The horrors of the invasion in Ukraine cannot be overstated. Let it not be forgotten before we go any further with this article, that all of us at World Transport Agency (WTA) are praying a peaceful resolution to the war be found urgently.
It's clear the invasion of Ukraine has very real business consequences, which have been felt globally. Many as a direct result of the situation, others because of sanctions and trading relationship breakdown. This article will cover how the situation is impacting logistical supply chains for firms in all sectors.
Crude oil price increases
Naturally, the price of oil affects the costs on a business’ supply chain. Despite recent efforts to decarbonise transport, most cargo movement is still done at the expense of burning fuel.
At the start of the invasion in February, Brent Crude oil jumped to well over $100 a barrel and it has hardly dipped below in the months since. At the time of writing Brent Crude oil sits at above $110 a barrel, but this fluctuates day-to-day. It remains the highest price for almost 8 years. It is also roughly 40% more expensive than 6 months ago. You can check the very latest price here.
This price hike has now made its way down to increase costs for businesses in their supply chain. Airlines, carriers and hauliers are all adding higher fuel surcharges onto their rates. Some are even adding a war surcharge on top of that. It is up to individual businesses whether they burden these higher costs or pass them onto the consumer.
Unfortunately, the news gets even more bleak. Forecasters are not expecting the price of oil to drop much throughout the invasion. In fact, some suggest prices could climb even higher if emergency stocks are not released.
However in recent weeks, western nations have taken steps to improve oil supply from other nations and reduce reliance on Russia.
Wooden pallet shortage
Wooden pallets are the latest item essential to logistics which are suffering as a consequence of the war.
A lack of wood, manufacturers and rising production costs for pallet providers are exaggerating the challenges already caused by COVID-19. Additionally, Ukraine is a major exporter of pallets. Distributing around 15 million every year.
The price of a single pallet has reportedly risen from €7 to around €29.
Sea freight disruption
Regarding sea freight, the invasion has resulted in several unprecedented actions taking place.
Many of the biggest carriers have suspended bookings to and from Russia. Hapag-Lloyd, ONE and Maersk and MSC have all made the commitment.
Additionally, the UK has now banned all Russian flagged, owned, registered, or controlled ships from entering its ports. As part of their 5th package of sanctions, the EU and USA have now taken a similar measure. Russian-flagged vessels are banned from entering its ports accept in certain exceptional circumstances.
"We must all play our part to stand against an unprovoked, premeditated attack."
CEO of UK Major Ports Group Tim Morris told The Loadstar
With carriers moving to isolate the Russian market, an increasing number of logistics companies have followed. Some stating they will not serve the Russia in the current circumstances.
Dutch Customs meanwhile has taken the extra step of no longer supporting cargo to or from Russia.
But, all these moves could have benefits for other trade lanes. Redeployment of the Russia - Europe capacity onto other routes may ease rates and congestion. But many regard that as wishful thinking.
Air freight disruption
Economic sanctions implemented have markedly harmed air freight. As nations look to isolate Russia economically and Russia themselves install counter measures. The result for businesses is the same, increased cost.
For safety reasons all airlines are avoiding Ukrainian airspace, which is causing disruption. Flying over Ukraine is the most direct route for many European countries bringing goods in from the Middle East.
Canada and 27 European countries, including the UK and EU, have also banned any Russian airplanes from their airspace. It means Aeroflot and other Russian airlines effectively have a blanket no-fly zone to the West. Russia meanwhile have reacted with similar counter measures. Giving British Airways and others a huge no-fly zone to the East. However, almost all airlines have suspended flights to Russia anyway at this point, but not UAE carrier Emirates yet.
The US has also adopted a similar measure, banning Russian airlines from flying overhead.
As you can imagine, having these airspace restrictions damages the efficiency of air freight and adds cost. How much cost depends on how much of a diversion goods must take between airports. For example, the major European - China route would usually involve flying over Russia. But for many airlines this is not possible at present, so the rates are soaring for that traffic. As is being reporting in many news outlets.
The loss of Russian and Ukrainian cargo aircraft will also exaggerate the shortage of planes. Taking a percentage of world capacity out the market will put further pressure on rates in the weeks ahead.
Rail freight disruption
It is well known that almost all the rail freight between China and Europe travels through Russia. 50% of it then goes through Belarus, with another significant percentage moving through Ukraine.
Sanctions have been placed on Russian Railways, so most European forwarders have suspended booking through the country.
Chinese forwarders are keen to ease uncertainties. Pointing to the nation’s strong relationship with Russia as a reason for rail freighters to feel reassured. But that has not eased the feeling from western businesses as conflict in Ukraine continues.
There is also a possibility of Moscow implementing a go-slow or complete freeze on rail cargo. A decision which would have disastrous consequences for any European importer with goods in the country at that time.
Road freight disruption
As you would expect, the price of fuel is putting huge pressure on hauliers globally. Many hauliers are putting emergency fuel surcharges to cover their escalating costs.
Russian and Belarusian road freight hauliers have also been targeted by the EU's 5th package of sanctions. Barring them from operating in the 27 member states other than in exceptional circumstances.
EU countries, as well as Norway, Ukraine, and the UK, have been banned from using road freight transportation in Russia from 10th October 2022.
Put simply, the economic sanctions placed on Russia are on a scale never seen before. It is not only political leaders making changes either. Businesses are making individual choices about their operations in the Russian market. There are regularly new announcements and this page will be updated regularly to keep up with the latest changes.
Cooperation between the trading blocs has unravelled. Business leaders must be proactive to minimise disruption to their supply chain.
