On 24 February 2022, Russia invaded Ukraine. It has undoubtedly been a huge shock to the global economy and trade since the outbreak of the Russia-Ukraine conflict. Considering that these two are major exporting countries, this conflict will have short-term and long-term effects on dropshipping business and shipping costs of products as well. Even though it’s hard to predict how the situation will develop, here are some effects on dropshipping business and shipping costs due to the escalation between Russia and Ukraine.
Supply Chain Disruption
Unfortunately, the COVID-19 pandemic was already greatly complicating the supply chain from the beginning to the end, starting with the fact that it stopped the extraction of raw materials and the production of manufactured goods. Now let’s add that Russia is the leading producer of metals such as palladium and nickel, and the third-largest exporter of steel globally, to which we can add construction materials and machinery.
As for Ukraine, it is one of the largest exporters in the area of sunflower oils, agricultural feed, and fertilizers. By the time trade was reactivated simultaneously around the world, China found itself unable to meet global demand. In a way, we can say that this role as the world’s largest manufacturer has caused it to generate a very important collapse.
Closely related to the previous point, logistics simply could not absorb the volume of shipments being generated. There weren’t enough ships, and road transport was also stretched to the limit. Hence the famous container crisis. With the ripple effect between these two countries in full swing, dropshipping businesses will be faced with two additional circumstances that everything even further:
Airspace and Road Closures: the international community has chosen to close Ukraine’s airspace, where the fighting is taking place, and also vetoed Russian airlines over its territories. Commercial flights are disappearing, and roads are impassable.
The Energy Crisis: While China is one of the largest manufacturers, Russia is the largest distributor of oil and gas to Europe (40% of that consumed in Europe). All this war has had a determining influence on the price of fuel and this makes absolutely everything more costly, an increase that is passed on to the end customer because it is unaffordable for many margins, this reduces consumption.
Higher Costs of Both Products and Shipping
Affected by the rise in international crude oil prices, the adjustment of China-Europe routes, and the shortage of shipping capacity, even if the conflict ends soon, the lifting of sanctions may take longer. And detour options time, this means that shipping costs of products will rise in near future. Energy shortages will likewise inevitably happen all over the world. Changes in demand and supply will lead to tax increases, which means that the cost of materials manufactured by factories will increase, resulting in higher costs and reduced production capacity.
The ripple effect could boater inflation worldwide. The U.S Federal Reserve has already increased rates, but rising prices from the war will likely increase them further. This will in turn drive up borrowing costs for dropshipping businesses and consumers. Therefore, dropshippers should review their lines of credit to understand the impact of these hikes.
Shipping Routes Disruption
The Russia-Ukraine conflict has disrupted key rail routes to some countries like Europe, which operate via China. Some companies have also suspended rail freight due to concerns over disruptions at the borders. Though there could be alternative routes for drop shipping businesses seeking to reroute shipments from Russia, these routes are already facing significant delays.
One way to defend your dropshipping business against price fluctuations when importing is to always stock up in advance. Also, consider importing alternatives for a while, that will give you more time to decide what steps to take next. Right now, it’s hard to say what the Ukraine-Russia conflict will bring, and a lot depends on how long it lasts. At the moment, all you can do is stay safe and prepare your supply chain for any instance.
For more information about us or if you will like to know more about the products and services we provide, give us a call today at Fulfillman. We provide a wide range of services including Drop Shipping services, China sourcing, Warehouse fulfillment, Third Party Logistics, Product Photography, and many more. Our trusted professional team will be on ground to speak with you and discuss your available options. With us, you are certain to get quality and excellent services that give 100% customer satisfaction.