Within days, Russia's war on Ukraine squeezes the global economy

Ocean rates may double or triple to $30K/ container & air freight costs are set to jump even higher

In the span of just a few days, the global economic outlook has darkened while troops battled in Ukraine and unexpectedly potent financial sanctions rocked Russia’s economy and threatened to further fuel worldwide inflation. The price of oil, natural gas and other staples spiked Monday. 

Russia has long been a relatively minor player in the global economy, accounting for just 1.7 per cent of the world’s total output despite its enormous energy exports. 

But while Putin has ignored a slate of international norms, he cannot ignore a modern and mammoth financial system that is largely controlled by governments and bankers outside his country. 

Now, “it’s a gamble between a financial clock and a military clock, to vaporise the resources to conduct a war,” said Julia Friedlander, director of the economic statecraft initiative at the Atlantic Council.

Together, the invasion and the sanctions inject a huge dose of uncertainty and volatility into economic decision-making, heightening the risk to the global outlook.

Worries about shortages also pushed up the price of some grains and metals, which would inflict higher costs on consumers and businesses. 

Already eye-popping transport costs are also expected to soar. “We are going to see rates skyrocket for ocean and air,” said Glenn Koepke, general manager of network collaboration at FourKites, a supply-chain consultancy in Chicago. He warned ocean rates could double or triple to $30,000 a container from $10,000 a container, and that airfreight costs were expected to jump even higher.

Russia closed its airspace to 36 countries, which means shipping planes will have to divert to roundabout routes, leading them to spend more on fuel and possibly encouraging them to reduce the size of their loads. “We’re also going to see more product shortages,” Koepke said. While it’s a slower season now, he said, “companies are ramping up for summer volume, and that’s going to have a major impact on our supply chain.”

In a flurry of updates on Monday, several Wall Street analysts and economists acknowledged that they had underestimated the extent of Russia’s invasion of Ukraine and the international response. With events rapidly piling up, assessments of the potential economic fallout ranged from the mild to the severe.

“What’s happening right now is we’re looking at the dismemberment of one of the largest economies on the planet,” said Carl Weinberg, chief economist at High Frequency Economics. “And from what I know about tactics, this is a dangerous tactic.”

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