An industry ‘paralysed’ – The impact of war on Ukrainian packaging
Prior to 24 February, Ukraine was a growing force in the global packaging supply chain, producing 90,000+ tonnes of PET beverage bottles, 700,000+ tonnes of transport packaging and 900,000+ tonnes of glass bottles annually. Its abundance of forested land and vast reserves of nickel, copper and iron made it a leading supplier of timber and metal to the European market.
ussia’s ongoing invasion of the country, however, has brought the industry - like much of Ukraine’s business - to a standstill.
For firms like PACK TECHNOLOGY Ukraine, a cardboard and tin souvenir beverage packaging manufacturer, the impact was immediate. The company’s home city, Nova Kakhovka in the Kherson region, was one of the first to fall under Russian occupation. The city has been blockaded since, impeding the delivery of food, medicines and essential goods to its citizens, and limited access to the raw materials the business needs to function, according to MD Oleh Tymchenko.
“The enterprise cannot work today,” says Tymchenko. “Logistics is completely absent - we cannot bring raw materials in, and even if we could produce packaging, we would not be able to deliver it outside the city.”
Even for those in cities that remain under Ukrainian control, operations have been halted by supply chain disruptions and the large-scale destruction of infrastructure. Re-Leaf Technology, a Kyiv-based sustainable packaging firm producing paper bags from fallen leaves, has been left “paralysed” as its contractors suspended their activity. Even if it was able to continue production, the firm has received no orders from its domestic or international customers since the war began. And even if it did, exporting its goods would be an almost impossible challenge.
Some local enterprises have attempted to maintain operations to support both their employees and Ukraine’s economy. Others, such as Re-Leaf, are selling off their remaining stock to raise funds for victims of the war, while some are exploring the possibility of relocating outside of the country.
“Not a single entrepreneur cares now about profits, but rather trying to save the country’s economy and provide others with the means to live,” says director of sales & business development, Alexander Sobolenko.
Ukraine’s packaging leaders are confident that the industry will be ready to resume operations quickly once the invasion is repelled and the situation stabilised. An immediate return to business as usual, however, is unlikely for the industry.
An estimated $63bn of damage has been caused to Ukraine’s infrastructure so far, according to the Kyiv School of Economics, with cities such as Kyiv, Kharkiv, Zaporozhye and Dnipro - where many of PACK TECHNOLOGY Ukraine’s suppliers are based - coming under heavy shelling. With damage to infrastructure likely to shutter many businesses for the long term, if not permanently, those that are able to continue will need to rebuild their supply chains.
Those that are able to return to normal may also face a “lack of labour resources in post-war Ukraine”, Sobolenko says, with the United Nations refugee agency estimating that 4.6m people - approximately 10% of Ukraine’s population - have fled the country so far. Then, there is the economic damage. With between one-third and half of Ukrainian businesses having halted operations, its economy is expected to shrink by as much as 35% in 2022, according to the International Monetary Fund.
“It will take more than one year to restore the domestic market,” Tymchenko says. “[In the souvenir beverage packaging segment] I think that consumption will decrease significantly due to the low purchasing power of the country’s inhabitants.”
A knock-on effect
For the businesses that Ukraine’s packaging industry supplies, the war is unlikely to result in significant disruption or shortages, given the country’s relatively small share of the global industry. However, the decision that many businesses have taken to exit the Russian market is another matter.
“The interruption to Ukrainian companies won’t have a significant impact on the global industry because the share of local enterprises is not decisive,” Sobolenko explains. “It seems the biggest impact on the industry will be the decisions of huge international companies that decide to leave the Russian market to avoid reputational risks.”
This will undoubtedly hurt global packaging firms too. In March, GlobalData reported that divested packaging firms have avoided major impact, but those with significant exposure in Russia are likely to suffer major disruption. Not only are these companies likely to be hampered by the instability of the Ruble and, subsequently, the rising cost of raw materials from abroad, but also negative sentiment towards companies that continue to operate in Russia. Indeed, according to GlobalData research, ‘ethical supply chains’ play a key role in the purchasing decisions of a quarter of consumers.
Irish corrugated packaging company Smurfit Kappa has announced its decision to exit the Russian market, while Mondi has also stated it is “assessing all options for its interests in Russia”, which represents 12% of the packaging leader’s revenues.
Yet, there may be further opportunities for firms to show their ethical side. According to Sobolenko, the best way for the industry to show support is by continuing to purchase Ukrainian-manufactured products: “By buying Ukrainian paper, packaging or services, other companies can contribute immensely to the survival of the Ukrainian economy and human lives.”
As well as reputational challenges, firms must also deal with the rising cost of raw materials. With Russia supplying 14% of the world’s total supply, the war has had a significant impact on oil and gas prices. Likewise, aluminium prices sky-rocketed in March due to mounting fears that sanctions would limit supplies from Russia-based Rusal, the world’s second largest aluminium producer.
The great restoration
With the European Union looking to fast-track Ukraine’s application to join the bloc, greater cooperation with the region could be crucial to a speedy recovery – to the benefit of both Ukrainian and EU businesses.
“We can be quite competitive in the European market due to the lower cost of packaging production while maintaining the quality of the packaging,” Tymchenko explains. “I am sure after the war Ukraine will become much closer to the European Union than it was before. This will have a beneficial effect on our joint cooperation.”
Despite the uncertainty, Ukraine’s packaging businesses are confident that the industry will find its feet again and play an increasing role in the global packaging market: “As soon as this is over, Ukraine will be reintegrated into the global market,” Sobolenko insists.
“Great restoration will lead to skyrocketing growth of the economy and Ukrainian companies will play an increasingly significant role in the industries of paper and packaging.”
Main image credit: Ralf Liebhold / Shutterstock.com