Russia's lack of ships and Western grain traders' shrinking appetite for business with Moscow are adding to rising costs of moving Russian wheat, at a time when the war in Ukraine has spilled perilously close to vital Black Sea supply routes.
President Vladimir Putin promised to replace Ukrainian grain with Russian shipments to Africa after Moscow in July ended an arrangement that gave Ukraine's food cargo safe passage in the Black Sea, imposing a de-facto blockade on its neighbour and attacking storage facilities, in an escalation of the war.
Ukraine's response, sea-drone attacks on a Russian oil tanker and a warship at its Novorossiysk naval base, next door to a major grain and oil port, has added to these new dangers for transport in the Black Sea.
Eduard Zernin, head of Russia's Union of Grain Exporters, cited a potential aggravation of what he called "hidden sanctions" that "may lead to an increase in freight and insurance costs" for Russia.
This "will be reflected in the price level of wheat and other grains on the world market", Zernin told Reuters.
Even though agriculture exports are not subject to direct European and U.S. sanctions imposed after Russia invaded Ukraine last year, Moscow says restrictions placed on banking and Russian individuals are "hidden sanctions" on the food trade.
The financial and security risks associated with trading with Russia - compounded by the Black Sea corridor collapse - are driving up costs of freight for Moscow and pushing it toward older and smaller vessels run by less established shipping operators, Reuters reporting based on conversations with 10 marine insurers, traders and shipping companies showed.
The situation is raising doubts about whether Russia can keep up a record pace of exports and if not resolved could push global wheat prices higher, the sources said.
Already, prior to the expiry of the deal, grain carriers and commodity houses had reduced exposure to Russia.
Global commodity houses are no longer helping Russia with the mechanics of trading its grain. Cargill, Louis Dreyfus and Viterra stopped such work on July 1, adding more pressure on Moscow to handle all aspects of grain deals including transport.
Cargill has said it would continue to ship grain from Russia's ports. It declined further comment.
Dreyfus, Viterra and ADM declined to comment, while another major international group, Bunge, did not respond to a request for comment.
"It is not going to be easy for them (Russia)," said one industry executive with knowledge of grains exports.
Last year, Russia exported a record volume of wheat on ships chartered from international companies and traders. While exports remain strong, in the past few months it has had to source more of its own freight, increasingly relying on a "shadow fleet" of older vessels typically operated by companies based in Turkey and China, three shipping industry sources said.
"There is very little coming out now for international companies", said the executive, who, like other industry sources consulted for this story, asked not to be named because of the sensitivity of the issue. "Most of what is coming out is dealt with by Russian traders using (shadow) fleet ships, which international traders would not touch".
In a sign of Russia's growing hunt for vessels, its requests for charters doubled to 257 in July compared with the same month last year, according to data from maritime platform Shipfix that collates from hundreds of market participants.
The data does not show how many of the requests were fulfilled, or which ship operators were involved.
The requests for ships were up 40% from June, and are likely to climb further as the export season gathers pace.
Denmark's NORDEN and two other Western shipping groups that declined to be named told Reuters they stopped working with Russia after the invasion of Ukraine in February, 2022.
INSURANCE
Without the Black Sea corridor in place, both Russia and Ukraine warned in July that ships destined for each others ports could be treated as legitimate military targets, which three marine insurance source said was a further blow to Western companies' risk appetite.
Insurance for ships heading to Russia's Black Sea ports currently costs tens of thousands of dollars in additional premiums daily, the three sources said, with rates ticking higher following Russia's attacks on Ukraine's other waterways through the Danube in recent days and Kyiv's response.
The Black Sea remains a critical area for Russian exports, with other locations more complicated and costly.
One shipping source familiar with the matter said even before insurance, ship operators were charging up to $10,000 more daily for Russian cargoes than for cargoes leaving nearby ports in Bulgaria and Romania, as the collapse of the deal and Black Sea escalation weighed.
Mike Salthouse, head of external affairs with leading ship insurer NorthStandard, said that ever since the United States and Europe imposed sanctions, some traders and insurers fear the ultimate beneficial owners of Russia's ports and terminals could be connected to designated individuals.
"The ownership structure is not readily apparent from routine or even enhanced due diligence," he said, leading to "a level of reluctance with engaging in Russian trades."
The industry executive said another risk was if a vessel needed to buy fuel from Russia, a situation the source said could create problems with Western sanctions enforcers, making it harder to then conduct non-Russian business.
"It's not easy to flip into the normal trade after that", the executive said.
Russia's Black Sea terminals handle about 70% of the country's grain exports. They include the Novorossiisk and Taman ports.
"TRADE BARRIERS"
Despite the tensions, global wheat prices remain well below the peak after Russia's invasion last year triggered fears of a global hunger crisis. The removal of more Ukrainian grain from the world market could add to supply pressure unless Russian exports or large crops from other producers make up the difference.
