Transportation & Logistics Analysis

The geopolitical situation is keeping freight rates at high levels

March 11 2022

As the pandemic continues to block any change in the situation in Asia, the war in Ukraine has come as a new blow to market operators which depend on shipping services.

On 24 February 2022, Russia began its invasion of Ukraine. At the start of March, the leading shipping companies announced that they were taking no more bookings in and out of Russia, and a few days later in and out of Belarus.

These decisions have a small effect on their business activity. On the other hands, the conflict has resulted in a de facto virtual closure of the Black Sea. The war in Ukraine is also causing serious disruption to rail freight traffic between Asia and Europe, most of which goes through Russia.

Moreover, since the start of January, the price of Brent crude oil has been increasing and this trend has been accentuated by the conflict between Russia and Ukraine. Fuel is at record levels. The price of low sulphur fuels rose to more than USD800 per tonne on the open market in Rotterdam and Singapore. This is nearly double the price seen two years ago.

Multiplication of surcharges

Just as the period of relative calm on the Covid-19 front looked to have opened the way to an easing of rate tensions, Russia's invasion of Ukraine brought a new source of destabilisation. A return to lower rates and supply chain resilience is not on the agenda for the moment, therefore. Unsurprisingly, freight rates have stayed at high levels on all the major trade routes.

In addition to high freight rates, moreover, fuel surcharges will increase and now surcharges for war risks are going to be introduced. Another factor contributing to higher prices was the announcement from the Suez Canal Authority that it was increasing transit charges by up to 10% from 1 March on. Finally, congestion remains and delivery times are as uncertain as ever.

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Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).
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