The Impact on the Conflict Between Ukraine and Russia on Logistics
The Impact on the Conflict Between Ukraine and Russia on Logistics

The Russian invasion of Ukraine has already disrupted supply chains that are still recovering from the COVID-10 pandemic. The worsening situation between Ukraine and Russia will have a significant impact on international shipping and logistics, particularly with delayed deliveries, higher costs, and transportation challenges.    

Energy Prices Are on the Rise

Revenues from energy are one of Russia’s main income sources. The price of crude oil has and will continue to rise as economic sanctions are being placed on Russia by many countries. Since Russia is one of the main oil-producing nations, these sanctions will affect the global supply of oil. As a result, it is estimated that the cost of a barrel of crude oil could go up to $150 or more.

The attack on Ukraine has also stopped the Nord Stream 2, a natural gas pipeline that is worth $11 billion. This pipeline is intended to provide 15% of natural gas for European nations. This will have an impact on the European gas market as Russia accounts for approximately one-fifth of the global trade in natural gas. 

Rerouting of Flights Affects Air Cargo

Because of closures in air space above Russia and Ukraine, some flights have been rerouted or cancelled altogether. This puts pressure on cargo capacity and is resulting in transportation delays. Further supply chain disruptions for air freight will continue as more countries refuse to take Russian airlines to their airports.

As shipping airplanes divert around Russian airspace, flights will take longer and use more fuel. As a result, there might be a surge in the price of air freight for certain routes. Flights on major trade routes are already taking longer, which could mean even longer backlogs for certain industries. Some carriers may choose smaller and lighter loads for air cargo as a result.


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Maritime Shipping Disruptions

Global shipping giant Maersk announced that it would suspend shipments to and from Russia by ocean, air, and rail with the exception of food and medicine. Ocean Network Express, Hapag-Lloyd, and MSC have also announced similar plans. 

Shipping ports in Ukraine and the Black Sea are now closed so dozens of cargo vessels will have to divert their shipments. The closure of Ukrainian ports could be a potential disaster for the European supply chain. As Ukraine is one of the largest food grain and corn suppliers in the world, this could have an impact on Europe’s food supply.  Several Ukrainian ports such as Odessa are responsible for moving food grains. Other global supplies like platinum, aluminum, steel, and sunflower oil will become scarce. The closure of these ports could send the price of food skyrocketing.

Global supply chains are already strained.  As this follows two years of disruptions from the pandemic, many industries are bracing for the worst. Laura Rabinowitz, a trade lawyer at Greenberg Traurig states, “Global supply chains are already hurting and stressed because of the pandemic.” The damage to supply chains will depend on the length and severity of the crisis.  

Commodity Shortages

The conflict between the two countries is causing shortages in certain commodities. Complex supply chains, like for automobiles, are already experiencing the effects. Both Ukraine and Russia are sources for palladium and platinum, which are used in catalytic converters. Volkswagen said that parts shortages would slow production, while BMW has stopped production at plants in Germany, Austria, and Britain. Semiconductor manufacturers are also concerned as neon, xenon, and palladium are needed for manufacturing. 

If the conflict continues, the summer wheat harvest could be in jeopardy, which will affect bread, pasta, and packaged foods for consumers in Europe and the Middle East.

Current Sanctions Will Affect Trade

As Western governments excluded certain Russian banks from the SWIFT messaging system, the ruble’s value fell. Russia’s access to foreign capital and the inability to process payments in other currencies makes it very difficult to trade with Russia currently. The decision to cut off shipments of high-tech goods to Russia will also affect global trade.  If the economic sanctions from the United States and European Union escalate, trade among all involved nations will be significantly impacted.

The longer the conflict lasts, the more effects there will be on the logistics and transportation industry.

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