Category: Blog

Regular attacks on ships by the Houthis have raised serious concerns within the global community, as this issue pertains not only to international security but also poses challenges to the transportation and logistics industry. Additionally, the crisis has impacted agricultural exports from Ukraine.

The leadership of Global Ocean Link, CEO Pavlo Lynnyk and Commercial Director Volodymyr Huz, shared their views on this problem and the prospects for the development of the situation with Ukrainian Shipping Magazine.

 

Key Points

The Yemeni Houthis have been attacking commercial vessels in the Red Sea since October 2023. Since then, they have conducted over 27 attacks on civilian ships using combat drones and ballistic missiles.

In November, the Houthis seized the cargo ship Galaxy Leader and took hostages, including Ukrainian sailors. Following this, they also attempted to capture the tanker Central Park in the Gulf of Aden, which was rescued by the US destroyer USS Mason. In December, the United States and nine other countries announced the launch of Operation Prosperity Guardian. The aim of the operation is to address security issues in the southern Red Sea and Gulf of Aden to ensure freedom of navigation for all nations. Currently, the coalition includes over 20 participants, including the United Kingdom, Norway, France, the Netherlands, Italy, Denmark, India, Bahrain, and the Seychelles.

On January 12, the United States and the United Kingdom, with support from Australia, Bahrain, Canada, and the Netherlands, began a series of air and missile strikes against the Houthis in Yemen. This was in response to their attacks on ships in the Red Sea. During this first wave of strikes, over 100 missiles were launched at more than 60 targets in 16 separate locations. Additionally, at the end of January, it was reported that the Houthis had launched a missile strike on a US naval ship in the Gulf of Aden off the coast of Yemen. The target was an auxiliary cargo ship, the expeditionary sea base USS Lewis B. Puller.

Political Escalation and Suspension of Transportation Moratorium

GOL CEO Pavlo Lynnyk notes that the attacks carried out by groups supported by Iran have led to the temporary suspension of maritime transportation and increased the risk of political escalation in the region. “Countries located along the Red Sea face threats to maritime security and trade. These threats can negatively impact not only the local economy but also global trade, especially in the energy supply sector,” says Pavlo Lynnyk.

For example, Qatar is the largest supplier of LNG to Europe after the US. It redirected at least six cargoes around the Cape of Good Hope in Southern Africa instead of the shorter route through the Red Sea and the Suez Canal from January. 15.

In turn, GOL Commercial Director Volodymyr Huz adds that there has been a significant decline in competitiveness as logistics in these regions have become 3-4 times pricier. The cost of shipping a standard 40-foot container from Asia to Northern Europe has risen from less than $1,500 in mid-December to almost $5,500. According to the cargo booking platform Freightos, shipping Asian cargo to the Mediterranean costs even more: nearly $6,800 compared to $2,400 in mid-December.

Therefore, the issue is undoubtedly not of a local nature but poses a challenge to the global security architecture and causes a range of associated economic consequences. It is worth noting that 15% of the world’s maritime trade, including 8% of grain, 12% of oil, and 8% of liquefied natural gas (LNG) shipments, passes along the western coast of Yemen, controlled by Iranian-backed militants. This trade route is crucial as the Suez Canal connects the Red and Mediterranean Seas.

As a result of the crisis in the Red Sea, the world’s four largest shipping companies – MSC, CMA CGM, Maersk, and Hapag-Lloyd – have suspended the passage of ships through this route. According to the IMO, this already involves 20 shipping companies. Meanwhile, the alternative route, which runs between Europe and Asia around Africa via the Cape of Good Hope, adds 14 days to the journey.

Consequences for Ukraine

Experts emphasize that the effects of the crisis in the Red Sea will not spare Ukraine. This assertion is supported by the fact that in January 2024, Ukrainian agro-industrial exports decreased by 20%. The Minister of Agrarian Policy, Mykola Solskyi, stated during a television marathon that the reasons include not only the New Year holidays but also the crisis in the Red Sea. He explained that a portion of Ukrainian agro-exports passed through the Red Sea en route to Asia, China, other countries, and East Africa. Against this backdrop, six business associations in Ukraine have appealed to President Volodymyr Zelenskyy, requesting the National Security and Defense Council (NSDC) to address the difficulties faced by Ukrainian companies in transporting goods through the Suez Canal.

Additionally, there are other factors that, according to the management of GOL, could impact the Ukrainian economy. “Instability in the Red Sea could lead to rising oil prices and increased transportation expenses. This will affect Ukrainian businesses engaged in international trade,” says Pavlo Lynnyk.

