Beyond the human tragedy, the war in Ukriane is impacting freight and supply chains in multiple ways, from higher fuel costs to sanctions and disrupted capacity, according to cargo marketplace Freightos.
For logistics, the most widespread impact across all modes will likely be rising fuel costs. As oil prices soar, expect carriers to pass increased costs on to shippers.
- Rising oil prices due to the war in Ukraine is expected to increase freight rates across all modes soon.
- Airspace bans are reducing Asia-Europe capacity through grounded Russian carriers and canceled flights.
- Many carriers that continue to fly will have to circumvent Russia – shippers will carry the additional fuel costs and find less available cargo capacity on these flights due to the extra weight of the added fuel.
- Reduced capacity, higher fuel costs, as well as some War Risk Surcharges are already pushing air cargo rates up: Freightos Air Index China – Europe rates climbed more than 80 percent last week to $11.36/kg.
- Diverted ships and ocean carriers suspending new bookings to Russia could result in congestion at alternate ports in the region and in pile-ups at origin ports in Europe and elsewhere.
Container rates were stable this week, Frieghtos reports, but are expected to climb globally on rising fuel costs, and shipments in the region could also face War Risk Surcharges.
If sanctions or fear of disruption shifts significant numbers of containers from Asia-Europe rail to ocean, this new demand will also put upward pressure on Asia-Europe ocean rates.
- Asia-U.S. West Coast prices (FBX01 Daily) increased 4 percent to $16,155/FEU. This rate is 204 percent higher than the same time last year.
- Asia-U.S. East Coast prices (FBX03 Daily) climbed 2 percent to $18,250/FEU, and are 218 percent higher than rates for this week last year.
Ripples from the war are disrupting air cargo – especially Asia-Europe operations – in several ways beyond rising oil prices, Freightos reports. Fighting has grounded much of the Ukrainian Antonov freighter fleet, removing that capacity from the market, and has destroyed the world’s largest freight aircraft. But the bigger disruption will come from the European Union, U.S. and multiple other countries banning Russian air carriers from using their airspace – and Russia returning the favor (they are expected to ban U.S. carriers soon).
This development effectively removes the Russian all-freighter carrier AirBridgeCargo from the European market, including its Asia-Europe capacity. Without being able to fly over Russia, some carriers may cancel their Asia-Europe services, further restricting already tight supply.
European, American and other carriers who do fly will take alternate, longer, more costly routes. Carriers will pass along the additional fuel costs, and the weight of the additional fuel could also reduce the amount of cargo they can carry, further reducing capacity. Some carriers are also already introducing War Risk Surcharges to compensate for the costs of adjusting operations. Cargolux, for example, announced a $0.20/kg surcharge for all their Asia cargo.
These multiple factors reducing capacity and increasing costs for shippers were already reflected in climbing Asia-Europe air cargo rates at the end of last week. Freightos Air Index (FAX) data shows China – Europe rates climbed more than 80 percent last week to $11.36/kg.
On the regional level, most ships near Ukraine were diverted to alternate nearby ports at the outset of the hostilities, Frieghtos reported. Many of the top ocean carriers have also suspended new bookings to or from Russia. These developments could increase volumes at other regional ports and are already resulting in pile-ups at origin ports in Europe and elsewhere, possibly causing congestion and increasing rates on these lanes.
As container rates were stable this week across most major lanes, the conflict has yet to be reflected in ocean prices. But in addition to higher fuel costs from climbing oil prices that are expected to be felt by shippers across the globe, carriers who continue to service ports in the region may introduce War Risk Surcharges for these shipments. Ocean WRSs in recent years meant an additional $40-$50/TEU for shippers.
Also, approximately 10k TEU travel across Russia by rail from Asia to Europe each week. If sanctions or fear of disruption shifts significant numbers of containers from rail to ocean, this new demand will also put upward pressure on Asia-Europe rates as more shippers compete for already scarce capacity.
Finally, multiple examples in the last few years prove that logistics providers are not immune to cyber attacks. If Russia deploys these types of measures on the supply chain in response to tightening sanctions, they will only further disrupt operations, resulting in further delays, less capacity and higher costs.