Risks to global supply chains rising

Importers across the world, may soon face higher transport costs and severer delays in shipments as the ongoing conflict between Russia and Ukraine and the escalation of related sanctions are making it increasingly difficult to move goods between Europe and Asia.

This is another fatal blow to a global supply chain that has not yet fully recovered from the COVID-19 pandemic. The conflict between Russia and Ukraine has already led to a surge in the prices of fuel, grains, industrial metals and other raw materials that are used to produce consumer goods made in Asia, with the final products destined for Europe and the rest of the world.

Jennifer Hillman, a professor at Georgetown University and former US trade official, said, “There is still possibility of major disruptions in the supply chain. We’re working hard to try to recover it, but it’s going to take time. And the outbreak of war in Russia and Ukraine has left us with little time.”

Russia and Ukraine are positioned along the oldest trade route in the world, and airspace between both countries is now restricted. At the same time, container ships are unable to enter Ukrainian ports and many are trying to avoid Russian ports. For the global supply chain, this freight crisis is being sieged simultaneously through land, sea and air.

Sea Transportation

Two of the world’s biggest shipping giants, Maersk (A.P. Moller-Maersk A/S) and Mediterranean Shipping Co. announced Tuesday that they had suspended shipping booking services to and from Russia, signaling that Western sanctions against Russia are causing a new round of disruption to an already strained global supply chain.

This follows similar moves by the two giants’ rivals Ocean Network Express and Hapag-Lloyd in an attempt to avoid the risk of carrying sanctioned cargo.

In its latest announcement, Maersk noted that it is closely monitoring the evolving international situation and the new sanctions imposed on Russia. And in light of this, it needs to establish and modify its existing processes for accepting and processing bookings.

Road and Air Transportation

While maritime transport centering Black Sea region is being hampered, global land and air transport is inevitably being affected.

The rail network connecting Asia and Europe via Russia is another good option for commodity shipments from Asia to Europe, with 87,000 kilometres of railways in Russia, second only to China and the USA in the world. Also, the China-Europe train has been an important gateway for trade between China and EU countries in recent years.

Air freight disruptions are likely to be less significant than the diversions and congestion of land freight. Data from Flexport shows that while average flight time has increased by around 3-4% compared to the previous two months, it means that there are only delays of around 20 minutes. One of the routes saw an 8% increase in flight time, or around 45 minutes.