Impact of war in Ukraine and sanctions on supply chain sustainability.

Generally automotive sector has been already under pressure due to shortages of electronic components. OEMs were forced to revisit production forecasts what impacted all actors, even if they did not manufacture electronic related products. Simply the total output of vehicles production has been lower than should be for months. Ukrainian government strategy has been to attract wire harnesses and EMS makers. Likely the leadership intended to repeat the success story of other Central European countries, which builded their reputation in automotive sector and attracted more capital intensive foreign direct investments (FDI) later on. All that was stoped as the war started. Companies like Aptiv, Sumitomo, Yazaki, Leoni had to halt manufacturing of wire harnesses and to transfer several product lines elsewhere.

Will wire harness and EMS production stop in Ukraine have significant impact on the sector?

We have to remember that facilities in Ukraine were mainly assembly locations. The production of components (cables, connectors, terminals, coverings, etc.) takes place in Asia or Central/Eastern Europe. The main wire harness can be composed of hundreds or even thousands of components, where the majority is a kind of catalogue parts that are assembled like lego bricks. OEMs own the specification and usually apply dual source policy per vehicle platform. The tier1 market of wire harness makers is quite consolidated. Limited number of tier1 companies have got multiple production sites across Europe (e.g. Romania, Turkey) and North Africa (e.g. Morocco, Tunisia). The turbulences for entire automotive sector will be greatly smaller and more short term compared to covid-19 and semiconductors crisis, provided that:

• the wire harness makers manage to find 20.000+ assembly operators in other countries short term
• the logistic effort to change logistic flow of thousands of components will be successful and without any errors

Electronic Manufacturing Services (EMS) activities in Ukraine were limited in comparison to wire harnesses.  Likely more labor intense products (lower volume or manual assembly value add activities) were transferred to Ukraine. Almost all EMS suppliers  (beside two in Kiyv area) are situated in Transcarpatia region (border with Poland, Slovakia, Hungary, Romania). Global players should be able to redirect their components streams from Asia to other EMS locations in CEE region.

How as a buyer, commodity leader, director can you help nowadays?

Remember that Romania, Slovakia, Moldova, Poland, Baltic States host already above two millions of refugees from Ukraine. Majority of them are women with children. We do not know how long the war is going to last but it is our responsibility to provide them shelter and an opportunity to work. When you perform sourcing project, please consider locations where refugees are hosted. Create jobs as a form of slid support to Ukraine.