Ukraine War Reverberates in Europe’s Factories and Warehouses

PARIS — The shoes, 600 pairs in all, lay untouched inside an Italian warehouse: magenta sandals, plunging heels and gold ballerinas, destined for Russian boutiques but trapped in a limbo of sanctions and economic turmoil over Russia’s war in Ukraine.

Sergio Amaranti, the Italian shoe company saddled with the mountain of unpaid merchandise, is among the thousands of European companies facing an ever-increasing setback from the conflict.

“It’s scary,” said Moira Amaranti, who manages the company founded by her father and uncle. He said he was concerned the sudden financial loss could destabilize the 47-year-old company, which supports its 20 longtime workers and their families. “Russia is half our business,” she said. “And now we have a problem.”

Russia’s month-long war against Ukraine is battering Europe’s economic recovery from the Covid-19 pandemic, threatening its job-rich recovery. Manufacturers and retailers that were benefiting from renewed growth are adjusting to sharp changes in business conditions that have injected new uncertainty into economic decision-making.

Sanctions intended to punish Moscow for its invasion are hitting businesses in unexpected ways, undermining confidence and their ability to plan. Small businesses like Sergio Amaranti face a confusing future as exports to one of their key markets come to a standstill. Large multinationals that have been withdrawing from Russia are assessing the risk of asset seizure or nationalization.

The repercussions of the war on rising energy, food and raw material prices are causing even bigger problems, forcing European turbine manufacturers, glass factories and zinc plants to reduce or stop production. . Growing congestion in logistics and supply chains has added to inflationary pressures, prompting retailers to pass on rising costs to consumers and seek alternative supplies. Annual inflation hit a 40-year high of 7.5 percent in Europe last month.

As the disruptions put pressure on European businesses and their workers, the governments of France, Spain and neighboring countries are redirecting spending priorities and promising huge subsidies to ease the pain, on top of the hundreds of billions already being spent. they spent to keep them afloat during the pandemic.

The European Commission authorized companies affected by sanctions against Russia to receive up to 400,000 euros ($441,000) in state aid. European businesses and consumers are receiving discounts from the government at the gas pump and on their energy bills.

“The longer the war lasts, the greater the economic costs and the greater the probability that we will end up in more adverse scenarios,” Christine Lagarde, director of the European Central Bank, warned on Wednesday. On the same day, Germany, Europe’s largest economy, cut its 2022 growth forecast by more than half, to 1.8 percent.

Cogemacoustic, a family business employing 50 people in Limoges, in south-central France, never expected that a war would affect it. The company, which specializes in giant industrial fans used in tunnels and mines, first won contracts in Russia last summer to help offset a slowdown in business due to pandemic shutdowns, said Marion Oriez, chief executive.

Russian sales quickly rose to 5 percent of the business and were expected to double this year, until Russia invaded Ukraine. Russian customers were unable to pay the €90 million owed for the delivered ventilators due to sanctions on Russian banks, Ms Oriez said. Another 20 fans, the size of small trucks, bound for Russia are sitting on her factory floor, a €350,000 sunk cost.

The company was already dealing with supply shortages and rising commodity and energy costs when the war cut off Ukrainian steel needed to make the fans, forcing Ms. Oriez to find new sources and factory production slowed down.

“Our situation continues to be difficult,” Ms. Oriez said. “There is a lot of uncertainty for the company.”

At Sergio Amaranti, based in the city of Civitanova Marche among a large group of other shoemakers with long-standing ties to the Russian market, managers have been faced with difficult decisions about whether to continue producing despite lost orders.

Ms Amaranti said she had met with her family and workers to decide whether to stop making 500 more pairs of summer shoes that retailers in Russia had ordered. They would probably be impossible to deliver anytime soon, and seven large Russian orders had already been cancelled.

In the end, however, they decided to go ahead with production, because they had already bought the leather and soles.

“I am very worried,” said Ms. Amaranti, whose priority is finding solutions that keep her workers paid. “A business owner carries the weight of many families.”

For the Eichbaum brewery in Mannheim, Germany, losing its Russian export market was only the beginning of the war’s problems.

The company, Germany’s third-largest beer exporter, had already suffered two years of crippled sales as the pandemic closed bars and canceled festivals, as well as entanglements in its supply chain. Now the price of hops and other grains used in brewing has more than doubled, fueled by shortage fears related to the expected loss of this year’s crops from Ukraine, known as the breadbasket of Europe, Uwe said. Aichele, responsible for the international sales of the brewery. .

Those problems have been compounded by a lack of aluminum cans and glass bottles, both produced in Ukraine, along with high energy prices plaguing Germany.

“The longer this goes on, the worse it’s going to get,” Aichele said.

Retailers have to find less desirable replacements for staples that are suddenly in short supply, upsetting customers. A British company, Iceland, is among numerous supermarket chains in Europe facing a shortage of sunflower oil from Ukraine, which together with Russia accounts for 70 percent 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, managing director Richard Walker said in a message to customers on Iceland’s website.

Mercadona, the largest supermarket operator in Spain, introduced a limit of five liters of sunflower oil per consumer. At San Ginés, a century-old cafe in Madrid famous for its churros, a crispy dough fried in sunflower oil, Pablo Sánchez, the manager, said he may have to pass on a 20 percent price increase to consumers.

“We’ve just come out of the pandemic nightmare and now we’re facing this war, so these are really times where you have to show extreme resilience to survive as a company,” he said.

At Vetropack, a Swiss manufacturer of glass storage containers with plants across Europe, CEO Johann Reiter braces for the possibility that Russia’s aggression will go beyond Ukraine.

Nearly 600 workers at the company’s plant near kyiv were forced to suddenly stop production when Russian tanks invaded the country. Some 300 tons of molten glass were left to solidify inside the site’s furnace, rendering it useless.

The Ukrainian plant made 700 million beer bottles, jam jars and other packaging last year, and without it, Vetropack’s revenue is expected to drop 10 percent. The company cannot make up for lost production because its other factories are working at full capacity, so managers are considering changing their product mix.

Reiter is keeping an eye on neighboring Moldova, where another Vetropack factory operates. The company is preparing for the worst case scenario in which Russia escalates the war there, putting in place evacuation and shutdown plans, as well as backup generators and satellite phones for managers to keep in touch.

“This is probably the most difficult period of my time as CEO,” Reiter said.

The report was contributed by Emma Bubola From london, Noele Illian from Zurich, Melissa Eddy from Berlin, and Raphael Minder from Madrid.

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