The Russian invasion of Ukraine sent shockwaves across the globe, causing worldwide disruptions to trade.
Ukraine is now closed to business, with only essential supplies entering Ukraine via the Polish border.
Naturally, the economic forecasts look dim. The World Bank predict that world trade and global GDP will decrease by one per cent.
But what does this mean for your business?
This article at a glance
The Russian invasion of Ukraine has sent a damaging ricochet through the global economy. Far from merely creating a new set of logistical challenges, the war has driven up prices, exacerbated already dangerous levels of inflation, and decreased global trade value. Businesses can mitigate risk by digitising their operations and hedging against currency volatility.
How will the Ukraine crisis affect me?
1. Decreased global trade value
The global trade value dipped by 2.8% between February and March 2022, as a result of a sharp decline in ship traffic from Russia and Ukraine. This has affected everyone — from the EU to the United States. China’s exports decreased by 0.9%, which comes as no surprise, considering that Ukraine imported a great deal from China.
With decreased global trade value, there is a risk of 'deglobalisation'. Exorbitant shipping prices, strong demand, and increased tariffs amid the Russia-Ukraine crisis are encouraging businesses to establish more resilience in their global supply chains.
Deglobalisation would diminish the efficiency of businesses by lowering competition and increasing prices. In turn, developing countries will also be drastically affected as multinationals avoid investing in countries with a lack of transparency.
2. Sharp increase in commodity prices
The price of commodities is rising. Despite Russia and Ukraine’s small shares in terms of world trade and output, they’re still crucial suppliers of essentials — all of which are now endangered by the war.
Grain shipments going through Black Sea ports have already come to a halt, with dreadful repercussions for food security in less developed countries. Additionally, new lockdowns imposed in China are also hampering trade by sea, which could result in higher inflation and new shortages of raw materials.
3. Inflation and decreased export demand
A reduced supply of fuel, oil, and grains will only amplify inflation, and wary household spending could lessen the demand for exports. Since many goods that are traditionally imported from Russia and Ukraine are essential food products, the inflated prices will exacerbate inflation and the cost of living, causing widespread caution among consumers, who will cut back on spending.
4. Logistical challenges
As a result of the COVID-19 pandemic, shipping containers became increasingly costly, scarce, and delayed. Shipping companies have also been facing difficulties in employing port workers and truck drivers.
Due to Russia’s invasion of Ukraine, logistical issues have worsened. Businesses have been affected, with transport costs rising as Russian banks have been cut from the SWIFT network. Additionally, higher insurance premiums and fuel prices have also brought shipping costs up.
5. Affected supply chain
Supply chains for high-value products and critical components were especially affected by disruptions between Europe and Asia’s trade corridor. According to the World Bank, the invasion has affected European car-makers, many of which manufacture critical components like wiring systems in Ukraine. This has resulted in the cessation of some assembly lines.
How can I manage risks in unprecedented times?
As the Russia-Ukraine war rages on, profound changes to the world order have been set off. We can’t read the future — no one can predict how the Russia-Ukraine conflict will reshape the world — but there are ways you can mitigate risk.
1. Manage foreign exchange risk to protect your profitability
The currency markets are experiencing a lot of volatility, but you can hedge against risk by securing competitive and low exchange rates with Silverbird.
Let’s say you’re paying your suppliers in Singapore. You will sell your currency and buy SG dollars. Silverbird will quote you exchange rates with transparent fees, giving you the freedom and the power to determine whether you’d like to make the transaction. If not, you can hold the money in your wallet until the exchange rate is more favourable.
2. Minimise supply chain interruptions
Disruptions to the global supply chain affect everything.
The Russian invasion of Ukraine has already interrupted rail, air and shipping freight. However, there are ways to mitigate interruptions.
- Diversify your supplier base. Don’t put all your eggs in one basket. If your primary supplier is negatively impacted, your secondary supplier can pick up the pace.
- Outsource your carrier base to a fourth-party logistics service. This gives you all the benefits of a diversified carrier base, but with one point of integration.
- Have a backup plan in place. Establish relationships with potential secondary suppliers across the world.
3. Safeguard yourself from payment default
The risk of non-payment is an albatross around the necks of global SMEs. With the SWIFT network being disrupted by the war, encourage your business partners and customers to make payments through alternatives like Silverbird. In short, get paid in minutes — not days.
Implications for your export business moving forward
Doing business across borders might be challenging, but it doesn’t have to be impossible.
With Silverbird, you can hold, transfer and exchange 30+ currencies online — all within a single account. Avoid dealing with low forex rates when transferring your money, with multi-currency accounts primed for international trade.
Opening an account is 100% online and free. Sign up today!
Author: Melissa Yeo
Illustration: Kate Faldina
