Logistics

On escalating Ukraine war, world trade takes another hit

T.E. Raja Simhan | Updated on: Mar 21, 2022

Running out: The pandemic started the container shortage and the war is likely to make the situation worse

The Russia-Ukraine war is the latest in a series of unfortunate events that has left the world’s shipping supply chain in turmoil; container shortage could worsen

A series of events — starting with the Covid pandemic, followed by Suez Canal block and now the Russia-Ukraine war — has left the global trade bleeding. Shipping is responsible for movement of about 90 per cent of global trade, and the global supply chain disruption in the last one year has left the trade gasping for relief. But there seems to be no solution on the horizon.

The pandemic started the container shortage; the Suez blockage aggravated the situation and the war is likely to make the situation worse. The worst affected being containerisation. The disruption comes at a time when India’s merchandise exports are likely to cross $400 billion in this fiscal.

Freight rates have more than doubled in the last 15 months. For example, the freight to Rotterdam from Chennai used to be $3,000 per TEU (twenty-foot container), but is now around $7,000. To the US, the freight increased by three times to $12,000 in the same period. It takes nearly 15 days to get a container, said an industry official.

Dipak Shah, Director of Crystal Tea, and Chairman of the South India Tea Exporters’ Association, said, “Just before the war started, an exporter sent ten boxes of tea to Russia on two different dates. Only five landed there and the fate of the rest is uncertain.”

This is just one example of how the war is disrupting the global supply chain.

Congestion gets worse

“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 pile-ups,” said Christian Roeloffs, Co- Founder and CEO, Container xChange.

“Services to Russia are still operating, but if they are suddenly stopped, then all the containers already on the vessels would get stuck in the major hubs in Europe and worsen the congestion problem. This would amount to approximately 10,000 TEUs per day for the whole market,” said Lars Jensen, an expert in container shipping.

Ennarasu Karunesan, Founder, UMK Group — a consultancy firm maritime transport — said that according to global EXIM trade, for each day of supply chain disruption, it takes a minimum of ten days of effort to bring back normalcy. Already three weeks have passed due to the war, and the situation remains fragile for international trade. The year 2022 will be another tough year, he added

“Shifting to air mode from ocean shipping is not feasible due to the huge volume trade. Some are air lifting cargo if it is really urgent, and the client is willing to pay,” he said.

Influence of war is yet to impact the already stressed maritime industry, so far as India is concerned. It will definitely lead to a crunch situation in the days to come if the war continues for some more time, added G Raghu Sankar, Executive Director of the Chennai-based International Clearing and Shipping Agency.

Now, more supply chain disruption is expected due to the closure of the Yantian Free Trade Zone in China from March 14-20 due to spread of Covid-19. When Yantian was shut down due to Covid last year, the disruptive impact on cargo flows was roughly twice the size of the blockage of the Suez Canal, said Lars Jensen.

Published on March 20, 2022
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