The United Nations Conference on Trade and Development (UNCTAD) said in a new report that the war in Ukraine is causing a "rapidly worsening outlook" for the world economy underpined by rising prices on commodities and fuels.

The March 16 report of UNCTAD also noted how heightened financial volatility, sustainable development divestment, and complex global supply chain reconfigurations are driving trade costs and impacting small, underdeveloped states the most.

"The war in Ukraine has a huge cost in human suffering and is sending shocks through the world economy," Rebeca Grynspan, UNCTAD secretary-general said. "All these shocks threaten the gains made towards recovery from the COVID-19 pandemic and block the path towards sustainable development."

Freight rate hike expectations

In terms of its impact on logistics, the UNCTAD report noted that the almost month-long military standoff between Russia and Ukraine are driving freight rates up and further choking the already-congested supply chain.

It added that restrictive measures on airspace, contractor uncertainty, and security concerns are complicating all trade routes going through Russia and Ukraine — impacting Asia-Europe the most — noting that the two countries are both "key geographical component" of the Eurasian Land Bridge.

UNCTAD said in 2021, 1.5 million containers of cargo were shipped by rail west from China to Europe.

"If the volumes currently going by container rail were added to the Asia-Europe ocean freight demand, this would mean a 5% to 8% increase in an already congested trade route," the report said. "On top of this, already expensive and overstretched maritime trade will find it difficult to replace these suddenly unviable land and air routes."

"The impact of the war in Ukraine can be expected to lead to even higher freight rates.”

UNCTAD noted that such increases would have a significant impact on economies and households — mostly impacting smaller, underdeveloped nations.

"In 2021, UNCTAD simulated that the freight rate increase during the pandemic raised global consumer prices by 1.5%, with particularly oversized effects in vulnerable economies such as small island developing states, landlocked developing states, and least developed countries," it said.

The report went on to note that the Russian invasion of Ukraine has also raised concerns over food and fuels in the commodity market with Ukraine and Russia being global players in agri-food markets, representing 53% of global trade in sunflower oil and seeds and 27% in wheat.

"This rapidly evolving situation is especially alarming for developing nations. As many as 25 African countries, including many least developed countries, import more than one third of their wheat from the two countries at war. For 15 of them, the share is over half," UNCTAD said.

"Soaring food and fuel prices will affect the most vulnerable in developing countries."