Peace in Ukraine: Implications for the supply chain and logistics industry

A potential peace deal in Ukraine will have major implications for energy markets, trade routes, and supply chains, ranging from falling fuel costs to the massive effort of reconstructing the country.

For the first time since Russia’s invasion of Ukraine, a peace deal is on the cards. President Trump and Vladimir Putin have reportedly had conversations which may bring about the cessation of hostilities although, markedly, it seems that neither Ukraine’s President Zelensky nor European governments are party to the talks. This reflects the role which the US plays in funding the defence of Ukraine, the cost of which Trump feels is no longer sustainable. He has leverage on both sides in the conflict. He has the power to remove or reduce US funding, which would leave Ukraine dependent on Europe’s support. Or he could double down on the existing policy, which would see Russia involved in a ‘perma-war’, with huge societal, political and, most importantly, economic implications for Putin.

Nobody is saying that there will be an immediate return to the pre-invasion status quo or that this is the likely outcome. However, peace in Ukraine will have significant economic and security implications for the region and consequently for trade, logistics, and supply chains.

Downward pressure on global energy prices

First and foremost will be the consequences for the global price of energy. If the negotiations conclude with the removal of sanctions on the Russian oil industry, including on tankers, the price per barrel of oil is likely to slump. Whilst many other factors are at work, including the prospect for heightened interest rates, oil reserves and tariffs, Brent Crude was trading at around $75 per barrel (14 February) following news of the Trump-Putin call, down from $82 in mid-January. This will provide a tailwind for the shipping and transportation sectors and a boost for economies, although this will be mitigated by the actions of OPEC countries which will inevitably try to support the price through cuts in production.

Then, there are supplies of gas. Over a period of decades, the European economy became dependent on the supply of Liquid Natural Gas (LNG) from Russia, German heavy manufacturing in particular. Although there is the perception that all supplies of gas were cut off following the invasion, this is not the case; in fact, few sanctions apply to imports of Russian LNG. Flows through the pipelines from Russia to Europe may have slowed, but in 2024 record amounts of Russian LNG were delivered to European ports by ship, even leading in some cases to congestion.

This has led to allegations (particularly from Ukraine and the US) that Europe is effectively funding Russia’s war efforts. Lower prices for gas, of course, would be a huge stimulus for the European economy and could reverse some of the offshoring seen by energy intensive manufacturers. However, the USA, which has become a major supplier of LNG to the EU, would not welcome a return to Europe’s energy dependence on Russia. Trump will undoubtedly be unwilling to give back this market share to Russia.

Germany, as Europe’s largest economy and biggest consumer of LNG, will inevitably have plenty to say on this subject. However, clear policy is not to be expected until after the national elections on 23 February. Whilst the Christian Democratic Union (CDU) is expected to become the largest party, the Alternative fur Deutschland (AfD) is also expected to do well. The CDU has taken a ‘hawkish’ stance on Russia and pledged support for Ukraine. In contrast, the AfD has called for the end of German military aid to Ukraine and has pushed for a rapprochement with Russia including the re-opening of the Nord Stream pipelines. The AfD’s policy runs counter to other countries in eastern Europe, such as Poland, which have maintained that, even in the event of a deal, pipelines must remain shut.

The impact on transport and logistics

Bulk shipping: Ukraine is one of the world’s largest producers and exporters of agricultural products such as cereals, oilseeds, and vegetable oils. Oil and steel are also valuable exports, most of which, prior to the war, were shipped via Ukraine’s Black Sea ports, most importantly Odessa and Mariupol. A blockade by the Russian military meant that exporters were forced to find alternative routes by road, rail, or barge to EU ports in Romania, Poland, Bulgaria, Croatia, and Germany where they were transhipped. The additional logistics costs and constraint of capacity has underpinned rises in food costs, especially in emerging regions such as Africa.

The ban on imports of Russian coal also had a big impact on the dry bulk shipping sector. Russian coal exporters were forced to look east for new customers, and this led to congestion on rail routes to China which in itself had a knock-on effect for dry bulk capacity. Shorter distance movements from Russia to Europe were, to a large extent, replaced with long distance shipping to China (up by a quarter in the first year after the invasion) and other markets in Asia, such as India (up by 200%).

A peace deal which sees shipping volumes normalise in the Black Sea will have deflationary impacts on dry bulk shipping rates and the commodities which are being shipped.

