In times of war, supply chains matter more than ever, not only for the obvious supplying of military equipment, but for the delivery of food and medical supplies for the innocents caught in the crossfire.
As battles rage, the operators of supply chains have had to adapt their logistics efforts to meet the new demand, and in Ukraine freight forwarders made necessary changes as the conflict began.
Speaking exclusively to The Loadstar, regional consultancy Informall highlights how the new supply chains work, with Ukrainian ports now closed as the war continues to obstruct the normal supply lines.
Food and medical supplies, as well as military equipment, arriving from all over the world are being consolidated in Poland and then transported via a northern route by truck into Ukraine.
Medical and food supplies in the south travel via Romania and Moldova. Freight imported into Romania is then trucked in the container to Moldova, then destuffed for transport to population centres by truck in Ukraine, where local authorities distribute the goods as necessary.
Then, empty containers can then be used by Moldovan exporters to send goods, including wine and agricultural products, to previously difficult-to-reach markets “with no extra charge for the delivery of the empty container”, said Informall.
With all Ukrainian terminals closed and the railways destroyed, these routes have become the most efficient methods of supplying the millions of non-combatants caught in the war.
Regionally, the Black Sea market has been affected by the broader economic shocks that have hit supply chains all over the world, including the Covid pandemic and subsequent congestion in various parts of the world which has affected all markets.
That effect has seen the rise of feeder operators in the Black Sea region, as global operators redeployed tonnage previously operating there to more profitable trades.
“Mainly, the Black Sea region operates as a combination of feeder services to major container hubs in Turkey and other East Mediterranean terminals, with further transhipment onto ‘mother vessels’,” explained Informall.
While global and regional operators have similar strategies, the company said its operational approaches were different. Global carriers seek to optimise the use of their tonnage, while regional operators aim for commercial efficiency.
“Basically, global operators’ main idea is to manage container allocation and ensure well-co-ordinated positioning of empty equipment within a region, whereas their final goal is to generate freight flow for their ‘money maker’ ocean services,” said Informall.
The consequence of that approach is that regional freight rates decline to unsustainable levels, so regional players only ply their trade on more sustainable routes.
That all changed with the pandemic, as global carriers sought to return empty equipment to Asia to take advantage of the soaring spot rates on the Pacific and Asia to Europe trades.
“Naturally, global carriers are focused on the volumes to direct ports in Europe, giving favour to areas with short intermodal leg hinterlands. Global operators collect available empty containers within the region and rush off to boost their ocean capacity.”
As a result, Informall says, global carriers “regularly reject regional, bookings into and out of the Black Sea”.
That has seen upward pressure on regional spot rates, as competition declined, but made the Black Sea trades viable for feeder operators.
“For instance, rates from a Turkish hub to Ukraine and Russia today are almost twice as high as in pre-pandemic times, and there are no expectations for rates to plunge. Increased regional freight rates and decreased global carrier activity allowed regional lines to grow and develop new services. Taking into account that both Mediterranean and Black Sea markets keep growing, it is certainly a positive trend for regional shipping lines,” said the consultant.
Two more regional trends are leading to the hope that the Black Sea and Mediterranean regions are benefiting from some of the major supply chain upheavals. According to Informall, the first is that the unstable nature of supply chains, particularly out of China and other parts of Asia has led shippers to shorten supply chains which would also lower freight costs in this period of high-rate inflation. Even though the major trades are showing signs of softening.
Moreover, the consultant says, increasing labour costs in China and parts of Asia are leading shippers to relocate manufacturing centres to the Mediterranean and Black Sea.
Informall concludes that these trends will have a positive impact on regional trade.
“As an example, Turkey is one of the biggest in terms of regional trade volumes on a wide range of goods and commodities. Its geographical location and production capabilities may attract certain traders previously oriented on the Chinese market, which in turn will create opportunities for regional lines. We believe these trends together will positively affect the positions of regional carriers in the near future, allowing them to develop new line services.”
Even as the war rages in Ukraine, one of the five major Black Sea trading nations, the roots for the regional recovery from conflict are being laid. It is a situation that, Informall believes, could benefit all the Black Sea nations, including the belligerents to the east.
