Russia shipping suspensions: How will it impact the market?
20:15, 1 March 2022
Shares in A.P. Moller-Maersk (MAERSK-B) were down 0.48% on Tuesday afternoon after the Danish company announced that it was halting all container shipping to and from Russia – as Russian President Vladimir Putin continues its assault on Ukraine.
The privately-owned Swiss shipping giant MSC also said it was suspending all cargo bookings to and from Russia from Tuesday.
The statements from Moller-Maersk and MSC follow Japanese container transportation company Ocean Network Express (ONE) and German shipping group Hapag-Llloyd (HLAG) also announcing a halt to operations to and from Russia.
Eddie Donmez, director at Amplify Trading, said it was a “huge” development to see the world's largest shipping companies, MSC and Maersk, suspend all deliveries to and from Russia.
“Reminder – Russia is a major producer and exporter of commodities such as crude oil, refined oil, natural gas, coal, fertilisers, wheat, timber, aluminium and more. This move is likely to exacerbate, already strained supply chains leading to price increases for food, fuel, machinery and much more. The two companies control upwards of 34% of the world’s container fleet.
“If you think developments in Russia and Ukraine don't impact you – think again,” he said in a social media post that he also shared with Capital.com directly on Tuesday.
Maersk: Impact on supply chain flows
Moller-Maersk also said in a statement on Tuesday that it was starting to see the effect on global supply chain flows such as delays and detention of cargo by customs authorities across various transshipment hubs – overall resulting in unpredictable operational impacts.
“It is key for Maersk that we minimise supply chain disruption and do not add to the global congestion in ports and depots. For cargo already underway and bookings placed before this suspension was announced, we will do our utmost to deliver it to its intended destination. Consequently, we will still call Russia although we will not accept new bookings unless they belong in the exception categories mentioned above,” the company said in a press release on Tuesday afternoon.
The company also noted, in compliance with legal regulations and its policies, it was not receiving or making payments to any sanctioned Russian banks, or any other sanctioned party.
Meanwhile, Lars Jensen, chief executive and partner of Vespucci Maritim, told Capital.com that the latest suspensions are not surprising.
“It is a matter of risk management. Whilst it is still perfectly possible to ship cargo to Russia, there is significant uncertainty as to the development of further sanctions. If sanctions suddenly prevent operations into Russia this means that thousands of containers in the supply chain to Russia will get stuck in key ports in Europe and that will worsen congestion problems.
“By temporarily suspending booking acceptance they reduce the amount of containers in the pipeline and hence if there is a cessation of services then the congestion impact on the terminals will be reduced,” Jensen added.
What is your sentiment on HLAG?
Rising insurance premiums for ships
The latest move by Maaersk and other shipping giants follows Russia itself suspending commercial shipping – on exports and on container markets last week in the Azov Sea.
S&P Global Platts pointed out on Thursday to Capital.com that the disruption has also pushed up insurance premiums for ships transiting through the areas impacted, adding to the cost of transporting commodities.
“The Black Sea and Baltic Sea are critical shipping hubs, with crude oil, refined oil products, grain, iron ore and scrap metal all loaded from ports around their coastlines. S&P Global Platts has seen substantial rises in freight costs from both seas today, as several shipowners had ruled out the prospect of trading sanctioned Russian products or placing their ships and crews in harm’s way.
“Aframax crude oil tankers in the Baltic Sea saw an astonishing 200% jump in freight rates in end-of-day London trading, while smaller Handysize ‘clean’ tankers – those carrying refined oil products instead of crude – in the Black Sea were up 33%,” Samuel Eckett, managing editor, freight markets, at S&P Global Platts, told Capital.com
Cost of Putin’s war on shipping
Simon Heaney, a senior Manager at Container Research at Drewry, said in a report sent to Capital.com that the immediate impact of Russia’s invasion of Ukraine on the world economy and container shipping is so far fairly small, but warned it could change quickly.
“The fallout for international container shipping will likely take longer to materialise and the immediate operational threat is relatively low outside of the locality. Retaliatory cyber-attacks that might affect shipping and fast-rising fuel costs are probably the main concerns right now,” he said.
He also highlighted that container shipping is intrinsically tied to the global economy and said it was a “near certainty” that Putin’s actions will lead to more market volatility.
“Economists will be furiously calculating just how much damage will be caused, but the early signs suggest that the initial invasion will not cause that much of a ripple,” he said.
On the market outlook for the container shipping market, it was also noted by Heaney that it is within the realms of possibility that a trade slowdown will be steep enough to release some of the pressure on the container supply chain, which would give ports time to decongest.
However, “war would be far too high a price to pay for that cure,” Heaney added.
Markets in this article
HAPAG-LLOYD AG NA O.N.