After multiple countries restarted their economies after years of being under lockdown, the maritime industry saw an increase in demand as businesses wished to press on and leave behind the turbulent times of the pandemic. This led to increased fuel costs that negatively affected the shipping industry as high fuel costs resulted in high shipping rates.
Shipping and freight forwarding companies had to raise shipping rates in response to high fuel prices as early as the last quarter of 2021. Even though shipping costs rose after economies reopened, this was still a sign that international trade was starting to return to normal. Still, another crisis popped up in the early months of 2022 that hit international freight.
On February 24, 2022, under the guise of a special military operation, Russia essentially invaded Ukraine. Russia was then struck with different sanctions that affected a lot, including Russian oil getting cut off from the market and further driving both oil and gas prices up. The current war did not only affect oil and fuel prices as international freight took a bigger hit thanks to the sanctions, cancelled flights, extended flights, and inflation.
In addition to the war in Ukraine, the current tensions in Taiwan can also affect the current state of global shipping as China’s People’s Liberation Army continues its military drills that simulate a blockade on Taiwan. This is after US House Speaker Nancy Pelosi visited Taiwan.
Ukraine War and Chinese Military Drills of Taiwan
War in Ukraine
Air transport is by far the most affected by the Russia-Ukraine War as multiple airlines reduced or stopped their operations between Europe and Asia. Those that continued their operations had to use extended air routes as both Ukrainian and Russian airspaces are currently closed. Thanks to extended air routes, airlines had to use more fuel, contributing to both higher fuel prices and skyrocketing prices of goods.
Land freight that relies on routes going through Russia, Belarus, and Ukraine to go to and fro the European Union, China, and South Asia no longer has any safe overland routes. This means that international freight forwarding companies will need to use different routes through the UAE, Serbia, Turkey, or Romania. Customs brokers will also need to adapt to the different language barriers and document processing procedures.
The war on Ukraine also affected maritime routes in both the Sea of Azov and the Black Sea, as the routes are no longer safe. Several merchant ships have been attacked off the coast of Ukraine, making it certain that sea freight will be unreliable until the war ends. Although Russia and Ukraine recently signed a deal to allow grain shipments to move through the Black Sea to mitigate the risks of worldwide famine. Whether this means that the sea lanes will be safe for now is unknown, but Shephard Media noted that the tentative nature of the grain deal might not significantly shift the current security situation in the Black Sea, so it might not still be safe to set sail.
Like how land freight will need to rely on other routes, sea freight will also need alternative routes, making air routes a more viable option for shippers and freight forwarders.
Military Drills Around Taiwan
The blockade on Taiwan also further limited the remaining available air routes as China warned airlines to avoid flying in areas around Taiwan where the military exercises are currently held. China has also designated certain six areas of airspace as danger zones that all civilian aircraft must avoid.
While airlines have cancelled flights to Taipei and have rerouted other flights to avoid the airspace in the past few days, air traffic has just returned to normal, at least on August 8, 2022.
Even if air traffic has returned to normal, some disruptions are still expected as military drills continue around Taiwan. The extended military drills can herald a “new normal” for freight and shipping off Taiwan.
The Cost of Shipping Rising
The ClarkSea Index is a barometer of shipping fortunes, and during the War in Ukraine, it’s seen that the earnings of the shipping industry improved as the cost of shipping increased. The chart focuses only on tankers, bulkers, containerships, and gas carriers, but it’s safe to say that even the cost of shipping through the air has also increased.
The flight restrictions in Ukraine and Russian airspace effectively removed about 10 million miles of airspace and international freight routes utilized by 20% of the world’s air cargo. This resulted in longer flights and lower air capacity as carriers took alternate routes or canceled flights altogether.
If the military drills off Taiwan continue, there is a chance that the supply chain will further be negatively affected by increasing the cost of goods and causing certain shortages.
As shipping and freight forwarding routes were negatively affected by flight restrictions and the redrawing of route maps, the cost of transporting goods also increased as freight forwarders, and shippers had to use different routes and use other means to adapt. Longer and alternative routes will jack up fuel costs and then jack up the cost of the goods themselves.
The cost of fuel and energy reliant on fossil fuels already rose due to the higher oil prices, and the cost of other goods will only continue to skyrocket as transportation routes remain restricted. Some food prices, for one, have already eased but still remain high, but things can change if more routes end up getting closed off.
When the war in Ukraine started, there was speculation that electronic vendors might raise prices while using Ukraine as an excuse. PC Gamers didn’t exactly see this change in prices as both GPU prices and cryptocurrency crashed, and other PC parts didn’t see any price increase, at least not significant enough to warrant attention if there was any. However, because Taiwan is export-focused and its main products include electronics, there is arguably a bigger chance of prices increasing if exports are disrupted. Taiwan’s other products include the following:
- communication and audio-video products
- base metals
- plastics & rubber
Taiwan’s chip manufacturing industry will also be affected as China halts its sand exports to Taiwan. The continuation of military exercises and the rerouting of sea and air freight to the country, halts in sand exports to Taiwan, and possible complications if the situation worsens can negatively affect the prices of electronics and PC parts.
For simplicity’s sake, it’s safe to assume that prices for multiple products will only skyrocket when multiple conflicts are happening that can disrupt the supply chain. As long as the war in Ukraine continues and if the situation in Taiwan worsens, there will be shortages, and price increases and the world will need reliable freight forwarders and customs brokers to keep the supply chain up and running.
Everyone involved in the shipping and freight industry will need to adapt to ensure that they can continue their operations amid different crises and supply chain disruptions. Shippers can only adapt to the situation and look for other transportation routes, hire competent customs brokers to ensure that shipments reach their intended destinations through the new routes, and futureproof their operations.
Businesses will need to look for reputable freight forwarders to outsource logistics to ensure that they can continue importing and exporting goods. Excelsior Worldwide Freight Logistics is one such reputable company that offers international freight forwarding and customs brokerage services.
Excelsior Worldwide Freight Logistics constantly endeavors to be a company of enduring greatness by providing only time-conscious, client-oriented, and exceptional delivery service. We also conduct free orientation for anyone who is willing to learn. It is our advocacy to share our knowledge & experience worth more than a decade in the business. Visit our website today at www.excelsior.ph to learn more about us and our service.