How Sanctions Impact Supply Chains
What are sanctions?
Just so we all start off on the same page, let’s define sanctions. According to Investopedia.com, sanctions are “Economic penalties levied against a country, its officials or private citizens, either as punishment or in an effort to provide disincentives for the targeted policies and actions.”
The latest example being the sanctions being placed on Russia in response to their invasion of Ukraine. Everything from wheat to oil, these sanctions are meant to hinder their economy so much so to end their advances. It should probably be mentioned that there is much more to sanctions that you’ll find in this blog and is typically surrounded by controversy, to learn more, check out this more in-depth article.
How are we affected by sanctions?
Our last blog discussed fuel prices, and this is one of the examples of how we’re affected. Our fuel has skyrocketed due to the sanctions not only the U.S. placed on Russian oil, but those that the European Union have as well. We have seen a direct result at the pump as well as inflation overall. Grocery bills are affected as well as a multitude of other goods by the inflation that’s due to recent sanctions that continue to impact the American people.
How do they hurt supply chains?
At the basic level, when it comes to the import and exports of goods across countries, sanctions can disrupt and break down the flow. When we think about everything that the U.S. imports from other countries, we must remember that it’s not just foods, clothing, and miscellaneous items, but more so machinery, parts, tools in order to do our jobs.
When companies are not able to get the materials they need in order to provide their goods or services to their customers, not only do they lose revenue, but the needs for their employees to work decreases, resulting in layoffs and downsizing. This would be more on the spectrum leaning towards worst case scenario if the sanctions lasted long enough against a country that is a main provider of certain goods required to do keep a business afloat. Though this doesn’t necessarily mean that we are not already feeling the effects.
While rates for freight will continue to climb during these sanctions, manufacturers will feel the strain as they struggle to find resources from alternative avenues. This slows down production and sometimes halts it entirely. The combination of rising shipping costs and shortage of materials has been and will continue to be one of the main pain points that the U.S. will feel while sanctions continue.
What companies are doing to stay afloat
Due to the recent sanctions being placed, Russia is a big player in exports and there will no doubt be affects felt by businesses across the country for the foreseeable future. Most companies will likely have a plan to stay ahead of the curve and some may have reactive solutions to fight rising costs and shortages.
By cutting costs in material, utilities and in some cases, rent, this can help a company weather inflation. Regarding shortages, most will look to replacing their current material needs by adapting and evolving their products to fit what is available for reasonable cots or they may pivot their goods entirely. In worst case scenarios, as mentioned before, downsizing of the business may have to occur to keep the company’s head above water.
Could there possibly be a silver lining?
We don’t like to dwell on the doom and gloom of any subject matter so here’s something you can take away from this pit of despair:
People are reevaluating their priorities and are being forced to make smarter financial decisions. This can have a great impact in the long run whether it is individuals investing more of their money in appropriate businesses or other forms of investment (such as real estate), thus profiting local economies.
Sanctions lead to supply chain issues (sometimes crisis) which lead to businesses being put in a position to really look at the faults in their company. Any issues, whether it be production or supply chain, come to light and are even amplified in times like these. The companies that choose to adapt and change in order to become stronger will benefit the most from times like these.
Lastly, this too shall pass. We may not know what the other side looks like at the moment but like all the tough times this country has faced, there is a light at the end of the tunnel.
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