Chinese traders and logistics service providers have been ramping up efforts to cope with the rapidly evolving situation in Europe, as the Russia-Ukraine conflict raised concerns over the potential impact on the China-Europe freight train service and shipping routes by sea and air. While the actual impact remains unclear given the fast changing developments, some Chinese and international traders have canceled the use of some trading channels and routes to fend off possible disruptions, the Global Times has learned. Some European clients have expressed deep concerns over the possible impact from the escalating tensions and have started cancelling orders delivered by China-Europe freight trains, with small and medium-sized traders bearing the brunt, Tommy Tan, President of Shanghai EPU Supply Chain Management Co, who is a veteran agent of China-EU freight trains, told the Global Times.
“Due to the escalation of the conflict between Russia and Ukraine, all our trains passing through Ukraine can only be diverted to other routes as direct shipments to Ukraine have stopped,” Tan said. Based on the situation, Tan's company is avoiding the borders between Ukraine, Russia and Hungary. "The major alternative trade routes to European cities are Małaszewicze in eastern Poland and Russia's Kaliningrad," Tan said.
The company is also seeking new sea ports with train service networks in Russia or other European countries as part of the contingency plans for European clients. The disruption has also affected sea transportation, with international shipping companies changing routes amid rising safety concerns. “Last week, we communicated a full stop to bookings destined to or originating from Ukraine, and cargo currently en route to Ukraine is being discharged in Port Said and Korfez,” Maersk said. Gary Lau, Chairman of the Hong Kong Association of Freight Forwarding and Logistics, confirmed to the Global Times that some international shipping companies are adjusting their shipping schedules due to the conflict between Russia and Ukraine, but the actual impact is still not clear. Lau's company mainly operates on European trading routes, and he admitted that there has been some impact on European clients, whether they are shipping cargo by sea or by air. "They are more prudent about taking orders these days," Lau said, noting that the longer the tension lasts, the greater the impact on the entire European logistics chain. “Ships cannot get into ports, and all the flight and port services have already been halted,” Qu Bo, Chairman of the Chinese Chamber of Commerce in Odessa, told the Global Times.
Despite the disruption, industry analysts noted that the overall impact on China-Europe freight trains from the regional conflict is manageable, mainly because the number of these trains going through Ukraine is relatively low, experts said. “The Ukrainian route is not the main channel of the China-Europe freight train, accounting for about 3% to 5% of the entire China-Europe freight train capacity,” a senior industry insider told the Global Times. The total container throughput of Ukrainian ports in 2020 reached 1.03 million 20-foot equivalent units, which was only 0.13% of global port container throughput, data from the Shanghai International Shipping Research Center (SISI) showed. “Judging from the density of containership routes in Ukrainian waters, it is much lower than in the Mediterranean region,” Zheng Jingwen, Research Fellow at SISI, told the Global Times.
The Russia-Ukraine conflict has sent the prices of aluminum and nickel to decade highs, causing concern over tight supply chains amid a recovery from the Covid-19 pandemic as well as threats to the production of power batteries for new-energy vehicles (NEVs), which require nickel as a raw material. Russia accounted for around 7% of global nickel output and 18% of China's nickel imports, mainly nickel plates for stainless steel and alloy production, instead of NEV batteries. The buoyant NEV market in China has brought hot demand for nickel, but "the nickel in Chinese NEV power batteries is mainly imported from Australia, Papua New Guinea, New Caledonia and Indonesia, so the Russia-Ukraine conflict will not cripple China's NEV supply chains," Chen Ruirui, Analyst specializing in nickel at metal consultancy Antaike, told the Global Times, while underscoring nickel's strategic significance globally.
Prices of aluminum on the LME reached the highest level since 2008, and there's likely to be a significant influence on global aluminum supply. According to consultancy Mysteel, Russia produced 3.64 million tons of crude aluminum in 2021, or 5.4% of global crude aluminum output. The U.S. government has held off for now on sanctions against Russia that could disrupt global aluminum supplies, as the market is already seeing severe shortages of the metal. Rusal, the biggest crude aluminum producer in Russia, was sanctioned by the U.S. in 2018. The sanctions resulted in severe supply tightness and rising global aluminum prices, and it finally hit the costs for downstream manufacturers. However, as the Russia-Ukraine conflict escalates, the possibility of sanctions on Rusal is rising, bringing growing concerns of aluminum supply contractions on overseas markets, an analysis by Mysteel said. The 2018 sanctions drove up China's aluminum exports at that time. “If the sanctions again appear in 2022, in tandem with the renewed demand from overseas markets from the pandemic, China's aluminum export orders are expected to rise,” Mysteel said.
