Russian Crisis Taking Its Toll On B2B Exporters

The ongoing political battle stemming from sanctions and other activities in the Russian/Ukrainian dispute likely will have significant cross-border trading implications, especially in Western Europe.

As PYMNTS.com reported  Monday (Aug. 11), German companies already are feeling the impact. One maker of pressure vessels and hot water tanks for the chemical and petrochemical industries, for example, blames the crisis for a “significant” decline in orders in the past six months due to the crisis.

“There are two contracts from Russia we didn’t get, and we think that’s for political reasons,” sales chief Reinhard Webertold Bloomberg. “They’re afraid of sanctions being extended, that they will make an order and that we won’t be able to fulfill it because of political decisions in Germany or Europe.”

B2B vulnerabilities

Indeed, in any political crises such as the one now underway in Russia illustrates, B2B markets are especially vulnerable as trade between countries is the simplest weapon to use in the fight short of bombs and other military action. And the impact can be far-reaching.

Last week, Russia banned imports of a wide range of food and agricultural products from Europe, the U.S. and other countries in retaliation for sanctions the U.S and Europe placed on that country stemming from its support for fighting in Ukraine. These include barring imports for a year of meat, fish, seafood, vegetables, fruit, milk, dairy products from the U.S., the European Union, Australia, Canada and Norway.

Russia is second only to  the U.S for European agricultural exports, worth about 11.8 billion euros last year, or roughly $15.7 billion, according to the New York Times, citing Eurostat statistics. That represents about 10 percent of European agricultural trade, as the vast majority of that commerce stays within the 28-nation bloc, thepublication noted.

Who’s affected most?

In a recentblog post, Open Europe said agricultural represents about 7 percent of total European Union exports. Of that percentage, 10 percent goes to Russia, meaning agricultural exports account for around 0.7 percent of overall EU exports. However, the figure includes much more than the specific parts targeted in the sanctions, meaning the Russian move will have little aggregate impact. However, regionally, the move could create some significant trade hardships.

Agricultural trade with Russia represents about 4 percent Lithuania’s gross domestic product, followed by Latvia at about 2.8 percent and Estonia at about 1.8 percent. “In absolute terms, Poland, the Netherlands, Germany and Denmark will also face losses,” the blog post notes.

The fallout for Russia likely will mean higher prices for its consumers and reduced consumer choice. Russia’s agricultural imports, represent only about 1.2% GDP per year, but about 13.3 percent of overall imports, Open Europe noted.

As for the future, the sanctions on both sides remain targeted and specific. However, neither side expects to change its position, which is feeding into a broader feeling of unease when it comes to the private sectors of both sides doing business together, the blog post notes. “This indirect or de facto halting of trade is likely to be the largest negative effect from this escalation,” it noted.

As the Bloomberg article on the Germany impact noted, Russian customers putting off purchases are pinching thousands of small and midsize companies that form the backbone of Europe’s largest economy.

Food-processing and recycling machinery maker Amandus Kahl GmbH, for example, had projected to bring in about 10 million euros in revenue this year from Russia. However, sales to the country “have pretty much evaporated because our clients can’t get financing,” Rochus Mecke, a Kahl’s sales director, said in a Bloomberg interview. “We still get inquiries, but it’s only inquiries.”