Market Update - Global Shipping Impact: War in Ukraine - Feb 28

Ukraine Impact to Global Shipping

The additional sanctions on Russia announced by the U.S., Canada, UK, and the European Union on 26 February 2022 added additional persons/companies to existing denied parties lists and increased export controls on U.S. products and technology for Russia. Additionally, major Russian banks were sanctioned and removed from the SWIFT system for international financial transactions. SEKO’s new policy with immediate effect: We have suspended until further notice all shipments to and from Russia.

Additionally, with the blockage of airspace across Europe, North America and Russia as well as the recent spike in the price of fuel, there will be impacts to global shipping that are having an immediate impact to multiple modes around the world. See below for some specifics for Air and Ocean as of February 28.  

Air Freight

• Fuel Prices - As the situation in Ukraine continues to unfold, fuel prices are now over US$100 per barrel reaching almost US$103, with fuel prices at US$100 per barrel after 2014.  If OPEC does not increase production, or the USA and India does not release emergency stocks, fuel could reach over USD115-120 in the next month.  This will have an immediate impact on transportation costs and inflation in many markets and reduce the demand for air freight and push more demand to ocean freight.
• Flight Cancellations – This week we saw flight cancellations out of China by a number of major airline partners (KL/AF/VS/LH/AY), and while the situation in the Ukraine is a key reason, market demand for air freight out of China has not recovered to the levels expected after the Lunar New Year.  However, market sentiment has driven the rates from 50% to 100% increase which would leave rates settling at the expected level by the end of the week, as the situation continues to develop and become clearer. 
• Restriction on Russia:
• The ban on RU flights into Europe is having a major impact on the market as they have many charter agreements and are lower than market rates with agents.
• Russia is the longest over flying route from Asia to Europe, and Russia is unlikely to ban any Asian carriers, particularly not the Chinese APC carriers.  A key advantage to this situation is for the Middle Eastern carriers who have had a major market share in China, operating 20-25 flights a week and whose flight routes will not be impacted.
• Poland has stepped up to handle more logistics as an onforwarding hub for operations to Ukraine, with most cargo now heading to Ukraine via Poland.  There may be an increased demand for trucking, ocean freight and air freight to the Baltics and Poland in the coming weeks.
• Whilst removing Russian banking systems from the SWIFT system may cause major issues between Russian and the West, China is able to benefit from this ban as Chinese banks can handle Russian payments without SWIFT.  Chinese payment gateways were also very quick to react and offer to capture eCommerce and FBA payments.  This means that Russian import demand for goods should go to China rather than to Europe and USA due to easier banking and payment transfers.
• We could predict that Chinese air demand will experience less of an impact due to current available capacity to Europe, but the sudden increase in rates will eventually settle at 30-50% higher than rates seen during February 2022.  The Hong Kong market has not responded with the same increases seen in China, as Hong Kong demand remains low due to production delays, cross border issues and available capacity.

 

Ocean Freight

• Maersk has halted all port calls in Ukraine until the end of February and has shut its main office in Odessa on the Black Sea coast
• CMA CGM and Cosco have suspended vessel calls to Ukraine until further notice, its BEX and BSMAR services will no longer call at Odessa and bookings to and from Odessa are suspended
• Hapag-Lloyd has extended its booking suspension to Russia as well as Ukraine
• The container shipping sector might seem far less exposed to Russia-Ukraine crisis impact than tanker and dry bulk shipping. But one major risk ahead could be congestion prolong and freight rates may keep raising to another historical high record.
• Following Russia’s invasion of Ukraine, the price of crude oil has soared to its highest level since 2014, to more than $105 a barrel, with analysts predicting $130 within weeks.
• Q2 BAF will be adjusted up and will be announced this week as per CMA

 

Donetsk/Luhansk/Russia Sanctions

In response to Russia’s recognition of the regions of Donetsk and Luhansk as independent regions from the country of Ukraine, the United States has issued sanctions covering these regions. To ensure that SEKO remains compliant with these new sanctions and as the situation remains fluid, all shipments to Ukraine will now require review by the SEKO Compliance team. We will expedite any medical aid & relief to the other regions of Ukraine. Contact your local SEKO representative for additional guidance.

The additional sanctions on Russia announced by the U.S., Canada, UK, and the European Union on 26 February 2022 added additional persons/companies to existing denied parties lists and increased export controls on U.S. products and technology for Russia. Additionally, major Russian banks were sanctioned and removed from the SWIFT system for international financial transactions. SEKO’s policy with immediate effect is that we have suspended until further notice all shipments to and from Russia.

 

Reference:

https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/26/joint-statement-on-further-restrictive-economic-measures/   

https://www.whitehouse.gov/briefing-room/presidential-actions/2022/02/21/executive-order-on-blocking-property-of-certain-persons-and-prohibiting-certain-transactions-with-respect-to-continued-russian-efforts-to-undermine-the-sovereignty-and-territorial-integrity-of-ukraine/