How the War in Ukraine Will Affect Trucking and Logistics

At 4 a.m. local time on February 24, a nation’s nightmare came true when Russian tanks and troops crossed Ukraine’s eastern border and charged towards Kiev. The war in Ukraine, widely considered the most serious ground invasion in Europe since World War II, has already claimed thousands of lives and devastated a nation of 40 million while promising to degrade a supply chain world already exhausted.

Although the U.S. trucking industry remains mostly isolated from the flow of goods internationally, Ukraine and Russia represent major global players in metals, energy and food supplies that will likely worsen the inflation and cause problems for US fleets.

Here’s a look at what fleets can expect following perhaps the most disruptive economic event since the dawn of the pandemic.

More inflation on the way

While Ukrainian ports and airspace remained mostly closed, wheat futures prices hit their highest levels since 2008 before falling 4% to $8.98 a bushel. Food giants like Kellogg’s, Coca-Cola and Pepsi have already warned of double-digit inflation driving up food prices. Aluminum – another big export from Ukraine – jumped 5.7% on the London Metal Exchange before stabilizing at a 1.5% rise.

In terms of the macro-financial situation, all of these inflationary signals have led to a market consensus that central banks may need to keep rates lower for longer, as the European Central Bank has estimated that the war could reduce the GDP of the euro area as a whole.

What does all of this have to do with domestic trucking in the United States? CCJ has already explored how fleets can best manage inflation in finances and maintenance agreements, but the war in Ukraine brings with it some specific conditions that fleets need to be aware of.

First, expect weak spots in inflation to continue to weaken real wages for workers. Although fleets significantly increase driver pay, those paychecks probably won’t go as far to groceries or the sectors that are actually driving consumer price inflation, like used cars and the lodging. Ideally, CCJ also wrote about how best to offset the rising costs of driver compensation.

Supply chain problems will get worse

The shipping industry has already seen firsthand the destructive nature of fighting in Ukraine with merchant ships targeted outside the port of Odessa, Ukraine. Shipping giants like Maersk have responded by suspending container shipping to and from Russia. CCJ The top 250 UPS and Fedex fleets also halted shipments to Russia. Glenn Koepke, managing director of network collaboration at supply chain consultancy FourKites, told the New York Times that shipping rates could triple as a result of the fighting.

While Russia had already been largely cut off from international supply chains following sanctions for its 2014 invasion of Ukraine’s Crimean peninsula, the impact of the massive closure of the port of Odessa could still be felt. affect the American trucking industry.

Already looking for semiconductors to build more Class 8 tractors and cargo to transport, the shutdown threatens future chip production as Ukraine specializes in producing the neon gas needed for the process as well as metals rare like palladium.

Additionally, on Monday, Landstar System projected it could lose $100 million in the first quarter of fiscal 2022 if two independent commission sales agencies it works with in Ukraine shut down due to the Russian invasion of the Eastern European nation.

The brutal awakening of trucking?

As the Ukraine crisis creates another supply chain shake-up in an already chaotic logistics industry, Foster Finley, managing director of Alix Partners LLC, a consulting firm, said the war will only accelerate. existing trends in trucking.

“This could be one of those moments that becomes a catalyst – an accelerator – that kicks the industry back into gear,” Finley said. While most Class 8 automakers and OEMs have announced long-term goals to transition to zero-emissions powertrains, Finley said it “wouldn’t surprise me if a lot of these automakers take advantage of this period. , this opportunity where there would probably be a wage increase or shortages for a period, and doing several things like moving from trucking to rail and accelerating the shift from internal combustion engines to battery electric vehicles. »

Finley acknowledged that these changes presented significant challenges in themselves, but that increased scrutiny of Europe and global fossil fuel use would likely shift the needle towards zero-emissions technologies.

Plus, it’s a chance for trucking companies and public figures of all types to make public relations forays. With 83% of Americans opposed to Russia’s invasion of Ukraine, according to a CNN pollthere is rarely a political cause as popular as support for Ukraine, and the actions taken by Fedex and UPS show that the logistics industry has a horse in this race worth supporting.

“Logistics has lagged behind other sectors of the economy in adopting ESG (environmental, social and governance priorities in business),” Finley said.

While the carbon-intensive trucking industry has few opportunities to brag about its environmental impact, Finley suggested this crisis could give industry leaders an opportunity to show off their social responsibility and governance. ethics in tackling the problems of war and the inflation it will cause.

Fuel prices will skyrocket

Immediately after the invasion, West Texas Intermediate and Brent crude futures jumped above $100 a barrel for the first time since 2014, and Western European natural gas futures rose by 60%, although crude futures fell back below $100 later in the day. Further away Commercial carrier log reporting the details of analysts now targeting a price of $125 a barrel and a long period of “sneaky” increases in diesel fuel prices.

Russia is the world’s second largest producer of fossil fuels, and the US sanctions and European Union officials quickly jacked up liquefied natural gas prices by 50% in the Asian spot market.

“Looks like [liquified natural gas (LNG)] will become more expensive. Not surprisingly, the invasion of Ukraine is very bullish for spot gas prices and with it LNG, but rising crude oil prices also mean that long oil-linked LNG contracts term will also increase,” Robert Songer, LNG analyst at data intelligence firm ICIS told Reuters.

“When the fuel powering trucks increases, it’s a significant cost to truck fleets,” said Mike Roeth, executive director of the North American Council for Freight Efficiency. CCJ, “but with the vast majority of trucks running on diesel, it’s really the price of diesel that has the biggest effect.”

Roeth pointed out that LNG hasn’t really taken off as a fuel for Class 8 trucks as much as its sibling, compressed natural gas (CNG). LNG can be converted to CNG, and it’s possible that in the United States, the world leader in natural gas production, it could shift some production from CNG to LNG if prices become attractive enough, but Roeth pointed to California-issued tax credits for fleets that adopt CNG-powered tractors as a possible buffer.

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