How the Russia-Ukraine Conflict Has Impacted Supply Chains On An International Scale

6th April 2022

The conflict in Ukraine has rattled many sectors of the global economy and is disrupting multiple supply chains. Companies without strong business intelligence in supply chains are experiencing unexpected impacts, complicating their ability to produce goods and deliver to customers. Versed AI can help address these problems, by automatically mapping companies’ n-tier supply chains using publicly available data. 

Whilst the effects of the invasion halting Ukrainian industry domestically are straightforward to understand, the second order consequences are now becoming apparent.  These include the loss of the Russian market to many Western companies owing to sanctions, significantly higher fuel prices which impact not only global consumers but also the competitiveness of fertiliser and other plants, and global food shortages owing to Ukraine’s importance as a cereal exporter. 

Below we profile two Ukrainian industries where disruption is having global repercussions: wire harnesses for the automotive industry, and neon gas for the semiconductor industry.

Impacts of the Wire Harness Shortage

The European automotive and truck industries have taken a major blow from the Ukrainian crisis due to disruption in the supply of wire harnesses. Wire harnesses are the wires, terminals and connectors in a vehicle that transmit power and information.  As producing wire harnesses is labour intensive, a number of automotive suppliers have outsourced production to Ukraine owing to its lower labour costs. It is now estimated that as much as 15% of Europe’s automotive output is at risk as a result of major shortages in Ukrainian parts.

Automotive World highlights the issue: “Suppliers of truck wiring harnesses cannot produce at their Ukrainian sites or can only produce to a very limited extent. This threatens a loss of truck production for several weeks and a massive reduction in production in the second quarter.”  As an example, MAN trucks is suffering a huge disruption to truck production owing to a shortage of wire harnesses, and is putting up to 11,000 German workers on short time work.  BMW, Porsche, and VW are also suffering shortages. 

Wire harness shortages, coupled with the impact of sanctions and the withdrawal of many Western brands from Russia (e.g Renault), means that there will be a significant impact on automotive and truck production volumes. The broader automotive supply chain will therefore be impacted by lower volumes, compounding the disruption to volumes seen last year from the semiconductor crisis.  Some are likely to suffer financial distress if volumes continue to be weak. 

Impacts of the Neon Shortage

Ukraine is a leading supplier for the world’s supply of neon, a material integral in the manufacturing of semiconductors. Ukraine’s core neon companies - Ingas, Iceblick and Cryoin - are responsible for roughly half of the world’s neon supply. All have been impacted by the conflict, which we expect will create a short to medium term disruption to global neon supplies.  

Ingas, based in Mariupol, has had their production halted as the city suffers a month-long focused siege, with a large amount of the city shelled and turned to rubble. Odessa, home to Cryoin, is blockaded as a consequence of Russia’s hold on the Black Sea. Both port cities are crucial export hubs for Ukraine where much of its industry has suffered a total stop. Both Ingas and Cryoin have suspended their operations, and prices have increased by 4.5 times since the start of 2022.

Neon is used in critical parts of the semiconductor manufacturing process, for instance in extreme ultraviolet (EUV) lithography systems from suppliers such as ASML. When supplies were disrupted during the Crimean war, many semiconductor companies increased their inventories and started to diversify their supply chains away from Ukraine.

Neon is produced as a byproduct of the steel industry; steel mills that have been damaged or idled in Ukraine will take a long time to bring back online or rebuild.  However, Versed AI expects that investment to purify by-product gases from steel production in other countries will increase, and the disruption to semiconductor grade neon will therefore resolve in the long term.  As an example, ASML is now partnering with Walter Gas in China for neon supply. 

Second order effects of the near term neon shortage include disruptions to production of smartphones, laptops and automobiles, which rely on semiconductor production.  In addition, 4.5x increase in the price of neon is likely to be passed through by semiconductor chip manufacturers to their clients, causing further consumer price inflation. 

  • Download Versed AI’s semiconductor whitepaper for an explanation how the semiconductor industry works, where there are bottlenecks, and why there is a shortage of semiconductors.
The Consequences of Cost and Disruption to Supply Chains

The examples of wire harnesses and neon demonstrate how globally interconnected modern supply chains are, with an uneven reliance on some countries due to key resources.  Supply shortages are resulting from disrupted production, crippled trade routes, higher freight costs, sanctions, and other key factors that have far-reaching repercussions to businesses of all sizes, which knocks-on to consumer goods and pricing.  

As DNB argues, “Russia’s invasion of Ukraine has exposed several geo-political fault lines: a breakdown in supply chains, inaccessibility of critical raw materials, and an impending commodity crisis.”  The second order effects of the crisis are starting to play out, with higher food and energy prices, product shortages, and a potential increase in bankruptcies amongst businesses around the world are only just starting to be felt.

Versed AI helps automatically map out your supply chain down to Tier n, allowing you to stay informed about any disruptions, and respond pro-actively rather than re-actively.  Is there a risk that your supply chain is exposed to Russia or Ukraine?  Or disrupted by a cyber attack? With our software, you get clear visibility into your supply chain.

You can visit our website to learn more, or book a demo and we’ll be glad to get in touch with you.

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