News digest. 6 Mar
33 misfortunes or how congestion has been replaced with the new riddles to solve.
The vulnerable market that hardly recovered from the pandemic and was standing on wobbly legs under the pressure of the congestion has been hit with new challenges. Freshly imposed sanctions on Russia have far-reaching consequences for the whole industry.
● Ship fuel had been unstable for quite some time but the Russian invasion in Ukraine has made its direction very clear: up and up. According to the most recent update, the average price for it has reached almost $900 ($882.50/ton which corresponds to an increase of 73% year on year.) However, even in this unprecedented situation experts predict potential winners - owners with scrubber-equipped vessels. The widening fuel spread will benefit them via substantial fuel-cost savings.
● The effect of the embargo of Russian oil did not omit Kazakhstan crude. Several shipments have been canceled due to the war risk premium associated with the grade of oil. Caspian Pipeline Consortium shares both Russian and Kazakh crude any many companies refuse to go for oil from Kazakstan as there is a risk of it being tainted with Russian ownership.
● The current situation resembles a snowball that keeps growing bigger and the effect of it keeps spreading. High fuel prices (that are also destined to transmit to higher diesel prices) and freight rates paired with Russian airspace now being off-limits to most Western carriers, result in lay-offs of the workforce on the European side as well. At the same time, China-Europe rates climbed more than 80% to $11.36/kg and some companies are already considering implementing a war surcharge on freight shipments. However, the latter will most probably be added to the rate. In addition, flight detours result in a reduction of capacity. So far, it has plummeted by 10% on the Russian market that is still dealing with after-covid recovery just like the rest of the world.
● Inconsistent service and loss of scheduled service got AirBridgeCargo banned from European, US, and Canadian airspace and now the company is desperate to offer its fleet for ad hoc charters. However, it operates in a limited number of regions which will not add up to the capacity loss that the company has experienced, thus the initiative will not last long, according to the experts.
● The issue of the lack of labor force is going to spread across other sectors as well, on land and sea. Seafarers can no longer join and disembark ships freely due to canceled flights due to sanctions. In turn, European road haulage is braced for a growing shortage of Ukrainian lorry drivers. The driver shortage has been one of the most pressuring issues last summer and after it seemed to get better, the situation has fallen down the rabbit hole another time.
● What has also decreased is box shipments into Russia. Updates report that they have fallen by 17% and the trend is going to continue in the aftermaths of the sanctions. The latter has already caused the rise of transshipment dwell times by 43% across all Europe and delayed deliveries to the US due to disrupted suplly chains. Such major players as CMA CGM, MSC, and Maersk have halted their operations in Russia which account for 28% of their activity. All of it will have a direct impact on the further rise of freight rates. The market has already registered rates at $54,000 on Shanghai to Rotterdam route.
● A number of European container terminals have followed suit and suspended all container handling to and from Russia. Overall, container trade has been cut with India, Bangladesh, South Korea, Japan, Thailand, Sri Lanka, and Singapore. Mirroring the decision of major players, Canada has also shut its ports for Russian ships.
● While ocean freight is struggling the most, air freight has prospects of becoming one of the pillars of the long-term business model for the future, despite the turbulent sanctions. At least, this is what the current trend shows. If before, it used to be as means of th last resort, now when everyone is tired of congestion, they start favoring air cargo. Industry leaders claim that it’s no longer a transactional part of our business, but a part of the strategy.
● Have the recent events made everyone forget about the forming shipping monopoly? Hardly. FMC is on the ball to expand its authority for the sale of inflicting the market. It has also voiced out the need for greater funding. The proposed bill immediately faced resistance from the liner community. They continue preaching for every link in the chain doing their part to improve operations and coordination with their service partners and customers. Shipping lines also perceive top-down government mandates as unnecessary.
● The challenging context of the market has delayed Rotterdam’s initiative to launch the Container exchange route amid increasing its container business. The market turned out to be unable to supply such a concept, so it will take time to re-adjust and re-work.
