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What are the Sanctions Imposed on Russia and How do they Affect Shipping?

As the invasion of Ukraine intensifies, many countries in the world, including the United States and its allies, have imposed various sanctions against Russia. By implementing such dramatic steps so quickly, these countries hope to force Russia to reconsider its military actions in Ukraine. Numerous shipping lines and airlines have also temporarily suspended services to and from Russia, with the exception of “exempted deliveries of essential supplies” such as food, medical equipment and humanitarian goods.

Here is an update on the current state in the shipping industry and an overview of the sanctions the world has imposed on Russia.

Shipping Updates and Effects on Global Shipping Rates

Container shipping companies play a vital role in global trade, carrying most of the world’s manufactured goods. When the world’s top three shipping lines – Maersk, MSC, and CMA CGM – announced their suspension of non-essential bookings to and from Russia, they did not come to this decision lightly as its effects could greatly impact the already-fragile global trade and shipping capacity. Quickly following the liner giants were the Taiwanese carrier Yang Ming, Singapore’s Ocean Network Express or ONE, and Germany’s Hapag-Lloyd. Together, these six carriers control 62% of global capacity, according to American Shipper.

Why are the world’s largest container lines suspending services to Russia? According to Michelle Linderman, partner of law firm Crowell & Moring, the container lines are dropping Russia “to manage sanctions risk but also perhaps manage reputational risk. Do [the container lines] want to be seen as supporting Russia? Or are they going to say at this moment, while this is going on, we don’t want to go anywhere near there.”

Diversions of Russa-bound cargo and increased inspections in container shipping can be costly as it could exacerbate congestion and network inefficiencies as liner companies scramble to reroute their vessels.

Sanctions the World Has Imposed on Russia

The first U.S. sanctions response to Russia’s recent actions in Ukraine was Executive Order 14065, which uses International Emergency Economic Powers Act (IEEPA) to sharply limit any trade and financial transactions involving the breakaway Ukrainian territories of Donetsk and Luhansk. Additional measures quickly followed to impose sanctions on a range of Russian financial institutions while targeting Russian elites believed to be close to Vladimir Putin. Major export controls on certain sensitive commodities have also been imposed to target Russia’s “defense, aerospace, and maritime sectors” with the goal of “cutting off Russia’s access to vital technological inputs, atrophying key sections of its industrial base, and undercutting its strategic ambitions to exert influence on the world stage.” At the time of this article’s publication, U.S. President Joe Biden has just signed an Executive Order to ban the import of Russian oil, liquefied natural gas, and coal to the United States.

The European Union has also played an active role in imposing sanctions on Russia. On February 23rd, the EU announced a package of “targeted restrictive measures” on Russia to cover all 351 members of the Russian State Duma, who voted in favor of the appeal to Vladimir Putin to recognize the independence of the self-proclaimed Donetsk and Luhansk “republics”. The targeted restrictive measures will also be imposed on 27 additional “high profile individuals and entities who have played a role in undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.”

Additional sanctions quickly followed on February 25th, which EU Foreign Affairs Representative Josep Borell called the EU’s “harshest sanctions ever.” This package directly targeted the assets of President Putin and Foreign Minister Lavrov, other members of the Russian Duma and government, and members of the Belorussian government who helped facilitate Russia’s troop movements through that country.

The Australian government has applied an array of sanctions aimed at targeting Russia’s Security Council and banks including VEG. The Canadian Prime Minister indicated that Canada will ban Canadians from all financial dealings with the so-called “independent states” of Luhansk and Donetsk. Japanese officials announced a sanctions package to freeze assets related to Donetsk and Luhansk, and prohibited trade relations with the two breakaway territories. The Taiwanese Ministry of Foreign Affairs also announced that Taiwan intended to join the international sanctions on Russia, which included export restrictions on semiconductors that Russia heavily relies on.

What to Expect Next?

What the full impact of these sanctions will be is yet to be seen. One thing for certain is further changes and disruptions. Arm your business with a trusted logistics partner such as ClearFreight, to help you plan and prepare for the future. Contact us today to see how our customizable supply chain solutions can help make shipping easier for you.

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