Global shipping fees skyrocket due to Russia-Ukraine conflict
Companies increase charter rates, raise prices for air freight, and even impose a war risk surcharge due to the tension.
The Russia-Ukraine conflict is causing serious disruption to sea and air transport around the world. Supply chain companies say Russia has closed many shipping routes, logistics firms have stopped providing services there, and the cost of air freight is skyrocketing.
Dylan Alperin, service director at supply chain management software firm Keelvar, said the Russian navy has blocked access to the Sea of Azov, one of the gateways to seaborne trade in Ukraine. "This has caused a steady increase in the number of ships waiting to pass through the Kerch Strait. Since 70% of Ukraine's exports are by sea, the congestion is getting worse by the hour," he told CNBC.
Christian Roeloffs, CEO of container shipping company ContainerxChange, said: "Several areas of the Black Sea and the Sea of Azov are in a dangerous or impassable state. Many ships have been attacked with missiles and seized. The route for commercial transport is also closed."
Skyrocketing prices
Containers at the port of Odessa (Ukraine) 2016. Photo: Reuters
As Ukrainian airspace closes to civilian flights and airlines avoid Russian airspace, air freight rates are skyrocketing, business owners say. The total length of global air transport routes has been shortened by 10 million km”, said Mr. Alperin, “As aviation handles only about 20% of the cargo transported, this will further reduce the capacity of firms”.
When airlines avoid Russian airspace, they will have to choose longer alternative routes, driving up fuel costs, said Judah Levine, research director at freighter Freightos Group. In addition, higher oil prices will further bleak the outlook for carriers, Alperin said. "We forecast inventories and delivery delays to record levels. So will freight rates," he said.
Levine said air freight rates from China to Europe tracked by the Freightos Airline Index rose more than 80 percent at the end of February, to $11.36 per kilogram. Some airlines even impose a war risk surcharge.
On CNBC, the companies said that shipments were delayed because the ports of Odessa and Mariupol in Ukraine were closed or attacked. Odessa is Ukraine's largest port and the country's major grain export port. Moreover, Mariupol is an important port city and industrial center of the country.
Bindiya Vakil, CEO of supply chain risk management firm Resilinc, said some insurers have increased fees for goods delivered on the Black Sea. Many logistics companies have stopped shipping goods from Russia to Ukraine and vice versa. Ocean carriers also avoid the Russian market. DHL said it was closing its office and stopping operations in Ukraine. UPS stopped service in Ukraine, Russia, Belarus.
Alperin said that the number of aircraft carriers decommissioned in Russia now accounts for 62% of total global ocean freight. Boat rental rates also increased rapidly, from 157% to 591%.
Stranded shipping crew
The International Chamber of Shipping (ICS) warned on Thursday that the supply chain disruptions are set to be worsened by a shortfall in shipping crew due to the war.
“To maintain this unfettered trade, seafarers must be able to join and disembark ships (crew change) freely across the world. However, flights have been cancelled to and from the region, making this increasingly difficult,” it said in a statement. It added that some crews have abandoned their ships in Ukraine due to security worries.
In February, the association, which represents 80% of global merchant fleets, said “the ability to pay seafarers also needs to be maintained via international banking systems.”
The United States, European allies and Canada have agreed to cut off key Russian banks from the interbank messaging system, SWIFT, which connects more than 11,000 banks and financial institutions in over 200 countries and territories.
“With the Ruble devaluation, a lot of Russian companies cannot afford to pay for merchandise that is in ships and it is going to cause a lot of abandoned shipments and unpaid debts for orders on the water,” said James Coombes, CEO at digital freight forwarder company Vector.ai. “Freight forwarders are going to get stuck with a lot of unpaid freight bills.”
Ha Thu (according to CNBC)
