Impact of the Ukrainian war on eCommerce logistics

In recent times it is a recurring theme in all informal or professional conversations: The war in Ukraine has dramatically worsen the energy problem, to the point of bringing many transport companies to the brink of closure.

 

If a supply chain already affected by the effects of COVID-19 is made exponentially more expensive by the cost of fuel, the result could be logistical chaos, the consequences of which are yet to be predicted.

Rarely have we seen a context that affects, in such a global way, all markets simultaneously. The problem is that Europe has an enormous dependence on Russian oil, and this greatly conditions the competitive framework as the flow is interrupted. As a result, we see the Brent barrel (reference value) trading at 133$, increasing its price by 82.88% in the last 12 months.

 
In the specific case of Spain, to give an example, in just one year we have gone from paying 1.31 and 1.18 for gasoline and diesel respectively to almost two euros per liter of gasoline. And the worst thing is that we know that the feeling of not having reached the maximum limit is more of a certainty.

 

But not only gasoline and diesel have risen: other fuels also present in the distribution chain have seen their prices rise, reaching record highs. From kerosene for airplanes to other alternatives, such as LPG (liquefied petroleum gas), already present in many fleets of transport companies. We are not even talking about the price of electricity, because its escalation is just as dizzying.

For a transport company or a self-employed haulier, the investment in fuel is often the second highest cost they have to face each month. It is estimated to exceed 10% of its operating costs.

 

It is true that, to a greater or lesser extent, this is passed on to companies and end consumers; but with increases occurring on a daily basis, there will always be a certain temporary imbalance that works against them, even if they pass on 100% of this increase.

 

Well, the truth is yes. Not to be apocalyptic, but based on the data we have discussed, we see a really serious problem of viability, which will worsen depending on the duration of the conflict and its escalation.

 

Those who will suffer the most are, in this case also, the smallest ones. Local companies and the self-employed who pay the same price for fuel as private individuals. They do not have the possibility to negotiate by volume as the big players in the sector do. Precisely for this reason they will always be less competitive in price and their capacity to resist will be lower.

 

For their part, the large transport companies face the same problem of the cost of diesel and gasoline, but with gigantic structures to support, with thousands of employees and warehouses all over the world.

 

It is true that demand has not stopped yet. E-commerce has made us, to a certain extent, dependent on transport, both at B2B and B2C level. Even so, it is logical that accelerating inflation will gradually slow down consumption, which means that these companies will also be affected by the economic crisis and will have significant invoices pending collection.

 

As if that were not enough, many of these large companies operate in Russia... or rather, used to operate. The restrictions imposed by the war context have led companies such as DHL and FedEx to partially suspend the shipment of packages to this country, following in the footsteps of Maersk and MSC, which now only send containers to Russian territory if they contain medicines or foodstuffs.

Putin government's new e-commerce regulations have not helped either. Among other things, it announced the requirement to pay customs duties on any online purchase over 150 euros and the obligation to ship to the address where the recipient is registered.

 

We cannot forget that it is one of the strongest economies in the world, so its market share is representative for these transport companies.

We are aware that we have drawn a scenario that is little short of apocalyptic. But the truth is that everything can be overcome by changing strategy. 

Although there is still no clear and closed roadmap in this regard - that is to say, the different governments of the West have not yet managed to sit down and establish unanimous and closed guidelines for action - the truth is that several experts are speaking out on the Internet these days with possible solutions that are not bad at all. Let us take a look at some of them:

Given Europe's dependence on Russian gas and oil, one of the solutions put forward to save the furniture is to drastically reduce this dependence by accelerating the green transition. 

Proponents of this idea argue that Russia is basically a giant gas station, in the sense that the Russian economy is highly undiversified and also highly dependent on oil and gas sales. As long as we remain dependent on Russian gas and oil, Russia will be able to squeeze us. 

But if the fuel and electricity we use in Europe is mostly from renewable sources (sun, wind, water) and nuclear (by resurrecting the power plants that Europe has recently shut down), we manage to kill two birds with one stone: on the one hand, we completely sink the Russian economy; on the other hand, we free ourselves completely from its yoke.

However, this idea also has its detractors. They are those who see China rubbing its hands with the business they are going to do, while drawing attention to the Russian-Chinese affinity and to the fact that China is not taking a definitive position in this conflict, clearly with the idea of not closing doors for itself.

It should not be forgotten that China arrived in Afghanistan within 24 hours of the recent Taliban coup d'état to shake hands with the new leaders and, incidentally, to secure access to the exploitation of the rare metals contained in the country's natural reserves, such as lithium, an element that is used intensively in the production of technological components (cell phones, computers, servers... whose hardware, by the way, is also produced mainly in China) and also in the production of electric batteries for vehicles. 

In other words, we would go from depending on Russia to depending on China, which raises the question of whether we would not be moving from bad to worse.

At present, the price of the different energies sold on the European wholesale market is regulated in such a way that all energies are assigned the highest price, in this case the price of gas. In other words, we buy electricity at the price of Russian gas, just because Russian gas has the highest price.

Although some people have been questioning this policy for years, the truth is that, at normal prices, it is not a major problem. The problem comes when one of the energies has an unreal price (such as Russian gas) due to a force majeure such as the current war: the rest of energies literally make a fortune, especially those coming from renewables, which are very cheap to produce.

In such a case, we are not only buying Russian gas at Russian gas prices, but also electricity. The financial pressure that this generates on companies and families, coupled with exorbitant fuel prices, can cause a chain crisis that leads our societies to live in a situation of energy poverty - and consequently general poverty, because if energy takes all the money, consumption shrinks - simply because they cannot cope with this inflation.

European partners are currently meeting to modify this policy by imposing a maximum so that the price of other energy sources beyond Russian gas remains affordable for the population.

This, rather than a solution, is a compensation and a way to put more pressure on the Russian market. If all of us Europeans consume less heating, less hot water and less gasoline, Russia gets less revenue from the sale of those raw materials, and that money stays in Europe.