Conflict with Russia will curtail major logistics markets

The crisis around the Russian annexation of the Crimea appears to be of such magnitude that it is likely to have a profound effect on the economies across Central and Eastern Europe. As ever logistics will be a primary focus.

An obvious problem area will be trade both in the Black Sea region and the Baltic Sea. The consumer boom that Russia has experienced over the past decade has overstretched its port’s capacity to handle imports resulting in the growth of trans-shipment ports in Turkey and Romania, handling not just containers but also ro-ro cargoes such as cars. Presumably this traffic will be hit badly.

The Baltic trade has also grown vigorously recently. Not just ports in Northern Germany, Poland and the Baltic States but shipping providers such as DFDS, Unifeeder and Grimaldi have significant business into Russia. Of course within this trade Finland occupies a special position. Its efficient, reliable ports are a major access point into Russia and even just a recession in Russia will directly affect such businesses.

One group that can hardly be surprised at events are road freight operators between Russia and Central Europe. For example there have been a series of conflicts between the Russian authorities and the Baltic States over strange issues to do with cargo insurance and TIR agreements. It is tempting to believe that these owed as much to do with the political environment in Moscow than any objective problems to do with the regulation of freight movement. The opportunity for further problems here seems considerable.

There must also be effects on Russian investments in logistics outside the country. Prominent amongst these is GEFCO which is now 70% owned by the Russian State Railway company- RZD- whose head is Vladimir Yakunin, a close associate of Vladimir Putin and who has been named as a target for sanctions by a number of western Governments including France. Bearing in-mind it appears that part of the logic for the investment in GEFCO was to attract western European cargoes onto Russian railways it raises questions about the future strategy of GEFCO and possibly the viability of the whole ownership of GEFCO.

Deutsche Bahn Schenker has also developed rail services across Russia through Central Asia to China. These must be seen as vulnerable to political interference whilst the termination of DB Schenker’s rail service across Kazakstan and through Russia carrying German, American and British military equipment back from Afghanistan must surely be likely, although alternatives are available not least air/land services through Dubai.

A further aspect is the implications for Russian companies such as Global Ports that have raised capital in London for investment in their business. Such firms would appear to be prime targets for some sort of action not least as they are often controlled by persons close to political power in Moscow.

Another potential area is overfly rights from Russia. In the recent past Russia has not been shy about manipulating these in a characteristic cynical manner. For example it used the threat to withdraw overfly rights from Lufthansa as part of its attempts to get the German airline to use a Siberian airport as a cargo hub. The possibility that it will use this tool in its conflict with western states must be high.

So the list of potential disruption to logistics in Europe is very long.

Yet a more profound trend will be the re-orientation of trade from Western and Central Europe away from Russia. Not just in the energy sector but many businesses such as the automotive sector, chemicals and luxury goods will experience a considerable change of direction as a market of not inconsiderable size is effectively shut-down.