Impact of the Russia-Ukraine War on Various Ecommerce Sectors

Economic crises are an inevitable outcome of war and when two industrialized countries decide to take arms against each other, global industries fear disruption and instability. The same can be said about the eCommerce industry that is facing massive-scale disruptions due to the Russia-Ukraine conflict. These disruptions are having a crippling effect in all stages of the eCommerce business process, i.e, from sourcing to delivery and even consumption patterns and mindset.

Foreign policy experts claim that the Russia-Ukraine conflict will setback 30 years of Russia’s economic progress. Thirty years ago, the eCommerce industry did not exist in Russia. What are the chances that the eCommerce industry may become lifeless again? Or let’s ask a bigger question. More than 300,000 American companies rely on Russia or Ukraine for their supply chain. With discontinuation in this supply chain, what will be the impact of the Russia-Ukraine conflict on the global eCommerce industry?

In this blog, we will cover the overall impact of the conflict, including the eCommerce sectors that may decline.

Evaluating the Impact

The economic recession that came along with the pandemic bankrupted thousands of businesses and brought highly-reputed incumbents to the brink of collapse. The global economy, which adapted digital transformation to recover from the recession, suffered a major blow when the Russia-Ukraine conflict began.

Many global eCommerce and related brands like Amazon, Ikea, Nike, UPS, and FedEx suspended their operations in Russia and also suffered repercussions in terms of capital, manufacturing and logistics costs.

In contrast, some brands are still in dilemma about suspending their operations in Russia such as Alibaba and French retailer Auchan. However, these eCommerce brands face the risk of being boycotted by masses all over the world. And along with these brands, their customers, manufacturers and logistic partners are also going to suffer because of the conflict.

Thus, in addition to measuring the impact in the various sectors of the eCommerce industry, a more holistic approach is to also measure the impact in terms of how the situation is escalating for both buyers and businesses.

Before we begin with the sectors, below are all the major organizations that have suspended their business operations with Russia:

And here is the chart of how much this conflict is costing Russia per day in different currencies:

Impact on The Various Sectors of the eCommerce Industry and Key Analysis

Food and Agriculture

In the food and agriculture sector, eCommerce consumers can primarily witness an increase in food and grocery bills. Businesses might also fail to provide customers with desirable discounts. This is because Russia is a major wheat supplier of the world and even outmatches the export quantity of the United States of America. Along with this, Russia and Ukraine together are known as the ‘BreadBasket’ of Europe, supplying around 30% of wheat and 20% of maize to the entire continent.

Not only Europe, but countries such as Egypt and Turkey also rely on Russia and Ukraine for 70% percent of their food grains and even China, the undeclared superpower, relies on Russia for maize imports. In the case of China, maize is required as fodder for pigs (China is the world’s largest pork producer and also one of the top exporters). Now with a halt on its maize import, China’s pork export can suffer indirectly because of the Russia-Ukraine conflict and lead to meat shortages, price hikes, quality issues and more.

Although the United Kingdom does not rely primarily on Russia or Ukraine for its food supplies, it might witness inflation in terms of associated costs such as the costs of tinned cans, food packaging and logistics.

To sum it up, along with grains, meat products, particularly pork, are expected to be in a global shortage and become expensive to procure. The price of sunflower oil, an essential commodity that is majorly produced by Russia-Ukraine together, has already reached a 14-year high. The increased cost of food packaging material will further bloat prices in the food and agricultural sector.

Construction and Heavy Equipment

The gulf region, Saudi Arabia particularly comes to mind when thinking of top crude oil exporters. However, Russia, exporting approximately 4,653,500 barrels of oil per day makes it an equally important exporter.

Now, the inability of Russia to export crude oil has crippled the entire global oil supply chain. Not only is it resulting in expensive gas and fuel prices for customers but also hindering the on-going construction projects, slowing down plant hire operations and resulting in inflated tar, asphalt and lubricant production costs.

Construction companies and general contractors are squeezed to redefine their pre-established parameters, resulting in a fluctuated demand for heavy equipment. Online plant hire businesses and equipment rental organizations are also likely to witness a drop in daily transactions.

The Zeppelin Group, a globally renowned German equipment rental organization faced a significant decline in operations due to the Russia-Ukraine conflict and has shared its interest in exiting both these nations. Apart from Zeppelin, construction company Strabag has terminated all its agreements with Russia and building material manufacturer Holcim has announced its exit. Generac, a US-based engine manufacturer, has also suspended all its operations with Russia. 

Metals

Russia is a leading exporter of industrial metals like aluminum, copper, nickel, steel and platinum. The shortage of these industrial metals along with a price hike affects the eCommerce industry in various indirect ways. For example, shortage in semiconductors for computers, increase in rate of copper wiring and aluminum packaging. These repercussions hinder the capacity of eCommerce businesses to fulfill consumer demand and lead to major fluctuations in backend management, sales and profit.

Also, with Russia’s metal industry on a decline due to the sanctions, the country has decided to sell its production to China. This means while some industrial metals may get cheaper in the eastern world, the west might witness an increase in prices.

In terms of figures, Russia exported a total of 33.7 million megatonnes of finished and semi-finished steel in the year 2021. The top countries who imported Russian steel were Mexico, Poland, Belgium, Turkey and Taiwan. Now with the suspension of Russia from the steel trade market, these countries are bound to look forward towards reliable sourcing alternatives, which are highly unlikely to be as cost-effective as Russian sources.

