Air Freight Impacted by Russia-Ukraine Conflict
As the war between Russia and Ukraine continues, global air cargo faces further challenges from rising fuel prices, economic sanctions and no-flight zones, affecting numerous markets including Mexico through rises in costs and delayed deliveries.
Globally, logistics processes were already experiencing hardships due to ongoing challenges from the COVID-19 pandemic and its subsequent variant outbreaks causing delays in global shipments. Maritime shipments had seen additional setbacks due to the congestion of Asian ports, which increased during the past months as shipment wait-times already at 13 days in December increased to an average 16.7 day wait-time in January. In Hong Kong, shipments increased from 17.5 days to 22.5.
During this time, the previously less-preferred air-freight alternative became an increasing part of many companies’ business models in order to continue the transportation of necessary goods across seas. Air freight also presented a lifeline for several aviation companies that were able to replace the revenue received from transporting people with cargo.
“Some of our customer relationships are so critical that these goods could not be stuck at ports, and we began firefighting to get air cargo space wherever we could and moved them to the customers at a loss,” says Damon Willis, Senior Director of Logistics, Drive DeVibiss Healthcare. “We have come up with a formula which suggests certain of our higher-margin (stock-keeping units) SKUs that have high turn rates can be air freighted–we are flying them on a regular basis and we will probably continue to do so… it is no longer a transactional part of our business, it is part of our strategy,” said Willis.
Mexican companies had turned to similar solutions but the invasion of Ukraine constrains this alternative. The sanctions imposed by the US and the EU on Russia—the most severe placed on any economic power since the Cold War—caused all types of flights to be delayed, canceled or rerouted when the Russian airspace became a no-flight zone.
Avoiding Russian airspace will cause shipping planes to increase fuel spending, according to Eytan Buchman, Chief Marketing Officer, Freightos Group. As a result, there has been a slow-down in major flight trade routes and carriers are limiting load weight and space as shipping costs are also rising alongside energy prices, Flexport reports. Companies such as KLM Royal Dutch Airlines and the United Parcel Service (UPS) have no other option than spending on more expensive fuel and longer flights. Reliance on air freight is only further increasing for global shipments, however, as shipping ports around the Black Sea have closed as a result of the war.
Among the companies most affected by airfreight delays are electronics, semiconductor-dependent and fast fashion businesses. As such, the ongoing semiconductor shortage continuously impacting the Mexican automotive sector, which was just starting to alleviate, is likely to continue. Increased transportation costs will eventually cause a rise in prices of products for end-customers as different impacts of the war continue to be felt globally.