Odesa’s port is Ukraine’s busiest and key grain export port. The country is a great exporter of crops; wheat, barley, and corn. Russia and Ukraine control around 29% of the worldwide wheat export market.
Mariupol, a major port city and industrial hub, has been heavily shelled.
The Russia-Ukraine war has the potential to have a long-term influence on supply chain tactics. Rising manufacturing output and supply chain execution costs will force challenging production and pricing decisions while decreasing manufacturing will lead to more price inflation.
Following are the ways the war in Ukraine will change the world logistics:
Prices are skyrocketing:
Shippers face a double whammy because of limited air capacity. According to the corporations, air freight charges are rising as Ukraine’s airspace is blocked to civilian flights and airlines avoid Russian territory.
The flying prohibition has canceled many of these flights and eliminated 10 million miles of airspace from international freight routes. Airlines responsible for carrying around 20% of cargo will significantly reduce carrier capacity.
Airlines will choose other, lengthier routes to avoid Russian airspace, increasing fuel prices.
Oil price records will exacerbate the already bleak picture for airlines as fuel prices climb. There will be record backlogs and delays, some of the highest prices in history for transportation and beyond.
Oil prices have been climbing for weeks and have reached new highs.
Many logistics businesses have also halted supplies to and from Russia and Ukraine, while container shipping companies have avoided Russia.
Many carriers have discontinued services in Russia, accounting for around 62 percent of overall maritime freight capacity.
Meanwhile, tanker rates have “skyrocketed,” rising from 157 percent to 591 percent.
Stranded shipping crew:
The International Chamber of shipping warned that the war’s shortage of shipping crew would worsen supply chain problems.
According to the report, Ukrainian and Russian seamen account for 14.5 percent of the worldwide maritime workforce.
Sailors must be allowed to join and depart ships (crew changes) worldwide to keep this open trade going. However, flights to and from the region have been suspended, making this increasingly challenging. Several crews had abandoned their ships in Ukraine owing to security concerns.
The US, its European allies, and Canada have decided to disconnect important Russian banks from the SWIFT interbank messaging system, connecting over 11,000 banks and financial institutions in over 200 nations and territories.
Other consequences are expected when the value of the Russian currency falls.
Many Russian enterprises will be unable to pay for items on ships with the fall in the currency. It will result in abandoning shipments and unpaid bills for orders on the water. Unpaid freight invoices will pile up for freight forwarders.
Disruption in Road Transport:
Russia represented a significant portion of EU road import (10.7 percent) and export (7.8 percent) volumes in 2020. Major road carriers have ceased operations in the two nations, but many smaller operators are still operating. However, no commitments on lead times have been made. Because of their flexibility, other road transport routes, such as those through Turkey and the Southern Caucasus, would most likely benefit from the current interruption. Drivers can’t work in the combat zone, posing a labor risk.
Disruption in Rail Freight:
2021 saw 1.46 million TEUs of freight moved by train between China and Europe, representing a 30% rise year over year.
Around 4% of China-Europe rail freight passed through Russia (through the Trans-Siberian route), and 2% passed through Ukraine. Routes through Ukraine ceased operations on March 7, while other ways (including those through Russia and Belarus) remain operational but face an increased danger of future disruption. Current Russian Railways sanctions do not apply to goods passing through Russia. The present conflict will also open up new options for alternate routes, such as the southern approaches through Turkey. However, their difficulty is to scale up swiftly in the face of possible bottlenecks in the Caspian Sea linkages.
If the situation worsens, European exports of cereals and dairy goods heading for China may be jeopardized. The overall lack of rail volumes will worsen the container shipping capacity challenge and port congestions in Europe.
Disruption in Air Freight:
Current developments add more complication to an already overburdened air freight sector. Air cargo capacity is down 10%, with prices increasing 2.5-3 times due to increased demand and decreased passenger plane cargo space. In 2020, Russia accounted for 2.3 percent of EU air imports and 1.0 percent of EU air exports. With the closing of Russian and Ukrainian airspace (resulting in diversions) and sanctions imposed on Russian-owned planes (such as the Volga-Dnepr), air freight capacity would fall while charges rise. Rates have already increased in response to uncertainty and rising fuel prices. Rates have already increased due to dangers and rising gasoline prices. Air cargo charges are projected to remain high. Rapid shipment of time-sensitive and high-ticket-priced food goods may be impacted.
Conclusion:
The Russian invasion of Ukraine complicated the world’s already strained supply chains. The crisis has resulted in rising oil prices, increasing transportation and manufacturing costs, and exports, including natural gas, precious metals, and wheat, which will harm businesses in various sectors.
