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Putin’s invasion of Ukraine seen hiking tonne-mile picture for shipping

Shipping is making emergency plans as a swathe of Eastern Europe becomes a war zone.

Yesterday, Russian President Vladimir Putin ordered forces into two breakaway regions of eastern Ukraine. As a result, the US and EU are likely going to respond with sanctions against Russia.

“Uncertainty abounds, but this will likely impact the shipping markets as flows of crude oil, nat gas/LNG, coal, and grains will all be disrupted, probably boosting ton-mile demand depending on the degree of sanctions and trade dislocation,” a note from investment bank Jefferies stated today.

“The sad truth is that market uncertainty caused by macho tyrants is good for shipping,” one Asia-based broker told Splash today.

Market uncertainty caused by macho tyrants is good for shipping

Oil prices are pushing forcefully upward. Brent is up this morning by 2.21% to $97.50 on the April ICE contract and WTI by as much as 3.95% to $94.67 in the March Nymex market.

The Brent futures market is pointing to continued short-term upward pressure on oil prices as a result of the instability in Ukraine. The front month is now more than $4.50 more expensive than the three-month, a condition of severe backwardation. The last time three-month futures were this cheap relative to the front month was 2011, a year marked by Middle East turmoil and recovering demand.

Analysts at BRS said sanctions on Russia are now inevitable. Considering that 70% of Russia’s western crude exports are shipped via aframax, this segment will be hit by the impact of any sanctions, BRS pointed out.

Eurostat data shows that Russia delivered 46.8% of natural gas imports to Europe during the first semester last year. Russia’s share of oil was 24.7%, ahead of Norway’s 9.1% and Kazakhstan’s 8.9%. The country is also the top supplier of coal to the continent. Russian and Ukrainian wheat exports combined, meanwhile, total about a quarter of the global trade. Any dislocation, whether as a result of sanctions or skirmishes, will inevitably push up the tonne-mile scenario for most shipping segments as Europe would need to source commodities from further afield.

Danish container analysts at Sea-Intelligence have pointed out that the escalating crisis carries a risk element for shipping services into the ports in Ukraine, but also has a risk element related to cyber-attacks against infrastructure – such as shipping and ports – in many NATO countries.

In terms of ship insurance, the Joint War Committee (JWC) last week said that Ukrainian and Russian waters have been added to the High Risk Area.

Finally, there is the issue of crews, with both Ukraine and Russia being among the most important sourcing nations in the world. Many airlines have suspended flights to Kiev in recent days.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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