Limited initial express and logistics impact of Russia sanctions, operators report

Express, parcels, and logistics operators are reporting a limited initial direct impact on theirbusinesses from the sanctions imposed on Russia by the US and the EU, with some experiencing a

A spokeswoman for Finland’s post and logistics group Itella, which regards Russia as its secondmarket after Finland, told CEP-Research: “Current sanctions have no direct implications to ourbusiness. But indirectly, yes: general economic uncertainty, sanctions, the weakening ruble, andmore expensive local financing can affect our customers businesses and therefore their demand forlogistics services provided by Itella.”

She said the company’s business had already been affected by the first wave of sanctions earlierthis year. “Net sales growth in euro terms during first half of 2014 have been affected by theweaker ruble exchange rate,” she explained.

“Sales growth in Russia in local currency slowed down and turned negative towards the end ofQ2.”

Indeed, speaking at the publication last month of the group’s first-half and second-quarterfinancial results, president and CEO Heikki Malinen commented: “Additional challenges were posed bythe Ukrainian crisis, which has kept the value of the ruble weak and thereby negatively affectedthe growth of Itella Russia’s net sales. In June, economic uncertainty had a negative impact onItella Russia’s result.”

Net sales in the group’s Itella Russia business, which was organised into its own business groupat the beginning of the year, decreased by 13.3% in the six months to 30 June. However, measured inrubles, Itella Russia’s net sales grew by 1.9%.

As a consequence, the first-half operating result for the Itella Russia business slipped from aprofit last year of €2.1 million to a loss of €0.1 million this year.

Responding to questions from CEP-Research, DHL Express said it was too early to calculate withany certainty any future potential impact of the sanctions on its business, although the companysaid that it was monitoring the situation closely.

A spokeswoman for TNT Express said: “Some of our customers’ business is affected, as we areadhering to the international sanctions imposed in view of the situation in Ukraine.”

With EU companies barred from trading with some businesses in the former Ukrainian region ofCrimea due to its annexation by Russia, she said TNT was continuing to service the Crimea region “within the limits of the prevailing legal conditions”.

FedEx said it currently “has normal operations in these regions” and would continue to monitorthe situation, but said it “cannot speculate” on whether the latest sanctions and embargos willsignificantly affect its business levels.

GeoPost said that through its European brands including DPD and Chronopost, said it sends a mixof B2B and B2C parcels into Russia, in addition to its DPD business in Russia, which deliversacross the country.

A spokeswoman commented: “At the moment, we understand the trade embargo to largely concernfoodstuffs, so whilst this will impact on a very small minority of our customers, the vast majorityof our parcels are merchandise not containing food, and so our operation is unaffected. 

“We continue to fly parcels into Russia, clear them through Customs processes, and deliver themto all areas of the country. We are closely monitoring the situation and assessing impacts on ourcustomers on a regular basis.”

On 31 July, the US Department of Commerce’s Bureau of Industry and Security (BIS) announcedexpanded export restrictions to Russia, saying it would deny export, re-export or foreign transferof certain items for use in Russia’s energy sector that may be used for exploration or productionfrom deep-water, Arctic offshore, or shale projects that have the potential to produce oil. Whilethese sanctions do not target or interfere with the current supply of energy from Russia or preventRussian companies from selling oil and gas to any country, they were intended to make it difficultfor Russia to develop long-term, technically challenging future projects, BIS said.

The US sanctions were issued shortly after the European Union (EU) added new restrictivemeasures, including: limiting access to EU primary and secondary capital markets for Russianstate-owned financial institutions; imposing an embargo on the trade in arms; establishing anexport ban for dual-use goods for military end users; and curtailing Russian access to certainsensitive technologies that could be used for oil production and exploration.

Hans-Werner Sinn, a German economist and president of the Ifo Institute for Economic Research,estimated that around 3% of Germany’s exports were to Russia, although he said that a survey ofGerman companies found that almost half did business with Russia and around one fifth of these hadalready seen that business affected by the deteriorating relationship between Russia and theEU.

He told Bloomberg that the uncertainty caused by the worsening relations meant that a lot of EUcompanies were also deferring decisions relating to investments in Russia.

A spokesman for the global freight forwarder Panalpina told Lloyd’s Loading List that itexpected he biggest impact on the company’s international cargo flows would come from the newsanctions on specialised equipment for the oil and gas industry and on dual-use equipment.

The US and EU sanctions on Russia were followed last week by an embargo by Moscow on most foodimports from the EU, the US, Canada, and Norway.

Lloyd’s Loading List today reported that the road freight business between Russia and Finlandhad been “quite strongly affected” by Russia’s embargo.

Petri Laitinen, the Managing Director of the Finnish Freight Forwarders Association, said histeam were currently collecting information on the impact of Russia’s embargo on food imports on itsmembers’ business. But he said it was already clear that it (the embargo) “has quite stronglyaffected road transportation between Finland and Russia”.

Russia is a key trading partner of Finland, and Finnish dairy group Valio has announced that itwould be cutting jobs as a result of Russia’s embargo, claiming the embargo has hit it “by far thehardest of all companies in Finland”.

Elsewhere, sources said the impact of Russia’s embargo on freight transport was set to vary fromone EU state to another, but was expected to be more pronounced in countries such as Germany andPoland that were more active in trade with Russia.

But Norway’s seafood export business is reported to be extensively affected by the embargo.