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How is the war in Ukraine distorting the global logistics map?

How is the war in Ukraine distorting the global logistics map?
photo: Archives/How is the war in Ukraine distorting the global logistics map?
21 / 03 / 2022

Russia's military attack on Ukraine has shaken the world in every sense, and global logistics are no exception. With the European Union imposing unprecedented sanctions against Russia and Belarus, the logistics chain has become even more vulnerable than during the Covid crisis.

Since the beginning of Russia's military invasion of Ukraine, the European Union has jointly imposed and continues to impose sanctions in trying to change the course of the aggressive policy of the occupying country. However, these sanctions affect not only the Russian economy but also the system of international trade in goods. Partial disconnection of Russian banks from the SWIFT financial system, a complete ban on import and export of Russian goods, and the closure of European airspace for Russian air carriers are forcing the search and weaving of alternative logistics routes around the world.

Sanctions against Russia, on the one hand, reduce air capacity and, on the other hand, increase fuel costs. Meanwhile, European carriers who fly between Asia and Europe have to refuel due to avoiding Ukrainian and Russian airspace. "Russia's reciprocal restrictions increase flight time by two to three hours in the direction of the Far East, which means that planes cannot do as many rotations as in the past," explains Marián Miček, manager of the Slovak branch of global carrier Dachser. He believes that customers who need a faster way of transportation will have to turn to air freight, but the rising price of this mode of transportation could be a deterrent. The benchmark FAX index, which tracks air freight prices between Shanghai, China, and Northern Europe, has already risen by 34% in the first ten days of March, to $8.4 per kilogram. Pre-pandemic prices were $2.35. In light of the events of the past few years, demand has exceeded available transportation capacity, and the war unleashed by Russia in Ukraine will not improve the logistical situation any time soon.

However, it is not only air carriers that are affected. Rising oil prices are affecting fuel costs, and European sea hubs are reporting congestion triggered by the blockage of cargoes destined for Russia. As a result, they have piled up in ports and are slowing down their work, and the harsh sanctions imposed on goods make it difficult to verify them. Nevertheless, the international boycott of Russian goods, whose share of international shipments averages 30% to 50%, could offset demand for the rest of the traffic from Europe because of the mass suspension of bookings of goods from the aggressor country.

"The middle ground between sea and air transport is rail transport, which will suit those looking for a faster way to transport goods than sea transport and cheaper than air transport. Even so, with the realities of the war in Ukraine and the boycott of Russia, there are also significant disruptions in transportation along the New Silk Road, a rail route from Asia to Europe via Kazakhstan, Russia, Belarus, and Poland. Today, only transportation of goods loaded in Ukraine is possible, as commodity flows from Russia have been completely suspended. "The situation at both Slovak-Ukrainian railway border crossings is operationally smooth, the flow of goods from Ukraine to Slovakia is unimpeded. The flow of goods from Russia is suspended, they are not accepted at the Ukrainian-Russian border," confirmed Silvia Kuncová, director of ZSSK Cargo's CEO office. Today, there is a tendency of growing interest in shipments from China via Kazakhstan and the Caspian Sea to Azerbaijan and then to Turkish ports and Europe. Despite the relatively expensive transshipment at sea, this route has increased its competitiveness. It happened because more and more companies are trying to avoid Russian railroads as a protest to the Kremlin's aggressive policies.

The transportation of commercial goods across the eastern border by road has been complicated most by the war. Seeking refuge from bombs and war, crowds of people arrive in Western countries, forming long lines at border crossings along the Schengen zone. It makes efficient transportation impossible. Border crossings between Ukraine and Russia or Belarus are blocked, and large multinational carriers like DHL, UPS, and FedEx have suspended service to the aggressor countries. Today, only vehicles carrying humanitarian and material aid, vital in this wartime, are sent to Ukraine.