Russian sanctions hamper shipping even as pandemic pressure eases

Russian ships banned from docking in Britain. Cargo containers pile up in European ports. Air freight rerouted around Ukraine and Russia.

As the global economy was poised to emerge from the coronavirus pandemic, Russia’s invasion of Ukraine and global sanctions on Moscow are impacting logistics and supply chains, creating bottlenecks in the economy. strangulation in the transport of goods and goods and threatening new economic difficulties for countries and companies. near the conflict zone.

Shipping companies, marine insurance officials and industry analysts say the two-week war, combined with sanctions-fueled uncertainty, is causing ship backups in some ports and could lead to longer delays in shipments, especially in Europe.

The cost of transporting goods delivered by sea, land and air, which had already surged during the pandemic, is also under pressure as global oil prices rose above $130 a barrel this week.

“We thought we had a Covid rebound in January and February,” said Detlef Trefzger, managing director of Swiss company Kuehne + Nagel, one of the world’s largest transport companies, which delivers goods by ship, air. , rail and a truck. “But the Ukraine-Russia crisis is a huge setback,” he said, “and it will be a long-lasting setback.”

The most visceral blow is felt near the heart of the war zone, in the Black Sea.

More than 100 ships and their crews have been stuck in Ukrainian ports since Russia invaded Ukraine. Missiles hit several merchant ships and an explosion on or near an Estonian dry cargo vessel sank it 20 miles off Odessa, a Ukrainian port. The Russian and Ukrainian crew members all survived.

The risk has forced shipowners to pay an additional insurance premium of 1-5% of a ship’s value, said Marcus Baker, global head of shipping and freight at insurance broker and adviser Marsh McLennan. at risk. The insurance industry’s Joint War Committee expanded its high-risk zones to waters near Romania and Georgia this week after adding Russian and Ukrainian waters last month.

International Maritime Organization Secretary-General Kitack Lim told an emergency council session on Thursday that there were serious concerns about the safety and well-being of seafarers in the Black Sea and the Sea of ​​Azov, and that sailors could not suffer collateral damage in the military crisis.

The lockdown has reduced global grain supplies to one of the world’s biggest grain-producing regions, pushing up wheat prices on world markets and stoking the threat of inflation. Russia and Ukraine together account for almost a quarter of world wheat exports.

Problems around the Black Sea are just the tip of the iceberg, causing disruption in the logistics industry and putting pressure on global trade, analysts say.

Over the past two weeks, some European terminal operators have refused vessels carrying cargo for Russia, and hundreds of cargo containers bound for Russia have piled up at others.

Britain went further by announcing sanctions prohibiting Russian ships from entering its ports in order to “restrict Russia’s economic interests”. Around 20 ships have been diverted from UK ports, said Richard Ballantyne, chief executive of the British Ports Association.

Global ports were already facing bottlenecks during the Covid-19 pandemic – particularly in the United States, where dozens of ships were stranded off California due to on-hold warehouses and a shortage of truckers to break down freight across the country.

While the stalemate at European ports isn’t quite as bad, the sanctions, intended to punish Moscow without devastating Europe’s economy, change that calculus.

At the port of Rotterdam in the Netherlands, Europe’s largest seaport, some terminals have turned into a “parking lot” for hundreds of cargo containers bound for Russia, said Tie Schellekens, a port spokesman. .

Many containers stacked on the docks undergo lengthy customs inspections to ensure they are not carrying blacklisted items, such as aircraft parts or semiconductors. The piling is not disastrous, Mr Schellekens said, but to avoid further congestion, some port operators are refusing to accept ships carrying goods bound for Russia.

At the same time, he said, some European companies are not even trying to send goods to Russia for fear of breaching a sanctions list by Western allies that seems to be getting longer by the day. . Companies are also beginning to curtail production, fearing Russian customers will pay them for products shipped, in part because financial penalties are hampering payment mechanisms.

“This means that the effect of sanctions is broader than the sanctions themselves,” Schellekens said.

Mark O’Neil, President of Columbia Shipmanagement, a maritime service provider based in Cyprus, said the impact on cargo flow was significant.

“As soon as you impose sanctions and embargoes, and companies themselves block certain exchanges, then the ripple effects of additional checks inevitably lead to delays,” he said. “The maritime logistics element is a very well-oiled machine, and all it takes is a light petal tossed into the pond for the ripples to be felt extremely far.”

Bottlenecks are not just on the water. Sanctions against Russia are putting further pressure on an already tight air cargo capacity, leading to skyrocketing freight rates. With Russian airspace off limits to most carriers, and with the United States, European Union and Canada banning Russian planes from their airspace, the global air cargo market is rapidly squeezed, analysts said.

Flights between Europe and Asia in particular are to be diverted, adding three to four hours on some routes and requiring more fuel as the war pushes oil prices to record highs.

Russian carriers such as AirBridgeCargo and Aeroflot Cargo – two big players, carrying around a fifth of the world’s air cargo volume – have fallen sharply. While only 3% of global freight travels by air, air freight represents more than a third of global trade in value.

Land transport is also affected, as the conflict disrupts the main rail routes between the European Union and China, which slows down trade. Some companies have suspended rail freight between regions for fear of border disruptions. The sanctions also mean that European companies cannot work with Russian railways.

Trucking is not spared either. Kuehne+Nagel halted deliveries to Russia from Europe and China to avoid violating sanctions, Trefzger said. But the European trucking industry is also facing a new shortage of drivers, as tens of thousands of Ukrainian truckers return to Ukraine to join the fight against Russia, he noted.

This leaves many European businesses more dependent than ever on other means of getting their goods to customers. But conditions in the industry are likely to get worse before they get better, executives and analysts say.

“Transportation links are critical to global supply chains, and they have already been impacted by the global pandemic,” said Anna Nagurney, a professor at the University of Massachusetts’ Isenberg School of Management.

“Now we have another man-made disaster,” she said.