AFP’s director of Treasury Services, Tom Hunt, CTP, recently sat down with a group of treasury professionals in the APAC region to talk about the impacts of the war in Ukraine. He asked, “What are some of the discussions you've been having, and what are some of the decisions you’ve had to make?”
Since the crisis escalated, companies have been primarily focused on the risk management aspects. The practitioners said even those who don’t have direct exposure to Russia or Ukraine have to think about inflation, interest rates and supply chain disruptions. Taking it a step further, they are very mindful of potential escalations of the conflict to that part of the world, in regard to China, and the potential of sanctions being imposed on them.
While Chinese involvement is hypothetical at this point, it’s still something treasurers need to be thinking through, especially if they have operations in Hong Kong. Top of mind are issues such as where their cash is placed, how much concentration of risk they have with Chinese banks, the number of financing facilities in which they have liquidity risk, as well as their ability to continue to use U.S. dollars as their functional currency.
Another practitioner was concerned about the fluctuation between the USD and the ruble. They said bankers were not particularly willing to trade in rubles, and that their bank, which is headquartered in Asia with branches in the U.K., has received some indication from the government and financial regulators not to do any Russian trading — something that’s being monitored very closely. The practitioner said they are also not prepared to quote the live rates due to the frequency of fluctuations.
In terms of the commodity market, one practitioners indicated that India is receiving some of the commodity contracts that were being supplied by the Ukraine, for example, wheat to Bangladesh. They said the market is volatile and needs to be managed on a daily basis, which creates a huge task for treasurers. They said that you also have to keep a close eye on bankers, how they're looking at the overall situation and managing funding.
Another practitioner said that from one day to another, they had to close all operations in Russia, meaning stores were closed down for the whole group, which affected operations much more than treasury. The company was also in the middle of recapitalizing in Russia when the war broke out.
Seeing supply chain impacts, especially on the cost of goods and the cost of logistics, is the key repercussion one practitioner named. The company ships products all over the world, by sea and air, and the shipping costs have gone up — even more than at the height of the coronavirus pandemic — which is causing them to revise their pricing.
Far from over is the general consensus of these practitioners, and the impacts will continue to be felt across the globe. Even when the conflict ends, the impact on the supply chain, the ban on Russia being on SWIFT and all the sanctions will have a long-term impact on the cost of doing business globally.
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