Similar is the case with other stated metals, whose restriction in Russian exports have now led to huge price hikes in various countries. Aluminum, whose Russia is the fourth-largest exporter, received a record-breaking price hike in London. Nickel, another important industrial material, reached its highest recorded price of the decade.

Cosmetics

Personal care items were expected to make a total of 7.61% of all eCommerce sales in the year 2020 before the pandemic hit global channels like a storm. The entire cosmetics industry took a hit, and being a non-essential category, winded up in a seemingly everlasting period of sales drop. However, the cosmetics e-retail industry did start to recover from the pandemic-led economic recession and made $53.7 billion in the US alone when the shockwaves of the Russia-Ukraine conflict shattered the industry’s recovery like thin glass.

Due to the inflation in crude oil prices and shortage of petrochemicals, the manufacturing and sales of personal care items and other cosmetics suffered a huge blow. Adding on the spiked packaging material costs, it is highly possible for renowned cosmetic brands to even discontinue their entire product lines and remove offers and discounts.

Ensuring quality and timely global shipping for cosmetics would be a challenge for both eCommerce firms and independent vendors. However, even after the re-establishment of the supply chain in the cosmetics sector, the scale of production might remain low due to shortage of petrochemicals.

Apart from this, global cosmetic brands such as Johnson & Johnson, L’oreal, Unilever, Sephora and Estée Lauder have announced temporary suspension of their services in Russia. 

eLearning

During the pandemic, the traditional classroom learning model changed into various eLearning models as industries and universities adapted digital channels of teaching. The most plausible benefit of this change was the opportunity to attract more international students via online courses. As a result, Russia welcomed hundreds of thousands of international students (both online and in-classroom,) every year and its educational industry witnessed a constant improvement.

As per the statistics, the Russian eLearning industry was forecasted to grow by 56 percent during the existing pandemic period (2019-2022). It was also expected to reach 82 million U.S. dollars in 2025. But now with the conflict, all forecasted digits appear to be unattainable. Does this mean the eLearning industry may witness its end in Russia?

We can assume the three following outcomes:

1. Due to the various sanctions, even the most interested international students won’t be able to enroll in Russia’s online courses and educational programs. Thus, causing huge losses summing up to millions of dollars.
2. The Russian ruble has plunged to its all time low and now is even cheaper than many third world currencies. This could mean that in the near future, soon after the conflict is resolved or some major sanctions are removed, international students can show interest in Russian courses and enroll into them at a very cost-effective price.
3. Russian students, instead of traveling abroad for education, can prefer to opt for online international courses instead.

Fashion

The uncertainty in the fashion industry due to the Russia-Ukraine conflict is going to remain for a long while. Directly from the production to retail prices, there will be inflation in the overall costs of two important textiles, which are nylon and polyester. Both of these are highly-used in the manufacturing of sports and gym wear clothing but due to shortages and inflation in crude oil and petro-chemical costs, the production of both nylon and polyester is disrupted.

The increase in retail prices of clothing could mean higher churn rate for several online fashion businesses. There may also be a decline in the production rate of apparel, which will gradually gain momentum as supply chains recover. It is also highly possible for the demand and prices of man-made natural fiber to increase as a way to rebound from the losses incurred due to petrochemicals shortage.

Regarding Russia, many fashion manufacturers relied on foreign imports to meet the consumer requirements. Due to the SWIFT network ban, Russian textile manufacturers won’t be able to import textile from major sourcing countries like India, Bangladesh and Vietnam. As a result, the textile and apparel industry of these countries may suffer because of lack of demand from Russia.

Russia imported approx. $650-700 million of textile from Asian countries, but now will mostly have to rely on internal sources and channels. On the other hand, the losses that the fashion industries of Asian countries may incur can sum up to billions of dollars. All because of the three primary reasons:

Electronics

Post-conflict, there is a high probability that a wide majority of electronic goods on eCommerce marketplaces would be sold by Russian vendors. Soon after the conflict started, Russian citizens started investing in electronic items. As per a Reuters report, the increase in demand for electronic goods increased by up to 40% in Russia. Then came a wave of citizens panic-buying electronic items and stockpiling them for reselling purposes.

A simple explanation behind this unexpected change in behavior is the non-susceptibility of electronic items against depreciation. Where everything from Russian currency to land assets depreciated, electronic goods seemed to be more profitable as packed and unused goods could be resold nearly at the same price the owners bought them for.

For the rest of the world, electronic goods may see a price hike because of the increasing shortage of semiconductors. Russia exports over 40% of the world’s entire palladium supplies, whereas Ukraine provides 70% neon. Both these materials are required in the manufacturing of semiconductors. With such statistics, the prices of electronic goods are bound to increase significantly. This means that the new Apple and Samsung flagship models that you’ve been waiting for would be more expensive. Similarly, items such as personal computers, LED TVs, and refrigerators would also see a price hike.

Suggested read: Russia-Ukraine Conflict: Impact on Ecommerce & Online Shoppers

Content source: https://www.fatbit.com/fab/impact-of-russia-ukraine-conflict-on-ecommerce-industry/