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After attacking Ukraine wheat exports, Russia faces own shipping challenge

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 US 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.—Reuters

Jonathan Saul and Nigel Hunt, "After attacking Ukraine wheat exports, Russia faces own shipping challenge," Business recorder. 2023-08-09.
Keywords: Political sciences , Oil port , Storage facilities , International companies , Vladimir Putin , Eduard Zernin , Russia , China , Ukraine , Africa , Turkey , US , ADM

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