Russian forces are shutting off shipping routes, logistics companies are halting services, and air freight and tanker rates are skyrocketing. Limited air capacity presents a double whammy for shippers, including the war and Covid-19 pandemic.
Credit: Brendan Hoffman
The Russia-Ukraine war is seriously disrupting shipping and air freight. Russian forces are shutting off shipping routes, logistics companies are suspending operations and air freight rates are shooting up, supply chain firms reported.
Russian naval forces have stopped shipping in and out of the Sea of Azov — one of the few entry points to sea trade in Ukraine, Dylan Alperin said, head of professional services at supply chain software platform Keelvar.
“This has created a heavy buildup of vessels waiting to get through the Kerch Strait. With 70% of Ukraine’s exports distributed via ship, the congestion is worsening by the hour,” Dylan stated.
Christian Roeloffs, CEO of container booking company Container xChange, said: “Parts of the Black Sea and the Sea of Azov are now dangerous or unpassable. There have been missile attacks on vessels and ship arrests and lane closures for commercial shipping.”
The crisis on the ground in Ukraine is severely fluid, and information from the area is tough or impossible to confirm.
“Multiple ships have been hit by munitions, seafarers have been killed and injured and seafarers of all nationalities are trapped on ships berthed in ports,” the International Chamber of Shipping warned on 10 March.
Supply chain organizations reported that cargo movements are at a standstill as the Ukrainian ports of Odessa and Mariupol are halted, damaged, or under attack. Roeloffs added that container movements have shut, which caused cargo stuck at the ports.
The port of Odessa is Ukraine is the biggest and most crucial grain export port. Ukraine is one of the biggest exporters of grains such as wheat, barley, and corn in the world. Russia and Ukraine account for about 29% of the global wheat export market.
Mariupol, a key port city and industrial center, has been bearing heavy shelling.
Russia’s invasion of Ukraine is now in its fourth week, and fighting goes on in major cities.
Skyrocketing Prices
Limited air capacity performs a double whammy for shippers. With airspace over Ukraine closed to civilian flights and airlines avoiding Russian airspace, air freight rates are escalating, according to the logistics firms.
“The flying ban has canceled many of these flights and removed 10 million miles of airspace from international freight routes,” Alperin said. “With airlines responsible for flying around 20% of cargo, this will dramatically decrease capacity provided by carriers.”
Judah Levine, head of research at freight booking firm Freightos Group, told that as airlines avoid Russian airspace, they will take the alternate, longer routes, as a result, jacking up fuel costs.
Record price spikes for oil will worsen the already terrible outlook for carriers because fuel costs rise, said Alperin. “We’re in for record backlogs and delays while experiencing some of the highest prices on record for transportation and beyond.”
Oil prices have been climbing for weeks and pushing up to record levels.
The conflict is disrupting air travel and pushing up air freight to record level.
Bindiya Vakil, CEO of supply chain risk management firm Resilinc, revealed that some insurers are also increasing premiums for shipping cargoes in the Black Sea.
Many logistics firms have also halted shipping to and from Russia together with Ukraine, whistl container shipping lines are avoiding Russia.
DHL informed that it has closed offices and suspended operations in Ukraine until further notice, while UPS said that it has stopped services to and from Ukraine, Russia, and Belarus.
Alperin indicated that the growing number of carriers that have halted services in Russia make up about 62% of total ocean freight capacity.
In the meantime, tanker rates have skyrocketed, with a spike from 157% to 591%, Alperin remarked.
Stranded Shipping Crew
The International Chamber of Shipping warned on 10 March that the supply chain disruptions are predicted to be worsened by a shortfall in shipping crew because of the Russia-Ukraine war.
Odessa port in Ukraine has been suspended due to the war.
Ukrainian and Russian seafarers contribute 14.5% of the global shipping workforce, the organization indicated.
“To maintain this unfettered trade, seafarers must be able to join and disembark ships (crew change) freely across the world. However, flights have been canceled to and from the region, making this increasingly difficult,” it stated. In addition, some crews have abandoned their vessels in Ukraine because of security worries.
“Fears over crew safety and increasing insurance premiums to send ships to Ukraine or Russia have also discouraged shipowners from sending vessels to these countries,” the association explained.
In February, The International Chamber of Shipping, which represents 80% of the world’s merchant tonnage, through membership by national shipowners’ associations, said “the ability to pay seafarers also needs to be maintained via international banking systems.”
The United States, European allies, and Canada have agreed to block key Russian banks from the interbank messaging system, SWIFT, connecting more than 11,000 banks and financial institutions in over 200 countries and territories.
Since the value of the Russian ruble drops, that’s also set to have other knock-on impacts.
“With the Ruble devaluation, a lot of Russian companies cannot afford to pay for merchandise that is in ships and it is going to cause a lot of abandoned shipments and unpaid debts for orders on the water,” said James Coombes, CEO at digital freight forwarder firmVector.ai. “Freight forwarders are going to get stuck with a lot of unpaid freight bills.”
Source: CNBC