The ongoing conflict in Ukraine has resulted in a wide-reaching international response to limit the ability of Russian individuals and companies to trade outside its borders. Tools such as sanctions and asset freezes have been enacted to constrict Russian companies from trading in Europe.
For packaging providers, divested companies have not been majorly affected by the crisis, but those with significant exposure in Russia will suffer major disruption in the short term at least. Mondi owns the largest Russian paper producer, Mondi Syktyvkar, and earns a sizeable portion of its revenue from the country. The company has publicly stated its ‘businesses primarily serve the domestic market and are all currently operational’; however, the Ruble’s significant fall in value presents a potential dilemma over the rising cost of input materials from abroad.
In the short term, packaging companies with exposure to Russia will suffer as they and their clients face the knock-on effects of sanctions and public condemnation. Finnish forest industry company UPM-Kymmene operates in 12 countries and has large exposure in Ukraine and Russia, operating plywood production facilities and terminals in the two countries. In its most recent communication, UPM noted that ‘global trade and geopolitical tensions eg. relation to the US, China and Russia, continue to cause uncertainty in the global economy and related to UPM’s product and input markets’.
Brand loyalties may even be tested, as negative sentiment rises towards companies based in Russia. According to GlobalData’s 2021 Q1 consumer survey, more than a quarter (26%) of global consumers say an ‘ethical supply chain’ is a key driver when deciding which products to purchase. Due to the nature of packaging providers operating business-to-business, it is likely most packaging companies will be insulated from consumers demanding that their favourite brands switch suppliers. The conflict in Ukraine is yet another external threat that compounds fast rising input prices, resurgent post-Covid demand, and supply disruptions.
As the conflict continues, packaging firms must be wary of contagion, as well as the risk of sharper price rises negatively impacting consumer demand and consumption. Constricted supply will risk disrupting stakeholders throughout the supply chain, potentially causing the end-consumer to pay even higher retail prices. Rising input prices come at a time when inflation has rocketed, intensifying challenges in an industry that is still trying to recover from the Covid-19 pandemic.