Global supply chain operations are feeling the heat from market uncertainties such as Covid lockdowns in China, the Russia-Ukraine war, and rising oil prices, logistics providers say.
The volatility has triggered delivery delays and reduced capacities as logistics companies are wary of trade lanes, trade partners, and particularly shipments to and from Russia, according to Hamburg, Germany-based Container xChange.
“The War has impacted Europe greatly. First, containers are stuck in the terminals waiting for transhipments to Russia and the result is a huge pileup there,” Christian Roeloffs, Container xChange’s cofounder and CEO, said in a release. “The second significant impact is on the China-Europe rail. The northern corridor is still open, but volumes are massively reduced due to uncertainty in the market. That has pushed cargo towards sea freight and even in some cases towards air freight.”
“On a more global scale, the rise in oil prices has been a major repercussion as a result of the war,” Roeloffs said. “More logistic players are unclear about the restrictions of doing business with many companies because there are second order and third order sanctions that are also required to be considered while doing business. Companies are hesitant to make decisions, selection of new partners is significantly impaired.”
One example of the turbulent economy’s impact on a specific company is the German logistics provider Kion Group AG, which on Monday announced it was withdrawing its 2022 fiscal outlook, originally published barely a month ago, on March 3. Citing the military conflict in eastern Europe and China’s Covid lockdown policies, the company said it now expects its first quarter earnings and free cash flow to fall significantly short of the same quarter last year.
More specifically, Kion said it is struggling with a lack of parts availability and a sharp rise in material costs. "Because of the bottlenecks in the procurement markets, which are likely to last much longer than previously anticipated, as well as sharply increasing material and logistics costs and recent Corona-lockdowns which particularly affect the Asian market, the outlook for the fiscal year 2022 is no longer sustainable," Kion CEO Rob Smith said in a release.
Despite the drawback, Kion said it still expected its results to fall within current capital market expectations. "Our diversified position as a full-service provider in intralogistics, our strong worldwide presence, and our solid financial base have equipped us well to overcome both the pandemic and these new challenges," said Smith. "The fundamental drivers of our industry are well intact.”
As businesses buckle down for the stormy conditions, Container xChange compared the problem to start-and-stop highway traffic. “It's almost like in a traffic jam,” Roeloffs said. “Some people now stepped on the brakes really heavily and the problem is that this will lead to a significant sort of bulk up in demand for freight services which will essentially be unleashed once the factories reopen. And when the demand is back, the carriers will again not have enough equipment on the ground because not enough equipment went into China during the Port lockdowns and not enough vessels are available so that will push up prices once again.”
According to Roeloffs, global logistics will likely not return to its normal pace until all the various links in the chain begin to work in concert again. “The way you remove the traffic jam is not by stopping something violently and then hitting the accelerator again. It's sort of making sure that the traffic flows at a certain speed,” he said.
Gartner, Inc.