Geopolitical conflict causes turbulence in the skies

The world is still watching as the conflict in Ukraine persists. Economies across the globe continue to be negatively affected in various ways. DENYS HOBSON says the impact on air transport has also been dire.

Fuel price increases have already started to impact global and local supply chain costs. Unfortunately, added to this challenge is the increase in manufacturing costs – given the knock-on impact of rising input costs – as well as rising commodity prices. This paints a difficult picture all round.

The reality is that we don’t know how long these increased prices will last and what the full impact on inflation and interest rates will be down the line. Given this fact, global capacity constraints, including trucking and port congestion, remain a hindrance to global supply chains and manufacturing.

Global supply chains have been dealing with contentious challenges over the past two years; just when the sector was hoping for some breathing room, another storm has hit. We’ve seen the reports where sea, air, and rail freight have all been affected. In fact, almost half the world’s container shipping capacity has halted services to Russia. While Russian Deputy Defence Minister, Alexander Fomin, recently announced that Moscow would “drastically” reduce its military presence in the direction of Kyiv and Chernihiv, the effects of this conflict will still be widely felt.

Impact on air freight

Sanctions placed on Russian-owned carriers and cargo-only aircraft effectively mean a reduction in global capacity; shippers now need to find alternative carriers to move cargo. And this of course will place further capacity pressure on handling facilities, transhipment hubs, and market capacity.

In addition, given that Russian air space has been declared a no-fly zone, airlines have been forced to amend their routings, not only adding additional time to their transit periods but also additional costs, pushing freight rates higher.

To date, we have seen that this conflict has exacerbated the existing supply chain constraints. Trucking capacity across the European continent is under severe pressure, resulting in longer lead times to secure loads, cargo collection delays, and rising costs.

While we don’t have an end date to this conflict, affected countries are not only mapping the political and humanitarian impact, but also how to survive the business impact that must be endured. And for businesses with global supply chains, the challenges to their capacity, pricing structure, and product availability are very real.

Given this reality, companies need to examine how to work with their partners to support the capital outlay required to manage these longer leads times. They also must oversee imports in a market that is constantly changing and being placed under increasing pressure on various fronts. This may mean the difference between “surviving the storm” or sinking without a hope. And though we are not certain how this will all turn out, we are optimistic that the end is near. Furthermore, we hope that the sector and correlating markets can once more work towards stabilisation.