After a difficult couple of years for logistics service providers and supply chain managers, we are now scrambling to keep the global supply chain intact as major changes swiftly occur. These abrupt actions trigger the question of what we can expect for global shipping as a result of the Russia-Ukraine conflict.
A brief overview of what has happened in just 1 week
Russian forces invaded Ukraine on February 24th. The attack triggered a quick and harsh response from many of the most powerful nations across the world. Almost immediately, we are seeing the effects along the global supply chain.
With allied nations imposing harsh sanctions on Russia and the outbreak of fighting in 2 major trading countries, there is already disruption along supply chains. Sanctions of course affect the activity of importing and exporting and the fighting itself has caused major damage and chaos within the Black Sea.
Ocean freight and port activity in Europe
The Black Sea is an important route for transporting bulk food exports and oil. Cargo ships that transit the Black Sea have experienced direct and severe impact. At least 3 ships have been hit by missiles and more being detained. With the imminent danger of being in the Black Sea and the shutdown of the Port of Odesa, Ukraine’s largest port, all other vessels have had to reroute.
Over 200 ships are waiting to cross the Kerch Strait as of Monday, according to data from Lloyd's List.
On top of UN sanctions on Russia, shipping executives, port officials and politicians of the UK and the European Union have also taken a stand against Russia through port activity. The UK has banned all Russian ships from entering its ports. And cargo ships coming from Belgium, Holland, and Germany which are destined for Russia are to be stopped and inspected.
The reaction of shipping lines
In response to allied sanctions against Russia, the world’s largest shipping companies have also taken action. Maersk, ONE, MSC, and Hapag-Lloyd have temporarily suspended shipments to and from Russia and Ukraine. According to Business Insider, this is a move that will impact at least 47% of global container shipping.
Maersk is “focusing on safeguarding types of containers and cold chain operations that include important goods such as groceries and pharmaceuticals”. While a Hapag spokesperson said their actions are “due to the developments we have seen last week and to ensure we comply with any sanctions imposed”.
Impact on Airfreight
With sadness, we say goodbye to the world’s largest airplane, unfortunately, caught in the crossfire. Furthermore, global air freight is also experiencing disruption. As of yet, Russia has closed its airspace to 36 countries. Cargo planes are therefore forced to find new routes.
What can forwarders, shippers and consumers expect as a result of this conflict?
As vessels reroute, the congestion problem at other ports becomes more intense, especially at the ports in Northern Europe. So already we can expect more congestion and delayed deliveries.
Fuel prices are already hiking. And in terms of freight rates, many industry experts are predicting a sharp increase in already historically high freight rates, both in ocean and air.
“Ocean rates could double or triple due to the invasion”, according to the general manager of network collaboration at FourKites, a supply chain consultancy firm. The New York Times reports, “shipping rates could surge from $10,000 per 40-foot container to $30,000.”
We’ll likely see a jump in air freight rates as well. Problems with global air freight capacity will increase air cargo prices as cargo planes are forced onto longer routes and spend more money on fuel.
We can expect that the consumer will be the one to foot the bill for additional transportation costs. So expect higher prices for goods and a further increase in inflation.