Russia Cut Out of Global Shipping
Russia sanctions rock the global economy following the unprecedented invasion of Ukraine in February. Now, as the dust begins to settle from Russia’s first salvo and ensuing sanctions from the rest of the world, the picture of how the global supply chain and shipping industry will be affected is becoming clearer.
In line with sanctions, Maersk, MSC and CMA CGM have suspended most deliveries to Russia, the world’s 11th largest economy. The refusal to deliver “non-essential” goods is in line with numerous other companies that have suspended sales in Russia such as Apple, Google, Ford and Harley-Davidson.
Full Extent of Impact Remains to Be Seen
While foodstuffs and medical supplies are still being allowed into Russia, ports and customs are seeing significant delays due to the need to screen all shipments. Maersk, in particular, is advising shippers to be aware of the risks of transporting perishable goods and can make no promises of when they might be delivered.
As we saw last year with the blockage in the Suez canal, seemingly isolated incidents can have large ripple effects across the globe. A supply chain that is already stretched thin is not helped by extended delivery times on the European and Asian continents. Not just limited to the sea, Maersk has canceled rail transport between Europe and Asia until further notice.
Also being hit hard by sanctions is Russian ally-Belarus. The EU has banned over 70% of Belarusian exports for its supporting role in the Russian invasion of Ukraine. The major sectors that could see repercussions are wood, timber, steel, and iron, along with cement, rubber and fuels.
Difficulty Processing Payments from Russia
Perhaps the strongest sanction to hit Russia is the removal of seven major Russian banks from SWIFT. The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is a secure financial messaging service based in Belgium that enables international companies to complete transactions with each other. While Russians will feel this more acutely in their daily lives than other citizens, it does affect the global economy and will not help with the current rate of inflation.
Banning any country from SWIFT effectively freezes all of their assets and makes it impossible for them to perform international business transactions. For example, Maersk, a Danish company, is currently unable to accept payments from any Russian company. No matter what happens as the conflict develops, there is literally no international business or shipping Russian operators can participate in until SWIFT lifts its ban.
Some analysts speculate that aid might come from the East. In 2015, China established the Cross-Border Interbank Payment System (CIPS) in an effort to increase the power of the yuan and lessen the traditionally isolationist country’s reliance on western banks. Experts caution that this is unlikely, however, as only direct participants can use CIPS. Of the 76 direct participants, almost all are Chinese banks or closely-related overseas subsidiaries of those banks.
Complications for Humanitarian Aid
One of the strongest negotiation points where NATO, Ukraine and Russia have managed to agree in principle is the need for humanitarian corridors during the invasion. Though the U.S. has banned trade with the two Ukrainian regions recognized as independent by the Kremlin, the Treasury Department’s Office of Foreigh Assets Control has issued six licenses to ensure humanitarian efforts are not negatively impacted. Those licenses include a short-term wind down of trade activities, imports of food, medicine and medical devices, and continued operation of telecommunications, mail and Internet.
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