From logistics to food, businesses in Singapore feel squeeze from surge in petrol, supply costs amid Ukraine invasion

SINGAPORE: Businesses across various sectors are facing increasing pressure as Russia’s invasion of Ukraine further disrupts global supply chains and pushes up prices for fuel and key food ingredients.

With Russia being one of the world’s top three oil producers, fears of supply problems have driven up global oil prices and in turn, prices at the pumps.

The conflict has also sparked fears about global grain production and the supply of edible oil.

Russia and Ukraine together account for more than a quarter of global wheat exports, while Ukraine alone makes up almost half of the exports of sunflower oil. Both are key commodities used in many food products.

Such concerns have sent basic commodity prices soaring, mirroring the crisis in energy markets. Meanwhile, already-strained global supply chains have come under further stress.

“Not only has the conflict been a source of direct disruption to trade in key commodities ... but government policies and sanctions that have been introduced since the start of the conflict have forced carriers to reroute operations and carry less freight between the eastern and western hemispheres,” said a report by Moody’s Analytics this week.

With “no reprieve” in sight for global supply chains, the experts added that freight rates, delivery delays and import prices are set to rise further in the near term.

“IT HAS CAUSED A LOT OF PANIC”

Transport and delivery firms are among those taking the immediate hit, as higher petrol and diesel prices make each trip on the road more costly.

The increase in fuel costs – as much as 30 per cent over the past year – can contribute up to one-third of operating costs for smaller companies, said Singapore Logistics Association’s honorary treasurer Ken Ngan.

“With continued bunching delays and slower turnaround at gateway ports, transportation companies are incurring higher costs, having to schedule more trips to fulfil orders in a timely manner,” he added.

Air and sea freight rates are set to go up as well, with fuel surcharges, such as the sea freight’s bunker adjustment factor and air freight’s fuel adjustment factor, likely to increase accordingly with recent oil price jumps.

There is also the likelihood of liners and airlines imposing higher insurance premiums for war risk-related factors, Mr Ngan told CNA.

“The recent surge in fuel and electricity costs due to the Russia-Ukraine conflict is compounding the difficult operating environment for logistics companies, and the logistics sector expects operating costs to continue rising sharply in the short term,” he said.

Food manufacturers, wholesalers and distributors are also keeping an eye on freight rates, which will make it more expensive for them to move their goods around.

Another concern is the rise in basic commodity prices. With the Black Sea region accounting for a large proportion of global grain and edible oil supplies, the conflict has resulted in commodity traders frantically searching for alternatives.

“It has caused a lot of panic,” said Mr David Tan, president of the Singapore Food Manufacturers’ Association (SFMA).

“For example, traders are now buying a lot of wheat from Australia, Canada and the United States. With the panic and demand shifting quickly, we see that prices in general have skyrocketed.”

US wheat futures hit all-time highs of US$13.63 a bushel earlier this month and were last seen at about US$11 on Friday (Mar 18). Prices have risen by 50 per cent compared to last year and doubled since 2020. 

This means that even though Singapore does not import wheat directly from the warring countries, companies in Singapore – ranging from importers to bakeries, snacks and noodle producers – may still end up paying more for supplies from elsewhere, said Mr Tan.

Apart from wheat and corn, the price of palm oil – the world’s most widely used vegetable oil – has also furthered its rally since the conflict started. SFMA added that this is especially painful for food manufacturers that use the oil in large quantities to make products such as snacks and noodles.

X-Inc, which runs food distributors FoodXervices and GroXers, noted that many commodity players it works with have been “reluctant for (it) to hedge any prices, which adds to the volatility”.

Having “to buy high while collecting revenue that is still based on the lower prices” will cause many traditional importers and wholesalers to be on “the brink of closure”.

"There will be massive cashflow issues even for larger entities," said X-Inc’s chief executive Nichol Ng.

Concerns are simmering in other sectors.

Mr Peh Ke-Pin, general manager of PQ Builders, said construction firms have felt the immediate hit of higher petrol and diesel prices as well. But the bigger concern is whether soaring energy costs will result in more expensive building materials as a lot of energy, particularly gas, is needed to produce bricks, cement and concrete.

Adding to the mix, prices of steel and aluminium have jumped on the back of supply concerns. given how Russia is among the top five global producers of these metals.

“All these will affect the cost of manufacturing these materials. What we are afraid is manufacturers start factoring in all these and taking the opportunity to raise prices again,” said Mr Peh.

“I haven’t seen a direct hit to material prices yet. I’m keeping my fingers crossed, although if the conflict is prolonged, I think we might see an impact soon. That will be devastating for a lot of SMEs.”

Meanwhile, economists from Maybank Research said in a Mar 11 report that US sanctions on Russia could possibly impact some components of trade, such as chip exports from Singapore and Malaysia, as well as navigation equipment from Singapore.

Shortages of palladium and neon gas due to the war may also disrupt semiconductor production in Singapore and Malaysia, they wrote.

Russia and Ukraine are major sources of neon gas, which is critical for the lasers used to make chips, and the metal palladium used in later manufacturing stages. For instance, about 45 per cent to 54 per cent of the world's semiconductor-grade neon gas comes from two Ukrainian companies, according to Reuters.

When contacted, the Singapore Semiconductor Industry Association said it is still gathering feedback from industry partners “but has not ascertained any immediate or significant impact at the moment”. 

“We will continue to monitor the situation closely,” said the association’s executive director Ang Wee Seng.

PASSING ON THE COSTS IS “INEVITABLE”

Already grappling with rising inflationary pressures and labour shortages, companies told CNA that they will have to pass on the further rise in costs to customers.

“Logistics companies have been trying their best to cope with and absorb these fuel cost increases across multiple fronts. However, the recent rounds of hefty increases in fuel and electricity costs are particularly difficult to bear,” said Mr Ngan.

“Inevitably, many logistics companies are reaching out to their clients and appealing for all to temporarily share the fuel increases ... to tide over the difficult period.”

Likewise, food distributors and wholesalers with razor-thin margins “have no choice but to pass on the price hikes”.

“Increases are no longer in the single digits but have jumped (by) 20 to 80 per cent,” said Ms Ng from X-Inc. 

“These have worrying repercussions for all businesses. The situation is made worse by the fact that this is not cyclical. There is no light yet at the end of the tunnel.”

This lack of visibility, if prolonged, may affect business confidence, warned CIMB Private Bank economist Song Seng Wun.

“Businesses need visibility for costing and other areas to run their business. If they don’t have visibility, it’s very hard to make plans and all these will have a knock-on impact on confidence.”