Logistics

Shipping costs soar as Ukraine war hits maritime trade: UNCTAD

TE Raja Simhan | Updated on: Jun 29, 2022
Barley grain is loaded onto a ship in the southern Ukrainian city of Nikolaev (file image). The Black Sea trade route remains cut off due to the Russia-Ukraine war

Barley grain is loaded onto a ship in the southern Ukrainian city of Nikolaev (file image). The Black Sea trade route remains cut off due to the Russia-Ukraine war | Photo Credit: VINCENT MUNDY

The warring Russian Federation and Ukraine are prominent sellers of agrifood, oil, gas

The war in Ukraine is one of the major issues affecting international maritime transport, compounding other challenges such as the Covid-19 pandemic and port congestion, and contributing hugely to higher shipping costs, says a report by the United Nations Conference on Trade and Development (UNCTAD).

For instance, the Russian Federation and Ukraine are prominent players in agrifood markets, including animal feed. Together, they account for 53 per cent of the global trade in sunflower oil and seeds, and 27 per cent in wheat. In all, 36 countries import over 50 per cent of their wheat from the Russian Federation and Ukraine alone, the report, titled ‘Maritime Trade Disrupted — The War in Ukraine and Effects on Maritime Trade Logistics’, says.

Gokaran Singh Pawar, General Manager-Sales of edible oil company Sunpure, says prices of edible oil shot up in the past few months due to multiple global factors, including the ongoing Ukraine war, resulting in supply chain disruption. The prominent trade route along the Black Sea is yet to be operational again. The prices increased by 50 per cent barely a few days after the war broke out, he said.

Alternative sources

Not just oil, other products have been impacted too, says the UNCTAD report. Ukraine exported around 50 million tonnes of grain in 2021. Before the war, estimates projected a growth of 3 per cent in global sea exports of grain, but this is set to shrink by 3.8 per cent by end-2022.

Global shipments of fertiliser and its inputs such as potash are projected to drop by 7 per cent in 2022. 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 per cent in 2022. Together, Great Britain, Northern Ireland and the EU are set to expand their exports by 8 per cent during the year. Soyabean exports are expected to increase from Argentina, Brazil and the US.

Grain prices and shipping costs have risen since 2020, but the war has exacerbated this trend and reversed a temporary decline. Between February and May 2022, the transport cost for dry bulk goods like grains increased by nearly 60 per cent. The resulting increase in 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 also a leading oil and gas exporter. In the face of trade restrictions and logistical challenges, the cost of oil and gas has increased as they have to be sourced from other places that are far away.

Surging consumer prices

Higher energy costs have led to higher marine bunker prices, thereby increasing the shipping costs for all sectors. By the end of May 2022, the global average price of very-low-sulphur fuel oil had increased by 64 per cent, as against the start of the year. These increased costs imply higher prices for consumers and threaten to widen the poverty gap, the report said.

If global trade is to flow more smoothly, Ukrainian ports should be opened up to international shipping. Alternative transport routes must also be pursued. And investment in transport and trade facilitation should be fostered, including support for the most vulnerable economies, the report said.

Published on June 29, 2022
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