Ukraine crisis hits supply chains; air freight feels the impact

Singapore

GLOBAL supply chains, which have barely been able to recover following more than two years of disruptions due to Covid-19, are being further roiled by the Russia-Ukraine conflict.

The impact is already being felt on the air freight front. In addition to dealing with surging fuel prices, firms have to also deal with the repercussions of disruptions to air transport as Europe, Canada, the United Kingdom and the United States have banned Russian flights from its airspace.

"Airlines are now taking southerly routes for flights between Europe and East Asia, which add to journey times," said Raymon Krishnan, president of The Logistics and Supply Chain Management Society.

It also leads to extended flight time, increased fuel cost, and reduce available capacity.

But of bigger concern is the fact that full freight carriers such as Moscow-headquartered AirBridge Cargo have suspended operations into Europe and many passenger carriers are doing or contemplating doing the same, said Dr Krishnan.

He further noted that large Antonov aircraft operators are also being refused landing rights in certain countries.

"This reduced capacity, along with the increase in fuel prices and war risk surcharges that are now being implemented by many carriers, means that rates in Q3 will see a significant increase."

Flexport in its market update too noted that fuel surcharges will likely be passed on in the coming months.

"Fuel surcharges are increasing as the Iata (International Air Transport Association) jet fuel index hits the highest rates since 2015. Expect these high fuel surcharges to be passed through by the airlines for the coming months as the crisis in Ukraine continues," it said.

Ken Ngan, honorary treasurer of the Singapore Logistics Association (SLA) also warned that as fuel prices go up, sea freight's bunker adjustment factor (BAF) will increase accordingly.

Another factor that might affect both sea and air freight rates is if liners and airlines impose higher insurances for war-risk related factors, pointed out Ngan.

Meanwhile, the association does not expect the war to "greatly intensify the existing congestions and delays" for Singapore's air and sea freight at the moment.

Dr Krishnan agreed that transit times for sea freight should not be adversely affected but as with air freight, "we expect to see an increase in rates, but not as drastically as that expected in air freight in the near-term."

Meanwhile, the increasingly busy China-Europe rail and road services will be key.

"Fifty per cent of all EU-bound rail freight enters via Russia and Belarus. Therefore, any further sanctions of slowing or stopping bilateral trade between China and Europe via this mode will have a greater impact on sea or air freight as cargoes will be re-routed to other alternative modes and routes from China to the rest of Europe," said Ngan.

Forwarder Scan Global Logistics said that despite no current actual impact, it is "foreseen that rail freight eventually will be impacted and delays will come into effect".

"Routes based through Turkey and the Southern Caucuses are likely to be the beneficiaries of disruption," said Dr Krishnan.

"There is no upward pressure on these rates for the immediate month or so."

READ MORE:

• Asset managers freeze funds with notable exposure to Russia as sanctions bite
• Russia seizes key southern Ukraine city of Kherson after week of war
• Singapore pump prices rise as Brent surges past US$115 a barrel