Ukraine crisis compounds supply chain woes as global companies shut shop amid invasion

Coca-Cola, Nestle, Carlsberg, Japan Tobacco and AB InBev Efes are among firms that have suspended operations in the country

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International companies, from cigarette producers to car makers and bottling businesses, are shutting down factories in Ukraine as Russian forces roll into the country, adding further strain to fragile global supply chains.

Japan Tobacco said on Friday that it had suspended operations at a plant in Kremenchuk, in central Ukraine, where it employs 900 people.

Bottling company Coca-Cola HBC shut down operations in the country and sent staff home, joining a growing list of companies including Carlsberg, Nestle and AB InBev Efes, a joint venture between Anheuser-Busch InBev and Anadolu Efes, to stop local production because of the fighting.

Russian aggression in Ukraine has compounded stress on supply chains already stretched by coronavirus infections, travel restrictions and shortages of key components such as microchips.

The transport of goods from China to Europe will be affected as shipments pass through the region, said Luca Silva, chief executive of pumps and components maker ITT.

Here are some examples of the fallout from the hostilities:

Shipping rates

Tokio Marine Holdings, Sumitomo Mitsui Marine and Sompo Japan Insurance said the Black Sea would be classified as a higher-risk area from March, a move that is expected to raise shipping insurance premiums for goods or vessels transiting through those waters. It is not clear how long the change will be in place.

Ukrainian and Russian waters in the Black Sea and the Sea of Azov were on February 15 added to a list of enhanced-risk zones by the Joint War Committee, which includes representatives from Lloyd’s of London and the International Underwriting Association of London.

“There have been no maritime incidents but the possibility of a miscalculation is clear,” Lloyd’s said on its website.

Rail transport

The transport of supplies from China to Europe will be affected “by this war in Ukraine”, Mr Silva of ITT said at an industry conference on Thursday.

Companies have been leaning more heavily on rail transport as the cost of shipping goods by sea has increased due to congestion at ports during the pandemic.

Food and drinks

Coca-Cola HBC said it enacted “contingency plans that include stopping production in Ukraine, closing our plant and asking colleagues in the country to remain at home and follow local guidance”.

Danish beverage maker Carlsberg, which has 1,300 workers in Ukraine, suspended operations at two of its three breweries and sent workers home. Nestle, the world’s largest food company, is temporarily closing three factories. It has 5,000 workers in the country.

Car makers

Fitch Solutions Country Risk & Industry Research expects Japan and the EU to place “extensive sanctions” on Russia, making it “increasingly difficult” for Toyota and Germany’s Volkswagen to continue operating in Russia.

“We expect that stakeholders will place pressure on the firms to reconsider their operations,” Fitch said in a report.

US technology sanctions could exacerbate a chip shortage among car makers in Russia, which also risk losing supplies of car components from the EU, according to the report.

The conflict has implications for car makers globally too, because Russia is one of the biggest producers of materials used in electric vehicles, as well as petrol- and diesel-powered cars, it said.

Russia is the third-largest supplier of nickel, which is used in lithium-ion batteries, and provides 40 per cent of the palladium used in catalytic converters, while about 90 per cent of US semiconductor-grade neon supplies come from Ukraine, according to Fitch.

Updated: February 26, 2022, 5:00 AM
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