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In the space of 10 days shipping in and around the Black Sea region has descended into chaos with many experts now questioning how shipments can proceed in the medium-term. Last Monday, Russia decided to quit the United Nations-brokered Black Sea Grain Initiative after the Kerch Bridge was targeted by Ukrainians. On quitting the shipping pact, the Russian military then targeted Ukrainian port and grain export infrastructure, latterly taking this attack strategy to places along the Danube as well as key Black Sea ports. Adding to the Black Sea shipping tension, both Ukraine and Russia have stated they will treat commercial ships heading to enemy ports as potentially carrying military cargoes. Insurers have indicated that previously available Black Sea war risk cover will no longer be offered as the situation deteriorates. Moreover, Britain warned on Tuesday that it has information indicating Russia’s military may start to target civilian shipping in the Black Sea. “Our information indicates that the Russian military may expand their targeting of Ukrainian grain facilities further, to include attacks against civilian shipping in the Black Sea,” Britain’s UN ambassador Barbara Woodward said yesterday. Two ships were damaged in the Danube strikes on Monday morning. “This is a sad and unwelcome escalation, but a brutal realisation of the seriousness of the conflict that we have perhaps managed to normalise,” commented Simon Ward from Ursa Shipbrokers. “Ukrainian farmers now face the grim reality of losing their primary route for transporting nearly half of last season's bountiful harvest. There is a high level of uncertainty, logistical and cost-wise, surrounding river, road, and rail transportation, creating a complex web of logistical hurdles to overcome,” said Maria Bertzeletou, a market analyst at Signal, a shipping data platform. Pre-war the Black Sea represented 3.4% of total tanker loadings and 4% of total dry bulk loadings, according to analysis by Jefferies, an investment bank. These have now fallen to 2.3% and 2.8%, respectively, with Jefferies suggesting they could decline more stretching the global fleet further. Dr Roar Adland, head of research at Simpson Spence Young, said this week’s attacks on alternative Danube routes suggest there is little chance of a new grain shipping deal being reached between the two warring nations. In addition to the limited spare infrastructure capacity along alternative routes, an added challenge for Ukraine, according to Adland, is that there is domestic political pressure in countries such as Romania and Bulgaria to limit imports and transits of Ukrainian grain. More price competitive long-haul suppliers, such as Brazilian corn into Asia, look able able to pick up the slack, leading to an expected slight increase in tonne mile demand, according to SSY analysis. However, the Ukrainian grain trade was extremely inefficient due to long inspection waiting times. These vessels will now be more efficiently employed elsewhere, increasing effective supply. Adland reckoned the impact on the fundamental dry bulk market balance from the recent Black Sea turmoil is expected to be modest. Burak Cetinok, head of research at brokers Arrow, said the attacks on infrastructure along the Danube “change the picture significantly”. “Grains are likely to be shipped from fewer ports using smaller barges. Coupled with higher risk premiums on barge rates, transportation costs are likely to rise and eat into Ukraine’s crop competitiveness,” Cetinok told Splash Extra. Russia, on the other hand, will likely take advantage of falling volumes and rising wheat prices by filling in the gap left by Ukraine, Cetinok predicted. Russian wheat crop is expected to be the second highest on record this year and is about to hit the water. Weekly order volumes for agris loading in Ukraine are at low levels, according to Ulf Bergman, senior economist at Shipfix, a chartering platform. The average cargo size has also fallen to low levels, suggesting that the demand for seaborne transportation is focused on small cargoes from the ports in the Danube. At the same time, cargo order volumes for agricultural commodities loading in Romania have risen to well above 4m tonnes in July, exceeding volumes during the same month in recent years by between 25 to 50% with vessel tracking data showing sizeable clumps of anchored ships outside the capacity constrained port of Constanta as well as at the mouth of the Danube. In contrast, volumes for shipment from Polish ports have been trending lower in recent months. “At this stage, at least, it looks like parts of the Black Sea will be off-limits for commercial shipping,” Bergman told Splash Extra. “The main grain alternatives will be Canada, Russia, US, Argentina and Brazil probably leading to an increase in tonne-miles to markets in Africa, the Middle East, and Asia and eventually absorbing the hit that freight rates might have from the suspension of the grain corridor,” a note from Xclusiv Shipbrokers suggested. This shift is unlikely to be temporary with consultants at Drewry arguing Ukraine’s partners will seek to ensure food security, considering there are inevitable long-term effects of the war on the harvest capacity of Ukraine. Freight rates out of the Black Sea have fallen dramatically in the last 10 days, despite growing congestion. Supramax congestion in the Black Sea region is now nearing the record levels experienced during the pandemic in 2021, according to data from Signal.

What next for Black Sea shipping?

A tumultuous 10 days has thrown shipping in the region into chaos.

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