The geopolitically volatile situation caused due to Russia’s invasion of Ukraine has wreaked havoc on global supply chains, particularly, container shipping. While on one hand, the crude oil prices are on the verge of exploding to more than USD 100 a barrel, on the other hand, prices of tankers and dry bulk are also predicted to skyrocket. However, though of lesser intensity, there ought to be a deep impact on container shipping too. Though the prices are secondary, the primary concern is about container pile up at certain Russian and Ukrainian ports, leading to another wave of container shortage and increased freight rates.
Due to ongoing disruption to shipping in the Black Sea we expect container build-ups at ports to exacerbate at storage areas across the region. Overall, the situation for container availability is likely to worsen, but this will vary by port and region. Central and Northern Europe is already congested, and any further trigger to the cargo flow will only worsen the state of container pileups.”
~ Christian Roeloffs, Container and CEO, Container xChange
- Russia-Ukraine War: Two cargo ships down, one seafarer killed
- Global shipping giants Maersk, MSC and CMA CGM suspend deliveries to Russia
- China-Europe trade starts to feel the impact of Russia-Ukraine conflict
Recently, the United States also issued blocking sanctions against various Russian entities, birthing the possibility of energy exports as the target of the next set of sanctions. If that happens, the outcome may involve a reduction in the number of tankers from the global charter markets, pushing freight rates far beyond the horizon. During a roundtable earlier this month, attorneys at iconic US law firm, Seward & Kissel, speculated on how such energy sanctions might play out.
For the shipping industry, the biggest focus is going to be the energy sector and in particular, the state-owned entities that have largely escaped major U.S. blocking sanctions.”~ Andrew Jacobsen, Associate, Seward & Kissel
The Black Sea, being instrumental as a transit point for dry bulk exports, exported 111.2 million tons of cargo in 2021 and became the largest grain exporting region for both Russia as well as Ukraine. According to Roeloffs, “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 Ukrainian seaports of Odesa and Mariupol are closed/damaged/under attack. Trade and container movements have ceased. Cargo and equipment are stuck at ports. Also, Russian and Belarussian ports in the Baltic and the Black Sea will likely see a build-up of boxes if carriers refuse to make port calls due to the security situation and sanctions.”
On the other hand, logistics software vendor Project44, tracked a 35% decline in vessel traffic to and from Russian ports since sanctions against the country began in late February.
In 2017, a Russian cyber-attack took a heavy toll lasting more than a week on shipping line leader Maersk, even though it was a supposed ‘collateral damage’. In today’s time, when more than 90% of the world’s cargo moves via ocean and over 70% use container logistics, such a situation will be manifold more crippling than it was in 2017.
The situation now is markedly different than in 2017. In 2017, we could essentially lose the largest carrier in the world for a week and it didn’t cause any major problems in the supply chains. There was plenty of buffer capacity: ships, terminals, everything. Right now, we have literally zero buffer capacity. We have insufficient ships because they’re caught in queues. We have ports and terminals that are horribly congested.”~ Lars Jensen, CEO, Vespucci Maritime
He added, “If — and I stress if — all the ports and terminals have done their jobs very well and boosted their cyber defences over the last five years, it still doesn’t render them impermeable, but they will have a good backup plan, which means they could be fully up and running again in two, three or four days. But think about that in the current environment. Just taking one major port out of action for two or three or four days, on top of what we are already dealing with, will have major global ramifications on the supply chain.”
As a risk mitigation measure, the world’s 3 largest shipping lines – AP Moller Maersk, Mediterranean Shipping Company (MSC) and CMA CGM – on Tuesday, announced a suspension on all shipping services to and from Russia (including Baltic, the Black Sea and Far-East Russia), with an exception to essential and humanitarian aid commodities. Following the announcement, many other companies have decided in favour of the motion.
To conclude, and quote Glenn Koepke (GM Network Collaboration, FourKites), the Russia Ukraine war is expected to have a long term impact on the global container logistics and “Ocean rates could double or triple due to the invasion, surging from $10,000 per 40-foot container to $30,000.”