- Even beyond the war, there is now a sense that the accumulation of disruption and supply chain shocks are transforming global trade more fundamentally.
- The pandemic forced a fundamental shift in global trade policies as governments increasingly focus on supply-chain resilience.
- Efficiency will willingly be exchanged for security as firms and governments seek to diversify suppliers subject to global trade chokepoints.
The invasion of Ukraine by Russia has sped up the anticipated fall in the global economy by adding to the significant output losses that have been occurring since the pandemic’s start as reported by Lloyds List.
The accumulation of disruption and supply chain shocks are transforming global trade as governments and businesses look to exchange efficiency for security.
“WE just didn’t see this coming,” a traumatised oil trader whispered to a tanker owner while they were waiting for their drinks at a recent industry gathering.
Timing, as ever, is everything in shipping.
Cyclicality can be called, but market peaks are driven by black swans — and, while expecting the unexpected is the basic job description of a shipowner, we are living through extraordinary times.
Global growth is expected to slump from 5.7% in 2021 to 2.9% in 2022 — significantly lower than the 4.1% the bank was anticipating in January.
The situation in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation means that, for many countries, the recession will be hard to avoid.
The consequences of that are not yet playing out in the shipping sectors reviewed in this half-yearly outlook report.
The immediate focus is, of course, Russia.
Confronted with trade restrictions and logistical challenges, the cost of oil and gas has increased as the world scrambles for energy security in a market that was already undersupplied prior to the war.
The shifting trade patterns are evolving daily.
Higher energy costs, in turn, have led to higher marine bunker prices, increasing shipping costs for all sectors.
Supply chain disruption
Lloyd’s List Intelligence’s vessel tracking has revealed how overseas grain dispatches have been limited to deliveries via Western borders, by rail, as well as through the small ports of Reni and Izmail on the River Danube.
However, these alternatives are insufficient to compensate for the lost capacity normally provided by Ukrainian Black Sea ports.
Since the start of the war, weekly port calls have gone from 60 to almost zero in Ukraine and declined somewhat in the Russian Federation and Turkey.
According to figures published by consultancy group Accenture earlier this month, the cost of supply chain disruption in the Eurozone across 2022-2023 could range between €242bn (2% of GDP) and €920bn (7.7% of GDP) in a protracted war scenario.
Yet even beyond the war, there is now a sense that the accumulation of disruption and supply chain shocks are transforming global trade more fundamentally.
The pandemic forced a fundamental shift in global trade policies as governments increasingly focus on supply-chain resilience.
However, redesigning supply chains takes time — and noticing an effect takes even longer.
Russia’s invasion of Ukraine is an undoubted economic shock that will require a global reorientation of trade lanes and spark market turbulence for potentially years to come.
Yet in seaborne trade terms, demand will not disappear significantly.
The shipowner and the oil trader would be well advised to buy another round.
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Source: Lloyds List