The Ukrainian war is one of Europe’s most challenging situations in decades. No, it’s not clickbait, as it’s essential to stop the war asap. But, equally crucial for Logistics businesses is to survive this situation and stand more vital than ever before. Why it’s crucial to withstand? Because first of all, this war is against a free democratic world. Therefore, democratic countries and companies need to prevail over what’s best in our world: freedom and strong economies.
The consequences of the Ukrainian war will first be felt in the black sea trade region and for those companies that have had business relationships with Russian, Ukrainian, and Belorussian companies. Although, this will reach other parts of the world with some delay. Logistics businesses starting from today already need to start preparing for this. And, of course, the best way to prepare is to understand what’s happening and take needed action.
This edition of the logistics newsletter will talk about the war’s impact. Moreover, we will advise logistics businesses on reacting to this situation.
What challenges does the war in Ukraine is bringing to the world?
First of all, the war stipulates food inflation. Ukraine and Russia are essential grain producers. The wheat prices have already reached a record. The impact is minimal as the world is still trading last year’s harvest. Still, if Ukraine cannot start planting and harvesting this and Russia will not export the 2022 crop, the situation can be catastrophic. Then, of course, we need not forget the energy and other commodities prices. Russia is a significant supplier of oil and gas, wood, and other commodities. Which will again stipulate inflation and freight prices.
Moreover, Ukraine and Russia were important import and export markets for other commodities and products. Therefore, companies that have lost this market will need to find new markets or decrease their production capacities. Keeping in mind that working on new markets and sourcing locations is not a fast and easy thing, we most likely will see lowering manufacturing capacities in the short term.
The other issue is related to employees shortages. Logistics businesses worldwide have already suffered from employee shortages before the war. As a result, many logistics companies worldwide hired Ukrainians for various on-site and remote positions. When the war started, the immense pool of employees in Ukraine was shut down. We are receiving signals from transportation companies and seafarers that this situation will considerably impact capacity availability.
And lastly but not least importantly, the businesses that had business relationships with Russia are now facing one of the most significant issues, they need to find ways to get money out of Russia. As far as I know, the Russian government can now nationalize all funds of any foreign entity. And frankly speaking, I believe they can do just that. Moreover, some companies that have unpaid debts by Russian companies can also be stuck without products/services and money.
All the above things will probably stipulate a recession. And we all know that logistics businesses are the first ones that feel the consequences. But again, we also need not forget that all the most significant opportunities are found during a recession. And I have an inner feeling that logistics companies will not suffer during this recession because we have a tight capacity, which will not allow some unexpected situations to happen.
So what advice can we give the Logistic’s businesses?
Many businesses most likely stopped all their investments and are waiting for what will happen. Well, this is the worst thing a company can do. Suppose you would look at any situation when companies lost a competitive battle or went bankrupt. In that case, most of them are related to the inability to accept new market realities and pivot in the right direction. And we may see the same situation in the logistics industry now, especially among SMEs.
Still, the future for the logistics businesses and other producing companies is quite bright. The shortening supply chains trend emerged during the pandemics, but now considering the tensions with Russia and China, this process will happen even faster. All this means that there will be even more revenues for companies operating in the logistics business.
But few things need to be done to survive and strive during a possible recession.
1st. Invest in smart business developement
When hard times approach, the best cure for that is smart business developement. Of course, business developement becomes harder during a recession, but it doesn’t mean it becomes impossible. By smart, I mean filtering the best sales employees and providing them with the best tools to get more customers fast. Furthermore, invest in direct marketing activities that allow your organization to get more leads and customers faster.
Let’s not forget that solid companies become even stronger after the recession.
2nd. Invest in employees’ efficiency
During a recession, companies are looking for ways to make their operations leaner, resulting in significant layoffs. Layoffs aren’t a bad idea, but if you cut off your money makers (some companies start cutting off sales or marketing managers), you will get into trouble eventually.
So we recommend taking a right the opposite way. Organizations should lay off employees who underperform and invest in high performers by providing them with the newest training, engagement technologies, and other tools.
3rd. Think of new motivational systems
When a recession or other unexpected situations hit, it often disbalances import and export maps and changes buying behaviors; therefore, some customers can lower the volume, but on the other hand, other businesses increase their volumes.
Therefore companies need to detect those situations fast. We would also recommend creating new motivational systems that reflect this changing environment. For example, if you lack new customers or are looking for new markets, create motivational packages that incentivize those new and needed realities.
4th. Pivot as many times as needed
It’s the most important action a company leader can do, and I believe this will be one of the critical skills during a possible recession. Let’s not forget there are always opportunities around us; you need to find them. Many logistics companies that have done business with Russia are now left without a market. For many of them, it’s a tragedy, but again, this doesn’t mean that you need to close the door. Many other opportunities are waiting for your organization. The same thing will be seen in other regions when the import and export maps will be changed or production decreases; there are always other customers who will need your services. The main thing here is not to settle but to look for new markets or add new services.
Our recommendation for companies leaders would be not to wait for something to happen but instead, to create new realities for your company on your own. Organizations can always look for new markets, create new service packages, and find new ways of entering the closed market.
5th. Do your best. Outsource the rest.
There are many initiatives that logistics organizations need to work on. A few of them are increasing services levels, making their operations leaner, digitization, modern sales and marketing strategies, managing increased costs, and much more. Do not stop those investments, as this will be the thing that will put your organization on full scale-up after that recession ends.
Organizations can outsource some parts of their operations to third parties. In such a way, you will save CAPEX and achieve their goals faster, often get better results, and are cheaper than they could do this in-house. There are many things that your organization could outsource: sales, marketing, project management, etc. Do not limit yourself; outsource this process to a third party if you can’t do things better or cheaper.
Maybe it will look like madness for you, but yeah, during a recession, it’s one of the best times to expand. Because first of all, as said earlier, because of the tight situation with Russia and China, production will be brought closer to home. It means that the need for logistic services will increase. Secondly, there will be a lot of logistics companies that will not be able to adjust to this situation, so this is the perfect time for expansion and acquisition.
Our only advice is to do this strategically, looking at your company’s profile and understanding what will be best for your organization. Then, choose carefully the companies you want to invest in or choose the expansion strategy wisely. Moreover, do not forget to pay attention to the execution, get needed personnel, or relocate from your internal operations; if you do not have the needed expertise look for this in the market.
7th. Manage the risk
Alltthoutg expansion is critical; risk management needs to go step by step, as, during a recession, you can easily bump into risky situations and have problems with payments.
Therefore it’s important to overlook the status of your suppliers and customers, overlooking any possible red hearings here. Companies should also overlook payment terms. Moreover, organizations should think of ways to manage the ever-increasing energy and fuel prices; it would be wise to think of some hedging instruments, connect with your bank and find out if you can use some derivatives in your operation.
It’s all for this week. Let’s hope that this tragedy will end soon and all the guilty ones will be punished. And I wish the Logistic’s community to stand firm.