Two sources said the escalation of tensions in the Black Sea was likely to impact Russia's export numbers, and was discouraging shipping companies from bringing vessels to Russian ports, especially newer ships that carry more.
In a statement to Reuters, Russia’s agriculture ministry forecast grain exports will fall about 8% during the 2023/24 season from Russian last year's high of 60 million tonnes. It did not give a reason for the drop.
Wheat exports will be down a little less, to 44-45 million tons, Zernin said, in line with estimates from the International Grains Council.
SHIP BUILDING
The ministry in December announced a plan to build a fleet of 61 new grain ships, citing "sanctions pressure and the refusal of many international carriers to cooperate with Russia".
Russian exporters need 34 grains ships with a carrying capacity of 60,000 tonnes and 27 with capacity of 40,000 tonnes, the ministry said in December. It did not say when they could be built by Russian shipyards.
Russia's state-owned agricultural leasing company Rosagroleasing said in March of this year it had placed orders for a fleet of grains ships that it planned to launch within three years.
No orders have currently been reported for Russian companies either domestically or internationally, according to data from valuation company VesselsValue. New ships typically take up to three years to build.
Many of the Russian operated current fleet of 31 mainly smaller dry bulk carriers are over 30 years old, VesselsValue data showed, making it harder to access some ports with stringent requirements for ships over a certain age.
"We don’t see Russia building its own fleet from scratch in the short term in order to meet its immediate needs. The primary focus is going be on chartering from the commercial market," said Victoria Mitchell, analyst with Control Risks consultancy.
© (c) Copyright Thomson Reuters 2023.
41 Comments
Blacklabel
when did Russia "attack" the wheat exports?
wallace
Russia attacked warehouses with grain for exports.
Cards fan
It's been all of the news, my friend. They bombed it nearly every day last week.
fallaffel
Head in the sand.
Antiquesaving
I don't need much imagination to know what certain people here and the western powers would be saying and the fit they would be having if Russia had done the same!
Oh they would be screaming about the irresponsibility the possible environmental damage blah blah blah blah.
The hypocrisy is so thick it is now the consistency of molasses in the middle of an Arctic winter!
Cards fan
Yes, I too am outraged at the scenario you've imagined. Very hypocritical lolol
Antiquesaving
I know logic is hard, isn't it?
But you would be the first screaming if Russia hit an oil tank especially in such a closed environment as the black Sea.
But you are too partisan to even admit that much
Cards fan
lol Little logic is required to make things up to be outraged about.
Cards fan
lol Says the guy who calls Ukrainian "nazis." Preach on about partisanship, friend.
u_s__reamer
Make the Russian economy scream to 11 and Putin will cry "uncle". End of.
wallace
Russia has done far worse with its destruction and killings, rapes, murders, tortures, and the abduction of 700,000 Ukrainian children.
Cards fan
Also the environmental impact as well, but you'll never hear a peep from these folks about that. Democracy bad, Russian Imperialism good.
wallace
Russia has laid thousands of landmines in layers several meters deep that will take many decades to find and clear.
Antiquesaving
We keep hearing these but funny thing is by all measures everything is still working in Russia, the economy hasn't collapsed it isn't down any more than all the other western countries, the arms production is faster than all western countries put together, Putin isn't dead from Parkinson's, cancer, overthrown, etc...
Ukraine hasn't been able to move and lost more territory than it gained in its " offensive" as Russia takes territory in the North, Ukraine hasn't been able to reach the first line of defense, take Bakhmut as Russia has now built a 6th line in Zaporizhzhia, and now USA satellite are showing 3 new deep lines of defense around Bakhmut.
But let's not look at reality and continue with this Fantasy of Ukraine taking everything back including Crimea because a few drone boats are going to win the war, right?
Last month on here they made a big deal about Ukraine taking territory held since 2014, the reality was it went less than 100 metre into a no-mans land between the lines made a video and declared this, this week Russia not only took that but to 2 trenches beyond that great Ukrainian victory.
Two fools on an insignificant road in the middle of nowhere killing eachother for pure propaganda reasons as this road is nowhere near any of the front line battles or of any strategic importance.
It makes me think of the Korean war at a stalemate fighting over a few hills for years no movement only to end up drawing the line on the stalemate spot only difference was at least the 2 sides in Korea held talks, here the west refuses to even talk.
EFD
Good luck shipping without insurance, Ruskies.
You did it to yourselves.
Antiquesaving
What!
Is there democracy in Ukraine?
Let's see, opposition parties baned, any public demonstration or opposition to the war illegal, Elections suspended, all non government press closed down, press gangs forcing men even those exempt from military duty into the military.
Democracy was the USA and UK during Vietnam and the Falklands war where those opposing were permitted to speak, the press showed the facts and not just propaganda, where speaking out against the war was not treated with treason charges.
