Just before the Russian invasion of Ukraine on February 24, Euro Area manufacturers were starting to see the end of disruptions related to COVID-19. Global supply chain pressures were starting to ease as delivery times for manufactured goods were starting to improve. However, it’s now likely that the crisis in Ukraine will lead to a new peak in delivery times as a result of a logistics crisis unfolding across seas and land routes.

Shipping industry impacts Ukraine’s Black Sea ports have closed, and large global shipping companies including Maersk have suspended all operations to and from Russia until further notice. New challenges risk adding more pressure on already elevated container prices as well as the potential for more goods blockages. In February, freight rates were up 250 percent compared to the previous year, according to the Harper Petersen Charter Rates Index. Furthermore, 11 percent of total shipping freight was on stationary ships vs. a prepandemic average of 6 percent, according to the Kiel Trade Indicator.

Air, rail, and road transport more complicated European countries have shut out airspace for Russian airplanes and vice versa. Rail transport is also disrupted, with tracks from Asia through Belarus and Ukraine now blocked—as well as, perhaps most importantly, road freight transport, the dominant mode of moving goods within Europe that accounts for over 75 percent of total inland freight transport.

Truck driver shortages a key factor The impact the unfolding crisis in Ukraine may have on logistics cannot be underestimated given the large percentage of Ukrainian truck drivers operating in the EU. Labor shortages in the logistics sector were a pressing issue before the crisis, with high job vacancy rates in the transport sector overall and soaring truck driver shortages. Partly as a result, European firms have been increasingly recruiting truck drivers from outside of the EU, particularly those firms based in Eastern Europe like Poland and the Baltic states. In Poland alone, over 100,000 permits ("driver attestations") were in circulation for truckers from non-EU countries by the end of 2020, up from 4,000 in 2012, and the bulk of these drivers come from Ukraine. Not only are a large number of drivers stuck in Ukraine at the moment, many Ukrainian nationals are also returning to their country as all men aged 18-60 are called to take up arms.

All of these factors predict intensifying supply chain disruptions in Europe over the coming months. This could lead to gaps on supermarket shelves and backlogs at ports, just as experienced in the UK in 2022 when there were too few truck drivers available for the last mile between ports to warehouses, and warehouses to supermarkets.

How can business respond to minimize disruptions to their company? As a first step, a scan of the expected logistics bottlenecks in the entire value chain is required. A supply chain mapping tool partly using machine learning can be very useful in this respect. The Conference Board provides an inventory of key applications. There is also a need to identify the most likely new supply and demand balance following the conflict. This can help to allocate otherwise idle capacity to newly emerging demands. With a clearer picture of these issues, it may be time to start thinking strategically; for example, focusing on your primary or "A-level" customer requirements, finding contingencies (especially for the highest profit contributors), and preparing to secure logistics capacity in advance. The expected additional cost will pay off in revenues that would otherwise be lost.