Soaring crude, ballooning freight fares

Crude oil has hit around $140 per barrel, which is likely to soar further in a state of a protracted Russia-Ukraine war. While the rising fuel oil price has multiple impacts on trade, economy, and inflation, the immediate reverberation is being felt by local exporters and importers, as they are counting increasing freight fares. Nobody knows when the war will end. But, everybody is feeling the immediate and long-term impacts of the war in the household expenditure to farm gate cost and factory expense to the national exchequer.

A report published in this daily on Tuesday states that the freight charges of ocean-going vessels rose yet again due to fuel price hikes in the international market, triggered by the Ukraine-Russia war at a time when the global supply chain was still reeling from the Covid-19 pandemic. Industry insiders told The Business Post that after Russia invaded Ukraine, per 40-foot container fare rose by $500 – $2,000 depending on the shipping line and destination, which has directly impacted their business. They added that the fare was hovering between $14,000 to $20,000 before this conflict, already a significant increase from $2,500 - $5,000 during the pre-pandemic period.

Bangladesh's $45 billion-export market now faces hurdles due to skyrocketing fuel prices in the international market, as the fuel has a spillover effect on the entire economy. With the ban imposed on Russian energy supply in the European market and the US, the situation would aggravate further, as around one-third of Europe's gas is supplied by Russia. The EU is the largest export market for Bangladeshi products. Turmoil in the European economy may overturn Bangladesh's economy to a great extent. The abrupt and unjustified war might cause a severe downturn for the whole of the global economy. Apparel and jute exporters of Bangladesh are going to be the worst hit due to the escalating freight fares and the ballooning crude prices.

With the skyrocketing prices of fuel oil in the international market, import costs of industrial raw materials are going up, resulting in a price hike in the local market. Prices of almost all types of products, food items or non-food products have been creeping up. Consumers are being increasingly overburdened with meeting the costs of their everyday life. The government is worried and has nothing much at its disposal to fix the strings of financial odds involving all strata of life due to the supply side constraints due to the war. Only allocating bigger deficit financing is the solution available for the government, as the problems in the economy are not created by Bangladesh but only by the ultra-aggressive Vladimir Putin. Where Putin will stop is the million-dollar question now.

Russia provides 10 per cent of the world's oil and more than a third of the European Union's natural gas. Md Khosru Chowdhury, managing director of Nipa Group and director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "Around 60 containers of apparel goods worth $15 million are ready or almost ready. "But my buyers have asked me to move slowly because of increasing shipping rates. Forty-foot freight fare to a US destination has gone up by $2,000 within just a month." Faisal Samad, managing director of Savar Tex, said, "When we received orders, freight fare was stable. We and the buyers calculated rates based on those rates. We do not know how we will adjust to the recent fare hikes. Several apparel exporters said most of their raw materials are imported, such as cotton, woven fabrics, chemicals, and other elements. Freight fare jumped four to five times when the Covid-19 started spreading, which in turn hit goods prices.

To fix the global crisis, the Ukraine-Russia war must be stopped immediately. Russian President Vladimir Putin's aggression must stop without further delay. But, will he stop on his own? It does not seem so.