How Sanctions Affect Polish Production Companies

Disappearing Raw Materials and the CN Code Problem

In March 2024, one of our clients from near Radom, producing components for agricultural machinery, faced a sudden challenge. 14 tons of specialized steel got stuck at the border due to a change in the interpretation of CN codes in a new package of restrictions. This shows that sanctions are not just big politics, but primarily bureaucracy that hits a specific workshop and a specific hall. The cost of downtime in this case was exactly 4,800 PLN for every day, which generated a loss of around 52,800 PLN over 11 days of blockade. Facts are that many companies relied on raw materials 23% cheaper than those available on Western markets, which is now painfully reflecting on margins.

Currently, the verification of each shipment takes customs officers an average of 4.2 business days longer than two years ago. If your company uses wholesalers that do not provide the exact origin of the metal, you risk cargo seizure. At Vistula Risk Solutions, we encountered 9 cases in the last six months where a Polish manufacturer was accused of circumventing restrictions simply because their supplier from Turkey imported semi-finished products from the wrong source. We act fast because time is capital, so we suggest every production director check certificates of origin back at least 7 months to avoid an administrative fine that could reach up to 82,000 PLN.

Sanctions are not just politics. It is a specific 14 tons of steel that did not arrive at your production hall this Tuesday.

Searching for Alternatives in Southeast Asia

Moving orders to Vietnam or India seems like a logical step, but it involves a trap rarely mentioned in the media. The real delivery time for samples from these directions is from 19 to 34 days, which is a death sentence for a company producing in a 'just-in-time' model. In June 2024, we helped a medium-sized plastics company verify 3 new suppliers from Taiwan. It turned out that only 1 of them was able to maintain the ISO 9001 standard while keeping the price no more than 12% higher than previous rates. This shows that changing the supply chain is a process of at least 4 months of intensive operational work.

Turning to Asian markets also requires a new payment structure. Banks in Poland, after recent fines imposed on European institutions, check every transfer to Asia for an additional 3.5 business hours. For a small accounting department in a Polish production company, this means the necessity of preparing a stack of documents that no one had required before. Remember that we save liquidity, not paper, so we suggest simplifying internal procedures before sending the first order to a new region. We saw cases where 87,000 euros were frozen in a correspondent account for 24 days simply because the ship name appearing on the invoice was on an outdated watch list.

Bank Verification and Payment Bottlenecks

The liquidity problem often starts in the bank's compliance department, not in the business itself. Last quarter, 12 of our clients reported that their transfers to electronic component suppliers were rejected without a specific reason given. Only after 6 business days was it possible to establish that the bank considered simple PLC controllers as dual-use goods. This is a classic example where a lack of precise technical documentation on the part of the Polish importer stops production for weeks. At Vistula Risk Solutions, we have developed a transaction description scheme that shortens bank verification time from 5 days to about 14 hours.

It is also worth paying attention to the rising costs of insuring foreign transactions. Rates for production companies operating in 'sensitive' sectors have increased by an average of 31% since the beginning of 2024. If your margin on the finished product is 14-16%, such a jump in fixed costs can make a given contract non-profitable. We saw a situation where a company from Greater Poland had to terminate 3 long-term contracts because the cost of logistics and insurance consumed all the profit. To be honest, sometimes it is better to give up one large order than to risk the bankruptcy of the entire plant due to one poorly verified shipment of components subject to restrictions.

We save liquidity, not paper. If the bank freezes your funds for 6 days, it means your compliance department needs changes.

Stockpiling Inventory as a Defensive Strategy

In the face of unstable supplies, Polish manufacturers are returning to the model of stockpiling inventory, which is the negation of modern production management, but the only way to have peace of mind. A window production company near Poznań invested in a 450-square-meter warehouse in December 2023 just to store hardware imported a year in advance. The cost of renting and maintaining this warehouse was 11,400 PLN monthly, but thanks to this, they avoided 3 downtimes that would have collectively cost them 124,000 PLN in lost orders. Facts, not forecasts — this is the only path to stability.

Stockpiling inventory, however, requires free cash. At Vistula Risk Solutions, we help companies restructure their current working capital loans to free up funds for such 'safe purchases'. It often turns out that changing the repayment schedule by 2 months allows financing a container of raw material that will be available in half a year. We are not the cheapest on the market, but our advice is based on hard numbers. For example, optimizing storage costs for one furniture manufacturer allowed them to recover 23,600 PLN per quarter, which exactly covered the costs of additional insurance for shipments from China.

Legal Actions and Board Safety

The most important, and often overlooked, aspect of sanctions is the personal liability of board members for non-compliance. In Poland, the law is exceptionally strict on this matter and does not accept the 'I didn't know' excuse. Since the beginning of 2024, we have conducted audits in 18 companies where we discovered that internal procedures were copies of documents from 6 years ago. In a world where sanction lists change every 3-4 weeks, this is asking for trouble. Our recommendation is simple: designating one person in the team who will devote 2.5 hours every Monday to updating supplier databases.

Remember that we act fast because time is capital. If your company receives an inquiry from the National Revenue Administration, you usually have only 7 days to present full documentation of the goods' origin. Without ready procedures and a binder with certificates, the chances of avoiding a fine are close to zero. Being honest: we won't help you if you have already broken customs law, but we can prepare your company so that an audit ends in 3 hours without any objections. Last year, we went through 7 such audits for our clients and in each case, the documentation prepared by VRS was indisputable.