oil price

Major e-commerce is slowing down in Russia and Ukraine

On Feb. 24, the day Russian President Vladimir Putin announced Russia’s invasion of Ukraine, e-commerce sales to customers in Russia were up 7% from the beginning of the month, continuing on a path of steady growth.

But the next day, e-commerce sales destined for buyers in the country cratered to 43% below where they were on Feb. 1. And by Wednesday, online sales to customers in Russia had dipped again, down 53% compared to the volume at the beginning of the month.

Meanwhile, as of Sunday, e-commerce sales headed to customers in Ukraine, which had already been trending down, dropped a staggering 96% since Feb. 1.

According to FourKites data, total shipments to Russia as of Wednesday were down 17% compared to Feb. 16 as delivering goods to the region becomes increasingly difficult for shippers. Massive global operations like Maersk and MSC have already suspended operations in the region, and there have even been reports of Russian forces firing on foreign ships.

Even before the devastating invasion of Ukraine by Russia, the supply chain was already under massive pressure due to the increased demand for e-commerce products throughout the pandemic. Introduce the geopolitical tension that will invariably increase oil/gas prices and several other major commodities, and you now have another factor in the multivariate equation that will further pressure e-commerce shipping within the United States and the globe as a whole.

The conflict comes just as e-commerce sellers were beginning to see supply chain disruptions ease along with the impact of COVID-19.

Fighting in Ukraine is having a pronounced impact on the prices of commodities coming out of the region, which could create e-commerce disruptions beyond Eastern Europe. While much of the media attention is on the price of oil, gas and even vodka, Delaney pointed out that many more goods will be affected.

The rising prices of minerals that are heavily mined in the region, including nickel, which is vital to the production of batteries for electronic goods. But e-tailers likely won’t be the ones to bear the brunt of those costs.

Higher prices might not show up in shipping costs because customers have been conditioned to expect free delivery due to the Amazon effect. But while it may be hard to add those costs back, sellers can typically raise the prices of their products without much of a hit to demand. Even if the war in Ukraine resolves itself in the coming weeks, it could be months before those prices begin to normalize.

Two of the largest e-commerce sellers in the world, Amazon and Walmart, 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.

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.

About the Author

Nicole King

Nicole is a shopaholic with decades of experience. With a passion for writing and an undeniable ability to grab the best deals, Nicole enjoys helping others feed their inner-shopaholic too. Her work has been featured on Business Insider, Lifehacker, The Motley Fool, USA Today, and Moneyish.