THE war in Ukraine is stifling trade and logistics is stifling trade and logistics in the wider Black Sea region, which is increasing global vessel demand and the cost of shipping around the world, according to the UN Conference on Trade and Development.
UNCTAD on 28 June published a report entitled “Maritime trade disrupted: The war in Ukraine and its effects on maritime trade logistics”. It said Ukraine’s trading partners now must turn to other countries for the commodities they import.
The report attributes the shipping and transport hurdles in the Black Sea region to disruptions in regional logistics, the halting of port operations in Ukraine, the destruction of important infrastructure, trade restrictions, increased insurance costs and higher fuel prices.
Additionally, it said shipping distances have increased, along with transit times and costs.
“Grains are of particular concern given the leading role of the Russian Federation and Ukraine in agrifood markets, and its nexus to food security and poverty reduction,” the report’s authors wrote.
Additionally, 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.
The report said between February and May 2022, the price paid for the transport of dry bulk goods such as grains increased by nearly 60%.
The accompanying increase of grain prices and freight rates would lead to a 3.7% increase in consumer food prices globally.
Russia is a giant in the global market for fuel and fertiliser.
Disruptions in the supply of these commodities may lead to lower grain yields and higher prices, with serious consequences for global food security, particularly in vulnerable and food-import-dependent economies, according to the report.
Also, Russia is one of the world’s largest exporters of hydrocarbons. According to the BP Statistical Review of World Energy, Russia accounted for 20-20% of the EU’s oil, gas and coal consumption in 2021 (that is, before the invasion of Ukraine). Russia was the source of 37% of the EU’s natural gas supply, via pipeline imports.
“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 UNCTAD report said.
According to the report, daily rates for smaller-size tankers, which are key for regional oil trading in the Black Sea, Baltic Sea and Mediterranean Sea regions, have dramatically increased.
The higher energy costs have also led to higher marine bunker prices, raising shipping costs for all maritime transport sectors.
According to the report, by the end of May 2022, the global average price for very low sulphur fuel oil had increased by 64% since the start of the year.
Taken altogether, these increased costs imply higher prices for consumers and threaten to widen the poverty gap.
UNCTAD has called for urgent action to open Ukraine’s ports to international shipping so the country’s grain can reach overseas markets, at lower shipping costs.
The organisation said continued collaboration is needed among vessel flag states, port states and other actors in the shipping industry to maintain all necessary services, including bunkering supplies, health services for sailors and certification of regulatory compliance.
This will help to keep to a minimum the negative impacts on costs, insurance premiums and operations.
UNCTAD also said alternative ways of transport must be pursued and that easing transit and the movement of transport workers – even temporarily – can reduce the pressure on cross-border trade and transit.
Also, UNCTAD called for more investment in transport services and trade and transit facilitation.