The tensions between Russia and Ukraine are continuing to throw a bigger degree of instability into the existing geopolitical order. After steadily building up speed throughout 2021, it is anticipated that the economic recovery will begin to slow down. The most noticeable effects on the economy are being felt in the commodity and logistics sectors, both of which have experienced fast cost inflation as a result of recent events. The growth prospects of major economies are expected to be impacted if there is a significant increase in the pricing of major petroleum products and food staples. It is anticipated that they will contribute to the already high levels of inflation in the economies of Europe, particularly those economies that are more dependent on commodities coming from Russia and Ukraine.
Even while the price of oil and its availability have continued to be a source of concern for many economies, China and India have been successful in securing supplies of oil from Russia at reduced costs. On the other hand, as a direct result of the sanctions, other nations have been conducting research to identify viable alternatives to the current sources of fuel. The most recent condition imposed by Russia, which requires other nations to pay for its oil in roubles, has added additional strain to the economies of countries all over the world, many of whom are highly reliant on Russia’s energy exports.
Influence on freight transportation via ocean, air, and rail
On the economic level, the war has had little to no effect on commercial flows because they take place on the sea. Perhaps the most significant effect that the war has had on ocean freight is that it has caused disruptions to the flows to and from Russia. Because Maersk and other large shipping firms have ceased taking orders to and from Russia, there is a possibility that this will have a negative impact on trade in general on a worldwide scale. Even Nevertheless, shipping rates from Asia to Europe and the United States have remained generally consistent and have decreased over the past few months; despite this, they are significantly higher than they were this time last year. On March 24, 2022, Derry’s World Container Index reveals that total costs have fallen to $8,470 per 40-ft container. This represents a decrease from the previous reading of $9,010. This is a decrease of 10.6 percent compared to the container costs of the previous month, an almost 10 percent decline from the middle of January 2022, and a decrease of more than 18 percent from the all-time high reached in September 2021. The cost of travel on all routes that were predicted to become more difficult as a result of the conflict between Russia and Ukraine has decreased. Between March 17 and March 24, 2022, there was a decrease of around 2-8 percent in the rates that applied to routes between China and Europe and China and the United States. 1
These tendencies in the shipping sector are also indicated by Freightos, which is an online marketplace for the shipping industry. Freightos published one of its recent research notes on March 22, 2022. In spite of the rising number of coronavirus infections in China’s major port towns, port operations have not been significantly hampered to the same degree as they were in Yantian a year ago. However, China’s overall export volumes for the month of February 2022 were lower, which is mostly attributable to the fact that shipping prices have become more competitive. On the other hand, the note suggests that the reduction in rates may only be temporary, and that future increases can be anticipated as a result of the growing amount of transactions.
According to the most recent Global Port Tracker, which was released in the United States by the National Retail Federation and Hackett Associates, the level of demand for imported goods in the United States remains high, and it is likely that this level of demand will continue to be high because of the stronger economic recovery in that country.
2 The note, which is supported by data from Freightos, indicates that although imports from Asia were decreased month-over-month in February 2022, they were over 11 percent higher compared to the previous year’s totals. According to the projections made for the following few months, there will be a significantly higher demand in the logistics industry, which will lead to an increase in traffic at the ports. In contrast to what was anticipated, it appears that the ongoing war between Russia and Ukraine has maybe relieved some of the strain that was being placed on ocean freight, which has led to an increase in the number of blank sailings to Europe. The current demand slump and the easing of pressures on ocean freight rates are both being greatly influenced by inflationary pressures, which are also a significant contributor.
On the other hand, air freight charges continue to increase despite the fact that demand has been decreasing over the past few years. According to the most recent update on the Air Freight sector that was provided by DHL, the ongoing conflict between Russia and Ukraine has had an effect on 17% of all worldwide trade that is conducted via air. Manufacturing and cargo transit across a variety of trade routes have been negatively hampered as a result of the conflict, which has led to the closure of airspaces and increased levels of uncertainty regarding demand. The closure of the Russia–Ukraine airspace has resulted in significantly longer transit times on main routes, which has further constrained capacity. In addition to this, there are concerns with labour at key airports in Europe and the Asia-Pacific region, which has led to disruptions in warehouse activities and additional delays in transit times3.
The conflict has also had a significant negative impact on rail freight, which has led to the majority of the freight flows being diverted to the ocean. The most vital train link connecting China and Europe is currently experiencing interruptions since the violence is taking place in sections of Russia and Ukraine where the link passes through. It was a key alternative to ocean trade in 2021, when port container constraints were at their worst, and the China-Europe rail link transported products worth $75 billion last year. Because of this, a significant portion of the traffic that once passed between China and Europe via rail has been diverted to the maritime trade route. Because of this, there has been a negative impact on trade between Vietnam and Europe due to the fact that the rail link that connects the two regions has also been temporarily severed. Because of this, it is quite possible that trade flows originating in Bangladesh and that were previously being directed through China will be disrupted.
The effect the conflict has had on the textile and garment industry
Because of the sanctions, problems with making payments are a primary source of concern in relation to trade flows with Russia and particularly in relation to Asian countries like Bangladesh and Vietnam. This is a huge concern. The textile and apparel industry in Asia and India could suffer as a result of this; however, the demand for textiles and apparel in Russia is not nearly as substantial as it is in other countries. Figure 1 shows that every month, Russia purchased between $650 and 700 million worth of textile and apparel products from Asian countries. Of this total, approximately half consists of just garment imports. If Russian imports come to a halt or drastically decrease for an extended period of time as a result of the sanctions, it will cost the Asian countries close to $1-2 billion or more in export income. The exact amount will depend on how long the situation persists. It is anticipated that China will see a far more significant impact than other nations due to the fact that the majority of China’s textile and clothing exports go to Russia and total close to $400 million per month. However, China’s exports have been greatly damaged by problems with the country’s internal supply as well as an increase in the number of COVID-19 infections. Bangladesh is the second largest exporter to Russia and its monthly shipments to that country are close to $90-100 million. Every month, India sends approximately $18-20 million worth of textiles and apparel to Russia. It is possible that India’s export revenues may decrease by an amount equivalent to this sum in the months to come.
The rising cost of vital raw materials like crude oil and the rising cost of food, which in turn affects the cost of labour, is one significant reason for concern for the global textile and clothing sector. Other causes of concern include climate change and political instability. Several of the economies in Asia are highly reliant on commodities imported from Russia, particularly coal and oil, as well as food supplies from Ukraine. According to the most recent report from UNCTAD on the situation in Russia and Ukraine, Turkey, China, Egypt, and India are the nations that are the most reliant on food imports from Russia and Ukraine. It should also be noted that these are key textile and garment providers on a global scale. It is anticipated that the skyrocketing inflation in Turkey, which reached over 54.44 percent in February 2022, will have a substantial influence on the nation’s ability to source goods and services. Inflation measured by the consumer prices index in Bangladesh has also risen sharply, reaching 6.17 percent. This is primarily attributable to an increase in the cost of food.
On the other hand, it is anticipated that there would be a significant influence on the demand for textiles and clothes as costs of textile-apparel and leather items are additionally anticipated to climb considerably. The statement from UNCTAD estimates that there will be an increase in consumer prices for textiles, clothes, and leather products of ten percent because of an increase in the rates for container freight. The scope of the analysis is limited to the influence of future freight rates because such prices have not yet been determined. On the other hand, when the expenses of labour and raw materials are incorporated into consumer pricing, the actual impact may end up being significantly greater.