From Supply Chains to Sales: How the War in Ukraine is Reshaping Ecommerce
How to adjust your digital strategy to stay competitive despite challenges ahead
From consumers to manufacturers to distributors, everyone has been impacted by the supply chain crisis of the last few years. As a result, the term “supply chain” has a buzzword quality.
But that doesn’t mean the issues are going away anytime soon, and in fact, there’s data to support that supply chain issues are only getting worse (and more costly).
Between 2019 and 2021, supply chain disruptions more than tripled, and most companies were almost immediately unable to cope. After all, some studies show disrupted supply chains can cause a 62% financial loss.
In 2021 alone, supply chain disruptions cost the 1,500 global supply chain leaders an average of $184 million USD, according to research from Vanson Bourne.
This is a global average. Effects in the U.S. may have proved more severe, with an average cost to revenue of $228 million for the largest supply chain leaders in the U.S. Shipping ports around the world are still backlogged as they try to find a post-pandemic normal.
Supply chain issues as a result of global precautions to prevent the spread of COVID-19 didn’t come as much of a surprise, as painful as they continue to be.
But when Russia invaded Ukraine in early 2022, yet another wrench was thrown into the ever-lengthening global supply chain. Millions of products that would usually travel by train through Russia have been rerouted to travel by sea, adding on time and logistics that add more links to the chain. On top of that: the war increased the cost of energy by 20% for five months straight immediately following the invasion. An uptick in energy costs makes shipping even more expensive.
While experts had predicted that supply chains would normalize in 2023, the war in Ukraine has placed more pressure on ecommerce businesses still reeling from the effects of the pandemic.
We can’t solve the global supply chain issues in one article. But what we can do is explain how the war in Ukraine is affecting the ecommerce industry, and how we can grow even in the face of conflict.
How Does the Conflict in Ukraine Affect the Supply Chains?
For many of us in the US, a conflict in Eastern Europe feels impossibly far away.
However, a little over a year after the war began, global impacts are already hitting close to home, according to Asoo Vakharia, a supply chain researcher and professor at University of Florida.
While both the Ukrainian and Russian economies are relatively small from a global economic perspective, both are integral to the global supply chain. More than 300,000 U.S. companies rely on Russia or Ukraine as a part of their supply chain.
The impacts of war on both Russian and Ukrainian ecommerce have already been massive.
Immediately following the invasion, Ukrainian ecommerce came to a standstill. Revenues dropped by 87% as an estimated 5 million people fled the country. The war forced a staggering half of Ukrainian businesses to shut down completely, while the rest were forced to operate far below capacity.
Meanwhile, the main hurdle for Russian ecommerce is navigating logistics in the face of economic sanctions.
After the invasion, hundreds of major companies including Amazon, Disney, Procter & Gamble and Visa (to name just a few) suspended all business operations with Russia. Without access to international social media, Internet or banking, Russian businesses became essentially isolated. In March 2022, Russian inflation hit 16.7%, the highest it had been since 1999.
Russian ecommerce largely relies on imports. A massive drop in imports flowing through the country has caused a drop-off in key ecommerce metrics.
For both countries, millions of orders that were in the midst of processing when the conflict started were lost in the shuffle. Thus, millions of customers did not receive their orders, and the associated companies lost millions of dollars in processing costs.
The food, fuel and manufacturing industries were the first to see inflation spike as a result of limited availability and increased shipping delays to work around the conflict zones. As the cost of essentials increased, consumers’ expendable income decreased, making ecommerce an even more competitive world than before.
With such drastic impacts to the local economies in both Russia and Ukraine came shockwaves around the world, and the global ecommerce space is no exception.
Shipping Headaches Continue
Along with the increase in prices of food, oil and gas, effects have rippled out to the logistics industry. As a result of the war, several ports have shut down operations completely, leading to a rise in shipping costs.
The pandemic had already made containers scarce, but with ships being diverted away from Russia and its surrounding areas, the industry is seeing even more increased freight charges, container shortages and less storage availability.
While containers get more scarce, demand has not decreased. The U.S. has had to find new locations for cargo ports in order to decongest current ones, which have become so overcrowded that canceled shipments are becoming more common, bringing productivity to an all-time low.
There a few steps ecommerce retailers can take to help navigate the shipping challenges of today:
- Diversify your shipping portfolio. You’ve probably always heard about the importance of diversifying your financial portfolio. This is also one of the best strategies to minimize the risk of shipping delays. When you use multiple carriers and shipping methods, you reduce the risk that a breakdown in one step will put your entire assembly line on hold.
