Ukraine Conflict... Aviation and Shipping Industries Keeping a Close Watch

High Possibility of Fluctuations in Air and Maritime Freight Rates

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Yoo Hyun-seok] The aviation and shipping industries are on high alert due to Russia's invasion of Ukraine. Although no domestic airlines or shipping companies directly serve the Ukraine region, various variables are expected to arise due to export sanctions against Russia.

According to the industry on the 26th, on the 24th (local time), U.S. President Joe Biden announced new sanctions and export controls against Russia in response to its invasion of Ukraine.

The United States decided to apply the economic sanction method (Foreign Direct Product Rule) previously used against Chinese ICT company Huawei to the sanctions on Russia as well. This is expected to affect South Korea's semiconductor, automobile, and electronics exports and local production overall. The Foreign Direct Product Rule is a measure that prohibits exports if U.S. software or technology is used in products made in third countries.

So far, there has been no significant change in freight indices. The Shanghai Containerized Freight Index (SCFI), a global shipping freight indicator, recorded 4818.47 on the 25th. This is down 127.54 points from 4946.01 on the 18th. The Baltic Dry Index (BDI) for dry bulk carriers recorded 2187 points on the 24th, rising more than 200 points from 1964 points on the 18th.

Domestic airlines and shipping companies also explain that there has been no major impact yet. Korean Air and Asiana Airlines do not have routes to Kyiv, the capital of Ukraine. They also do not fly through Ukrainian airspace. HMM operates European routes but reportedly does not have routes passing near Ukraine.

However, the situation is expected to change depending on the progress of the U.S.'s full-scale sanctions and Russia's invasion of Ukraine. In the early hours of the 25th (local time), Russian forces continued their offensive aiming to capture Kyiv. Two days after invading Ukraine, Russia surrounded Kyiv and continued to apply pressure. In response, Ukraine has declared a nationwide mobilization order to resist Russia's occupation attempts.

In this situation, the U.S. announced comprehensive sanctions controlling exports of high-tech products such as semiconductors to Russia. If sanctions intensify further, flight suspensions and other measures may occur. In fact, some European countries have already banned Russian aircraft from operating in their airspace. If this accelerates, both air and sea routes could be blocked, potentially causing related freight rates to surge.

Conversely, there is also analysis that this could act as a downward factor in the shipping market. The Korea Ocean Business Corporation recently published a special report analyzing the impact of the Ukraine crisis on the shipping market. The corporation stated in the report, "In the dry bulk market, the overall rise in raw material prices, including the energy sector, is expected to increase global inflationary pressures," adding, "Accelerated interest rate hikes by major countries due to worsening inflation are expected to act as a downward factor across the shipping market."

It further explained, "The Russia-Ukraine conflict zone is geographically distant from major container ship navigation routes and key ports, so the direct impact is minimal," but noted, "The increase in fuel costs due to rising international oil prices is likely to lead to higher fuel surcharges."

This content was produced with the assistance of AI translation services.