As you know, here at the QuickTSI blog, we endeavor to provide you with only the most up to date information. That’s why we wanted to take a moment in today’s blog post to talk about one of the most pressing issues of the day: The war in Ukraine. Let’s take a step back and examine how we got here and how the trucking sector will be impacted by events happening in Eastern Europe.
A New Land War in Europe
After over 30 years of peace, war has returned to Europe. At 4:00am local time on February 24, the nightmare of an entire nation came true when Russia invaded Ukraine. It wasn’t long before Russian troops and tanks were pouring over the Ukrainian border and making a charge towards Ukraine’s major cities and population centers.
The war in Ukraine is widely seen as the most serious land invasion in Europe since World War II. It has already claimed thousands of lives and laid waste to entire swaths of Ukrainian territory. Already, in a nation of 40 million people, over 2 million have fled across the borders of Poland, Hungary, Romania, and Moldova to avoid the death and destruction wrought at the hands of Russia’s Vladimir Putin. But how did we get here?
Quite frankly, President Vladimir Putin of Russia has made no secret of his desire to return Russia to its former imperial glory. After the fall of the Soviet Union in the 90s, the U.S.S.R.’s easternmost provinces broke away to form Ukraine, Estonia, Latvia, and Lithuania. President Putin has called this “one of the greatest geopolitical catastrophes of the 20th century.” Obviously, he has designs on folding Ukraine back into Russia as a vassal state.
But according to many analysts, this conflict has deeper roots. Many consider this to be the opening salvo in a larger battle between Western-style democracies and authoritarian regimes around the world. No doubt China is watching with designs on Taiwan. How will the current situation impact the future balance of power in the world? Only time will tell.
How the War Impacts the Global Economy
Although the U.S. domestic trucking industry remains mostly insulated from the flow of international goods, both Ukraine and Russia are big players in metal, energy, and food supplies. As a result, at the minimum U.S. consumers can expect inflation to continue to rise. From wheat to oil and precious metals, Russia and Ukraine are big players. Any disruptions will cause major problems up and down the supply chain.
As Ukrainian ports and airspace remain closed, wheat futures have made a huge jump to their highest levels since 2008. As of today, they are up 4% to $8.98 a bushel. Huge multinational companies from Kellogg’s to Pepsi are already warning of double-digit hyperinflation as they account for disruptions out of Russia and Eastern Europe.
Aluminum is also a big Ukrainian export. As a result of the invasion, aluminum prices have jumped 5.7% on the London Metals Exchange. Hyperinflation of this kind will cause big problems for the overall macro financial picture in the United States. The European Central Bank has said that the war may shave up to 0.4% of GDP out of the entire Eurozone.
What Can American Trucking Companies Expect?
Now, the question is, what does any of this have to do with domestic trucking in the United States? Don’t just assume that because this is happening across the Atlantic Ocean that it won’t impact what happens in the United States. There are certain things American fleets need to watch out for to stay afloat as the world proceeds through these turbulent times.
First, trucking companies should expect inflation points to continue their precipitous rise. And even as wages increase across the country, these inflation pressures are going to eat up wage gains. This impacts truckers because truck drivers have been getting huge wage raises because of increasing shipping prices. This means truckers’ paychecks won’t go as far at the store and other places where consumer price inflation impact prices.
Trucking companies will need to get creative in how they manage inflationary pressures, pay wage increases, and dissatisfied employees who fear their paychecks simply won’t go as far. This is especially important during the current employment crisis.
Expect More Supply Chain Problems
The shipping industry has already been dealing with the fallout from the war with Ukraine. Merchant ships outside the Ukrainian port city of Odessa have been targeted. Shipping giants like Maersk are suspending container shipping operations to and from Russia, which puts a huge strain on the global supply chain.
And with companies like UPS and FedEx suspending operations in Russia, expect the interconnectedness of the global supply chain to continue suffering major upheavals. In fact, many expect ocean shipping rates to triple as a result of the war in Ukraine. Still, will this have a big impact on Russia, who was already cut out of international supply chains following their annexation of Crimea? The answer is most likely
Consider the semiconductor crunch the world has just been going through. Trucking OEMs are already struggling to obtain semiconductors to meet Class 8 production goals. Ukraine has been a huge producer of neon gases and rare metals like palladium, which are necessary for the effective production of semiconductors for use in many different applications.
A New Trucking Catalyst?
This entire situation could end up being a catalyst for more change in the trucking and transportation sectors. With Russia being a giant oil producer, and oil now passing $100 a gallon because of the crisis, we may see OEMs quickly transition to zero emissions powertrains. This crisis may be just what industry needs to finally accelerate the change away from internal combustion engines.
Still, a full transition away from internal combustion powertrains presents significant challenges on its own. Yet, there is a chance that politicians and public figures of all types could use this crisis to accelerate their plans to move to a green, sustainable economy. Consider that 83% of Americans oppose Russia’s invasion of Ukraine and you’ll rarely find more unity from Americans on particular issue. There is significant political capital in Americans’ aversion to the war in Ukraine.
This is especially true in the logistics sector, which has significantly lagged behind other parts of the economy in embracing environmental, social, and governance priorities in business. While environmentalism has not been front of mind for many, expect the war in Ukraine to accelerate this trend.
And while the carbon-intensive trucking industry has very little room to brag about its environmental bona fides, this crisis could give industry leaders just the opening they need to show off their sustainability chops and ethical governance. Will this help decrease inflationary pressures? Possibly, but at the minimum it will help companies improve their operations for the better.
Fuel Prices Make a Big Jump
With oil prices having jumped to over $100 per barrel for the fist time since 2014, and natural gas up 60% since the start of the war, energy prices don’t look set to drop any time soon. And with Russia being the world’s number two fossil fuel producer, some are even expecting oil prices to jump to over $125 per barrel, which would be unprecedented in modern times.
Everything from fuel oil to liquified natural gas is set to get a lot more expensive over the short term. No one is surprised that the invasion of Ukraine has created a bull market for spot LNG prices. Long-term LNG contracts are also expected to rise over the long term as industries adapt to rising energy prices.
Even worse, limited air capacity presents a double whammy for shippers. With airspace over Ukraine closed to civilian flights and airlines avoiding Russian airspace entirely, air freight rates are going through the roof. Consider that the flying bans have removed 10 million miles of airspace from international freight routes. And with airlines responsible for around 20% of all cargo shipped, this crisis will dramatically decrease carrier capacity, thus increasing prices.
Many expect record backlog and delays while experiencing some of the highest prices on record, both for transportation and goods. Now the question is how will the world adapt? And when and how will the war end? With no end currently in sight, how this all plays out in the long term is anyone’s guess. But you can rest assured we will be right here reporting on it for you, our loyal readers.