Economic crises are an inevitable outcome of the war and when two industrialized countries decide to take arms against each other, global industries fear disruption and instability. The same can be said about the eCommerce industry that is facing massive-scale disruptions due to the Russia-Ukraine conflict. These disruptions are having a crippling effect on all stages of the eCommerce business process, i.e, from sourcing to delivery and even consumption patterns and mindset.
Foreign policy experts claim that the Russia-Ukraine conflict will setback 30 years of Russia’s economic progress. Thirty years ago, the eCommerce industry did not exist in Russia. What are the chances that the eCommerce industry may become lifeless again? Or let’s ask a bigger question. More than 300,000 American companies rely on Russia or Ukraine for their supply chain. With discontinuation in this supply chain, what will be the impact of the Russia-Ukraine conflict on the global eCommerce industry?
In this blog, we will cover the overall impact of the conflict on the eCommerce industry and online shoppers, and how consumer behavior and trends might get redefined.
Evaluating the Impact on Ecommerce Industry
The economic recession that came along with the pandemic bankrupted thousands of businesses and brought highly-reputed incumbents to the brink of collapse. The global economy, which adapted digital transformation to recover from the recession, suffered a major blow when the Russia-Ukraine conflict began.
Many global eCommerce and related brands like Amazon, Ikea, Nike, UPS, and FedEx suspended their operations in Russia and also suffered repercussions in terms of capital, manufacturing, and logistics costs.
In contrast, some brands are still in dilemma about suspending their operations in Russia such as Alibaba and French retailer Auchan. However, these eCommerce brands face the risk of being boycotted by masses all over the world. And along with these brands, their customers, manufacturers and logistic partners are also going to suffer because of the conflict.
Thus, in addition to measuring the impact in the various sectors of the eCommerce industry, a more holistic approach is to also measure the impact in terms of how the situation is escalating for both buyers and businesses.
Before we begin with the sectors, below are all the major organizations that have suspended their business operations with Russia:
And here is the chart of how much this conflict is costing Russia per day in different currencies:
- 22.09 Billion US Dollars
- 27.60 Billion Canadian Dollars
- 29.30 Billion Australian Dollars
- 20 Billion Euros
- 16.80 Billion Global Pound Sterling
- 82.80 Billion Saudi Riyal
- 81.10 Billion UAE Dirham
- 1668 Billion or 1.6 Lakh Crore Indian Rupees
Russia-Ukraine War Causing Chaos For Online Shoppers
The first and foremost impact on the buyers is inflation. The production of goods and services was halted even during the pandemic but still, the world did not face such inflation that it is going to face now because of the conflict. First, there is a hike in the prices of capital resources such as crude oil, metals, and food crops. Second, the repercussions of these hikes result in inflation of common commodities such as oil, wheat, gold, aluminum, nickel, and packaging material.
An estimated 300,000 US companies relied on Russian supply chains. With those supply chains out of operation, these companies will have to tie up with new firms and re-establish their connections to stay in business. Furthermore, aggregators with thousands of pending orders are also likely to fail to provide timely deliveries. Another reason behind the delay would be closed sea routes and air spaces.
With a halt in the production of many products, not only in Russia but all over the world, product shortages may occur. An example of a large-scale product shortage that has now turned into a global crisis is the shortage of semiconductors, which are used everywhere from your mobile phones, laptops, and televisions to automobiles, refrigerators, and even LED light bulbs.
No Cash in Russia
At the time of publishing this article, many Russian banks and ATMs would have probably run out of cash resources. The ban from the SWIFT network meant a decline in all Russian debit cards, credit cards, and mobile banking transactions. This left consumers with no other option but to withdraw cash wherever possible, resulting in a severe cash insufficiency in Russia.
Suggested read: Russia’s Economy Is Tanking but the Ruble Soared. Here’s Why.
Panic Buying and Stockpiling
Crises are often followed by a state of panic buying where masses of consumers lash out at essential products and begin stockpiling them for months. A similar case happened in Russia as the population started panic buying and reserved groceries. Along with groceries, people also panic-bought clothing, shoes, and medicines. Although such unprecedented times often witness a decline in demand for essential products, in Russia the demand for even non-essential electronics increased.
Newly Emerging Consumer Patterns
The various sanctions imposed during the conflict have given rise to the following changes in consumer behavior:
Heed for Cost-Effective Delivery
With the cost of global shipping witnessing an unprecedented surge, it has become somewhat more essential for customers to consider the delivery costs of products. Apart from global shipping charges, national delivery rates for certain imported products have also increased. Thus, customers are now preferring brands with free or cost-effective shipping more than ever.
US MNC Culture Segregation in Russia
Due to the various sanctions imposed by countries all around the globe, numerous MNCs have exited Russia, particularly US MNCs that had become a part of Russian culture. After the conflict, it is highly possible for Russian consumers to boycott American MNCs and prefer native brands to show their support.
Global Isolation of Russian Tech Companies
In the US, state governors have already requested liquor stores to shelve out all Russian vodka. Apart from liquor brands, even Russian tech firms are receiving sanctions from all around the globe. These sanctions will especially affect small and startup-level tech businesses that work on remote off-shore projects. In terms of B2C brands, the breakdown of the entire supply chain and suspended operations of FedEx and DHL have already isolated Russian eCommerce businesses from the global audience.
Increase in the Usage of Chinese Products
With an exodus of American brands, Russian and Chinese relations are getting stronger. Many Chinese brands are still conducting operations in Russia, including the world’s largest marketplace, Alibaba. This hints at an affiliation of Russians towards Chinese products in the near future, which will not only give Chinese brands a boost but can also make them a tough competitor of the existing global players.
To learn more about the impact of the war on different industries, and eCommerce businesses, and what would be the possible strategies adopted by Russia against the economic sanctions, read this blog published by FATbit Technologies: https://www.fatbit.com/fab/impact-of-russia-ukraine-conflict-on-ecommerce-industry/