Fragile supply chains are facing a new headwind amid Russia’s invasion of Ukraine and a new COVID-19 lockdown in one of China’s manufacturing hubs.
Shipping giants including Switzerland-based MSC, Denmark’s Maersk, and France’s CMA CGM announced this month that they would halt cargo bookings to and from Russia until further notice, joining the growing list of companies to shun Moscow over its invasion of Ukraine.
And on Tuesday, after Russia signed a law enabling domestic airlines to keep planes leased from foreign companies, Maersk announced that it’s trying to retrieve tens of thousands of shipping containers from the country.
“We have about 50,000 of our containers in Russia today,” Maersk Chief Executive Soren Skou said. “Most of them are empty, they are our property. We need them, and we are very reluctant to leave them in Russia. For this reason, we still have some port calls in Russia.”
At the same time, Russian-owned and Russian-managed ships are currently unable to get into ports in the UK, Canada, and the EU while more than 100 ships and their crews are stranded at Ukrainian ports since Russia’s invasion.
“All of that is happening, and it’s leaving all these vessels traveling around the world with cargo already on board, with crew already on board, leaving them in complete no man’s land,” Elisabeth Braw, a senior fellow at the American Enterprise Institute, recently said on Yahoo Finance Live (video above). “Where are they supposed to go with their cargo? They can’t deliver it. They can’t pick up the new cargo. And of course, Ukraine’s ports are already closed and a number of ships are stuck there … I wouldn’t want to compare it with the absolute tragedy that’s facing the people of Ukraine but nevertheless, complete chaos for the shipping industry.”
Overall, ocean dwell times (the time it takes to secure the shipping vessel, discharge, or load the cargo) increased in recent weeks. Export dwell times across all European ports increased by 36% since February 17th, while Transshipment dwell times for European ports up 41%, according to real-time supply chain visibility platform FourKites.
Furthermore, new lockdowns in various provinces across China means that “the supply chain must prepare for another turmoil in the coming months, impeding the flow of container movement as importers worldwide prepare for the coming peak season later this year,” Container xChang, a global logistics company, said in a statement on March 14.
No industry more transnational than shipping’
Companies and economies around the world are reeling because of the effects of these supply chain disruptions.
“If we think about what global shipping does for the global economy, the globalized economy is unthinkable … without shipping,” Braw said. “Shipping accounts for 90% of trade that is being sent between different parts of the world. If shipping can’t continue as it has been working until now, then we will see a reduction in economic activity.”
Carriers like KLM Royal Dutch Airlines and United Parcel Service (UPS) are filling their planes with pricier fuel for longer Asia routes to avoid Russia due to airspace closures. Meanwhile, jet fuel prices have skyrocketed by more than 35% in the past month and 75% in the last 12 months — which in turn is putting a squeeze on airlines.
Those higher transportation costs are likely to get passed along to consumers as it gets pricier to ship everything from manufacturing to perishables like imported cheese and fruit.
“There is no industry more transnational than shipping because it physically crosses borders, maritime borders, every single day of the year,” Braw said.
Recent data shows that overall Russian import volumes for the week of March 2nd-8th were down 40% from the week of Feb 16th-22nd. That decrease has been felt across industries— with manufacturing, chemical, oil, and gas down by 33%, retail down 35%, and consumer packaged goods (CPGs), Food and Beverage (F&B) down 57% over the same period.
The International Chamber of Shipping — which represents 80% of the worlds merchant fleet — warned on Thursday that current supply chain disruptions are set to be worsened by a shortfall in shipping crew due to the war.
And then there is the actual manpower: Ukraine and Russian seafarers account for 14.5% of the global shipping workforce, according the Chamber.
“To maintain trade levels, these seafarers must be able to join and disembark ships (crew change) freely across the world,” the Chamber said in a statement. “However, flights have been cancelled to and from the region, making this increasingly difficult. Fears over crew safety and increasing insurance premiums to send ships to Ukraine or Russia have also discouraged shipowners from sending vessels to these countries. Industry has reported that some crews have abandoned their ships in Ukraine due to security worries.”
Source: Yahoo Finance