Crisis in Ukraine: opportunity for Central & Eastern Europe?
The current political turmoil in the Ukraine, coupled with an increasingly business-hostile approach from Russian authorities, is causing a ripple effect of anxiety among retailers, manufacturers, and investors in neighbouring geographies.
CEE manufacturers exporting to Ukraine are reporting double-digit drops in orders, and trade credit lines have been shortened or withdrawn altogether. As a result, EU-based hauliers are reducing rates and trying to shift capacity from cross-border to domestic routes. Border crossings are, perhaps counter-intuitively, generally no more problematic than before the crisis, as goods traffic has fallen off.
As is usual in times of uncertainty, corruption has become even more widespread, and is now an increasingly visible component of supply chain costs. Vehicles with foreign registration plates were always a favourite target for traffic police, but harassment has intensified in recent weeks, leaving hauliers no other alternatives but to pass on the cost of bribes to their clients.
Multinational logistics operators with an established local presence potentially stand to benefit from a flight to safety by shippers, as the latter seek to avoid the higher risk perceived to be involved in working with local firms. Care should be exercised, however – while local operators may indeed be on less solid financial footing, their owners often have better local connections, which in turn can significantly expedite goods movements through these challenging markets.
Gazprom’s stance on gas pricing is of course wholly dependent on what compromise can be reached with Moscow on Crimea. With no clarity imminent, and the threat of further Russian military intervention still impossible to discount, investors have put all projects on hold indefinitely. We believe that Central & Eastern Europe’s EU member states stand to benefit from the situation, as manufacturers considering offshoring capacity to lower-cost economies increasingly cite supply chain risk as a key factor in their decision to divert investments to more economically and politically stable countries.