Tankers: A host of sanctions on Russian oil has had a major impact on the tanker shipping market due to Russia’s position as the world’s second largest exporter of crude oil and of diesel. As well as banning the import of the product, Western countries also banned the provision of insurance services to tankers carrying Russian oil to non-EU countries above a certain price cap. This led to the development of a ‘shadow’ or ‘dark’ fleet of ships which were operating outside of Western systems. As ships migrated to the ‘shadow’ fleet to fulfil often lucrative contracts, the capacity of the licit global fleet was reduced, leading to rises in rates. In addition, supply lines have become extended as Russian oil is often moved to third party countries, such as India, before being re-exported to the EU. The longer distances and time involved in moving shipments around the world also has an impact on fleet capacity.

A peace deal which involves the lifting of these sanctions will cause a major downward pressure on shipping rates, especially given the weakness of the global economy outside of the US.

LNG carriers: Sanctions on Russian LNG and the cessation of supply to the European market by pipeline had a massive impact on the LNG carrier market. Capacity tightened and rates soared as carriers faced huge demand on routes from markets such as the US and Qatar to Europe. Research has shown that transatlantic shipping activity increased particularly strongly. At the same time as this, supply was pulled from other markets with lower spending power, including India, Pakistan, and Bangladesh—a void filled by Russian exports. This led to what Shell called a structural shift in market dynamics or what one research paper called a shift from “globalization, marketization, and regionalization” to “hemispherization, politicization, and alliance-building.”

There have been other more nuanced impacts as well. The ending of Russian supplies of LNG through the Ukrainian pipeline has resulted in more US LNG being moved through Greece and Turkey to supply markets in Central Europe particularly badly affected by the disruption. These markets may be helped by the ceasefire in Gaza, which has resulted in the Red Sea routes becoming more viable for Qatari LNG, although the release of capacity caused by the shorter transit times will push down rates.

Once again, prospects for the LNG carrier sector will be determined by the speed at which energy markets in Europe are normalised. The US will not want to see Russia regain share which has been taken by its exporters and many politicians in Europe will want to avoid returning to energy dependency on Russia. Against this, there are politicians (for example, Victor Orban’s ruling party in Hungary and the AfD in Germany) who will regard cheap energy as critically essential to their own economic development.

Opening up supply of LNG through pipelines to Europe will depress LNG carrier rates. However, market structures have changed – probably for good – and the transatlantic trades will remain strong as Europe pivots to US supplies.

Container shipping and ports: The invasion of Ukraine has had less impact on the container shipping sector, apart from increasing the cost of bunker fuel. In the first year after the conflict started, both Maersk and CMA CGM divested their holding in Russian ports and, along with many container lines, stopped serving the market. In mid-2024, Hapag-Lloyd and Maersk commenced services to Ukraine’s Black Sea ports, linking to Constanta in Romania. MSC added in a regular feeder service, linking Odesa to the Turkish port of Tekirdag.

A peace deal will benefit the sector, especially as shipping will move many materials required in the country’s rebuilding. However, the war’s impact on the global market has been minimal in terms of influencing rates and capacity.

Air cargo: EU and UK sanction packages included the closure of European airspace to all Russian-owned aircraft. Russia immediately undertook reciprocal action, and European airlines have been forced to find alternative—and longer—routes around the country. This has particularly affected flights to China and has led some airlines to cancel routes to various Chinese destinations completely. The result was higher air cargo rates as capacity dropped. Naturally, given China’s strong relationship with Russia, Chinese airlines remained unaffected and so gained an advantage over European competitors.

If a deal is negotiated, it is probable that the bans on over-flying will be swiftly removed. However, that is not to say that airlines will return quickly to routes which have been dropped. China’s economic weakness makes it probable that flight capacity will only be increased once demand for both passenger and cargo services resumes.

Rail freight: Freight trains transiting Russia on their way between Europe and China were largely unaffected by sanctions, although they were not allowed to stop in the country. Regardless, many freight companies decided to use alternative routes, such as the Middle Corridor (through Kazakhstan, Azerbaijan, Georgia and Turkey) due to security concerns. This resulted in longer transit times and higher prices.

Improving relations between the West and Russia could see the services resume, although demand may be slow due to continuing economic weakness. Nevertheless, many rail freight companies and freight forwarders will be keen to see this route develop once again, providing an alternative to slower sea freight or more expensive air freight services.

European road freight: The EU is Ukraine’s biggest trading partner and large volumes of cross-border goods are transported by road. In the aftermath of the invasion, the European Commission looked at ways in which the country could be better integrated into European transport networks and made investment available through the ‘Connecting Europe Facility’. It was also agreed that Ukrainian carriers would no longer need permits to operate in the EU.

