The ongoing war between Russia and Ukraine has had a significant impact on the global logistics market at every level. The pandemic-related challenges, such as limited warehouse capacity and container availability, had begun to subside when the war emerged, causing further disruptions. The hostilities have hindered the smooth flow of goods, leading to increased costs and product shortages, including food shortages on a catastrophic scale worldwide.

Russia’s destruction of Ukraine’s agricultural infrastructure has disrupted the entire supply chain, with the blockade of the Black Sea and Azov Sea further exacerbating the issue. Early, Ukraine’s grain shipments were hijacked, worsening the supply chain disruption. However, in July, the two countries signed a UN agreement to unblock Ukrainian grain exports from three Black Sea ports to alleviate the shortages. Nevertheless, shortly after signing the agreement, Russia launched a missile attack on Odesa’s seaport, adding to the uncertainty and turmoil.

As a result of these developments, the supply chains worldwide have experienced a snowball effect, with widespread disruptions and supply shortages.

Rise in Gas and Oil Prices

Following Russia’s invasion of Ukraine, oil, coal, and gas prices saw a significant surge and have since remained unstable. In December 2021, the possibility of a Russian invasion of Ukraine led to mounting volatility in energy commodity prices. Within the first two weeks of the invasion, the prices of oil, coal, and gas increased by approximately 40%, 130%, and 180% respectively. The rising gas prices also pushed up wholesale electricity prices in the euro area.

Since then, there has been a moderation in energy commodity prices, with oil and coal prices standing 27% and 50% higher than their levels before the invasion, while gas prices are currently 11% lower. However, oil prices have recently started to rise again, driven by the EU’s decision to embargo most Russian oil imports and increased global demand due to China’s easing of COVID-19 restrictions. Wholesale electricity prices are currently 8% higher than before the invasion and have remained highly volatile, impacted in particular by policy measures taken in response to the price increases.

Rise of Food Prices

Russia – Ukraine war has had a substantial impact on global food prices, with grains experiencing a particularly sharp increase. However, measures such as the EU’s solidarity lanes (routes created to aid Ukraine in exporting agricultural products) and the Black Sea Grain Initiative have helped to mitigate this effect, resulting in a decrease in prices.

• In Europe, natural gas prices increased by approximately 120-130% within the six months following the start of the war, while coal prices rose by 95-97% during the same period.
• The prices of soybean, corn, and crude oil – products of which Russia is the leading producer – have been steadily increasing since the start of the war.
• The pandemic has already led to a surge in demand for fertilizers, primarily for crops and animal feed. As a result, fertilizer prices were already high before the war. Additionally, household stockpiling of various products and the recent shipment crisis have further exacerbated the situation by causing shortages in several areas.
• Russia and Ukraine are key suppliers of fertilizers, and the destruction of farmland and commercial constraints due to the war have raised concerns regarding fertilizer exports, which in turn impacts food and grain supplies.

Logistical Problems: Port Congestion, Limited Container Availability, and Supplementary Costs

Russia – Ukraine war resulted in several ports being closed, which in turn led to an increase in ocean shipping costs. As a result, ships were rerouted, leading to congestion and delays in cargo flows, further exacerbating the already fragile global supply chain. Additionally, sanctions and restrictions prompted a shift from rail transport to ocean transport, adding more pressure and causing a more severe container shortage.

The shortage of containers and other logistical difficulties resulted in substantial price increases for many essential commodities, such as grains, which rose by roughly 60% from February to May 2022.

Container Shortage

The ongoing war has caused a significant surge in one-way pickup rates in India due to container shortages, creating chaos during the peak shipping season. The U.S. is also experiencing port congestion as a result of canceled orders and delayed shipments, which has led to an increase in container vessels anchored off Savannah and Houston, and a shift away from the U.S. West Coast. As a result of these issues, ocean carriers are canceling sailings, leading to significant productivity problems at the ports.

On the East and Gulf coasts, high container delivery volume is pushing prices up and resulting in fast-increasing warehousing costs. Warehousing costs rose by approximately 8% from January to August 2022. In contrast, container volume in China has decreased as manufacturing orders are being pulled back, which is impacting congestion conditions at the port.

Despite these challenges, various new projects are being launched to alleviate the situation in the logistics sector. For instance, Fuzhou, the capital of east China’s Fujian Province, launched the China-Europe long freight train named ‘Mindu’ in July 2022. The train is expected to travel 20 days faster than the sea route, providing some relief.

Sources: European Council Data: https://www.consilium.europa.eu/en/infographics/ukrainian-grain-exports-explained/.

International Journal of Mechanical Engineering, Russia-Ukraine war and risks to global supplychains, Vol. 7 No. 6 June, 2022.

United Nations Conference on Trade and Development, The War in Ukraine and its Effects on Maritime Trade Logistics, 28 June 2022: https://unctad.org/system/files/official-document/osginf2022d2_en.pdf