A New Cold War threatens to disrupt the Cold Chain. What will be the new normal for the cold chain moving forward?
Russia’s February 22nd invasion of Ukraine has effectively rebooted the Cold War. And with Cold War 2.0 – like its predecessor – comes a myriad of challenges to the world’s economic order.
Globally, in response to the Russian invasion of Ukraine, the U.S. and other nations have deployed a broad range of sanctions, bans, frozen assets, embargoes (a U.S. Russian oil embargo was announced at this writing), and financial actions designed to isolate and punish Russia.
Among these measures was the banning of Russia from using the SWIFT system, a messaging network that enables financial institutions to transmit information and instructions through a standardized system of codes – effectively cutting Russian economic entities off from global financial transactions. Further, European Union (EU) members are contemplating a Ukrainian government request that Russia be expelled from the World Trade Organization (WTO). Individually, nearly all the major ocean carriers like Maersk and MSC have announced that they will suspend ship calls to Russia. Nearly all flights to Russia have also been canceled further cutting off contacts to the rest of the world. To be sure there is still some freight flowing. For example, two major economies, China and India are not part of the U.S.-led coalition pressuring the Russian Federation.
What does the Russia-Ukraine war and subsequent global maneuvering mean to the Cold Chain? The Russian economy is relatively modest, ranked 11th, and the Ukraine economy even smaller at 77th. Nonetheless, the disruption to the perishable marketplace is still very significant as the displacement could persist long after the weapons of war go silent.
Perishables: Chaos in Boxes
The Russian invasion and swiftness of the global response caught perishable shippers by surprise. For key perishable ports like Rotterdam, congestion is growing as shipments destined for transshipment to Russia are halted by embargoes, bans, and curtailed services.
For instance, reports that 300 containers of grapes from India destined for Russia were stopped in transit.
Reefers typically forwarded to Russian destinations are now plying up in the Port of Rotterdam as Dutch customs attempt to scan and ascertain the nature of the goods being shipped. Technically, food and medicines are excluded from the embargo. Though there are a number of reports that some ocean carriers are not moving reefers of fruit to Russia.
Maersk wrote in its “Customer Advisory” Number 7: “Maersk has now suspended bookings to/from both Russia and Ukraine until further notice. Exempted from Russia is foodstuffs, medical and humanitarian supplies. We do, however, warn caution on still placing bookings for perishable cargo due to significant delays in key transshipment hubs that may damage the cargo. [Editor’s Italics].
The Danish containership operator added, “Customs authorities in the EU and UK are now inspecting all units to/from Russia transiting their terminals/ports to identify sanctioned and restricted shipments (main focus is sanctioned parties and restricted or banned goods). This is a direct consequence of the sanctions, but there are also indirect impacts as all cargo is getting delayed and our already congested transshipment hubs are getting more pressured. This is a global impact, and not only limited to trade with Russia.”
Rotterdam, Hamburg, and a number of other European ports have already begun refusing to handle containers destined to or coming from the Russian Federation. Other European ports are expected to follow as the EU codifies the vessel ban.
And the current chaos in reefer cargo stands to widen. The United Kingdom has banned “Russian owned, affiliated, chartered or flagged vessels” from its ports. With the caveat that Russian-owned cargo will be free to move if it is aboard non-Russian vessels…but as Maersk pointed out, nearly all third-party calls to Russia have stopped.
How the increasingly chaotic shipping situation plays out is still uncertain.
Christian Roeloffs, CEO, of Container xChange, a leading container leasing, and trading marketplace, pointed out the open-ended nature of the financial moves by the US and others: “The full implications of sanctions are not yet clear but the closure of the SWIFT system to Russia will make payments from Russian partners more difficult. The Ruble has also been in freefall after Russia’s central bank was cut off from its reserves. Maritime trade with Russia and Russian businesses could be very difficult in the months and even years to come.”
Rerouting and New Markets for Perishables
For shippers with perishables already in transit, the problems of rerouting are overwhelming. And the problems begin with the above-mentioned closure of the SWIFT system. The Ruble is now worth less than a US cent and with access to the US and other currencies cutoff getting paid is near to impossible. And as the Maersk Advisory noted the delays could damage or render rotten perishable cargoes. And there are few options for rerouting shipments already destined to Russia, as the Black Sea route, like EU ports, is effectively closed.
Rerouting of reefer freight is also a challenge. Packing and labeling specifications for the Russian market are obviously different than virtually every place else.
A number of perishable countries are likely to begin looking for new markets to replace Russia. South Africa, which in recent years has cultivated the Russian market, reportedly has temporarily stopped fruit shipments to Russia, although there is still product in route. The question now for South African growers [and others] is how long they should wait to see whether “foodstuffs” like fruit will be exempt from the ban. Or more to the point, can it actually be shipped to Russia? Literally the same can also be said for Ukraine itself and Russia’s ally Belarus.
For example, insurance cover for the shipments is going to be increasingly difficult to secure, particularly with fewer ship calls to Russia. Beyond the cargo risk, ocean carriers and container lessors themselves are reluctant (like their insurance providers) to risk expensive equipment like reefer containers under these quasi-wartime conditions.
And it isn’t just perishables heading into Russia. Russia is a major exporter of seafood products ($4.7 billion in 2020), and the sale could soon be banned in Europe and North America. And with the ban on Russian-owned and Russian-held vessels, it’s difficult from a practical perspective to see how fish will be exported for processing – after all, they too, like oligarch yachts – could be exposed to seizure.
The Port of Antwerp, which handled over a million TEUs in reefers, has a Perishables Expertise Group, composed of high-level stakeholders in the perishables business. Recently the group wrote in response to the increasing pressure on the cool chain, “To be less affected by such disruptions in the logistics chain in the future, you could look for shippers closer to home. This, of course, is not obvious in the case of tropical fruits. Another solution is to be less dependent on one maritime connection… For example, you can import mangoes from both India and Mexico. As such, you spread the risk and guarantee to provision.”
The Group is right. Both producers and buyers are going to have to reexamine their sourcing markets and logistics. What will be the “New Normal” for the cold chain in Cold War 2.0? It is far too early to tell. But it is quite clear that a return to a pre-February 22nd perishables marketplace is not going to happen soon.