News digest. 26 Feb
Read the latest overview, trends, and prospects of the logistics and transportation markets in the aftermaths of the latest crisis in today’s digest:
Recent events in Ukraine have resulted in significant aftermaths on the logistics and transportation markets that had already been in a perplexed state. MAXMODAL has prepared an overview of the major points and trends happening across the main transportation modes.
● Security consultancy has warned all shipping to leave the Black Sea area around southern Ukraine. The proposal has more of a preventive character since the Black Sea region is now complex. Experts predict that if companies restrict shipping to Crimea, southern Ukraine, and the Sea of Azov, they will be able to avoid bigger disruptions.
● Meanwhile, spot rates are picking up on their growth, after being flat for a while, due to the soaring oil price which has gone up to more than $105 a barrel. The increase in rates is especially prominent in the US. The west coast component increased 3% to $11,030 per 40ft, while on the US east coast, the increases were more modest, up 1% to $13,160 per 40ft. Some companies report that it seems like the longer they wait with signing contracts, the higher spot rates will be.
● Airfreight is seeing restrictions on air cargo, as flights are being re-routed due to the closure of the sky. Ukraine International Airlines has suspended scheduled and charter flights to and from the country. Experts have already voiced out the consequences of potential sanctions on Russia for Russian airfreight. Some of them include challenges for lessors that pay in euros, a possible shortage of titanium for production lines, and so on.
● Rail transits on the China-Europe route have not been affected yet as Ukrainian Railways has announced that it is not planning to halt its passenger and cargo traffic, however, many believe that it may not last for long, especially since it has already made spot rates increase. In turn, China has confirmed that no disruptions are expected on the transportation toes from Russia through Belarus. Nevertheless, if promised massive sanctions are imposed, Moscow could organize a go-slow or a complete halt in transiting freight. Although Ukraine constitutes only 2% of the westbound container traffic volumes on the New Silk Road last year, there is now a trend of rising volumes, so in the long run, the political instability will be a deciding factor to what extent the route will be developed.
● Transits through Russia by the US are shrinking. In particular, Flexport announced that it had ceased accepting bookings on China to Europe Trans-Siberian railroad service for the time being.
● Rate hikes and oil prices spikes are making already vulnerable supply chains primary targets of cyberattacks. Some have already occurred this week with Expeditors and Nhava Sheva. Companies brace up against predicted significant delays for road and rail routes through Ukraine and neighboring countries.
● Delays will not omit the marine sector either. Ukrainian national ports have been shut down.
The more ports get closed, the stronger global congestion remains. Despite the talks that it is easing at the Port of LA and the Port of Long Beach, the dynamic is still worsening. This is due to stronger than expected US retail sales in January paired with low retail inventories. Thus carriers will be busy for months ahead. Therefore, the US is going to invest $450 million in the Port Infrastructure Development Program to expand ports’ capacity and improve the movement of goods through the supply chain.
The trend of diversifying Chinese suppliers is becoming more popular among European and American companies. Potential new markets include Turkey, India, and South-East Asia. Meanwhile, another tendency closely linked to the diversification of sources, that has been on the rise, shipper-owned containers, gains new followers among freight forwarders. SOCs are a solution to equipment imbalances, although it can be rather costly. Another rather expensive aspect that has been bothering shippers, is the price that UK shippers have to pay to get their goods from Asia compared to their neighbors on the continent. For them it is $1000 higher in the post-Brexit reality.
The global trade in liquefied natural gas (LNG) rose by 6% to 380 million tonnes during 2021, as many countries rebounded from the impact of Covid-19. China and South Korea were the leaders last year. South Korean companies are thriving for more autonomy: SM Line has decided not to renew its Transpacific slot-sharing agreement with the 2M alliance choosing to go solo on this route. In turn, China is expected to benefit from the plans of Iran and Afghanistan to extend their shared connection thanks to the development of the East-West railway corridor, which theoretically connects China and Europe through these two countries. In the meantime, DB Cargo UK and automotive logistics operator Groupe CAT have launched their international Toyota car-carrying service to the north of France. The European Commission has approved the planned merger between Cargotec and Konecranes that aims to become a leader of sustainable material flow, However, the completion of the merger remains subject to further feedback and approvals from various other competition authorities.
