the war, such as India and China.
Given the scale and importance of Russia as a commodity exporter to the world, and Ukraine as a food and particularly grain supplier, finding alternatives is often proving to be a significant challenge. Most businesses acquire their inputs from an array of suppliers, but even those whose tier-one suppliers are unaffected by the war in Ukraine, are likely to find that their tier two or three suppliers have connections to one of the affected regions. No easy solutions exist for businesses, regardless of sector. Some have had to scale down their operations by pausing in affected countries or even exiting.
European nations have been amongst the most vulnerable to war-driven supply shocks, given their higher dependence on Russian energy exports. But the longer the disruption continues, the wider and deeper its effects will be felt. Raw materials or component shortages could stall construction projects and manufacturing processes. Disrupted supplies of food and energy could further escalate costs all round.
The first step towards protecting any supply chain is to acquire physical loss or damage to goods. A stock throughput (STP) would be able to do this under a single, competitive and broad form. It can offer cover anywhere in the world (subject to sanctions clause) by any mean of transport in store or on the move.
To fill the gaps, revenues lost due to delays can be partially protected through Business Interruption and Contingent Business Interruption policies. Cover is typically linked to physical loss or damage trigger, but Trade Disruption Insurance responds to supply chains snaps even without cargo damage.
However, all of these policies exclude losses arising from acts of war. Given the current circumstances, few underwriters will even consider such risks. Avenues of relief may be found in the cargo and war markets at Lloyd’s, which remains at the forefront of global cargo underwriting by delivering bespoke, creative solutions.
As events in Europe continue to unfold, businesses will face continued challenges in adapting already stretched and complex supply chains. Whether they choose to simplify or shorten, to find alternatives or to relocate, to run the risk or to insure, those that best understand their supply chain and their suppliers have the best chances of successful mitigation.
The companies who have already and will be best able to mitigate future disruptions, will be those that work now to understand how activities and processes happening elsewhere.