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Russia’s invasion of Ukraine affecting global supply chain

     Two Freighters Dock

For global supply chains, Russia’s invasion of Ukraine could generate a wide range of challenges.  The risks extend beyond higher energy costs, including compromised ocean cargo movement, disrupted airspace and implications for cargo insurance.

In terms of ocean cargo, severe disruptions are expected as carriers have decided to cease moving cargo to and from Russia, which will impact trading routes in the area.  The region is primarily controlled by three shipping alliances:

  • 2M – comprised of MSC and Maersk
  • The Alliance – comprised of Hapag-Lloyd, ONE, HMM and Yang Ming
  • The Ocean Alliance – comprised of Cosco, CMA CGM, Evergreen  and OOCL

These alliances account for 80% of the world shipping market and include all of the top ten container lines.  Shipping giants Maersk, MSC, Hapag-Lloyd and ONE Line have temporarily halted all container shipping to and from Russia, while other carriers have not declared their intentions at this point.

As a result of the conflict, many vessels have had to reroute, exacerbating congestion at other ports in Europe.  The world’s oceans are now filled with ships whose onward journeys have been thrown into turmoil.  Because they are no longer allowed to call on certain ports, they cannot deliver the cargo they have on board and cannot collect the cargo other customers expect.

Airspace restrictions from the economic war between the West and Russia over the invasion of Ukraine is adding logistical complexity and cost for the air cargo sector and passenger airlines still coping with COVID-related ups and downs in business activity.  The conflict is also driving up the price of fuel, which represents a quarter or more of an airline’s cost base.

Air shippers have already been weathering higher rates as the COVID-19 pandemic sparked a drop in air cargo capacity.  The month of February was a step in the right direction, as volumes and capacity both stabilized close to pre-pandemic levels and rates trended downward, however, the invasion of Ukraine presents a new layer of uncertainty.

Additionally, airlines are bracing for lengthy blockages of east-west flight corridors after the European
Union and Moscow issued airspace bans, which are estimated to affect 20 per cent of the world’s air cargo.  Transport between Europe and north Asian destinations such as Japan, South Korea and China is on the front line of disruption after reciprocal bans barred European carriers from flying over Siberia and prevented Russian airlines from flying to Europe.

At the same time, Canada and the U.S. have barred all Russian-owned, registered and controlled aircraft from overflights of their territories.  Russia has responded, banning three dozen airlines from its airspace.

Finally, most cargo insurance providers are now refusing to offer cargo insurance for any cargo transiting these impacted areas, which include Russia, Ukraine and shipping via the Black Sea.  Initially, insurance providers responded by increasing premiums for cargo insurance coverage, however, given the extreme risk at the present time many are now refusing to offer any coverage.

For more information, contact David Lychek, Director – Ocean & Air Services.

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