Despite the sanctions after the war, Caterpillar Inc. continues to operate its supply chain route using the Russian rail lines after suspending its business.
The construction equipment giant continued dependence on Russia to move its machinery and parts to another part of the world shows how fragile the global supply chain is. It also brings to light how China and European Union shipping routes are dependent on the landmass owned by the largest European Nation.
The dependence on the Russian supply chain
As per Bloomberg News, the documents that contain the supply chain logistics of Caterpillar show that the rail shipment of the company continues to function normally and cross Russia between Europe and China. In 2021, Ocean freight became costly and tight, leading to Caterpillar relying more on rail freights.
Based out of Deerfield, Illinois, Caterpillar ocean freight is diverted to ports in Europe, where customs officials hold the cargo meant for Russia and inspect them per the company’s document reports. The air freights to Ukraine and Russia have also been suspended.
Rachel Potts, the spokeswoman of Caterpillar, declined to comment.
On March 9, Caterpillar said that it was suspending its operation in its Russian manufacturing plants. The company’s documents show that shipping through Russia has not stopped because it acts as a vital corridor for the global construction equipment producer.
Caterpillar suspended shipping machines and parts to its dealerships in Ukraine after Russia invaded it. As of now, anything earmarked for shipping to Ukraine is stored in a warehouse in Belgium, where the dealers used to keep excess inventory before.
The revelation that Caterpillar is still using Russia as a transit route is abnormal as; usually, the company does not reveal too much about its good shipment in Asia, Europe, or another location.
The machines, equipment, and parts are used in the construction, oil and gas, and mining sectors. A significant concern for Caterpillar and its supplier and investors was that Russia could cut access to road and rail routes between Europe and U.S. Another worry for Caterpillar was the higher shipment costs from circuitous routes resulting from tighter sanctions.
The pandemic-related crisis of the global supply chain forced Caterpillar to shift a significant portion of the shipment via rail freight as ocean freights became costlier.
Ballooning commodity prices, especially industrial metals, could offset shipping costs as Mining companies resorted to using the cash to upgrade aging equipment. The Caterpillar Mining Construction equipment’s business segment registered substantial profit margins and accounted for almost a fifth of the total sales last year.
Caterpillar Inc.’s annual revenue for 2021 was $51 billion, growing more than 20% from its previous year as economies opened after the pandemic. According to the Chief Financial Officer of Caterpillar, Andrew Bonfield, China accounts for 5% to 10% of the company’s sales.
