Over the last few months I have written a couple of articles about the supply chain disruptions that were causing a lot of delivery delays and extra cost in near all industries including our flooring business. These disruptions were amplified as a result of the COVID pandemic although some problems started before.
In the last article we wondered if the problems would continue throughout the rest of 2022 and there was a good deal of consensus among experts that it would indeed last throughout 2022 and early 2023. I also explained how we were dealing at CONICA with these effects, including changing formulation of some products to be able to deliver to our customers.
Shortly after this last article we have faced one of the news that I would not have expected at 21st century. The invasion of Ukraine by Russia is the most serious conflict that we have experienced in Europe since the Second World War and has caused one of the largest humanitarian crisis, that we have experienced since then. We have now millions of refugees, leaving their home and jobs in Ukraine to save their lives.
I am not an expert in geopolitics, so for precise analysis of this kind you will have to read people who are. I will just focus on the possible consequences on the supply chains of products and materials in the industry and at our business segment.
Ukraine is the second country in Europe by area and has a population of 40 million people and although the humanitarian crisis is the most serious and painful, it should be noted that the country is also key in the world supply of various natural resources, industrial products and agriculture including:
- 1st in Europe in proven recoverable reserves of uranium ores;
- 2nd place in Europe in terms of titanium ore reserves;
- 2nd place in the world in terms of explored reserves of manganese ores;
- 2nd largest iron ore reserves in the world;
- 2nd place in Europe in terms of mercury ore reserves;
- 3rd place in Europe in shale gas reserves;
- 1st place in the world in exports of sunflower and sunflower oil;
- 2nd place in the world in barley production;
- 3rd largest producer of corn in the world;
- 1st in Europe in ammonia production;
- 3rd largest in Europe in terms of installed capacity of nuclear power plants;
- 3rd largest iron exporter in the world
On the other hand, the economic sanctions against Russia will also have an impact, since it is the world’s second largest oil producer and Europe’s main energy supplier (gas and oil) and also one of the largest producers of iron and aluminium among other metals.
At the moment, due to the uncertainty of the invasion of Ukraine, energy prices have already reached extremely high levels and the result will be an increase in the production costs of all products and services at all kind of business. In addition to this all the freight cost involved in the distribution of the goods will also have a big cost increase.
The increase in gas prices affects also the cost of electricity generation in Europe, regardless of the source of generation used as a consequence of how electricity prices are currently calculated.
Whatever the outcome of this war, I think the world will already be different and we will all have to face some kind of consequence. This conflict may cause a sudden halt in the world economy when it was just beginning to recover from the pandemic.
In the short and medium term in Europe we need to adopt measures to incorporate more investment in renewable energies and reduce dependence on Russian gas and oil, since giving them up suddenly, would cause the collapse of the European economy.
As one of my favorite creators, Tomás Pueyo, recently wrote:
The reason for the existence of the EU is changing. Originally, it was about trade and avoiding war. All its institutions were designed for that, and its expansion eastwards was meant to help fulfill these goals.
But now these goals are changing. If Russia is taken seriously as an external enemy, the EU has an opportunity to rethink its goals and reshape its institutions accordingly.
Stop the war
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