Importers from London to Warsaw will face higher shipping costs, more and many sanctions hurdles to navigate as a result of Russia’s assault on Ukraine, complicating the movement of cargo between Europe and Asia.
President Vladimir Putin’s invasion, and retaliatory measures aimed at crippling the Russian economy, are piling disruption on supply chains that have not recovered from the unprecedented disruption caused by the pandemic. Beyond the devastating human cost, the war threatens to drive up the costs of fuel, grain, industrial metals and other raw materials used in Asian-made consumer goods headed to Europe and elsewhere.
Mediterranean Shipping Co. and A.P. Moller-Maersk A/S, the world’s largest container carriers, suspended cargo bookings in Russia, and Maersk warned customers Wednesday that “the impact is global and not limited to trade with Russia.” It’s not a good sign for European economies already facing energy spikes, commodity shortages, clogged ports and the highest inflation since the creation of the common currency more than two decades ago.
“There is still substantial disruption in the supply chain,” said Jennifer Hillman, a Georgetown University professor and former U.S. trade official. “There is an effort to build resilience, but that will take time. With Russia invading Ukraine, we don’t have time.”
Aside from their commodity exports, Russia and Ukraine are not major global traders. Russia is the world’s 16th largest commodity exporter, led by oil, coal and gas. Ukraine ranks 48th, led by shipments of grain and iron ore, according to 2020 data from the World Trade Organization.
But they are located along one of the world’s oldest trade routes, one that China has sought to use for its Belt and Road initiative and a route where much of the airspace is now restricted. Meanwhile, container ships are unable to access Ukrainian ports and many are trying to avoid those in Russia.
According to Jan Hoffmann, director of trade logistics at the United Nations Conference on Trade and Development, there is now barely enough spare shipping capacity to move globally traded goods and absorb even an isolated regional shock.
“There is no slack in the system, so anything that holds up ships anywhere will lead to less capacity,” Hoffmann said.
For freight transport between Asia and Europe, the Russian rail network – second only to the United States and China with its 87,000 kilometers of track – is another possible option.
Both Maersk and DB Schenker, the logistics unit of German national rail operator Deutsche Bahn, offer intermodal services – by sea from Asia, and then over Russian rail lines to Europe – but even these are suffering from new restrictions and concerns about sanctions.
“The most important risk is from sanctions,” says Peter Sand, chief analyst at Xeneta, an Oslo-based freight market analysis platform. “That means higher prices for bulk shipping, which will make trade and shipping more expensive worldwide.”
There is already anecdotal evidence of train disruptions. Network equipment maker Zyxel Communications Corp. has stopped shipping from China to Europe by rail as the conflict threatens to hinder a key overland route.
Zyxel, a router and switch maker controlled by Taiwan’s Unizyx Holding Corp, suspended freight through the China Railway-operated link about three days ago, President Karsten Gewecke said.
In Asia, some international shipping lines are adjusting their schedules and the dispute means that disruption of freight deliveries is inevitable, according to Gary Lau, chairman of the Hong Kong Freight Forwarders and Logistics Association.
“The longer the tension lasts, the greater the impact on the entire European logistics chain,” Lau said.
Manufacturing executives such as Ricky Chan, whose Hong Kong-based company makes auto parts, such as door handles and mirror housings, for customers around the world, said the crisis may add to the transportation constraints the company was already juggling before the crisis began.
Even before the crisis began, Bloomberg Economics estimated that the logistical constraints of Chinese manufacturers appeared to be the most severe on record. The United Nations estimates that about 41% of global exports come from Asia, making it the factory of the world economy.
“This is a time when companies will stop taking their supply chains for granted and consumers will start to understand the costs and inconvenience of meeting their demands,” said Chris Rogers, supply chain economist at Flexport Inc. in London.
