The Tentacles of Trade are Constricting Russia’s Economic Oxygen

Before the pandemic, the flow of trade and logistics was an afterthought. Now, the world knows how important trade is for a country’s vitality. In the last several days, the maritime sector and its participants are joining together to support the Russian sanctions. The flow of trade is the lifeblood of any country. 90 percent of everything in your home is transported by ship. These actions will strangle Russia’s economy.

 In a flurry of announcements, ocean carriers, Singapore's Ocean Network Express (ONE), Germany's Hagpag Lloyd, Denmark’s Maersk, and MSC Mediterranean Shipping Company owned by the Aponte Family, have announced a temporary stoppage on all cargo bookings to and from Russia. It is important to note, falling silent in this global sanctions support is DP World’s CMA-CGM / Containerships and Unifeeder. DP World is an Emirati multinational logistics company. DP World's carriers provide a major share of capacity toward St. Petersburg, have not yet commented on plans with regards to Russia.

  Countries around the world have also announced port closures to Russian Ships are also seizing vessels linked to sanctions. A Russian-flagged oil tanker on Tuesday was not allowed to call at Malaysia's Kuala Linggi port. Monday, the United Kingdom announced a ban on all vessels associated with Russia from entering any of its ports. France was the first country to enforce sanctions with the seizure of the car cargo ship, "Baltic Leader" in the English Channel on Saturday. Washington says the vessel was linked to the son of a former Russian spy chief. Dutch customs has currently stopped all shipments toward Russia. The Netherlands has also announced a ban on all vessels associated with Russia. European Union officials say they are considering a similar ban

Clemens Schapeler , Project Manager and Head of Ocean Market Intelligence for the cloud software company, Transporeon GmbH explained, “One by one almost all major European carriers, including the usually swashbuckling Mediterranean Shipping Company, as well as Japanese ONE have decided to stop bookings to and from Russia. This includes bookings toward northern ports like St. Petersburg (the former Leningrad) not in any way threatened by the war, so this booking freeze is clearly politically and commercially motivated. The short notice move is heavily disruptive to supply chains of international companies producing in or sourcing from Russia. The two key questions right now are: Will the state controlled Chinese carrier Cosco and its alliance partners follow this move or will they continue to call Russian ports? Will operations on the China to Europe container rail connection (“New Silk Road”), passing through Russian continue? If not this would severely impact also European companies doing business with China. Many European manufacturers rely on Chinese components for their production and in combination with current capacity shortages in container shipping a suspension of the China to Europe container rail connection would severely disrupt production on both ends.” 

Local and global transport and logistics research company MDS Transmodal (MDST) quantified the trade restrictions.

 “We ran a summary of how much capacity the big players that have announced suspensions in their booking account explained Antonella Teodoro, senior consultant at MDST,  “They account 40- percent of capacity made available to Russia. This is already a significant percentage, which can grow higher quickly should other large carriers take similar decisions.

  ENERGY BREAK OUT

 It is key when following the flow of trade who are the participants in moving Russian Energy. Market intelligence company, VesselsValue broke out the top carriers of Russian Energy. 

Peter Williams, Trade Flow Analyst at VesselsValue said, there are currently around 50 vessels in the Sea of Marmara heading to the Ukraine and Russia waiting to transit the Bosphorus Strait, with Bulker, Small Dry and Tanker vessels making up the majority of these. 16% of these vessels are under some element of Russian management. 

“In 2021 alone, there were nearly 3,000 dry bulk journeys that passed through the Bosphorus ending in Ukrainian or Russian ports, equating to a total of 15,406,010 MT, said Williams. “Another 15 vessels are seen to be currently congregating around the Southern entrance of the Dardanelles Strait, predicted to be heading to Ukraine and Russia. Vessels originally destined for Ukrainian ports through the Kerch Strait are now clearly changing course to wait or divert, behavior that we expect to see more of in the coming hours/days.”

 Jan Hoffmann, head of the Trade Logistics Branch, Division on Technology and Logistics for the United Nations Conference on Trade and Development (UNCTAD) said, “The fact that the major shipping lines stopped calling at ports in Russia and Ukraine will further worsen the maritime container shipping crisis, as capacity – ships, containers – has to be re-deployed in a market which at present has zero spare capacity”.

This in addition to forwarders DHL, FedEx, and UPS who have stopped bookings to and from Russia will only add to the chock hold on Russian trade.