June 2022 · The war in Ukraine and its effect on maritime trade

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This past June 28th, the United Nations Conference on Trade and Development (UNCTAD) released a report on the disruptions caused by the war in Ukraine and its effects on maritime trade. 

Based on the report, the following conclusions may be drawn:

1. Shipping costs are rising 

While acknowledging that it is impossible to single out the war in Ukraine as the only element that explains the recent disruptions in global shipping (as there are other ongoing issues such as, for instance, the COVID-19 pandemic and the need to switch to low carbon fuels), the UNCTAD has warned nevertheless that the war has contributed strongly to higher shipping costs.

The Russian Federation is a leading oil and gas exporter. Trade restrictions resulting from the war have led to higher energy prices, which have in turn led to higher marine bunker prices, raising shipping costs for all maritime transport sectors. 

According to the UNCTAD’s report, the average fuel extra cost charged per container by shipping lines has risen close to 50 per cent since the beginning of the war.

2. Fewer grain shipments over longer distances lead to higher food prices

The Russian Federation and Ukraine together account for 53 per cent of global trade in sunflower oil and seeds, and 27 per cent of wheat. A total of 36 countries imports more than 50 per cent of their wheat from the Russian Federation and Ukraine alone. 

Reduced grain exports from Ukraine are partly offset by increased shipments from other suppliers, such as Brazil which is expected to increase its wheat and coarse grain exports by 37 per cent in 2022. 

Despite the overall reduction of volumes for shipping, the demand for transport work[1] for the food-importing countries, such as the ones in North Africa and the Middle East, is likely to increase as the alternative cargos are sourced from further away.

The UNCTAD’s report goes on to point out that, since the start of the war, weekly port calls have gone from 60 to almost zero in Ukraine. Some grains are transported by rail and transshipped at ports in Bulgaria and Romania. However, existing grain storage capacity is already committed to last year´s harvest, leading to concerns that the new harvest cannot be stored.

Nearly all of Ukraine´s grain exports are carried out through seaports on the Black Sea and the Sea of Azov. Commercial vessels are prevented from leaving the ports. The military action has immediate and potentially long-term consequences on global grains and oilseeds trade and supplies to susceptible regions, including Africa, Asia and the Near East. 

As of this writing, talks are being held to convince Putin to lift the Russian naval blockade preventing Ukrainian grain from leaving Black Sea ports. Turkey, acting as a mediator, is proposing that Russia allows the Ukrainian grain ships to leave Odessa on designated routes so long as checks are made that the vessels are not carrying arms.

3. Container shipping is being disrupted by the war

Finally, the UNCTAD has observed that as ports closed and carriers discontinued shipping services to the Russian Federation and Ukraine, ships and containers had to re- route. Cargo destinated for the Russian Federation and Ukraine is now piling up at ports, including Hamburg, Rotterdam, Constanta and Istambul. Shippers are facing delays and it can be expected to see an increase in detention and demurrage charges at ports. Russian Federation cargo is also being stranded at ports (in Europe). This adds pressure on warehousing and storage capacity and drives costs upwards. Freight rates had surged since the pandemic and the need to reposition ships and containers during the war adds to further escalation.

In short, this grim picture painted by the UNCTAD clearly shows the destructive effect of war on international commerce, an economic sector which, despite all its stark imbalances, has provided the world with unprecedented levels of prosperity over the last decades.

Let us hope that common sense will finally prevail so that this period of uncertainty (and, far more importantly, of human suffering) comes, at last, to an end.

[1] This is called “ton-mile”, which is simply the volume of cargo being carried (ton), and the distance sailed (nautical mile) for the shipment.