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How do crises like the Ukraine war affect international shipping?

The war's impact on the maritime industry is far greater than anyone could have predicted, from increased freight prices to a complete halt in ship movement.

Here is a look at how the recent Ukraine conflict has had a significant influence on worldwide trade.

Disruptions in supply chains

As if the post-pandemic shock wasn't enough of a jolt to the supply chain, the conflict in Ukraine has now added a new layer of complexity.

Apart from the human suffering, the consequences for Ukraine have been devastating and the economy of the country has been left in tatters.  The country has been effectively cut off from international trade. According to various indicators, no major container ships have docked in Odessa since the commencement of the conflict.

As a result of the conflict, oil saw the highest prices in 14 years, a blockade of the black seaports, disruption in the supply chain of many raw materials and food products and a sea of sanctions being placed on Russia.  These direct results have affected global economy which was already struggling to recover from the effects of the pandemic.

Ukraine, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan and Uzbekistan are among the countries which have been affected directly by Black Sea blockade. In the western countries, trade has been affected due to the disruption of the supply chain of raw materials coupled with the high cost of transportation. 

Freight rates have been raised, and additional surcharges have been imposed.

The conflict in Ukraine has sent oil prices soaring to new heights.  This has had a direct impact on the transportation industry - be it land, sea or air.  This rise in cost comes on the back of the already strained demand and supply situation caused as an aftermath of the pandemic.  For businesses, this translates to more uncertainty in the prices for goods and services.

It is expected that shippers will be hit hard by the new bunker adjustment factors (BAFs) or emergency BAFs, which are normally implemented one to two months after fuel price rises.  This affects long term contracts on which many businesses rely on, thus increasing the uncertainty.

The maritime industry on its part is posed to see a vast change as players look at options to reduce cost and improve efficiency. 

The changing focus

When the buzz word of pre-conflict era was ‘Speed’ the new buzz word is ‘Efficiency’.

This could start from using the most cost-effective modes of transportation of goods to utilising the available equipment more effectively.  This certainly will lead to businesses looking at more efficient processes as well.

The different types of shipping containers are an integral part of the maritime industry.  These are already in short supply in certain sectors.  As the focus shifts to effectiveness, shipping of empty containers from one port to the other is sure to be frowned upon.  This in turn will force shippers to engage more or collaborate more and also give rise to an increase in the number of containers available.

Just as the world learns to live with the COVID-19 virus and mitigate its effects on the economies, so will the effects of this conflict be.  A quick end to the conflict looks more like a miracle.  Even if this miracle happens, the global economy will take years to recover.  However, the silver lining seems to be that the transport industry will end up being more efficient, less polluting and more cost effective.

Sources – Economic Times(India),  Seatrade-Maritime, Martime-executive


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