Western sanctions are creating a mass exodus in Russia. With the eyes of the world on Eastern Europe amid Russian aggression in Ukraine, e-commerce companies are beginning to feel the sting of economic barriers implemented by the U.S. and other nations, and they’re pulling out of the region.
Last week, a slew of CPG companies ceased shipments to Russia, including brands like Nestle (OCTUS: NSRGY) and Coca-Cola (NYSE: KO), and e-commerce shippers and logistics companies are doing the same.
UPS (NYSE: UPS) and FedEx (NYSE: FDX) are two of the largest such companies to halt operations in the region, with both U.S. carriers putting out statements saying they would stop deliveries to Russia and suspend inbound and outbound shipments in Ukraine. Global logistics company DHL (OCTUS: DPSGY) followed suit with its own statement, suspending bookings of all new shipments to either country.
But they aren’t the only companies that are halting operations in the region and impacting delivery of e-commerce orders.
Additionally, A.P. Moeller – Maersk (OCTUS: AMKBY) and MSC (NYSE: MSM), two massive international shippers that have been building out landside e-commerce operations, suspended their container shipping lines to and from Russia, cutting the country off from a global shipping network that has steadily evolved to fulfill e-commerce orders as well.
It doesn’t stop there — e-commerce marketplaces are a part of the exodus too. Take, for example, eBay (NASDAQ: EBAY), which decided to temporarily pause sales to buyers with addresses in Russia and Ukraine. There are also e-commerce fulfillment companies like Sendle, which released a statement on Tuesday that it would suspend all international deliveries to Russia and Belarus.
Watch: Supply chain issues created by Russia and Ukraine
Additionally, credit card companies like Visa (NYSE: V) and Mastercard (NYSE: MA) are dropping Russian financial institutions from their networks, making e-commerce purchases a huge obstacle for users of banks like VTB, Russia’s second-largest lender. The decision follows similar action from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which barred Russian banks from its own network in a move that will make cross-border payments more difficult.
Even drone delivery companies like DroneDek are taking a stand, with the company dropping plans to extend the patent for its tech-outfitted mailboxes to Russia. And the suspensions won’t end anytime soon.
“Military conflict changes the calculus for any business who would normally deliver packages to consumers,” Dan Varroney, CEO of trade association consulting firm Potomac Core Consulting, told Modern Shipper. “Life safety is at the top of every list for employers — people come first. Until hostilities cease, it’s safe to assume that companies will not complete e-commerce deliveries into these areas.”
Two of the largest e-commerce sellers in the world, Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT), won’t have much of an impact on e-commerce volumes in the region, with the former having yet to release a statement and the latter having no operations in Russia.
But the e-commerce impact of the conflict between Russia and Ukraine may not be limited to that region. For one, the conflict is driving inflation rates higher, which could decrease the flow of e-commerce shipments through supply chains due to their cost.
“Prior to the Russia-Ukraine conflict, freight costs had already risen exponentially over the past year and are getting passed on to consumers in the form of increased prices, contributing to the highest inflation in 40 years. Fuel costs are a big component of this. Given that Russia is a major exporter of crude oil, recent events stand to exacerbate the already challenging situation,” Gregg Healy, executive vice president of global real estate services firm Savills, told Modern Shipper.
Perhaps the clearest headwind for inflationary pressures on the horizon is the surging price of oil, with the price of ultra low sulfur diesel settling above $3 on Monday for the first time since June 2014. That means it’s more expensive to ship e-commerce orders internationally, which could contribute to decreasing volumes.
Already, the impact is palpable. According to data from FreightWaves SONAR released on Saturday, Russian import bookings declined 40% from the week prior, while spot rates for 40-foot equivalent container shipments out of Europe are up 16%, signaling a strain on capacity.
“While global instability is always in the conversation, military conflict is not,” explained Varroney. “Add inflation at record 40-year highs and the impact of global supply chain disruptions from Ukraine, it could impact e-commerce shipping in one form or another. Part of that impact will be felt in the skyrocketing cost of energy. From delivery vehicles to aircraft to shipping from one corner of the world to another, the cost impact to e-commerce will be palpable.”
The impacts of inflation and rising fuel prices also figure to affect e-commerce volume at home in the U.S., where the gig economy has taken on a massive role in the fulfillment of online orders. Because gig companies like Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT) typically leverage a fleet of drivers and vehicles, a spike in gas prices will pass on costs to drivers, which could impact the size and efficiency of their fleets. That’s of course in addition to the pressure faced by domestic carriers, which must contend with fuel costs for their fleets of vans and trucks.
As is the case with any war, the effects won’t be limited to Russia’s and Ukraine’s corner of the globe — e-commerce disruptions will be felt all over the world.