- Keep a close eye on existing routes. It’s more important than ever to make sure current routes are not affected by closures or restrictions. That way if issues arise, you’re able to be proactive in finding alternative routes.
- Communicate with customers. One tried and true way to lose a customer is to ghost them while their couch is stuck in the middle of the ocean. It may be hard and uncomfortable, but if you want to create and keep loyal customers, ensure everyone is on the same page about order status.
- Plan for delays. Stay positive, but assume there’s a possibility that the worst case could happen. Have a back-up plan, including back-up suppliers and alternative shipping options should you need to change course.
- Optimize inventory management. Reduce the risk of stock-outs or over-stocking by using demand forecasting tools and maintaining safety stock levels.
Many online retailers are considering on-shoring as a way to beat current shipping challenges. There are many benefits to domestic sourcing, including greater control over the supply chain, reduced shipping costs and times and improved flexibility. However, it’s important to consider the cost it would take to switch to on-shoring, and the availability of skilled or unskilled labor that your processes would need.
It’s important to note that the situation in Ukraine is ever-changing. These strategies may not completely eliminate the risk of shipping delays, but they could help mitigate the impacts.
Changes in Consumer Behavior
The truth is that the average consumer doesn’t really care about the finer details of the supply chain crisis. They want to know when their IKEA couch will be back in stock.
More than ever before, consumer behavior has been affected by the supply chain issues of today.
More than seven in 10 consumers bought from the competitor of their go-to brand between May 2021 and May 2022.
In 2023, brand loyalty doesn’t mean what it used to. Many consumers have been burned by slow shipping times or, worst case scenario, not receiving what they ordered.
But in addition to a craving for convenient shopping experiences, today’s consumers have more awareness of global events at their fingertips than ever before.
A PwC global study found that 96% of consumers plan to adopt cost-saving measures in their shopping habits over the coming months. With rumors of economic downturn and even a recession on the horizon, many consumers appreciate the option online shopping offers to cost-compare before committing to a purchase.
Overall, today’s customer wants a fairly priced product they can buy safely, online, that will arrive quickly and reliably.
As an ecommerce retailer, here are just a few steps you can take to ensure you meet your customers’ needs and stand out from the (fierce) competition:
- Partner with local suppliers when possible. Consumers around the world are interested in supporting their local economies. Get creative — help to meet the growing demand for locally sourced goods and support the local economy.
- Create a seamless online shopping experience. More consumers than ever are turning to online shopping for increased product range and availability. It might sound harsh, but if your page load speeds are laggy at best, your ideal customer is going to shop somewhere else.
- Offer competitive pricing. Maybe you source products directly from manufacturers, or maybe you start offering more sales, discounts and promotions. Consumers of today are price-conscious, so competitive pricing will make you stand out from the crowd.
- Emphasize a safe and secure shopping experience. For many, the conflict overseas has led to concerns about safety and security. You can address these concerns by sharing the measures you take to protect customers’ data.
The most important element of brand loyalty is trust in the company. After strengthening the trust between brand and consumer, ecommerce retailers can lean into the advantages of the increasing popularity of online shopping.
Sink or Swim
Ecommerce retailers have two options in our current reality: Fall victim to the challenges of the current reality, or figure out new ways to thrive and compete.
Retailers who are able to create a supply chain that is —
- Flexible and resilient; and
- Proactive enough to change when hiccups arise
— will be far more agile when it comes to managing suppliers and mitigating risks.
With the threats of inflation, increasing shipping costs ,headaches and changing consumer behavior on the horizon, the world of ecommerce can be a difficult — and scary — place to navigate.
However, we want to encourage you that by getting this far into this article, you’re already on-track, and that’s because you’re paying attention.
Ecommerce stores that focus on agility and flexibility with the changing events of the world are the ones who will stand out from the crowd, both in terms of revenue and in terms of customer recognition.
Today’s consumers want to give their money to retailers who are consistent and whose products are worth their money. They also want to support retailers who know what’s going on in the global marketplace, and who connect with their customers when they need communication most.
Nogin Can Help You Stay Agile Amidst Real-Life Ecommerce Challenges
In an increasingly competitive digital marketplace, being agile has never been more important.
And it’s never been easier than with Nogin, the intelligent enterprise commerce solution that helps you compete with the tech giants and “win” at B2B ecommerce.
Let us handle the nerdy stuff so you can run your business.
Want to learn how Nogin can grow your ecommerce business, even during times of uncertainty?