Ukraine war constricts trade, inflates shipping costs: UN report

The war in Ukraine is adding to the challenges posed by the COVID-19 pandemic and the climate crisis, increasing the cost of shipping and elevating consumer food prices around the world, according to the United Nations Conference on Trade and Development (UNCTAD).

The Russia-Ukraine war is one of several major issues currently affecting international maritime transport, compounding other challenges such as the COVID-19 pandemic, port congestion, and the need to switch to low carbon fuels, said the new report entitled “Maritime trade disrupted: The war in Ukraine and its effects on maritime trade logistics.”

The logistics hurdles in the Black Sea region have contributed to a more costly and unpredictable global trading and shipping environment, forcing many countries to look further afield for suppliers of oil, gas and grain and increasing transit times and costs, the report continued.

“Grains are of particular concern given the leading role of the Russian Federation and Ukraine in agrifood markets, and its nexus to food security and poverty reduction,” the report said.

Grain prices and shipping costs have been on the rise since 2020, but the war in Ukraine has exacerbated this trend and reversed a temporary decline in shipping prices.

The report said that between February and May 2022, the price paid for the transport of dry bulk goods such as grains increased by nearly 60%.

The accompanying increase in grain prices and freight rates would lead to a 3.7% increase in consumer food prices globally.

In addition, the Russian Federation is a giant in the global market for fuel and fertilizer, which are key inputs for farmers worldwide. Disruptions in their supply may lead to lower grain yields and higher prices, with serious consequences for global food security, particularly in vulnerable and food-import-dependent economies.

The Russian Federation is also a leading oil and gas exporter. “Confronted with trade restrictions and logistical challenges, the cost of oil and gas has increased as alternative sources of supply, often at more distant locations, are called upon,” the report said.

Taken altogether, these increased costs imply higher prices for consumers and threaten to widen the poverty gap. UNCTAD said the high container freight costs observed in 2021–2022 will likely be passed on and lead to an additional increase in consumer prices by 1.6% globally. It also suggested that global import price levels will increase on average by 11.9% as a result of sustained freight rate increases.

At the same time, the report found that the COVID-19 pandemic continues to exert pressure on supply chains amid the surge in e-commerce, capacity constraints, equipment shortages, and renewed virus infections in some parts of the world.

“Pressure continued in 2022 so far still exhibiting high port congestion and constrained logistics and transport networks. Median waiting time in ports for container ships increased by almost 20 per cent between pandemic times and the end of 2021,” it said.

“Freight rates surged, surcharges proliferated and service reliability declined while delays and dwell times went up. By the end of 2020, container rates were over five times higher than their 2019 levels; although declining, they remain elevated. New disruptions such as the closing of manufacturing activities and ports in China in the first half of 2022 due to new cases of COVID-19 infections have further disrupted the system.”

The increased costs are a challenge for all traders and supply chains, particularly smaller shippers who are less able to absorb the additional expense and are at a disadvantage when negotiating rates and booking space on ships, the paper said.

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