Ukraine Invasion Having Global Impacts on Shipping

Wednesday 9/03/2022

As Russia’s invasion of Ukraine snarls regional logistics and rattles the global commodity market, ripples are spilling over into container shipping, resulting in more delays, less capacity and higher costs, according to experts.

The conflict in Ukraine, a country at the nexus of Europe and Asia, is weighing on ocean traffic between the two continents in particular, they said.

Though the world’s major shipping routes do not pass near Ukrainian ports on the Black Sea and Sea of Azov, which have been under attack or closed, some commercial vessels have been hit by missiles and congestion is building in the region as ships divert from their original paths.

Escalating sanctions on Russia have also added pressure to the global shipping network, which is already stretched with pandemic-related disruptions.

Top ocean carriers – including Maersk and CMA CGM – have suspended new bookings to and from Russia.

“These developments could increase volumes at other regional ports and are already resulting in pile-ups at origin ports in Europe and elsewhere, possibly causing congestion and increasing rates on these lanes,” said Judah Levine, head of research at Freightos, in a note last week.

“Customs authorities in the European Union are now inspecting all units to/from Russia transiting their terminals/ports to identify sanctioned and restricted shipments,” Maersk told its customers.

“This is a direct consequence of the sanctions, but there are also indirect impacts as all cargo is getting delayed and our transhipment hubs are getting congested, impacting our customers’ supply chains.”

“This is a global impact, and not only limited to trade with Russia,” Maersk said.

The biggest effect on shipping could come from the redirection of rail and air transport on the Asia-Europe route, industry insiders said.

The China-Europe Railway Express, which is a key logistical cog in President Xi Jinping’s Belt and Road Initiative and a critical pipeline for Chinese exports to Europe, is facing increasing uncertainty as sanctions are imposed on Russia and Belarus – two countries that most routes run through.

Freight Train – Unsplash

Around 10,000 twenty-foot equivalent units (TEU) of cargo travels across Russia by rail from Asia to Europe each week, according to Levine.

“If sanctions or fear of disruption shifts significant numbers of containers from rail to ocean, this new demand will also put upwards pressure on Asia-Europe rates as more shippers compete for already scarce capacity,” he said.

Lars Jensen, CEO of container shipping consultancy Vespucci Maritime, said shippers using the rail line are typically focused on speed and more willing to pay higher freight rates.

“If this cargo was to be redirected onto the ocean services it might price out some of the lower-value cargo on those vessels,” Jensen said in a LinkedIn post last week.

Air freight capacity across Russia and Europe has also been reduced, as the European Union, the United States and other countries ban Russian carriers from their airspace – and Moscow responds in kind, experts said.

“Without being able to fly over Russia, some carriers may cancel their Asia-Europe services, further restricting already tight supply,” Levine said.

“European, American and other carriers who do fly will take alternate, longer, more costly routes. Carriers will pass along the additional fuel costs, and the weight of the additional fuel could also reduce the amount of cargo they can carry, further reducing capacity.”

The reduction in capacity and increase in costs is being reflected in climbing Asia-Europe air cargo rates, though the impact on container shipping prices has not yet been felt, with container rates remaining stable last week, according to the Freightos Baltic Index.

But a surge in ocean freight rates is inevitable as capacity shrinks and climbing oil prices push fuel costs higher, analysts said.

“Carriers who continue to service ports in the [conflict] region may introduce War Risk Surcharges for these shipments,” Levine said, referring to a supplementary charge added to cover insurance premiums in war zones.

Information sourced from here.