UNCTAD, a permanent intergovernmental body established by the UN in 1964, has carried out a “rapid assessment” of the war’s impact on trade and development.
It shows a “rapidly worsening” outlook for the world economy, “underpinned” by rising food, fuel and fertilizer prices.
“The war in Ukraine has a huge cost in human suffering and is sending shocks through the world economy,” UNCTAD Secretary-General Rebeca Grynspan said in a statement. “All these shocks threaten the gains made towards recovery from the COVID-19 pandemic and block the path towards sustainable development.”
Global transport sector is affected
Since the outbreak of war there have been a series of restrictions on transport through Russia and Ukraine. Russian airspace is closed to 36 countries and vice versa. Air freight carriers may have to fly alternative, longer and more expensive routes. Meanwhile, some freight forwarders are now recommending that shippers should not book overland shipments between Asia and Europe. Both Russia and Ukraine are key countries for the Asia-Europe land route.
“Already expensive and overstretched maritime trade will find it difficult to replace these suddenly unviable land and air routes,” the UNCTAD said.
Impacts on global container shipping
It added that 1.5 million ocean containers were shipped by rail west from China to Europe. “If the volumes currently going by container rail were added to the Asia-Europe ocean freight demand, this would mean a 5 to 8 per cent increase in an already congested trade route. Indeed, due to higher fuel costs and re-routing efforts, current container shipping carrying capacity is being constrained.”
The UNCTAD argues that one impact of the war will be higher freight rates, adding that “Due to higher fuel costs, rerouting efforts and zero capacity in maritime logistics, the impact of the war in Ukraine can be expected to lead to even higher freight rates”.
However, there are numerous countervailing factors to consider. As the UNCTAD report itself noted, “global container rates seem not to have risen, but rather continued their recent slightly downward trend from earlier record highs”.
Freight rates are currently on a downward trend
Freightos data shows that, since the outbreak of Russia’s war on Ukraine on 24 February 2022, freight rates on the Asia-Europe and the Europe-Asia routes have generally trended downwards. However, freight rates on the Asia-US (trans-Pacific) routes have generally (but now always) trended up on both the front-haul and the back-haul routes.
Meanwhile, data from the Shanghai Shipping Exchange shows a similar story. Exports from China to the world have trended down by an average of 1.6 percentage points (range -0.7 points to -2.4 points). Freight rates on export routes from China to Europe, the Med, the U.S. West Coast and the U.S. East Coast.
Export rates from Australia-New Zealand have generally declined markedly since the end of January, having fallen by about 209 index points. The average weekly percentage fall from China to the ANZ region since the end of January to 11 March has been about minus 1.9% per cent week, but that disguises percentage falls of about 4% at the end of January and again in early March, with large percentage falls in other weeks. However, the China-ANZ index rose 1.8% on 11 March.
Import freight rates to China show a somewhat similar albeit less pronounced story. Freight rates to China are, on average, slightly down. The route from Europe (not Med) is strongly down; the Med to China rate appears to have a rally in the last couple of weeks; rates from the U.S. (both coasts) are somewhat flat (there was an immediate fall post-invasion followed by a rally), while routes from ANZ to China have had two down-weeks and two rallies.
Fuel prices are currently volatile… but they’re always volatile
Meanwhile, on the fuel side of things, it is not entirely clear what impact fuel prices are having. Marine fuel prices are volatile. They are subject to frequent swings both up and down and have been so for at least the last three years.
For instance, a tonne of Very Low Sulphur Fuel Oil (Singapore) cost up to USD$734.00 at the end of 2019, but fell to USD$206.50 / tonne by late April 2020 but hit USD$648.50 / tonne at the end of 2021. Since the invasion, VLSFO hit USD$1,027.50 / tonne in early March but that has already fallen to USD$810.50 / tonne. That’s still high, to be sure, but it’s not a million miles from previous highs. Shipping companies tend to charge a bunker (fuel) adjustment factor on either a quarterly average or a monthly average, so it remains to be seen what effect higher fuel prices will have.
Huge supply of shipping capacity is slowly entering service
A key driver of freight rates is the supply of shipping capacity. At the end of 2021, it was estimated that the fully cellular fleet increased in size by about 144 ships and 1.1 million TEU. By the end of 2022, it is forecast that the fleet will increase in size again by another 175 vessels and another 1.05 million TEU. There’s an even bigger increase forecast for the end of 2023 based on existing orders. All of this extra capacity ought to put downward pricing pressure on freight rates.
World grains sector
Meanwhile, UNCTAD notes the world grains sector, especially corn (maize), barley, wheat and oilseeds (e.g. sunflower) is substantially supplied by Russia and Ukraine together account for about 14% of corn supply, 23% of barley, 27% of wheat and 53% of oilseeds. Supply of these foodstuffs is mostly to European and near-Europe nations, along with China and India. However, the impact on lesser developed nations, especially in Africa, could be adverse as they primarily import wheat from Russia. A further issue for lesser developed nations is the spike in fertilizer prices, the UNCTAD notes.
There is also competition for such agricultural products around the world with rising populations and incomes. Import demand has increased in some of the world’s largest wheat importing countries, the Australian Department of Agriculture, Water and the Environment noted in its March Quarter 2022 agricultural outlook.
This article is shared by courtesy of Shipping Australia Limited – organisation which promote and advance the interests of ship owners and shipping agents in all matters of shipping policy and safe environmentally sustainable ship operations. www.shippingaustralia.com
For more news about the conflict between Russia and Ukraine, see here.