On June 28th of this year, The United Nations Conference on Trade and Development ( UNCTAD ) put together a report about the War in Ukraine and its Effects on Maritime Trade Logistics, explaining about the main concern on the blockage of the Black Sea ports, the price increase of shipping itself that is being reflected in our daily life.
The war in the Ukraine is stifling trade and logistics of Ukraine and the Black Sea region. The search for alternate trade routes for Ukrainian goods has rapidly increased the demands on land and maritime transport infrastructure and services. For Ukraine’s trading partners, many commodities now have to be sourced from further away. This has increased global vessel demand and the cost of shipping around the world.
Grain prices and shipping costs have been on the rise since 2020, but the war in Ukraine has exacerbated this trend and reversed a temporary decline in shipping prices. Between February and May 2022, the price paid for the transport of dry bulk goods- such as grains- increased by nearly 60 per cent. The concomitant increase of grain prices and freight rates would lead to a nearly 4 per cent increase in consumer food prices globally. Almost half of this impact is due to higher shipping costs.
“The Russian Federation is a giant in the global market for fuel and fertilizer, which are key inputs for farmers worldwide. Disruptions in their supply can lead to lower grain yields and higher prices, with serious consequences for global food security, particularly in vulnerable and food-import dependent economies. The Russian Federation is also a leading oil and gas exporter. Confronted with trade restrictions and logistical challenges, the cost of oil and gas has increased as alternative sources of supply, often at more distant locations, are called upon.” the report says.
The war in Ukraine is one of several major issues currently affecting international maritime transport, besides other challenges such as the COVID-19 pandemic, port congestion, the need to switch to low carbon fuels, are just a few problems that we faced over the past 3 years. Nevertheless, it is clear that the disruptions and the higher ton-mile demand caused by the war in Ukraine contribute strongly to higher shipping costs, which will be reflected in the shipping container prices, as well as all other products that the end users will need this quarter.
Reduced grain exports from Ukraine are partly offset by increased shipments from other suppliers. For example, Brazil is expected to increase its wheat and coarse grain exports by an impressive 37% in the next 2 quarters. Together, the United Kingdom of Great Britain and Northern Ireland and the European Union are set to expand their exports by 85 during this year. Soybean exports are expected to increase from Argentina, Brazil and the United States of America. In the medium term, Australia, Brazil and the United States can be expected to compensate for reduced grain exports into North Africa and the Middle East.
With port operations suspended, overseas grain dispatches have been limited to deliveries via western borders, by rail, as well as through the small ports of Reni and Izmail on the Danube River. These alternatives are not sufficient to compensate for the lost capacity normally provided by Ukrainian Black Sea ports. Meanwhile, dry bulk vessel calls have seen small increases at ports in Bulgaria and Romania, reflecting the re routing of some of the trade from Ukraine.
As ports closed and carriers discontinued shipping services to the Russian Federation and Ukraine, ships and containers had to be re routed. Cargo that was going to the Russian Federation and Ukraine is now piling up at ports, including Hamburg, Germany; Rotterdam, Netherlands; Constanța, Romania; and Istanbul, Türkiye. Shippers are facing delays and can be expected to see an increase in detention and demurrage charges at ports. This adds pressure on warehousing and storage capacity and drives costs upward. Freight rates had surged since the pandemic and the need to reposition ships and containers during the war adds to upward pressures on freight rates.
UNCTAD proposes a few recommendations in regards the future maritime transport challenges:
1 – There will be no effective solution to the food crisis without reintegrating Ukraine’s food production, as well as the food and fertilizer produced by the Russian Federation into world markets – despite the war.
2 – Ensure that Ukrainian ports are open to international shipping to allow Ukrainian grain to reach overseas markets, at lower shipping costs.
3 – Lower transaction cost for the food and fertilizer exports of the Russian Federation.
4 – Ensure collaboration among vessel flag States, port States and industry continue to provide all necessary services, including bunkering supplies, health services for sailors, and certification of regulatory compliance. This will help to keep the negative impacts on costs, insurance premiums and operations to a minimum.
5 – Ease the transit and movement of transport workers, to lower the pressure on cross-border trade and transit.
6 – Invest in transport services, as well as trade and transit facilitation even more than in pre-war times. Trading partners and transit countries should focus on key determinants of international transport costs such as trade facilitation and digitalization, infrastructure, economies of scale, imbalances and ensuring competition.
The Global trade depends on a complex system of ports and ships that connect the world. If the global trade is to flow more smoothly, it must be ensured that Ukrainian ports are open to international shipping and that collaboration among transport stakeholders continues to provide services. Alternative ways of transport must also be pursued. And investment in transport and trade facilitation should be fostered as well as the support for the most vulnerable economies.
