Bell Procurement Management Market Insights
In today’s challenging times, containing costs and minimising risk have become a top strategic priority for businesses.
This year, rising energy costs, climate change disasters and volatile geopolitical and economic conditions – including the continuing impact of the Russian-Ukraine conflict – have all served to push commodity prices to an all-time high and further disrupted supply chains already in disarray following the global COVID-19 pandemic.
Organisations are looking to procurement professions to help them navigate the key business issues resulting from the waves of disruption, material and product shortages, rapidly evolving sustainability regulations and ongoing cost volatility of services, products and supplies.
Recurring challenges are being felt across multiple industries, these include:
The Ukraine conflict has disrupted trade and aggravated inflation for basic goods like energy, food and metals and is throttling economic recovery in Europe and further afield.
Following Russia’s invasion of Ukraine, prices for oil, gas and coal have skyrocketed – impacting consumers and industrial sectors alike. In response, the EU is proposing to initiate emergency powers designed to ease the supply chain pressures created by events such as the Ukraine war or a future pandemic.
One thing is for sure, the war in Ukraine has caused serve disruptions to the supply of raw materials that are critical for modern industrial production in FMCG and other markets around the globe. These include:
- Shortages and price increases in metals such as aluminium, nickel, palladium and vanadium – all of which were previously produced in Russia and which are no longer available due to export restrictions, embargoes and sanctions.
- Key mineral shortages are set to further impact the microchip and semi-conductor industry. These essential products are utilised in the manufacture of everything from jet engines to automobiles and medical devices – as well as computers and mobile phones
- Together, Russia and Ukraine account for around 29% of the global wheat export market
- Disruptions to gas, oil and energy supplies are impacting the production of energy-intensive products such as fertilisers – which will have a knock-on impact for agriculture – as well as the production of plastics.
- Ukraine, Russia and Belarus are all key exporters of timber. With production shutdown or considered ‘conflict timber’, the resulting shortages are impacting industries as wide ranging as building sector, paper and card production as well as the label printing and packaging industries.
With competition for raw materials high, the European Commission has entered a Mineral Security Partnership with Australia, Japan, South Korea and the UK to cope with rising international demand.
Transportation bottlenecks that appeared in response to the COVID-19 pandemic are now being further fuelled by the sky-rocketing costs of fuel resulting from the Ukraine conflict along with challenges resulting from border lockdowns.
Responsible for transporting around 90% of traded goods, ocean shipping containers and vessels continue to face significant disruptions and rising costs. Added to which strike action at European ports are creating delays and congestions at terminals. Meanwhile, with Russia-bound containers stranded in Europe and lockdowns at the Chinese port of Shanghai, global port congestion remains at an all-time high.
Air freight carriers are encountering similar challenges. Capacity reductions between Europe and Asia due to sanctions are resulting in significant re-routes of Asia-Europe flows via the Middle East and are being impacted by a volatile jet fuel market that continues to affect rates. Staff shortages at airports means backlogs continue to pose issues.
In terms of road and rail transport, rail-strike actions in Europe continue to cause disruption to services across the region while HGV driver shortages in the US, Europe and China are contributing to longer delivery times while rising fuel costs are pushing up prices.
Recessionary pressures aside, it’s clear that supply chain issues aren’t going away anytime soon. Leaving business struggling to get the goods and materials they need.
Many industries are now exposed to managing the inflationary or supply chain issues that represents a large element of their overall cost structure. Let’s take a look at the key impacts for some top sectors.
Automotive, Aerospace & Defence and Consumer Goods & Services all require high levels of material inputs to produce and distribute their goods.
Meanwhile sectors like Utilities, Transportation & Freight as well as the Pharmaceutical and Chemical industries are all reliant on a variety of refined petroleum products as well as electricity, gas, steam and air conditioning.
Exploring the consequences of present day disruptions for Europe, it’s been estimated that up to 30% of European value is reliant on functioning cross border supply chains either as an input source or as a destination for production.
Supply chain bottlenecks, together with the impact of higher energy bills and energy supply disruptions have significant implications for manufacturing, construction, retail and wholesale trade as well as transportation and storage businesses. Meanwhile manufacturing sectors like high tech, automotive and aerospace are facing a protracted impact thanks to their reliance on sourcing inputs via global supply chains.
But that’s not the only challenge. Manpower shortages and salary inflation are also contributing to supply chain disruptions as employers look to attract and retain workers and overcome specific skills shortages.
With many corporates looking to defer or minimise how they pass on the higher prices of energy, commodities and other goods to consumers and business customers, protecting rapidly slimming profit margins means managing procurement costs has become a mission-critical task.
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