However, in terms of impact on the European road freight industry as a whole, the conflict’s greatest significance has been on the region’s driver shortage. The mobilisation of Ukrainian men of fighting age has caused a ripple effect throughout Europe. Estimates put the shortages in Ukraine at up to 50% for some companies, with surveys suggesting a rate of 25% across the industry as a whole. At the outset of the crisis, it was believed that 100,000 Ukrainians worked in Polish transport companies and the German logistics association, BGL, said that 7% of truck drivers employed in Germany were Ukrainian, many of whom returned home immediately the war started. Whilst it is not likely that Ukraine’s army will be demobilised anytime soon, a peace deal will see pressure on driver numbers gradually reduced.

Road transport networks linking Europe with Russia will also normalise. In April 2022, the fifth EU sanctions package banned Russian freight companies from transporting goods into the EU and now shipments, such as they are allowed, are transhipped at border points. If Russian supply chains pivot back to Europe after the war, an efficient international road freight transport system will redevelop to facilitate movements of goods.

The European driver shortage will be helped by the gradual return of Ukrainian transport workers, supporting the German and Polish industry in particular. Cross-border transport links will also return, providing a boost to the international road haulage industry.

Warehousing: The Russian invasion of Ukraine has taken a heavy toll on warehousing premises. It has been estimated that about a fifth of facilities were destroyed in the first few months of the war, the eastern and southern regions of the country worst affected. This included a 19,000 sqm warehouse complex run by Kuehne + Nagel as well as one of the largest cold stores in the country. Since then, there have been redevelopment programmes which have tended to be in west around Lviv and Khmelnytsky as well as in the environs of the capital, Kyiv. Despite efforts, the amount of modern warehousing in the country is still very small, resulting in low vacancy rates. It has been estimated that there is a shortage of 500,000 sqm of warehousing in Kyiv and a further 500,000 sqm throughout the rest of the country.

A peace deal will see huge pressure on the warehousing market due to redevelopment of destroyed premises; more integration of the Ukrainian economy with European supply chains; and the need for more facilities to support reconstruction efforts. This will be facilitated by private capital, foreign aid, and loans.

Ukraine’s reconstruction

The war has resulted in high levels of destruction not only to urban areas, housing, schools, hospitals, power stations, and government buildings, but also to transport infrastructure. Significant reconstruction will be needed to ensure that flows of energy products, grains, building materials, vehicles, industrial plant and consumer goods return to normal. In 2022, the European Parliament estimated that around a third of the country’s infrastructure had been degraded, included 7 airports, 144,000km of roads, 1,242 bridges and 6,300km of railways. As a whole, the World Bank estimates that the cost of reconstruction will amount to $486 billion over the next decade.

Whilst devastating for the country and its finances, putting the damage right will present a huge opportunity for European businesses. The volume of construction materials required will call for a major logistics effort benefiting all transport modes, especially road and rail. Romania could be well-positioned to act as a hub in this process, bordered by Ukraine to the north and Hungary to the west and both an EU and NATO member. Transport links have already improved, with Romania’s largest port Constanta acting as a main conduit for Ukrainian exports.

In order to rebuild Ukraine’s economy, a multi-billion-dollar logistics effort will be required. This will benefit many logistics companies in the region, particularly road freight and warehousing. Shipping and port companies will also be involved in the reconstruction of Ukraine’s ports and inland distribution channels.

Sooner or later, a deal is inevitable

There is absolutely no guarantee that a peace deal will be negotiated between the US, Russia, and Ukraine. However, given President Trump’s avowed intent to end the war and the financial and military levers he controls, there must be a very good chance of success. Even so, it will take a long time to return to the status quo ante, especially as regards supplies of oil and LNG and the associated shipping businesses. It is more likely that immediate benefits to the logistics industry will arise from the major reconstruction package which will be put in place as a way of appeasing President Zelensky, should Russia be allowed to retain the territory it has taken. This will see many redevelopment projects get under way, drawing in huge volumes of materials from around Europe. Infrastructure projects will be amongst the earliest to be initiated. Eventually, the European road freight sector will benefit from the increased number of Ukrainian drivers, although domestic demand driven by reconstruction will reduce the number operating internationally.

Regardless of the rights and wrongs of the situation, it is clear that the US and many in Europe have grown tired of supporting the war. This situation is likely mirrored in Russia, which has suffered many casualties and huge economic loss. At some point (if not now, in the near future) a deal will be done, and the focus will turn to rebuilding Ukraine’s shattered economy. At the same time as this, the US will insist that Europe increase its defence spending so that in the future it can take care of its own security—in theory at least. Expenditure on munitions and defence capabilities will in itself offer the European logistics industry further opportunities.

Any resolution that brings peace to Ukraine will shift the focus from conflict to rebuilding, simultaneously removing present constraints and introducing new dynamics for global trade, logistics, and supply chains.

This article was first published on Ti’s website on 14 February 2025