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Ukraine crisis to have biggest impact on air freight logistics

As carriers close off bookings to Russia, it is the air freight services that overfly Ukraine and Russia that will face the biggest disruption, says Kuehne+Nagel

Kuehne+Nagel is closed for business in Ukraine and is only taking humanitarian bookings for Russia. Cargo flights from north Asia to Europe will take longer and there will be less capacity

THE immediate logistics impact of the Ukraine crisis is likely to be felt more in airfreight than in maritime trade, despite the stoppage in bookings to and from Russia by the majority of container lines.

“Locally we have stopped business, but we do not see a big impact at the moment other than that we are concerned about the security of our people,” said Kuehne+Nagel chief executive Detlef Trefzger. “The sea logistics market is not really affected at the moment by the Ukraine crisis, at least not materially for us in our network.”

K+N’s own disruption indicator had remained stable at elevated levels over the past few days, with 12.5m teu/days of delays. But 80% of that was related to congestion at US ports, he said.

Speaking to analysts following the release of the company’s 2021 full-year results, Dr Trefzger said Russia’s “acts of war” in Ukraine had shaken the world deeply.

“As a company operating in more than 100 countries, employing people of different nationalities and actively fostering cultural diversity, our values are based on mutual respect, trust and democracy,” he said. “Our thoughts are with the people of Ukraine, our colleagues and their friends.”

How the crisis would affect the long-term macroeconomic outlook remained unknown, he added.

“All the sanctions are geared towards stopping the invasion and this is what we all should focus and concentrate on, and then see what is the solution for stopping war in Europe.”

All K+N’s operations in Ukraine have ceased, and it has stopped taking bookings for imports to Russia other than pharma, healthcare and humanitarian supplies. It said it would closely observe sanctions imposed by the US, EU and other states.

The main impact to its business operations would come from the closure of airspace over Ukraine and Russia, Dr Trefzger said.

“The bigger picture is that flights over Ukrainian and Russian territory are limited right now, which will lead to longer lead times for the air cargo network for bookings from north east Asia,” he said. “We need to provide for this in our flight operations.”

Rerouting flights from north Asia to Europe would add another 12-14 hours to flight times for cargo and would reduce available air capacity.

The comments came as K+N reported net earnings of SFr2.1bn ($2.3bn) in 2021, up 280% on the prior year, although the figure incorporates earnings from Apex International, in which it took a majority stake last February.

Operating earnings in its sea freight division were up over 350% to SFr1.5bn as capacity constraints and congestion kept rates high, despite a decline in volumes carried.

Sea volume growth was a nominal 2% last year with organic growth falling to -3%.

“If you look into the strong volume growth where it matters, it is on the transpacific and transatlantic, where we see double digit growth on both trade lanes,” Dr Trefzger said.

But the “chaotic” sea freight market demanded “a lot of manual interference and optimisation”.

Nevertheless, a favourable product mix of SME and “blue chip” customers and growth in high-yielding cargo had helped boost revenues.

“The higher yield has more than compensated for the higher unit costing, but we don’t see any relaxation of the intensified workload we have been experiencing,” he said.

And that workload was unlikely to ease any time soon.

“The market situation, with port closures and congestion, equipment and driver shortage, rail congestion and natural disasters are ongoing and most likely will take longer to get resolved given the demand we see in the market,” said Dr Trefzger. “We see GDP growth expectations of 4.3% but we have significant geopolitical uncertainties. The macro economic effects of this are not known yet. The inefficient supply chains, with network disruptions and congestion will continue. There’s no sign of relief from today’s perspective.”

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