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.
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.
Want to learn more about how to sell food in Europe? Check out this article.
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.
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.
Learn about accessing trade insurance here.
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.
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.
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The war in Ukraine has significant implications for international business. Here are some of the ways it can affect various aspects of international business:
Trade Disruptions: The conflict can disrupt trade routes, both within Ukraine and in the surrounding region. Transportation infrastructure, such as roads, railways, and ports, may be damaged or rendered inaccessible, leading to delays and increased costs for shipping goods. This can impact supply chains and cause disruptions in international trade.
Economic Uncertainty: The war creates an atmosphere of economic instability and uncertainty, which can deter foreign investment and business activities in Ukraine. Investors may be hesitant to commit resources to a country experiencing conflict due to concerns over safety, political stability, and potential financial losses.
Sanctions and Trade Restrictions: International sanctions and trade restrictions may be imposed on either side of the conflict, impacting business operations. These measures can include restrictions on financial transactions, trade embargoes, and the freezing of assets. Businesses involved in sectors or regions affected by sanctions may face difficulties in conducting international trade and accessing global markets.
Supply Chain Disruptions: If a business relies on Ukrainian suppliers or has production facilities in Ukraine, the conflict can disrupt the supply chain. This can lead to shortages of raw materials, increased costs, and delays in manufacturing processes. Companies may need to find alternative suppliers or relocate production, which can be challenging and costly.
Currency Volatility: The war can lead to currency volatility, particularly for the Ukrainian hryvnia. Fluctuations in exchange rates can impact international businesses engaged in trade or investment in Ukraine, affecting the value of assets, pricing, and profitability. Currency risks may require businesses to implement risk management strategies to mitigate potential losses.
Consumer Demand: The war and its aftermath can affect consumer confidence and spending patterns in Ukraine and neighboring countries. Economic hardships, job losses, and uncertainty can lead to decreased consumer demand, particularly for non-essential goods and services. This can impact businesses operating in the region and result in lower sales and revenue.
Geopolitical Relations: The conflict in Ukraine can strain geopolitical relations between countries involved or with a vested interest in the region. Tensions and strained diplomatic relations can have broader consequences, such as the imposition of trade barriers, visa restrictions, or other measures that hinder international business activities.
It is important to note that the specific impact on international business can vary depending on the nature of the business, its industry, geographic location, and its existing exposure to Ukraine and the surrounding region.
The war in Ukraine has had a significant impact on international logistics and trade. The conflict has disrupted transportation routes, damaged infrastructure, and created uncertainties in the region. Trade routes passing through Ukraine have been affected, causing delays and increased costs for shipping goods. Supply chains have been disrupted due to damaged or inaccessible roads, railways, and ports. International sanctions and trade restrictions imposed on either side of the conflict have further hindered trade. The overall result has been decreased efficiency and increased costs in international logistics, making it challenging for businesses to maintain smooth operations and meet customer demands.
The Ukraine crisis had significant effects on the world economy. It created global economic uncertainty, leading to market volatility and risk aversion. Energy market disruptions resulted from the conflict’s impact on natural gas supplies, affecting energy prices and stability in the region. Sanctions imposed on Russia and trade restrictions impacted global trade flows, investment patterns, and business operations. Currency volatility, particularly for the Russian ruble and Ukrainian hryvnia, affected trade and investment in the region. The crisis contributed to a severe economic downturn in Ukraine, with spillover effects on neighboring countries and trade partners. Overall, the crisis had a disruptive impact on the world economy, varying in magnitude across regions and sectors.
The Ukraine war has had some impact on the UK economy. Trade disruptions between Ukraine and Russia have affected the UK’s trade relations and potentially led to declines in trade volumes. Energy market uncertainties resulting from disruptions in natural gas supplies have influenced energy prices and the UK’s energy security. Financial market volatility and sanctions on Russia have affected the UK’s financial sector and businesses operating in the region. The conflict’s geopolitical implications may also impact broader economic cooperation and partnerships. However, the overall impact on the UK economy may vary depending on the duration and intensity of the conflict and its resolution.
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