Updated on December 26, 2022
The continuing conflict that is happening between Russia and Ukraine has affected millions of people. Where the world is still struggling to recover from the pandemic, the resulting economic impact could be very devastating, and because of the extension in this conflict, various sanctions will be imposed as the air and ocean shipping rates will reach their peak and the global chain will be affected.
The shares of Seamec, Great Eastern Shipping Company, and Shipping Corporation of India were mixed on Monday as the Russia-Ukraine crisis kept investors on the edge. Freight rates are jumping from eight to ten times and are still rapidly increasing. If this thing continues then international trade will slow down the growth rate of export. Global freight was already suffering since COVID 19, but things started normalizing till Feb 12, and now it has started itching up again by Feb 24.
India imports most of the petroleum products, diamonds, precious stones, and fertilizers from Russia, and likewise, it exports capital goods, pharmaceutical products, organic chemicals, and various other auto parts to Moscow.
To end the conflict, the west is imposing sanctions as a way to pressure Russia to end the conflict/war. Export of goods, investments, and access to the Russian market is getting adversely affected and cutting off Russia's ability to trade or transport with the rest of the world.
But, let's dig deeper into how these sanctions will affect the maritime area or domain.
These cases are examples that the decisions to cut off Russia will hamper the country’s ability to send any goods and face several difficulties amid the invasion.
The trade financing of Russia to the USA and EU will be a difficult problem as the Russian businesses will be unable to finance most of the deals that are done globally as the payments will be rejected by the US or EU. By not having access to the global financial system, financial deals related to trading or export will be completely wiped out.
The conditions of the importers from London etc, will soon deteriorate and have to face higher logistics costs, multiple delays, and an obstacle course of sanctions so as to search as Russia’s ongoing conflict on Ukraine is complicating the shipment of goods between Europe and Asia.
More the steps get increasing towards the invasion, the more the Russian economy is set to paralyze the supply chains.
Beyond this, the destructive human toll, the war causes higher rates for fuel, grain, industrial items like metals, and various other raw materials.
There is a threat to most of the shipowners, ocean shipping companies, banks that are owned by companies registered in Russia, so there is a high risk that these companies can be blacklisted anytime. Ukraine ocean freight will also be affected with the ongoing Russia-Ukraine conflict.
With this war uncertainty that is happening globally, all the future deals that include Russian entities will be at high risk, or they may be even canceled. So these increasing sanctions can remove a massive amount of vessels from the global charter market overnight. Taking these vessels out of the market will certainly cause changes in trade flow and it may even disturb the import and the export of the cargos and goods that are coming from or going to Europe.
Russia and Ukraine account for 30% of the global wheat exports. Russia and Ukraine ports on the Black Sea are the 2nd largest grain-exporting region according to 2021 reports. These big export hubs for wheat, corn, and crude oil will be facing sanctions because of these Russia Ukraine conflicts. Soon there will be a great economical and agricultural impact because of this conflict and it is yet to be fully revealed. A large area of food production in Ukraine borders Russia.
Also, Ukraine also produces 50% of the world’s seed oil. India’s chief imports of Mineral fuels, oils, and distillation products are from Russia. Soon many regions will face a massive shortage of daily essentials and agro products. So if sanctions are active or keep on increasing then the food supply chain will be affected and may lead to great shortages.
Therefore, the condition of the Russian and Ukrainian crew are also facing a lot of difficulties. Freight and logistics companies majorly employ a large number of maritime engineers that are especially from Russia. These employees are left hanging in balance. If the members of the crew wish to go back home and want to be with their families in tough times, it is still not clear where they could be signed off or relieved so as to start their journey home.
There is a big concern that is being faced by those who employ these nationalities, which is over salary/ payments as this problem arises because the Russian banking system is removed from “SWIFT”.
All the heavy machinery that is available in the market like the boilers etc, which are on board, mainly are made in Russia. So, the providence of operations and maintenance (O&M support) are from Russian original equipment (OEM) firms. Therefore, soon there will be a shortage of engineers, and this can hamper operations worldwide.
We know that these are tough times and there will always be one country’s victory, but what loses is humanity!
The world’s economy is still recovering from the pandemic and because of the conflicts of both nations, many countries have to face the consequences. All the sectors contributing to the economy will be affected and the ones who will suffer the most are the citizens. The supply chain will be deeply affected as now this conflict has replaced Covid.
Where the world will be relieved because of the Omicron variant, a new challenge has arrived where the endgame is yet not clear.
With the closing of the sea routes, the rising issue after looking at the current scenario is about the safety of other ports in the region.
If this conflict somehow reaches a peaceful end, then only the supply chain may get safe from long-term economic ramifications.
In the meantime, FreightMango will be there to monitor and analyze the situation deeply, support our customers and communities through end-to-end supply chain visibility and prepare for any kind of difficulty that might come in a few days. Visit Freightmango.com to get ocean freight quotes online.
We are here with you to showcase our expertise and much-needed level of confidence to ocean shipping and import/export the goods.
As an endnote, it's not just about the supply chain that will be affected but the entire lifestyle and economy will be hampered. The longer the conflict lasts, the greater will be the consequences on the entire logistics chain.