The effects of the Russia-Ukraine conflict on maritime trade
- As Russia continues its military onslaught on Ukraine, Western economies and its allies have taken retaliatory steps, in the form of heavy sanctions, to effectively paralyze the Russian economy.
- One industry which is going to be heavily affected is the shipping industry as delays and shipping costs are expected to rise due to disruptions in the global supply chain.
- As crude oil prices go up, the price of ship fuel is also going up.
- Fuel cost is the biggest contributor to the operating costs of a ship and the increase will have a cascading effect on shipping costs and freight.
- Russia and Ukraine are major traders in grain, minerals and oil so bulk shipping including oil and gas tankers will be significantly affected.
- As Turkey abides by the Montreux convention, it has banned Russian naval ships from passing through Bosphorus Strait which leads to the Black Sea.
What has been the impact on maritime trade so far in Ukraine?
- When the war started, some 15 sea ports in Ukraine were shut down.
- The loading and discharging of cargo ceased.
- For seafarers, the safest place in case of any accident is always the ship which has power, food and means to make water.
- Bunkers in ports have been identified for safely housing seafarers but ship crew have not moved out of their ships
- Barring occasional attacks, ports and nuclear facilities, as strategic assets have not seen much fighting or attacks.
- So far, the war has involved the Russian Army and Air Force, not so much Naval attacks except a small operation in Kerch
- Port cities such as Mariupol have been attacked from land but as Ukrainians hold out and resist the invasion, the Ukrainian president has warned of an imminent attack on the Odessa port by Russian warships.
- This would be a major escalation of the war.
- All the merchant ships will be under threat.
- As a direct consequence of the war, insurance premiums will go up for ships serving Black Sea ports.
What has been the impact globally?
- Crude oil prices have gone up 20% due to fears and also due to possible disruptions in supply since Russia is a major supplier of oil and gas through pipelines as well as ships.
- Black Sea is home to the few warm water ports the country has and is the theater of the war.
- As crude oil prices go up, the price of ship fuel, called Bunker fuel, is going up as well.
- The pandemic drove up container freight rates which have seen a further escalation.
- The escalation may only be short-term and is largely due to the oligopolistic control some firms have over container shipping.
- Russia or even Ukraine matter little in container trade, so global container freight rates should not be affected greatly.
- Bulk shipping including oil and gas tankers will be significantly affected.
- Russia and Ukraine are major traders in grain, minerals and oil.
- High insurance premiums, disruption in supply will rile the sector.
- In case of escalation, the Baltics and the North Sea shipping traffic may also be affected.
- War risk will hike insurance premiums.
- While Russia may not attack in the Mediterranean, insurance costs may go up for ships serving those routes also, which are the hub of European trade.
Role of Turkey
- Turkey controls the entry and exit of Black Sea and hence has a say over ship traffic in the Black Sea.
- It has banned Russian naval ships from passing through the Bosphorus Strait.
- Turkey is not a signatory to the UNCLOS which sees the oceans as commons and allows even warships innocent passage through territorial waters of a nation.
- Turkey abides by the Montreux convention which gives it greater control over the straits.
- Free passage is guaranteed for merchant vessels belonging to belligerents in war, especially if Turkey is not belligerent.
- The convention also lays down clearly what is a warship and what is not.
- Any interpretation to curb Russian merchant ship movement will be a significant escalation and inflame the scenario.
Global seafarer workforce
- A less discussed impact of the war is the share of Ukrainian and Russian seafarers in global seafarer workforce.
- China, Philippines and India contribute significantly to the international seafarer workforce.
- Russia and Ukraine together supply nearly 15% of the seafarers.
- It is common for Russian and Ukrainian seafarers to serve together on merchant ships.
- Their joining and disembarking merchant ships will be severely affected, mounting a challenge to the manning requirements of global shipping.
- The pandemic had disrupted the free movement of crew and things were just about settling down.