A quick read on the ramifications of the conflict on all the four modes of transport
Out of the pandemic; Into the war
Just when we got some respite from the threatening pandemic, there came the news of the Russian invasion. Soon, the threat of this invasion became so huge that its ramifications were begun to be seen on global trade. News of the Russian forces cutting off shipping routes, Ukrainian air space being stopped for civilians, and Ukrainian ports being closed, have upset many economies already.
The closure of shipping in and out of the Sea of Azov — one of the few access points to ocean trade in Ukraine — has created a heavy buildup of vessels. The carriers that have suspended services in Russia constitute nearly 62% of the total ocean freight capacity.
“We’re in for record backlogs and delays while experiencing some of the highest prices on record for transportation and beyond.”
Dylan Alperin,
Head of professional services at supply chain software platform Keelvar
The economists opine that this war and the consequent sanctions are leading to reorganisation of sailing and air freight schemes, a spike in cargo costs and delay of cargo movement. All of these effects imply a greater weakening of international trade after the pandemic.
The above information certainly presents a bleak picture of international trade, spelling unpleasant news for the global logistics industry. But what kind of impact are we expecting on the logistics industry across all the modes — air, sea, rail and road? Let’s take a look.
Impact on airfreight
The suspension of all flights to/from Ukraine and most flights to/from Russia has led the airlines to take detours via the southern route. Consequently, flight durations have increased, and costs of commodities shipped have increased drastically owing to surcharges.
At the same time, air cargo capacity has begun to decline while rates surge. The surging fuel costs and rising uncertainty of the conflict are elevating the rates. And, these rates will continue to remain elevated till the conflict eases.
Impact on ocean freight
In the midst of the conflict, all major carriers, such as Maersk and MSC have suspended operations to/from the affected territories. All floating cargo bonded to Ukraine has been redirected to neighbouring ports of Romania, Lebanon or Greece. Similarly, re-routing of Russian-bound cargos and extra customs inspections for dual-use goods have worsened port congestion in Europe.
Not only is the ocean freight insurance soaring, but the skyrocketing fuel costs are adding to the misery. Around 15% of seafarers are Russian and Ukrainian. The blockage of ports may cause labour shortages on vessels and other operational challenges, further pressurizing the ocean freight.
Impact on rail freight
In 2021, 1.46m Twenty-foot Equivalent Units (TEUs) of cargo was shipped by train between China and Europe. Rail freight helped to alleviate port congestions in Europe. Around 4% of China-Europe rail freight transited via Russia (the Trans-Siberian route) and 2% via Ukraine.
In the midst of the conflict, routes via Ukraine stopped, while routes via Russia and Belarus run the risk of being blocked. There is a risk of the European exports of grains and dairy products hauled via China-bound rail being curtailed if the situation worsens. The overall missing rail volumes will also exacerbate the container shipping capacity and port congestions in Europe.
Impact on road freight
In 2020, Russia accounted for 10.7% of EU road imports and 7.8% of exports by volume. The Ukrainian borders are closed for road freight. While the Russian borders are open, many transporters have chosen to cease operations. Also, there is no commitment on lead times.
With the exclusion of Russia from the SWIFT payments system, trade transactions have become difficult. Additionally, logistics costs, supply chain disruptions, rising gas and electricity prices are worsening road transportation.
Conclusion
On one end, there are known issues, such as fuel cost surges, suspension of movement, re-routing of movement, and lower availability of labour, which have impacted international freight. On the other end, there are massive uncertainties across all areas of logistics, such as sanctions on countries backing Russia, which could further impact the logistics industry. With every passing day, there is a risk of global logistics systems undergoing radical changes owing to the trading map being redrawn. The worse has already unfolded. The worst impact can be imagined, but we hope the conflict eases on both the borders and the logistics industry returns to normalcy at the earliest. The pandemic has proven to humanity that when the going gets tough, the tough get going.
