The invasion of Ukraine impacts Asia-Europe freight flows

OPERATIONS initially remained stable when Russian troops first entered Ukraine on February 24, but the introduction of sanctions by governments around the world quickly forced a rethink in the rail freight and logistics sectors.

Most Trans-Eurasian trains did not run via Ukraine and were therefore unaffected by the outbreak of war. Trains traveling through the besieged country were either diverted or suspended.

A month into the crisis, shippers are seeking safer sea routes for cargo that was previously destined to travel by rail. Russia’s actions are set to halt the corridor’s remarkable growth in recent years, fueled by Chinese subsidies to Eurasian rail freight flows.

Indeed, on February 26, two days after the start of the invasion, China National Railway reported that 15,000 trains carrying 1.46 million TEUs operated in 2021. This is a 22% increase. and 29% respectively compared to 2020. Interfax claim that for the first two months of 2022, international traffic volumes via Russia increased by 0.8% to 94.5 million tonnes.

The Swiss company Hupac operates more than 100 trains a day across Europe. Spokesperson Ms. Irmtraut Tonndorf told the IRJ on March 19 that the war was affecting logistics due to instability, high energy prices and unbalanced traffic flows.

Tonndorf says intermodal trains were running to and from Russia without major problems. However, she confirmed that transport volumes were “rather low” and that trade with Russia and via the Silk Road has dropped quite significantly. “It is impossible to predict how the situation will develop, but Hupac will continue to offer transport via Russia and the Silk Road at a regular level, and will strictly follow the rules in place.”

Tonndorf was referring to the financial sanctions imposed on Russia by the United States government, the European Union (EU) and other governments following the invasion. These sanctions do not prohibit the movement of rail freight and are limited to debt, equity transactions, financing and other transactions. The US government has named Russian Railways (RZD) one of the 13 most important companies in Russia.

The sanctions affect companies based in countries whose governments have introduced sanctions. Chinese companies are not yet affected because China, at the time of publication on March 22, had not yet introduced sanctions against Russia. This means Chinese operators can work with and pay for RZDs, unlike EU-based companies.

In light of this situation, the Vedomosti The Russian news site reported that Russian Railways (RZD) has switched to a 100% prepayment system for freight traffic. Reports say that RZD has stopped working with bank guarantees provided as collateral and changed payment method.

Reports also suggest that the volatile state of financial markets means deferred payment for shippers will also be temporarily unavailable.

RZD has offered to raise tariffs for several products from April 1 to adapt the business to “current foreign economic conditions”.

Rossiyskaya Gazeta also reports that the Russian Ministry of Transport does not plan to keep foreign wagons and containers on Russian territory. This contrasts with a ministry statement that freight wagons from other countries can move freely across the entire RZD network under current regulatory documents. No restrictions are provided for them by the regulatory acts of the Russian Federation.

Alternative routes

Rail Cargo Group (RCG), the freight subsidiary of the Austrian Federal Railways (ÖBB), transported around 4.4 million tonnes to and from Ukraine in 2021. On February 24, the spokesman, Mr. Bernd Winter, told IRJ that at this time there was no impact on services. , but that the situation was being monitored and alternate routes could be found if necessary.

Two weeks later, on March 10, Winter told IRJ that train connections between Ukraine and Russia had been cut. He also said Trans-Eurasian trains were being diverted via Belarus and Poland and an alternative route from China via Turkey was “being worked out”.

The day before the invasion began, Far East Land Bridge (Felb) Group, a subsidiary of RZD Logistics, said it was prepared for any business impact and was in constant communication with suppliers, terminals and its partner RZD Business Asset. CEO Mr. Uwe Leuschner said it was a chance for Felb to be proactive in the market and react when needed.

Alternative routes were prepared and further cooperation was being worked out, with particular emphasis on short sea shipping. A spokesperson for Felb declined to comment on whether there had been any disruptions at the time, and a subsequent request for comment from the IRJ received no response.

On March 4, shipping company Maersk confirmed that it had temporarily suspended new intercontinental rail reservations with no exceptions on eastbound and westbound services between Asia and Europe until further notice.

Maersk says the decision was made in the wake of sanctions against Russia and its allies, and after careful consideration, he decided to establish new processes and revise existing ones, which included accepting and management of reservations for Belarus. The company confirmed that it cannot engage with, receive or make payments to sanctioned banks or any other sanctioned party, including those in Belarus and Russia.

In a blog posted on the company’s website on March 2, Container xChange co-founder Mr. Christian Roeloffs wrote that there may be more demand for shipping and shipping equipment from the company. Asia to Europe to the detriment of rail. He suggested that some routes through Russia and Belarus had been closed or were being used by the military. “We expect this war to add to the strained nature of global container supply chains, bring even more inflation, disruption and delays,” he wrote.

Delays were already felt in the sea freight sector at the start of the invasion due to storms in northern Europe. This has since been exasperated by the desire of companies to transport their goods by sea rather than rail in the immediate future. Shortly after the start of the invasion, some ports began refusing to accept Russian ships and goods, and it was feared that this was creating congestion.

In China, further problems are being created by another Covid-19 outbreak which is forcing the government to introduce lockdowns, once again hampering the supply chain and logistics industry.

The Secretary General of the European Rail Freight Association (ERFA), Mr Conor Feighan, said that due to the invasion, “the notion of a globalized supply chain is torn apart”. There are also concerns about congestion at ports and terminals due to the refusal of Russian containers due to sanctions.

Feighan says that with RZD the main operator on the route and the only carrier willing to cross the Russian border, the Northern Silk Road has been “significantly hampered”.

Asked about the southern route via Kazakhstan, Azerbaijan and Turkey, he said there were capacity constraints, but these were at terminals in Europe rather than on the tracks themselves. Trains traveling this route take much longer than those passing through Russia where transit times are between 14 and 18 days. Reliability is also a concern, with the prospect of trains arriving 12 or 24 hours later than scheduled. Feighan suggested that one option to reduce travel time is to take short trips across the Caspian Sea, which he likened to having to change trains at borders.

Feighan says it’s hard to predict how the market will react to the crisis, but suggests a silver lining is that the southern route has substantial growth potential as it passes through a more populated area. He highlights Georgia, Azerbaijan, Armenia and Kazakhstan as countries that will be better connected and have shown interest in serving rail freight.

As for when operators and shippers will hit the road again via Russia, Feighan isn’t sure. “I don’t think there’s a lot of confidence that we’ll be back to ‘normal’ anytime soon,” he said. In just over a month, Russia’s actions in Ukraine have shaken up the Eurasian rail freight market. The only certainty right now is that there is still a lot of uncertainty.

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