Seven days ago, Russia invaded Ukraine and few of us will be immune to the horror of events as they continue to unfold. It is heartening to see so many countries standing in solidarity with the Ukrainian people, with many of us drawn into a daily ‘doomscrolling’ from our mobile phones. And whilst the risk to human life dominates, with oil prices reaching $116 a barrel, it is hard to ignore how these events will inevitably have a knock-on effect for us all in our shared, global economy. Here I look at a few key areas that impact Zupa and our clients: the supply chain, the hospitality sector and our technology resilience.
Impacts on supply chain
The focus on energy and Europe’s reliance on fossil fuels – on Russia especially – have been well documented this past week. As such, we should expect wider direct and indirect impacts to the UK economy, with Russia and Ukraine being the 19th and 62nd largest trading partners to the UK respectively. We’ve already seen an inevitable tightening of supplies of oil and other commodities and cannot ignore that Russia and Ukraine between them, are responsible for 20-30% of the global wheat and barley supplies. CNN just reported wheat futures were up over 5%, sending shock waves into food manufacturing and signalling a certain rise in already high food prices.
Post-pandemic, post-Evergreen/Suez and Brexit the vulnerable, yet fundamental, interdependencies of the global supply chain are exposed once again. And there is going to be significant undertaking to unpick this and rebalance an already disrupted supply chain in the midst of no-fly zones, sanctions and halted economies.
The ongoing conflict will likely filter through to the bottom line causing further inflationary and other economic pressures for our ailing UK hospitality sector. Cost of operating for suppliers running their fleet (with petrol exceeding £1.50 per litre at the pump), escalating cost of fertiliser for farmers and cost of production and reduced supply of goods to the market will likely see a continuing increase. This is yet another set-back for a sector that is still trying to recover from the pandemic. This highlights the growing importance for direct governmental intervention and, for a starter the maintenance of the 12.5% VAT rate for the sector -or even giving serious consideration to reverting to the 5% rate set during the pandemic.
What about technology?
We’ve already seen Russia mount a hybrid war on Ukraine; complementing its military power with cyberattacks and information campaigns. However, thus far, according to Lawrence Freedman in his recent blog ‘The Fight for Ukraine’, whilst Ukraine is facing a barrage of cyberattacks they do not seem to be experiencing anything over and above what they are usually subjected to by Russia these past 8 years. Nevertheless, as global sanctions start to bite, we can assume that Russia will strengthen its resolve and will widen cyberattacks beyond Ukraine in retaliation, as the war deepens.
At Zupa this was already a threat that we have been working to mitigate - and we have not left anything to chance. We’re auditing all existing suppliers and endpoints with our system for any potential vulnerabilities to ensure we protect ourselves, our customers and our partners.
So, what does this all mean for the future of global supply chains?
Businesses are going to implement strategies to future-proof against the supply chain fragilities they’ve experienced over the past two years. We will start seeing trends towards localised supply chains with companies focusing on reducing their carbon footprint in line with climate change pressures. For the UK this will mean focusing on getting to net zero by 2030 In the same way that the Pandemic boosted digital transformation to overcome the challenges of remote working. The events we’re witnessing in Ukraine may prove a catalyst for greater resilience, cost control and efficiencies across supply chains in a changing world; seeing more investment in strategy, structure and technology to enable this change.
At Zupa we will continue to do all we can to support our customers. In the meantime, in the light of this crisis, please ensure you are only sharing verified information and, if you feel you would like to help, here are some approved charities you may wish to support in their humanitarian efforts for Ukrainians:
• Disasters Emergency Committee • Save the Children • Red Cross • UNICEF