The conflict between Russia and Ukraine has caused freight rates to continue to rise, and the United States has strictly controlled shipping companies' "excessive charges"

The ongoing Russia-Ukraine conflict in recent days has had a certain impact on many areas such as the global economy, trade, and shipping. After the outbreak of the Russia-Ukraine conflict, some European countries have taken multi-faceted sanctions against Russia. Even Russia's cats and trees have not been able to escape the sanctions.

The Russian-Ukrainian conflict caused merchant ships to be bombed, and shipping capacity was tight

According to foreign media reports, several shipping companies have recently suspended their operations in Russia. On March 1, Maersk’s official website issued an announcement stating that it is closely monitoring developments and various governments’ sanctions against Russia due to concerns about the escalation of the Russia-Ukraine crisis.

The current cargo delays at various shipping hubs may have unpredictable impacts on the global supply chain. The stability and security of shipping companies' operations have also been directly or indirectly affected by sanctions. Therefore, Maersk will suspend new orders by sea, land and air to and from Russia, with the exception of food, medical and humanitarian supplies.

The announcement came into effect on March 1 and covers all Russian port vessels. Maersk said it would minimize supply chain disruptions and do its utmost to deliver transshipped and pre-purchased goods before the suspension to their destinations, and try not to increase congestion in port warehouses.

However, countries such as the Netherlands, Belgium and Germany have detained ships bound for Russia, and the Maersk container ship VAYENGA MAERSK arrived at the Port of Rotterdam from St. Petersburg at the end of February and has been denied entry to the Port of Rotterdam.

In addition, some ports in European countries are currently refusing to load and unload Russian goods. It is reported that the British government prohibits ships flying the Russian flag and owned by Russia from entering its ports; the International Warehouse and Longshoremen's Union, which is responsible for collective bargaining at West Coast ports in the United States, also recently announced that it will no longer provide entry or exit services for Russian goods or ships.

On March 2, local time , a Bangladeshi bulk carrier trapped near the Ukrainian port of Olvia was hit by a missile, killing the crew . As merchant ships continue to be bombed due to the Russia-Ukraine conflict , the number of shipping vessels in some parts of Europe is likely to continue to decrease.

The reduction in sea shipping vessels and tight shipping capacity caused by the Russia-Ukraine conflict may further lead to an increase in freight rates. Not only that, there have been recent reports that freight rates through the Suez Canal will also increase.

Suez Canal price increase, tolls increased by 10% again

As early as before the New Year, many carriers had prepared themselves mentally for the increase in freight rates, but after seeing the freight rates actually increase, they couldn't help but feel a little sad.

Recently, just one month after the toll increase, the Suez Canal Authority raised the toll again, this time by 10%, which will be implemented from March 1 this year. However, the surcharge levied this time is for container ships in the northbound direction, and there is no relevant information for southbound container ships at present.

It is understood that in February this year , the Suez Canal raised tolls for all types of ships, except cruise ships and liquefied natural gas tankers, by 6%. Osama Rabie, chairman of the Suez Canal Authority, said that the increase in tolls in February will increase their annual revenue by US$400 million.

In making the announcement, the Suez Canal Authority said the pricing strategy takes into account global economic conditions and will ensure the waterway can maintain navigation services while remaining competitive with alternative routes.

The Suez Canal's plan to raise its fees again will undoubtedly increase transportation costs for carriers and will also have an impact on future freight rate adjustments.

The Suez Canal is an important place for all types of ships to travel. It provides the shortest route from Europe to the land near the Indian Ocean and the Western Pacific Ocean for logistics and transportation. It is also one of the most frequently used routes in the world. In February this year alone , 1,713 ships passed through the canal in both directions from north to south, setting a new historical record. Large ships such as Maersk, COSCO Shipping Holdings, and CMA CGM frequently travel here.

The Suez Canal launched a project last summer to expand part of the waterway, but earlier this month Suez Mayor Osama Rabie said widening the entire waterway would be too costly.

In March 2021, the ultra-large container ship "Ever Given" owned by Taiwan Evergreen Marine got stuck in the Suez Canal on its way to Rotterdam, the Netherlands, causing a major blockage of traffic in both directions in the canal and dealing a heavy blow to the economic benefits of queued ships and related departments.

In addition to the Suez Canal, congestion also occurred at several other ports last year. The flow of goods slowed down and goods could not arrive at the port in time. A series of chain reactions followed, including increased shipping rates and squeezing of profits of carriers in various countries. The ever-increasing freight rates surprised everyone.

Shipping prices continue to rise, and this issue has become a top problem for sellers in recent times. It not only increases sellers' costs, but also leads to higher prices for consumers.

Biden administration cracks down on high freight rates

The problems of shipping capacity and freight rates are related to the imbalance of supply and demand caused by the global epidemic. Shipping companies have taken the opportunity to push up freight rates. Some industry insiders believe that freight rates will remain high in 2022. In addition to Chinese cross-border sellers, American companies are also affected. In response to the high freight rates, the Biden administration recently announced new measures.

On March 1 , local time , Biden announced that he would strengthen regulation of the container shipping industry, saying that it led to higher consumer prices by taking advantage of capacity-sharing alliances between major shipowners. Biden said that during the pandemic, these shipping companies raised prices by 1,000% and set record profits, and he would crack down on these companies for overcharging American businesses and consumers .

The White House also said in a statement on February 28 that the Federal Maritime Commission and the Antitrust Division of the Department of Justice will set up a working group to investigate possible violations of the Shipping Act and other US laws by shipping companies. It also mentioned that "three global alliances composed entirely of foreign companies control almost all shipping, manipulate prices for American businesses and consumers, and threaten the national security and economic competitiveness of the United States ."

The White House statement also cited research from the Federal Reserve Bank , saying that rising container shipping costs directly led to a 7% U.S. consumer price inflation rate in 2021, and prices are expected to rise another 1% next year.

In addition, Biden also called on U.S. lawmakers to pass legislation to address the current antitrust exemption issues for shipping alliances.

Foreign media reports show that the container shipping industry generated approximately US$190 billion in profits in 2021, an increase of more than seven times year-on-year, while in 2020 the figure was only US$25.4 billion.

Currently, only 10 container shipping companies in Asia and Europe, led by Maersk, Mediterranean Shipping Company, CMA CGM and COSCO Shipping , control nearly 85% of the world's maritime cargo capacity. 25 years ago , the top 20 companies controlled about half of the world's capacity.

As of Feb. 27, spot freight rates for a 40-foot container between China and the U.S. West Coast were $15,898, including surcharges and premiums, according to Freightos, about nine times higher than the cost in February 2019.

Congestion, the epidemic, and the recent conflict between Russia and Ukraine have led to constant problems in shipping. The cross-border circle has been quite unstable recently. Sellers should also pay attention to logistics trends in a timely manner and be prepared for continued increases in freight rates.

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