There is no democracy in Ukraine or Russia
Cards fan
Gee, you think that might have something to do with the fact that Russia is trying to wipe Ukraine off the face of the map? Everything you mentioned happened after Russia invaded.
Cards fan
And yet you'll criticize only Ukraine. Pathetic.
Blacklabel
It’s cute that the “no” and “prove it” people just expect us to automatically accept this happened in the way the media and Ukraine conveniently claim.
Zelensky was almost assassinated too? Wow!
Antiquesaving
What is pathetic is you not reading even what you quoted!
I think saying Russia isn't a democracy is criticizing Russia also
Saying they are two fools killing eachother over a road to nowhere is not just criticizing Ukraine but also Russia you do understand the number two (2) includeds Russia, right?
Again your refusal to even read or look at facts makes you claim it accuse others of things.
But that is your specialty, isn't it, taking anything and trying to make it something it isn't or literally making stuff up others never said.
Cards fan
It's cute you choose to ignore article after article that shows how Russia deliberately went after grain and the infrastructure required to ship the grain. If you think the articles are wrong the onus is on you to prove it.
Blacklabel
wow imagine when you finally understand the impact of Ukraine shortsightedly using cluster munitions on their own land.
Cards fan
Oh wow, "neither Ukraine nor Russia are democracies" wow, so tough on Russia for invading. Give me a break. Quite literally each and every post you make on the invasion is a criticism of Ukraine and or the US.
Cards fan
No, no, when you assert something isn't true, it's on you to prove it. There are articles here on the Russian attacks, and you even commented.
Cards fan
Great question, Antique, back at you. Why not ignore it?
Raw Beer
That's where Ukraine was keeping their weapons and foreign soldiers. It was a protected area during the grain deal. Ukraine took advantage of the grain deal to attack Russia, one reason for Russia not renewing the deal. Without the deal, these weapon depots were legit targets.
Cards fan
Ah yes, your non-partisanship is showing yet again. Why shouldn't you criticize Ukraine? I don't know, because they're the ones defending themselves from Russia's imperialist invasion?
I'll stop when you stop defending the Russian invasion. It's pathetic, and if you actually cared about democracy, as you claim, you'd be all for the west assisting the Ukraine, because the west is far, far more democratic than Russia or any of it's third-world vassal states, and Ukraine too, will become far freer once unshackled from the chains of Russian tyranny.
Antiquesaving
Here card!
CNN can't get anymore pro Ukraine left.
Seems the Population of the USA is tired and catching on.
Cards fan
https://amp.cnn.com/cnn/2023/08/04/politics/cnn-poll-ukraine/index.html
Seems they prefer to keep their money and not loose their soldiers in a war that isn't theirs.
Cards fan
Not fake. You've repeatedly compared Ukraine to Nazis. You repeatedly advocate for positions which would be disadvantageous for Ukraine, and advantageous to Russia. It doesn't take an "imagination" as you put it.
Cards fan
Oh yes, I have. Here, I'll do it again:
https://japantoday.com/category/world/russia-launches-intense-night-attacks-across-ukraine-targeting-southern-port-city-for-second-night
Blacklabel
Will become? Are you sure?
prove it! Been corrupt since 1991, despite 30+ years to reform.
Zelensky was found to be corrupt too prior to the invasion, have you forgotten?
Cards fan
Quite.
I will when you learn what an opinion is.
Blacklabel
They literally still have a battalion of Nazis. That from 2014-2021 were constantly reported on and criticized by western media as “baaaad”.
but who simply became good guys once Ukraine was invaded. Cause reasons or something.
Cards fan
Not true. Even if it did, does it justify Russia invading Ukraine?
Blacklabel
Yes it might.
Cards fan
Well it's not true, and no, it wouldn't justify invading. Thank you for again showing how you're pro-invasion. I appreciate the candor.
piskian
As you sow,so shall you reap.
Blacklabel
Why even if they did?
You said they don’t have one.
is this your opinion or a fact?
if not, what is Azov battalion?
why are all your opinions presented definitely as facts “not true!” “No”.
but when asked to prove them, you start talking about them as just opinion?
“no” and “false” and “not true” are not opinions. This isn’t presented as opinion either. Yet I needed to prove it, not you.,
>
Cards fan
This is nothing new, my non-partisan friend. I'm really bored of your repetitive pablum. Does any of this justify invading and ill gally annexing Ukrainian land? Does it justify the ethnic cleansing Russia is now involved in?
Antiquesaving
What 100 years ago?
The Azov, the Ukrainian government, are today still flying the UPA flag,
But you refuse to even address that issue.
Could it possibly be because it makes the reasons the ethnic Russians in Ukraine break away in 2014 more understandable.
Since 2014 not a hundred years ago, the present Ukrainian government has been passing laws against ethnic Russians, including their religious institutions and the Russians in Luhansk and Donetsk saw this coming.
Antiquesaving
No what you are is upset at facts you cannot defend.