The war in Ukraine reverberates in European factories and warehouses
PARIS — The shoes, 600 pairs in total, lay untouched in an Italian warehouse: magenta sandals, low-cut heels and gold ballet flats, destined for Russian boutiques but stuck in the limbo of sanctions and economic upheaval from Russia’s war in Ukraine.
Sergio Amaranti, the Italian shoe company grappling with the mountain of unpaid goods, is among thousands of European firms grappling with a growing backlash from the conflict.
“It’s scary,” said Moira Amaranti, who runs the business founded by her father and uncle. She said she feared the sudden financial loss could destabilize the 47-year-old business, which supports its 20 long-time workers and their families. “Russia is half our business,” she said. “And now we have a problem.”
Russia’s month-long war on Ukraine is hitting Europe’s economic rebound from the Covid-19 pandemic, threatening its job-rich recovery. Manufacturers and retailers that were enjoying renewed growth are adjusting to wild swings in trading conditions that have injected new uncertainty into economic decision-making.
Sanctions intended to punish Moscow for its invasion are falling on businesses in unexpected ways, undermining trust and their ability to plan. Small businesses like Sergio Amaranti face an unclear future as exports to one of its key markets come to a halt. Large multinationals that have withdrawn from Russia are assessing the risk of asset seizures or nationalization.
The repercussions of the war on soaring energy, food and raw material prices are causing even wider problems, forcing European turbine manufacturers, glass factories and zinc factories to slow down or suspend their output. Growing congestion in logistics and supply chains has added to inflationary pressures, prompting retailers to pass on rising costs to consumers and find alternative supplies. Annual inflation hit a 40-year high of 7.5% in Europe last month.
As disruption puts pressure on European businesses and their workers, governments in France, Spain and neighboring countries are shifting their spending priorities and promising huge subsidies to offset the pain, on top of the hundreds of billions already spent to keep them afloat during the pandemic.
The European Commission has authorized companies affected by the sanctions against Russia to receive up to €400,000 ($441,000) in state aid. European businesses and consumers benefit from government rebates at the gas pump and on their energy bills.
“The longer the war lasts, the higher the economic costs will be and the greater the likelihood that we will find ourselves in more adverse scenarios,” warned Christine Lagarde, the head of the European Central Bank, on Wednesday. On the same day, Germany, Europe’s largest economy, more than halved its growth forecast for 2022, to 1.8%.
Cogemacoustic, a family business employing 50 people in Limoges, in central western France, did not expect war to have an impact on it. The company, which specializes in gigantic industrial fans used in tunnels and mines, won contracts for the first time in Russia last summer to help offset the slowdown in business due to pandemic shutdowns, said Marion Oriez, director general.
Russian sales have grown rapidly to 5% of business and are expected to double this year – until Russia invades Ukraine. Russian customers were unable to pay the €90,000 owed for the ventilators delivered due to sanctions imposed on Russian banks, Ms Oriez said. Twenty additional ventilators, the size of small trucks, destined for Russia sit on the floor of its factory – a sunk cost of €350,000.
The company was already struggling with supply shortages and rising raw material and energy costs when the war cut off the Ukrainian steel needed to make the ventilators, forcing Ms Oriez to find new sources and to slow down factory production.
“Our situation is still difficult,” Ms. Oriez said. “There is a lot of uncertainty for the business.”
At Sergio Amaranti, based in the town of Civitanova Marche among a large group of other shoemakers with longstanding ties to the Russian market, managers had to make difficult decisions about whether to continue producing despite the orders lost.
Ms Amaranti said she had met with her family and workers to decide whether to stop making 500 extra pairs of summer shoes ordered by retailers in Russia. It would probably be impossible to deliver them anytime soon, and seven large Russian orders had already been cancelled.
In the end, however, they decided to continue production, as they had already purchased the leather and soles.
“I am very worried,” said Ms. Amaranti, whose priority is to find solutions that will maintain the wages of her workers. “One business owner carries the weight of many families.”
For the Eichbaum brewery in Mannheim, Germany, the loss of its Russian export market was only the beginning of the problems caused by the war.
The Russian-Ukrainian War and the World Economy
Germany’s third-largest beer exporter, the company had already suffered from two years of crippled sales as the pandemic closed bars and canceled festivals, as well as entanglements in its supply chain. Today, the price of hops and other grains used in brewing more than doubled, amid fears of shortages linked to the expected loss of this year’s crops in Ukraine, known as the breadbasket of l Europe, said Uwe Aichele, the brewery’s international sales manager. .
These problems have been compounded by the lack of aluminum cans and glass bottles – both produced in Ukraine – as well as the high energy prices plaguing Germany.
“The longer this goes on, the worse it will get,” Mr Aichele said.
Retailers have to look for less desirable substitutes for products that are suddenly in short supply, which inconveniences customers. A British company, Iceland, is one of several grocery chains in Europe facing a shortage of sunflower oil from Ukraine, which together with Russia accounts for 70% of the world’s supply.
Iceland has had to go back to using palm oil to make various food products, after phasing it out to meet environmental sustainability commitments, chief executive Richard Walker said in a message to customers on the Iceland website.
Mercadona, Spain’s largest supermarket operator, has introduced a limit of five liters of sunflower oil per consumer. At San Ginés, a century-old Madrid cafe famous for its churros, a crispy pastry fried in sunflower oil, manager Pablo Sánchez said he may have to pass on a 20% price hike to consumers .
“We’ve just come out of the nightmare of the pandemic and now we’re facing this war, so these are really times when you have to be extremely resilient to survive as a business,” he said. .
At Vetropack, a Swiss manufacturer of glass storage containers with factories across Europe, chief executive Johann Reiter is bracing for the possibility that Russia’s aggression will go beyond Ukraine.
Nearly 600 workers at the company’s factory near kyiv were forced to suddenly halt production when Russian tanks swarmed the country. Around 300 tonnes of molten glass was left to solidify inside the site’s furnace, rendering it unusable.
The Ukrainian factory made 700 million beer bottles, jam jars and other containers last year, and without that, Vetropack’s revenue is set to drop by 10%. The company cannot make up for lost production as its other factories operate at full capacity, so executives are considering whether to change its product line.
Mr. Reiter keeps a close eye on neighboring Moldova, where another Vetropack plant operates. The company is preparing for the worst-case scenario in which Russia prolongs the war there, putting in place evacuation and shutdown plans, as well as backup generators and satellite phones for managers to maintain communication.
“This is probably the most challenging time of my tenure as CEO,” Mr. Reiter said.
The report was provided by Emma Bubola from London, Noelle Illien from Zurich, Melissa Eddy from Berlin, and Raphael Minder from Madrid.