Russia-Ukraine: Global supply chains 'just got a little bit more difficult,' analyst says

Xeneta Chief Analyst Peter Sand joins Yahoo Finance Live to talk about the Russian impacts on supply chain ports and shipping containers, consequences of violating sanctions, and major European shipping hubs

Video Transcript

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KARINA MITCHELL: Welcome back. Well, major container shippers say they will not sail to Russia, halting cargo bookings. To help us discuss, let's bring in our next guest Peter Sand is Xeneta chief analyst. Peter, Thanks so much for your time today. So this is a fast-moving issue. The story is changing, it's very fluid and dynamic but just help us put it all into context for us. So three of the largest shippers in the world, Maersk, which is the first company I ever worked with, MSC and CMA, all three cutting ties with Russia. What does it mean for global trade and supply and demand?

PETER SAND: It means that global logistics just got a little bit more difficult to handle than the critical situation already suggests. I guess it's known to everyone that global supply chains are quite strained at the moment as a result of two years battling COVID. So having now Russia cut out of the global shipping and networks accounting for some 2% to 3% of global containerized goods, is obviously, another disruption on top of what we see already in the market.

KARINA MITCHELL: How big of a disruption is it though, percentage-wise?

PETER SAND: I think this is approximately 3% of the global containerized markets but it's very much more significant in terms of how the impact is on Russia, Russian consumers, Russian industry, as it is for the global containerized industry that will you can say merely be without a few customers during these times of crisis and they will omit calling ports like Novorossiysk in the Black Sea, and St. Petersburg in the Baltic Sea.

So obviously, this is something that requires yet another raft of contingency plans in terms of optimizing networks. And of course, for the global shippers that also relies on efficient networks to ship goods from where they are produced to the customers that need them. It's just a sign of things getting worse soon, and most likely higher freight rates will follow in the wake of this.

KARINA MITCHELL: Do you expect more shippers to follow suit taking the lead of these three big three because what are the risks right now all doing business with Russia?

PETER SAND: I think the main risk, of course, is to be caught out in breach of sanctions. And that goes not only for the major container lines, which I think is the key element of their decision here. Obviously, they are in the need of staying clear of being in breach of anything. So they are of course obliged to do what is now being decided. But every ship on a global scale also needs to be safe and make sure that all risks are considered when doing business right now. Because if you are caught out being in breach of secondary US sanctions, for instance, that can really hamper your business-- ability to do business with the Americans going forward and that can be super-critical for any international and global business.

KARINA MITCHELL: How about bookings that are already made? Are those in jeopardy as well or will those continue on?

PETER SAND: Well, we have been accustomed to an equipment shortage in the key exporting regions. And what will happen to the so-called floating cargoes that we have on the ships right now, they will basically be discharged in places where they should not be. I mean, they were destined for Russian and Ukrainian ports, and now they will be discharged instead in Ukraine-- sorry, in Bulgaria, in Romania, and in Greece and around the Suez Canal for instance. And Hamburg, of course, also being a major hub for exports via Black-- via Baltic Sea into Russia. So we will have a worsening situation in terms of these boxes basically being stranded in the wrong places and not part of the real circulation of this global network of supply chains.

KARINA MITCHELL: And then in the meantime, what's happening with Ukrainian ports? Obviously, there's a lot of pressure there with all the conflict?

PETER SAND: What the global carriers did at the very first day of this crisis was basically to call off any port calls in Ukraine. Instantly, also, we had the big insurance body, the Joint War Committee, raising the risk premiums for going into the northern parts, basically, the Ukrainian and Russian waters of the northern Black Sea. So that already elevated the cost of shipping into those areas.

But mainly, [INAUDIBLE] did not call primarily Odessa, the southern Ukrainian port in Black Sea. And of course, that already disrupted in the first place. It took them a few days also to find out that doing business with Russia was definitely also a no-go. So two countries taken out of, say, the rest of the world in terms of an otherwise very globalized shipping business.

KARINA MITCHELL: It is definitely a difficult situation. And all sorts of products being impacted, everything from clothes and food, to metals to electronics. All right, thank you so much for your time. We'll leave it there Peter Sand, Xeneta chief analyst.