Volodymyr Huz also noted that a significant impact on Ukrainian exporters, especially container exporters, is already visible. “The imposed surcharges do not correlate with the global price of agricultural products. Due to this factor, many have halted their activities or minimized them. Importers face the traditional price increase ahead of the Chinese New Year. The escalation of the conflict brings us closer to the unstable year of 2020, during the COVID-19 pandemic, in the context of shipping lines’ pricing policies,” adds Volodymyr.

Currently, over 500 containers have had to change their route. Insurance premiums are skyrocketing, and sailors demand double pay for their work. “In summary, it is worth noting that the situation in the Red Sea has indeed significantly impacted shipping and the global economy. Ukraine has also been affected. As analytical data and trends indicate, despite the armed response to the Houthis from the Western coalition, resolving this issue will not be immediate,” concluded Global Ocean Link.

 

Recently, maritime container transportation has faced significant challenges for all participants in the supply chain. This issue is not limited to the war in Ukraine and our logistics industry; it can be said that the entire global container transportation industry has been experiencing turbulence. Starting with the suspension of port operations in China due to the “zero-COVID” policy, followed by the “roller coaster” of container shipping rates, the blockage of the Suez Canal by the Ever Given container ship, and other events.

 

What’s happening in the world

When we look at Ukraine’s transport and logistics industry, it is essential to consider it within the context of global trends. In April this year, according to Sea-Intelligence, punctuality in the container shipping sector increased by 26% compared to the previous year.

According to the management of Global Ocean Link, last year the industry “hit rock bottom” in terms of service, with only one in three ships arriving on schedule. However, by February 2023, global schedule reliability had increased by 7.7%, reaching 60.2%, the highest level in many years.

But just as we began to enjoy the improved service from container lines, the situation in the Middle East worsened. The trade route from China to Europe via the Suez Canal is used for transporting approximately one-third of the world’s containerized cargo. Using alternative routes through the Red Sea increases costs and transit times — the route around the Cape of Good Hope requires additional fuel expenses, increases delivery times by 35–40 days, and can cause a shortage of space on ships due to empty containers stuck in transit, which are needed for Chinese exports. Notably, container lines are already reducing the number of port calls. All of this combined will lead to higher costs.

Container transportation in Ukraine

Due to the armed aggression of the Russian Federation, maritime container transportation has been completely blocked from the beginning of the war until now. It has likely suffered the most losses since the sea transport of other goods was resumed literally a few months later thanks to the Danube ports, followed by the operation of the so-called “grain corridor.” Now the humanitarian corridor is gaining momentum. However, container shipments from the Big Water ports are still in question, although there is some light at the end of the tunnel.

The ports of Ismail and Reni took on a heavy load at the beginning of the full-scale war, when the ports of Greater Odesa were blocked. By the fall of 2022, container barge services from the Danube ports were already launched. Despite the relatively stable functioning of the Danube ports for almost a year and a half, the enemy began regular drone attacks starting in the fall of 2023, trying to destroy the port infrastructure. This led to the suspension of the Orlivka – Isaccea ferry crossing several times. Therefore, strengthening air defense has become relevant in this direction as well.

Industry in numbers and trends

According to Global Ocean Link, the following important trends and indicators in the industry should be noted:

• After the grain corridor ceased operations, there was an increased demand for transporting grain crops in containers.
• There is also a growing share of small-scale production exports, highlighting the effectiveness of government export support programs.
• In September-October this year, the schedules for maritime container transportation were stabilized. There was a sharp increase in demand for grain shipments from Ukraine, as prices favored this. This specifically pertains to container exports. This is significantly influenced by Ukraine’s impact on global prices for sunflower oil, sunflower seeds, rapeseed oil, rapeseed, rapeseed meal, wheat, and peas.
• Freight rates from Europe to the USA have sometimes fallen as trade needs to be closed. This has influenced financial trends in this market segment.

Ukrainian logistics have significantly felt the impact of port blockades and attacks, compounded by the blockade of truck borders by neighboring countries. In this context, rail transport has proven to be a much more stable mode of transport, with better planning capabilities. The example of the contrailer train from “Ukrzaliznytsia,” which transported Ukrainian trucks to Poland, is very telling. Therefore, reliance on rail transport will remain strong, especially for container shipments.

