Russia-Ukraine war, high fuel prices to drive up PH cargo transport rates

Image by Gerd Altmann from Pixabay
  • Shipment delays and higher ship insurance premiums due to the Russia-Ukraine war are jacking up shipping costs
  • The significant jump in fuel cost is forcing truckers and freight forwarding companies to increase trucking charges
  • Higher fuel costs will result in a jump on fuel surcharges of international air carriers
  • Some countries’ flight bans on Russia aircraft will impact air cargo and add to difficulties encountered by the industry during the COVID-19 pandemic
  • Shippers concerned with “nightmare” inflation
  • Improvements in infrastructure to help lower logistics cost in the long run

Rates across the Philippine cargo transport industry are expected to go up amid already persistently high fuel prices further exacerbated by the Russia-Ukraine war.

Representatives of freight forwarding, trucking and shippers’ associations in the Philippines all agree that higher freight charges are the key consequence of the Russian invasion of Ukraine.

Association of International Shipping Lines (AISL) president Patrick Ronas said the war will increase shipping costs due to shipment delays and higher ship insurance premiums.

He told PortCalls in a Viber message the closure of Russian and Ukrainian ports means onboard cargo will be discharged in other ports in Europe, adding to already congested ports. Shippers will then still have to wait for information on whether their shipments will be loaded on a feeder vessel or trucked.

“Problem is, when will borders open?” Ronas asked.

Russia on Feb 24 invaded Ukraine, describing its action as a “special military operation.”

Ukrainian “ports will be shut until the end of Russian aggression on our territory and (we can) restore the ability to provide maritime security for commercial vessels,” Vitaliy Kindrativ, head of Ukraine’s Maritime Administration, was quoted by Reuters as saying on Feb 28.

Mariupol, the main port in southeast Ukraine, sustained damage from Russian shelling, according to Kindrativ.

Russian naval authorities said in a statement on February 28 that more than 40 ships are awaiting entry into the Azov Sea, situated off the southern shores of Ukraine and Russia, while nearly 170 ships are stranded across all of Russia’s seaports.

While Russian ports are operating as normal, many shipping lines have already stopped accepting new bookings to Russia. Rotterdam, Antwerpen, Hamburg port and customs authorities have also announced customs checks of goods to Russia.

READ: Major container lines suspend new bookings to Russia from March 1

Global logistics companies FedEx and UPS have also announced they are both halting inbound shipments to Russia and Ukraine, while DHL said it has suspended international shipping services to Russia, Ukraine, and Belarus.

Insurance premiums for ships passing in the war-affected region will also rise, Ronas said.

And they have already done so, according to a Feb 25 report by Reuters.

“Insurers have raised the cost of providing cover for merchant ships through the Black Sea, adding to soaring rates to transport goods through the region for vessels still willing to sail after Russia’s invasion of Ukraine,” the news agency said.

Asked about mitigating measures that carriers will be implementing, Ronas said it is “too early” to tell as carriers as of the moment “are trying to fix what cargo is on the water going to Russia and Ukraine.”

Even before the Russia-Ukraine war erupted, domestic shipping operators had already imposed bunker fuel surcharges to recover high fuel costs due to rising global oil prices, according to Philippine Liner Shipping Association president Mark Matthew Parco.

READ: Costlier crude forces local carriers to impose fuel surcharge

Fuel accounts for a considerable chunk of shipping lines’ operating costs, usually recovered through higher rates or surcharges.

Higher fuel

Philippine Multimodal Transport and Logistics Association (PMTLAI) president Marilyn Alberto, in an email to PortCalls, said the significant jump in fuel cost is forcing truckers and freight forwarding companies to increase their trucking charges.

“We can expect trucking cost to spiral as fuel cost continues to increase,” Alberto noted.

Significant increase in fuel costs will also result in a jump on fuel surcharges of international air carriers.

Even prior to Russia’s invasion of Ukraine, the Philippine Civil Aeronautics Board already upgraded to Level 4 the passenger fuel surcharge airlines may charge from March to April 2022 as jet fuel prices continue to increase. Level 4 is the highest surcharge airlines may charge since CAB in July 2021 announced the reimposition of fuel surcharge.

Alberto noted that to date, freight forwarders have yet to receive any announcement on flight cancellations from/to Manila due to the Ukraine invasion. She added that Asian carriers as of March 2 still continue to fly in Russian airspace.

On the other hand, the European Union, Canada, the United Kingdom, and Baltic and Nordic states in recent days have barred all Russian-owned, -registered and -controlled aircraft from overflights in their territories.

Alberto said the Russian ban on EU and UK carriers using their airspace has created difficulties for European carriers flying to East Asia. Alberto said rerouting of flights would mean longer flying hours, more fuel consumed, higher costs, and longer transit times.

The flight bans are seen to impact air cargo and will add to difficulties encountered by the industry during the COVID-19 pandemic.

For sea freight, Alberto said even if the country does not have significant trade with Russia and Ukraine, “we might also be suffering from the ripple effect (both in cost and transit times) of the suspension of services and the delays in different ports due to inspections of export and transshipment cargo bound for Russia in compliance with sanctions and export controls recently imposed by different jurisdictions.”

Increase in trucking fees

Confederation of Truckers Association of the Philippines (CTAP) president Maria Zapata said some truckers have already asked clients for an increase in rates since fuel rates have been surging even before Russia’s invasion of Ukraine.

West Texas Intermediate crude futures breached $110 per barrel on March 2 as the International Energy Agency warned that global energy security is under threat following Russia’s invasion of Ukraine.

High fuel rates also jack up prices of truck parts and accessories and maintenance costs, Zapata told PortCalls in a phone interview.

She expects any increase will, however, not mean double the existing charges, with truckers taking in consideration the pandemic-hit economy. She said they acknowledge many businesses are just starting to recover with the easing of restrictions.

“So dapat wala lahat magsasamantala (No one should take advantage),” Zapata noted, adding she hopes stakeholders can also be considerate of truckers.

Zapata said the government can help minimize high operating costs by preventing hindrances to operations such as eliminating truck bans and pass-through fees.

The CTAP Board is meeting this week and eyes the release of an advisory to stakeholders on the high fuel rates. It also plans to coordinate with agencies such as the Export Development Council and Philippine Economic Zone Authority.

Nightmare inflation

Meanwhile, shippers are concerned about “nightmare” inflation, already being experienced by other countries, according to Supply Chain Management Association of the Philippines (SCMAP) president Pierre Carlo Curay.

“For the longest time and with multiple peak oil situations, the runaway price of crude oil always has a negative effect, especially for countries that are net importers. Unfortunately, we are one of those,” Curay told PortCalls in a statement.

Asked what measures can help mitigate effects of the Russia-Ukraine war, Curay said: “What’s going for us, we have one of the highest potential for growth, so it could help in the short term as people will be still spending. Personally, I think to mitigate further risk, time to implement plans for these kinds of situations or revisit and adapt supply chains. Global supply chains already strained as it is with the effects of the pandemic.”

He added: “I don’t know how the government can subsidize with our ballooning debt although our debt-to-GDP ratio is currently at almost 60%, and our highest was at around 80%. Hopefully, where some of the major infrastructure projects that are already completed and some will be completed this year or the coming months, this will provide the positive effects in terms of lowering logistics cost.”

As an example, he said, travel time to deliver highland vegetables from Baguio to Metro Manila has shortened dramatically due to new roads and has cut cost by an estimated 20% or even more.

“So this kind of improvement due to the built infrastructure will help drive down costs,” Curay said, adding his recommendation in the long-term is to continue infrastructure projects, especially rail and bridges. – Roumina Pablo