Million-plus containers set to ride railway linking Western Europe to Eastern China via Russia now have to find new routes by sea, adding to costs and threatening to worsen the global supply chain chaos, reported Bloomberg.
Amid Russia-Ukraine chaos, exporters and logistics firms transporting auto parts, cars, laptops, and smartphones are trying to avoid land routes passing through Russia or the combat zone.
What happened: With mounting security risks and payment hurdles arising from sanctions, there are chances that customers in Europe could boycott products that used Russian rail. The conflict adds to congestion at some of the biggest ports, putting additional pressure on global supply chains that are still reeling from pandemic-induced workforce shortages.
Kuehne + Nagel International AG (OTC:KHNGY), one of Europe’s largest freight forwarders, is already rejecting rail cargo from China to Europe, mentioned Marcus Balzereit, a senior vice president for the Asia Pacific at the company.
Balzereit states a combination of sea-air solutions could help some automakers and high-tech electronics manufacturers prevent production disruptions despite a surge in costs.
Um Kyung-a, a transportation analyst at Shinyoung Securities Co. in Seoul, notes, “At times like these, it’s more important for companies to get their goods delivered even if the cost of transport is higher. It’s more important for them to keep their production going.”
The official Securities Times wrote, starting March, the export volume on trains heading to Europe from the port of Dalian has been “greatly reduced,”
Why It’s Important: According to logistics firms, it takes about two weeks to send Asian goods to Europe via rail compared with a month by ship. Ships are still the cheapest method. The cost of transporting a container by rail is roughly twice that of sea freight, and a quarter of sending goods by air, according to logistics provider DSV, Bloomberg notes.
Few companies that use the rail networks, Dell Technologies Inc. (NYSE:DELL) to IKEA and Toyota Motor Corp. (NYSE:TM), have already paused their operations or sales in Russia.
“Getting vessel capacity and getting shipping on time to destination has already been a challenge in the past six months. This is just one more thing that’s being added to an already fragile network,” mentions Glenn Koepke, a general manager at FourKites Inc.
