Russia’s invasion of Ukraine now looks like it could really turn into a protracted war, making it more difficult to relieve the already severely blocked shipping. A supply chain consulting firm estimates that the war may double or even triple the high sea freight costs. Standard container freight from China may soar from the current range of US$10,000 to US$30,000, and air freight may be higher.
The Russian invasion of Ukraine has severely affected cargo ships crossing the Black Sea, a key route for oil and bulk food exports. Several ships have been fired or detained since the war began. Countries have begun imposing sanctions on Russian trade, including the United Kingdom banning all Russian ships from British ports, and the shipping industry and ports of Belgium, the Netherlands and Germany will also intercept and inspect cargo ships bound for Russia. The world’s largest shipping company Maersk, Japan’s ONE, MSC and Germany’s Hapag Lloyd have all announced they will suspend freight to and from Russia and Ukraine, affecting at least 47% of global container shipping.
Basically all Ukrainian ports are now closed, and ships are diverted to exacerbate the problem of port congestion in other European ports. According to Lloyd’s List, more than 200 ships were waiting to cross the Kerch Strait, the only waterway that connects the Black Sea and the Sea of Azov, this week.
It’s not yet peak season for the shipping industry, but there will be a major impact on the supply chain as companies start to ramp up their summer shipments. Some shipping companies offer other alternative routes. For example, Hapag-Lloyd, the world’s fifth largest container shipping company, will launch a Sino-German express service from April, connecting Shenzhen Dachan Bay Terminal to Hamburg, with a transit time of 27 days.
Maersk has also started to promote intermodal services, saying it can transport goods from Busan, South Korea, via the Trans-Siberian Railway to Russia’s Baltic seaport city of Kaliningrad, and then to the rest of the Baltic region in less than 20 days. By comparison, crossing the Suez Canal would take 60 days of ocean-going voyages, but services through Russian possessions could face new restrictions and risks of sanctions.
Global air transport is also affected, and Russia has closed its airspace to 36 countries. With longer routes and more fuel consumption, the conflict will negatively impact global air cargo capacity and increase air cargo prices, Flexport supply chain economists said.
Since about 41% of the world’s exports are in Asia, and Ukraine is one of the ancient trade routes between China and Europe, the war has disrupted the trade routes, and European countries are the most affected. Spot exchange rates for containers from Asia to Europe have soared, and now a standard container from China to Europe is asking $14,000 and shipping from China to the West Coast of North America is nearly $16,000.
The longer the Russian-Ukrainian tensions persist, the greater the impact on logistics across Europe. Maersk warned customers that this is a global impact, not limited to trade with Russia, and supply chains remain severely disrupted. “We worked hard to fix supply chains, and it took time, but after Russia invaded Ukraine, we ran out of time,” said Georgetown University professor and former U.S. trade official.