Dry CargoEurope

Urgent Ukraine wheat export solutions sought

Ukraine has an estimated 25m to 30m tonnes of grain, which urgently needs to move as this year’s next crop is about to be harvested.

The president of the European Commission, Ursula Von der Leyen, said at the end of May that wheat exports from Ukraine are down to 200,000 to 1m tonnes per month, down from the 5m tonnes of wheat that could be exported by sea before the war started.

Up to now, Ukraine has established two routes through Poland and Romania for exports as its own ports have been shut since Russia invaded in late February.

Constanta port in Romania has a storage capacity of 1.5m tonnes and boasts the fastest cereal handling terminal in the EU. Constanta port authorities have reported that 616,000 tonnes of Ukrainian grain will have been shipped via the port through to end of June.

However, the pace and price of Ukrainian grains transiting Romanian ports is problematic due to several logistical challenges. Transiting grain to Romania involves transporting it by rail to ports on the Danube River and loading cargoes onto barges for sailing to Constanta port.

Transporting Ukraine’s agricultural products by rail to ports in Romania is costly and time consuming. The railway border crossings have limited capacity for rail wheel replacement, as Ukraine rail with 1,520 mm gauges links to Russia rather than Romania where railways have a 1,435 mm gauge.

Daejin Lee, lead shipping analyst at S&P Global Market Intelligence, commented: “The grain export volume from Ukraine during the Black Sea grain harvest season starting in the third quarter will be fairly limited and the global grain shortage, especially wheat, is expected to continue in the near term. This supply chain issue will remain the main upside risk to food inflation in the coming months.”

“Considering the large grain volumes that are in need of export from Ukraine, and the shortage of grain storage space, many countries in Europe and outside have been discussing solutions to get Ukraine grains out of the country,” a new dry bulk report from brokers BRS stated.

The Odesa-based Black Sea consulting firm Informall BG pointed out that a significant share of Ukrainian grains is expected to continue flowing towards the ports of Poland and Lithuania on the Baltic Sea as well as to Constanta. However, their terminal capacity is also limited, especially during harvest seasons.

The Bulgarian port of Varna has resurfaced as one of the potential gateways for Ukrainian agri-exporters, but Informall argued that compared to Constanta, Varna is accessible only by land, and to handle similar amounts of what the Romanian port does, it would need to receive over 4,400 loaded trucks or at least 1,660 rail wagons within the same time period. 

“Despite the Varna proximity to Ukraine, the land corridor connecting both countries is underdeveloped, which creates serious logistics challenges for the exporters willing to move a considerable volume of grain via the port,” Informall BG stressed.

This week, the US announced its intention to help build temporary silos in the borders of Ukraine, including Poland. As there is little storage space left for Ukraine’s next harvest starting at the end of July, new silos can ensure higher storage capacities and facilitate the logistic transfer from trucks to silos and then get it to the ocean to be exported through Europe and the rest of the world.

The United Nations has been discussing with Russia and separately with Turkey to try set a deal aiming to allow safe grain exports via the Black Sea again. However, given the dangerous nature of shipping in the war torn waters off Ukraine, BRS is warning insurance costs for any vessel trading the Black Sea shipping lanes would likely be very high.

In related wheat news, the reduction in export volumes from Argentina is looking like it will add to the worldwide wheat shortage already felt in the global markets.

“It now appears that Argentina’s opportunity to fill the gap left by Ukraine is slipping away as the export quota has been reduced by 31% and the 2022/23 wheat harvest is likely to be the worst in 12 years,” commented Niels Rasmussen, chief shipping analyst at BIMCO.

Argentina was the sixth largest exporter of wheat in 2021, accounting for 7.2% of global export volumes. In the first four months of 2022, the country exported 9.5m tonnes of wheat from the record 2021/22 harvest.

In March 2022, the government of Argentina set a wheat export quota at 10m tonnes for the marketing year of 2022/23 to stabilise domestic prices and combat double-digit inflation.

“At best, Argentina’s exports for the 2022/23 marketing season will therefore drop 6.4m tonnes. At worst, delays in wheat planting due to drought, particularly in the northeast, are casting doubt on whether the full export quota will be filled,” Rasmussen said.

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.

Comments

  1. If famines are caused by climate change, then a hurricane hit Hiroshima and Nagasaki in 1945.

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