Ukraine Crisis

The Russia-Ukraine conflict’s global impact on maritime trade

Jasleen Mann highlights how the maritime industry has seen an increase in global vessel demand and the cost of shipping, according to the United Nations Conference on Trade and Development.

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Maritime transport infrastructure and services are under pressure due to the need for alternative trade routes for Ukrainian goods. There is uncertainty surrounding the global trading and shipping environment as a result. 

The United Nations Conference on Trade and Development (UNCTAD) acknowledges the disruption of regional logistics, halted port operations in Ukraine, the destruction of infrastructure, trade restrictions, increased insurance costs, and higher fuel prices as causes of issues within the Black Sea region. 

Jan Hoffmann, head of trade logistics branch at UNCTAD, says: “The war in Ukraine impressively shows again how globalised the shipping business is. shifts in demand in one corner of the world lead to changes in prices and fleet deployment in many other corners of the world. 

“What I find most interesting of our findings is that almost half of the increase in global food prices is due to the higher shipping costs. And these are higher because goods have to travel longer distances, i.e. we have more ton-miles. Also, each ton-mile is now more expansive, because of a shortage of global shipping capacity.”

The breadbasket of Europe

In 2020, grain prices and shipping costs were already increasing and the Ukraine conflict has accelerated this trend. According to UNCTAD, between February and May 2022 the price of dry bulk goods transportation rose by around 60%. 

Around 36 countries import over 50% of their wheat from Russia and Ukraine. Global sea exports of grain are expected to decline by 3.8% this year and global shipments of fertiliser by 7%. Black Sea ports normally account for over 90% of Ukrainian overseas grain shipments, weekly port calls have dropped from 60 to almost zero in Ukraine due to the conflict. 

It has been noted that grain storage capacity is focused on harvests from 2021. If the new harvests cannot be stored, there will be more issues relating to the food shortage. Safe access to fields, production, transportation methods for Ukrainian farmers and producers is important. 

As it stands, cargo for the Russian Federation and Ukraine is kept at other ports, including Hamburg, Rotterdam, Constanța, and Istanbul. 

“For the longer-term maritime trade growth, in my view, we need above all a predictable multilateral framework, so that investors can plan for future regulations, fuels, and carbon prices,” says Hoffman.

Uncertainty is the enemy of investment

UNCTAD recommends reintegrating Ukraine’s food production and the food and fertiliser produced by the Russian Federation into world markets, while opening Ukrainian ports to international shipping for Ukrainian grain. Lowering transaction costs will also be important along with collaboration among vessel flag states, port states, and industry. 

It has been suggested that a focus on the transit and movement of transport workers will also help the situation in addition to investment in transport services. UNCTAD also encourages supporting developing countries with financial and technical assistance in terms of transport and trade facilitation. 

“Combined with the impact of Covid-19, congestion, inflation, and the energy transition, the war and associated higher risks unfortunately lead to additional uncertainty for carriers. And uncertainty is always the enemy of investment,” according to Hoffman. 

“While we would need more and newer energy efficient ships, in reality shipowners and financiers will now require a higher return on investment than before, i.e. rather delay investment. The medium to longer term implications are higher freight rates than we would have without the war.”