Logistically Speaking - HOT SHEET - Week 10

March 15, 2022

COVID Zero Policy
The spread of the Micron variant has placed the cities of Shenzhen and Changchun in lock down.

  • Shanghai has not instituted a lockdown yet but have gone back to online schooling.
  • All businesses in Shenzhen will be closed and working from home for the next week, possibly longer and all public transportation will stop operations.
  • Port workers are allowed to continue work because they reside at the port during their shifts.
  • This won't help ease supply chain problems if warehouse workers and truck drivers are not able to work.

Naval Conflict
On February 24th, Russia invaded Ukraine and, while doing so, also established a naval presence in the Black Sea as well as the Sea of Azov, posing a significant risk to cargo ships in that area.

  • These areas are key supply routes for bulk agricultural and oil exports. For example, Ukraine and Russia account for a quarter of the wheat trade and a fifth of the corn trade.
  • Thus far, five civilian vessels have been attacked by the Russian navy and two seized. In addition, the Estonian cargo ship, the Helt, was sunk Southeast of Odesa with damage "consistent with a mine strike."
  • The port city of Odesa remains under Ukrainian control but is thought to be the next target.
  • This area of water has been designated as "Warlike Operations Area," with NATO confirming the possibility that Russia is placing mines around Ukraine ports.
  • Solution: At Dunavant, we reduce your exposure by taking alternative routes and avoiding the area in contention. We are keeping a pulse on the situation and monitoring daily.

War Surcharges
With this area designated "Warlike Operations," a supplementary War Risk Surcharge can be levied by the carriers.

  • This surcharge is to recover extra costs such as rerouting, insurance premiums, or security. In addition, any disruptions caused by the Ukraine-Russia conflict will allow the carriers to invoke the Force Majeure clause removing their liability.
  • Solution: Freight is exposed to risk as it changes hands and travels through ports as well as external forces such as war (a carrier exclusion); therefore, we recommend insuring freight to protect your goods. Insurance will also cover the general average, which is a partial loss of freight (yours or others) shared proportionally by all parties involved in the voyage. Contact Dunavant for your insurance needs.

Union Alert
The International Longshore and Warehouse Union, which operates at all 29 west coast ports, announced it would not load or unload any Russian cargo in solidarity with Ukraine.

  • This has been a disputed move since most cargo inbound to the west coast is paid by the US Consignee; therefore, this does not punish the Russian exporter but the US entities and the ships' crew.
  • With trade coming to a halt and oil sanctions in place, there shouldn't be too much disruption due to this announcement.
  • The teamsters Canada Rail Conference could begin striking as early as tomorrow if a new labor agreement is not reached.
  • This would affect all crude and fertilizer traveling on the CP two commodities already in short supply.
  • Solution: Due to sanctions, Dunavant has rerouted freight coming from Russia and is advising customers to find new suppliers.

Diesel Prices
In the past month, gas and diesel prices increased to record levels not seen since 2008, fueled by companies’ self-imposed sanctions not to buy Russian oil, effectively removing millions of barrels from the global supply.

  • Now the US government is banning all imports of Russian energy products.
  • Russian imports of oil and petroleum products account for 8% of the US total.
  • While self-sanctions and inflationary pressures create a tight market, an outright ban from the US will further tighten markets.
  • These new prices are hitting the trucking industry and the maritime industry at a time with inflationary pressures abound.
  • At Dunavant, we watch the market closely tracking these price shifts. Diesel prices are up $1.77, equating to a 58% increase YoY. That jumps to 104% when compared to 16 months ago. With a per-mile fuel surcharge, this comes out to a $0.36 increase. So, a driver trying to make a living driving 100,000 miles will have an added cost of $36,000 depending on where he/she is based.
  • Solution: Shippers can look to cut costs by optimizing shipments, including limiting small shipments, reducing overall miles by optimizing loads, and shifting modes to increase efficiency.
Posted by Andrea Wiley at 11:06