Logistics Managers explain the effects of the Russian War on European supply chains

Madrid, March 21, 2022.- The uncertainty of the supply chains in Europe, both due to the War in Ukraine, and due to the economic effects of the Covid19 Pandemic, require truthful information and professional analysis. Supply Chain Quarterly magazine has published the following helpful diagnostic for shippers, carriers, and logistics operators.

Russia’s invasion of Ukraine is striking a blow to already battered global supply chains, and North American logistics professionals say the ripple effects will be felt here at home in the weeks to come.

Locally, businesses will feel the most immediate impact at the fuel pump, where already high prices are rising. Oil prices surged this week, raising concerns about higher transportation costs industry-wide. Transportation prices have been climbing since June of 2020, according to the Logistics Manager’s Index (LMI)—which tracks logistics industry growth across transportation, warehousing, and inventory—and have hit record highs over the past year. LMI researchers said this week they expect “broad and very strong upward pressure on transportation prices across the supply chain,” especially in light of geopolitical events.

Shippers and carriers can expect to pay more in the near term, according to Ryan Closser, director of program management and network collaboration at supply chain visibility platform FourKites.

“It will cost more to go from A to B than it did last week, and more next week than this week,” Closser said Wednesday. “The cost of oil going up is going to be top of mind to all of us who are heavily involved in the North American transportation market. That will have a direct effect on the business.”

Delays and disruptions across Europe will spur longer term effects on global supply chains. FourKites tracked a decrease in loads delivered to Russia beginning last week, at the start of the invasion, with overall Russian imports down 28% week-over-week as of Monday and further double-digit declines mid-week. Similarly, logistics software vendor Project44 tracked a 35% decline in vessel traffic to and from Russian ports since sanctions against the country began in late February.

The sanctions, restricted airspace, and dangerous conditions in the region are forcing shippers and carriers to find alternate routes, leading to delays and backups, especially on freight routes from Asia to Europe. Rail lines through Russia are closed, causing Asian exporters to find new routes to European customers. Much of that will eventually convert to ocean shipping, Closser said, but it is having a more immediate effect on air freight, where he said prices are already rising.

“[Air freight] is the only quick path right now from Asia to Europe, and we’ve heard that air freight is going up significantly,” he said. “[We don’t have] any metrics on ocean rates increasing, but word on the street is that it is coming.”

Auburn University’s Glenn Richey said the shutdown of Russian air space is complicating both passenger and freight transportation because airlines must reroute volumes of traffic that utilize the space. Finnair said this week it may furlough hundreds of pilots and cabin crew due to cancelled flights to Russia and some destinations in Asia. Prior to the pandemic, more than half of Finnair’s revenue came from passenger and cargo traffic between Asia and Europe, with strong cargo demand continuing to support many of its Asian routes over the past two years, the airline said.

“So much of that air transportation goes over the top of the planet. [This is] causing both passenger and freight transportation to be more complex,” said Richey, who is the Harbert Eminent Scholar and chair of the department of supply chain management at Auburn. “We’re coming out of the coronavirus [pandemic] and things are starting to look better, and now we have another disaster.”

The immediate effects on ocean freight are being felt in Europe, where trade and container movements have ceased at the Ukrainian ports of Odessa and Mariupol, on the Black Sea. Movement has been restricted elsewhere in the area, causing Germany-based logistics technology company Container xChange to warn of container buildups at ports there as well as along the Baltic Sea.

“Russian and Belarussian ports in the Baltic and Black Sea will likely see a build-up of boxes if carriers refuse to make port calls due to the security situation and sanctions,” Container xChange co-founder and CEO Christian Roeloffs said in a statement Wednesday. “Overall, the situation for container availability is likely to worsen, but this will vary by port and region. Central and Northern Europe is already congested, and any further trigger to the cargo flow will only worsen the state of container pileups.”

Roeloffs also said he expects trade with Russia to worsen in the coming months and even years, a sentiment echoed by U.S.-based logistics professionals as well. Oleg Yanchyk, chief information officer for freight procurement software provider Sleek Technologies, said long-term concerns include the readjustment of supply chains when the crisis comes to an end.

“Things will be different when all this is over,” he said, adding that regardless of what happens next “this is a huge change. You cannot run supply chains as smoothly for a long while once it’s over. Things will have to be readjusted.”

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