Impact of Ukraine vs. Russia war on the shipping industry

The Ukrainian-Russian conflict has been going on for almost 8 years now, but its impact was not as pressing on international trade up until the war raged this past February. With trading routes becoming unsafe or disrupted, sanctions being posed on Russian trade, fuel prices and the  threat of cyber security increasing, the global shipping industry is distressed. 

Disruption of trade routes

Both Russia and Ukraine are major exporters of raw materials. So, given that the majority of their ports are closed down due to the naval blockade, more than a hundred ships are at anchor with no way for them to deliver the cargo they have on board or collect the cargo customers are expecting. Aside from corn, which is Ukraine’s largest export material, the country accounts for half of the world production of neon which is used to create chips, an essential component in the fabrication of electronic devices. In addition to that, Ukraine has a significant car-parts industry and consequently, the war has had a domino effect on the car supply chain in Europe. Some Volkswagen and BMW plants across Germany have gone idle due to the missing car parts that are imported from Ukraine. As for Russia, the country is responsible for a third of the world’s production of palladium, a component used in the creation of sensor chips and computer memory. 

Sanctions 

The war’s effect is not limited to the conflict zones. In fact, the worldwide supply chain, and especially shipping companies and insurers are feeling the knock-on impact of the war because of the sanctions that the US and EU have imposed. The Mediterranean Shipping Company (MSC), a worldwide giant shipping company, has suspended all container traffic to and from Russia. Maersk as well as CMA CGM have followed in MSC’s footsteps. That means that the world’s top three shipping companies have halted all trade with one of the world’s largest exporters.   

Increased prices 

The disruption of trade routes along with the sanctions imposed have caused a major inflation of shipping services, as well as a surge in fuel prices. Since the spread of COVID, the cost of shipping containers internationally has increased seven-fold according to the International Monetary Fund. For example, the price of transporting dry bulk goods has increased by  60% between February and May 2022, according to the UNCTAD.  And if the conflict continues, the increase is likely to reach new heights, potentially reshaping global trade given that Russia produces a significant amount of the world’s bunker fuel. In turn, this will push shipping companies across the globe to look for alternative fuels. When it comes to insurance prices, the premiums have also risen because of the risks of sailing in the Black Sea. 

Security

Following the invasion, Nato has issued a warning regarding the risk of collateral damage that may  get to merchant ships in the Black Sea. In fact, since the beginning of the conflict in February, 3 merchant ships have been hit by missiles. And while one of the ships sank, the other two sustained serious damage. However, the crew was fortunately not on board and there were no casualties. Not only that, but the threat of the drifting sea mines, especially in the Northwest and Southwest areas of the Black Sea cannot be ruled out. The whole situation has left seafarers and crews stuck on board with a lack of food, fuel, fresh water and other vital supplies. That’s why The International Maritime Organization has set up an emergency task force to help mitigate the risks to shipping and seafarers in the Black and Azov sea.