While the situation has worsened an already crippled supply chain, it has also increased freight rates that now threaten to push up their costs. Freight rates are currently two to five times the pre-Covid levels, said auto industry insiders. With most countries lifting pandemic-related restrictions, the rates were expected to come down, but the war has changed the scenario. In the past 28 days alone, the cost of air freight has increased 8-10%.
“Logistics routes are under threat due to airspaces getting closed and re-routing being done,” said a senior auto industry executive. While this is resulting in delayed deliveries, freight costs have increased, he added.
Local manufacturers may have to increase prices if the costs remain elevated, said industry experts. The Indian government, meanwhile, has sought information from industry bodies to assess the situation, said people in know of the development.
A top executive at the cargo unit of a foreign airline said American carriers were mostly avoiding Eastern European routes. “Other airlines taking that route have had to take alternate routes. Flying on these longer routes and the fuelling means that we have to reduce payloads on such flights. The lower payloads, coupled with the rising fuel costs have pushed up prices,” he said. “Sans the war, air freights would have started softening.”
Fuel prices have surged since the start of the conflict in February. In India, last week, state-run oil refiners increased jet fuel prices by 18%, the steepest increase ever.
Disruptions on the sea routes are having an added impact on freight rates. Shipping companies are refusing to sail into the Black Sea and huge premiums are being demanded for vessels which are also bound in that direction because of the threat perception. The Ukrainian ports of Odessa and Mariupol are also closed.
