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On Wednesday, FreightWaves CEO Craig Fuller wrote that with a second Cold War upon us, supply chains will be the front lines. And already, there's a battle taking place in the e-commerce theater.
On Feb. 24, the day Russian President Vladimir Putin announced Russia's invasion of Ukraine, e-commerce sales to customers in Russia were up 7% from the beginning of the month, according to data from Signifyd, continuing on a path of steady growth.
But the next day, e-commerce sales destined for buyers in the country cratered to 43% below where they were on Feb. 1. And by Wednesday, online sales to customers in Russia had dipped again, down 53% compared to the volume at the beginning of the month.
Meanwhile, as of Sunday, e-commerce sales headed to customers in Ukraine, which had already been trending down, dropped a staggering 96% since Feb. 1.
Chart: Fluctuation of February e-commerce sales in Ukraine. (Credit: Signifyd)
"It's a rapidly unfolding situation," Mark Delaney, vice president of industry strategy at supply chain visibility provider FourKites, told Modern Shipper, "but the data that we're seeing shows pretty significant declines in terms of product and goods being able to get into Russia."
According to FourKites data, total shipments to Russia as of Wednesday were down 17% compared to Feb. 16 as delivering goods to the region becomes increasingly difficult for shippers. Massive global operations like Maersk and MSC have already suspended operations in the region, and there have even been reports of Russian forces firing on foreign ships.
"Even before the devastating invasion of Ukraine by Russia, the supply chain was already under massive pressure due to the increased demand for e-commerce products throughout the pandemic," added Andrew Heisinger, CEO of Quant Data. "Introduce the geopolitical tension that will invariably increase oil/gas prices and several other major commodities, and you now have another factor in the multivariate equation that will further pressure e-commerce shipping within the United States and the globe as a whole."
The conflict comes just as e-commerce sellers were beginning to see supply chain disruptions ease along with the impact of COVID-19.
Watch: What impacts could we see from the Russia-Ukraine conflict?
"Embargoes or sanctions all create havoc across supply chains and free trade in general. And what's unfortunate is we're just coming off of a period of time … that has thrown a number of roadblocks and hurdles at the supply chain globally," Delaney lamented. "So finally, a lot of the shippers and manufacturers and suppliers were starting to get back on track in terms of getting those supply chains in gear again. And then, unfortunately, this event comes along and sort of throws it all back into turmoil again."
Fighting in Ukraine is having a pronounced impact on the prices of commodities coming out of the region, which could create e-commerce disruptions beyond Eastern Europe. While much of the media attention is on the price of oil, gas and even vodka, Delaney pointed out that many more goods will be affected.
"Nearly a quarter of the world's grain actually comes out of that area specifically, so think about the trickle-down effect that that could have on products and goods all the way down to the consumer level — things like bread," he explained.
Delaney also cited the rising prices of minerals that are heavily mined in the region, including nickel, which is vital to the production of batteries for electronic goods. But e-tailers likely won't be the ones to bear the brunt of those costs.
"Those rising costs, unfortunately, are going to float out to consumers," Delaney said. "The retailers and the manufacturers can't absorb all these costs themselves."
Higher prices might not show up in shipping costs because, as Delaney added, customers have been conditioned to expect free delivery due to the Amazon effect. But while it may be hard to add those costs back, sellers can typically raise the prices of their products without much of a hit to demand. Even if the war in Ukraine resolves itself in the coming weeks, it could be months before those prices begin to normalize.
Related:
Read: Russia-Ukraine conflict could lead to global e-commerce disruptions
Read: The second Cold War is here — and supply chains will be the front lines
"Higher prices at the pump, higher prices for materials, higher prices for groceries that we're all experiencing –– they will come back down. But it's going to be slower ramping down than it was ramping up," Delaney told Modern Shipper.
However, if rising prices are an unstoppable force, then e-commerce demand is an immovable object. In fact, Delaney predicts that there may not even be a slowdown in demand.
"I think it might actually be a little bit of the opposite," he countered. "You turn on the news and you see all the horrible stuff that's going on halfway across the world, and I think a lot of us want to just pull the covers back over our heads and go back to bed. So I think there is going to be an inclination for a lot of people to sort of stick with the habits that they've learned during the pandemic."
According to Delaney, FourKites' retail customers are already looking to their end-of-year inventories with the expectation that demand for online orders will hold strong.
Yet despite the stickiness of e-commerce, he warned that the longer the conflict continues, the more e-commerce will face headwinds from forces like inflation and rising prices –– and the more volatile demand will become.
"Every week that this drags on creates more and more friction from a supply chain standpoint," he explained.
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