When discussing the structure of cargo, the key items are grain and oilseed crops and other products exported by Ukrainian agriculture. There is also significant demand for the transportation of fertilizers, for which containers are widely used. Metal products, ores, and foodstuffs are also among the popular export goods. Of course, this list is not exhaustive.

The blockade of the border in Poland, as previously mentioned, has affected infrastructural processes in Ukraine. A large portion of imported containers has been blocked. The problem of empty container imbalance in Ukraine has become more acute since exports could not be transported out. One solution was organizing direct container trains from Poland, which brought in loaded containers and took empty ones back. Additionally, it’s important to mention the delivery of cargo with transshipment, which involves changing wheelsets. This refers to the well-known narrow-gauge railway systems of EU countries. Ukrainian carriers are well adapted to this, as they regularly operate in this format, and the processes are well established.

To transition from these examples to the general trend, it is indispensable to analyze Ukraine’s interaction with other countries in this sector and consider the numerous indicators of import and export shares.

For imports, the shares are as follows:

• 60% Poland
• 20% Romanian ports
• 20% Reni (Danube region)

For exports, the shares are as follows:

• 45% Romania
• 45% Poland
• 10% Reni (Danube region)

Thus, from all the above, it can be concluded that the demand for container transportation by rail will remain. Therefore, Ukrainian transport and forwarding companies and other market players must not only continuously adapt their operations to the changing conditions of wartime but also keep their finger on the pulse of global trends.

Logistics. Today offers commentary from Global Ocean Link CEO Pavlo Lynnyk and Commercial Director Volodymyr Guz on the situation regarding the blockade of the border by Polish carriers. Industry representatives discussed the challenges faced by the company and the measures being taken to restore international transportation logistics.

 

– Pavlo, what logistical solutions has your company implemented to address this problem?

“The situation with the blockade of the Polish borders was predictable but uncontrollable since it was impossible to quickly redirect the main cargo flows through Poland, regardless of the mode of transport. Therefore, we decided to shift part of the cargo flows to rail.”

– How did this happen technically?

“In cooperation with our Polish colleagues, we started using direct intermodal trains, which significantly reduced our export traffic by road and increased shipment volumes. We are also actively using import rail services, which, in turn, has also reduced the load on the road transport market.”

– Are there any complications in implementing this solution?

“Yes, unfortunately, there is always a ‘but.’ Due to the active import of goods through Polish ports, there are congestion issues inside the ports. This leads to containers staying in the port for 7 to 20 days before being loaded onto a train, which is roughly the same as a truck waiting at the border. However, despite this, rail transport is successfully competing with road transport as it is a more cost-effective option.”

– What other transportation directions is GOL currently working on?

“We are actively developing rail routes with the ports of Koper/Rijeka for imports and are now actively working on launching this direction for exports. In short, our team’s focus is on the fastest possible delivery of goods for our clients and minimizing additional costs associated with demurrage/detention.”

– Volodymyr, how do you view the problem of the Polish border blockade?

“Firstly, the strike by Polish carriers and their union was announced on November 3. Their main message was to reinstate the permit system. Additionally, there were about a dozen other demands. The strike began on November 6, stopping three border crossings. To be precise, it meant allowing only one truck per hour, which is equivalent to a stoppage. By November 8, there was already a 32-kilometer queue at Shehyni, and by November 9, it was 60 kilometers long.”

– How will this phenomenon affect the financial aspect of transportation?

“The idle time will be paid by the customer, meaning the client. This means that the cost of transportation will be affected.”

– Are there any alternative solutions?

“I see a solution in shifting the focus to the Uzhhorod and Chop crossings to neighboring countries such as Slovakia and Hungary. However, as of Friday, there was already a queue of about 500 trucks at each crossing. As my colleague Pavlo correctly noted, we need to search for alternatives and diversify the use of different types of transport, such as more actively using railways. Direct trains to Gdańsk, Hamburg, Koper, Rijeka could be relevant alternatives to move away from container ports.”

– Do you have any current projects related to cooperation with Ukrzaliznytsia?

“Yes, we have launched contrailer transportation. The first trial trucks have already been delivered via the Kaunas-Kyiv route, with unloading in Obukhiv. This transportation involves securing truck trailers on railway platforms. Next week, we plan to launch a regular service with 36 trucks on the Gdansk-Kyiv and Kaunas-Kyiv routes. So, despite the challenging dynamics of the transport and logistics industry and the constant challenges it faces, our plans are ambitious and extensive.”