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Russia’s war on Ukraine is stifling Ukrainian and Black Sea trade and logistics, driving global vessel demand and, along with it, shipping costs, UNCTAD report says
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The report was released as the Group of 7 ended its summit in Germany pledging US$4.5 billion to ease global hunger and agreeing to cap Russian oil price to stabilize fuel prices
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UNCTAD attributes regional logistics chaos, idling Ukraine ports, destruction of vital infrastructure, trade curbs, high insurance costs and higher fuel prices to the war
Russia’s war on Ukraine is stifling Ukrainian trade and logistics as well as those of the Black Sea region, increasing global vessel demand and the cost of shipping around the world, the UN Conference on Trade and Development (UNCTAD) said in a report.
Ukraine’s trading partners now have to turn to other countries for the commodities they import, UNCTAD said in the report “Maritime trade disrupted: The war in Ukraine and its effects on maritime trade logistics” published on June 28.
The report coincided with the closing of the Group of Seven summit in Elmau, Germany, where leaders of the United States, United Kingdom, Germany, Canada, Japan, France, Italy and the European Union agreed to look into capping Russian oil price to bring down fuel prices.
The wealthy countries committed an additional US$4.5 billion to address global hunger, while calling on Russia to “end its blockade of Ukrainian Black Sea ports” and other actions that have impeded Ukrainian production and exports of grains.
The G7 also called on countries and companies with “large food stockpiles” to “make food available without distorting the markets”.
UNCTAD attributes the shipping and transport hurdles in the Black Sea to disruptions in regional logistics, Ukraine port operations halting, destruction of vital infrastructure, trade restrictions, increased insurance costs and higher fuel prices.
UNCTAD said shipping distances have increased, along with transit times and costs.
“Grains are of particular concern given the leading role of the Russian Federation and Ukraine in agrifood markets, and its nexus to food security and poverty reduction,” the report said.
Fewer grain shipments over longer distances are leading to higher food prices, UNCTAD said.
Grain prices and shipping costs have been on the rise since 2020, but the war in Ukraine has exacerbated this trend and reversed a temporary decline in shipping prices.
The report said between February and May 2022, the cost of transporting dry bulk goods such as grains increased nearly 60%. The combined increase of grain prices and freight rates would lead to a 3.7% increase in consumer food prices globally.
Supply disruptions of Russian fuel and fertilizer may lead to lower grain yields and higher prices with serious consequences for global food security in vulnerable and food-import-dependent economies, the report said. Russia is also a leading oil and gas exporter.
“Confronted with trade restrictions and logistical challenges, the cost of oil and gas has increased as alternative sources of supply, often at more distant locations, are called upon,” the report says.
Daily rates for smaller-size tankers in the Black Sea, Baltic and Mediterranean have dramatically risen, leading to higher marine bunker prices. The report said by the end of May 2022, the global average price for very low sulphur fuel oil had increased by 64% since the start of the year.
These increased costs imply higher prices for consumers and threaten to widen the poverty gap, UNCTAD said. It called for urgent action to open Ukraine’s ports to international shipping so the country’s grain can reach overseas markets at lower shipping costs.
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The organization says continued collaboration is needed among vessel flag states, port states and other actors in the shipping industry to maintain all necessary services, including bunkering supplies, health services for sailors and certification of regulatory compliance.
“This will help to keep to a minimum the negative impacts on costs, insurance premiums and operations,” UNCTAD said. “Alternative ways of transport must be pursued and that easing transit and movement of transport workers – even temporarily – can reduce the pressure on cross-border trade and transit.”
In Elmau, meanwhile, Group of 7 leaders led by US President Joe Biden promised more funding for the Global Alliance for Food Security, which G-7 established with the World Bank in May. G-7’s combined commitments this year have reached US$14 billion.
The World Food Program welcomed the G-7’s fresh commitment, saying it is “an important step” to meeting the challenges of the global food crisis. The organization had urged the G-7 to provide more funding, saying that it needed US$22.2 billion this year.
In a much anticipated move, the G-7 leaders said they will examine further measures to stifle Russian financial sources for funding the war. A price cap on oil was discussed during the summit, but the wording of the communique hinted that more negotiations are needed.
The leaders did say they will consider “a range of approaches” on oil, including a ban on all services that allow the transportation of Russian seaborne crude and petroleum products globally, “unless the oil is purchased at or below a price to be agreed in consultation with international partners.”
The G-7 nations also said they will work on ways to reduce Russian revenues from hydrocarbons more broadly and support global energy market stability, “while minimizing negative economic impacts, especially on low- and middle-income countries.”
In particular, they welcomed the European Union’s decision to explore with partners ways in which to “curb rising energy prices, including the feasibility of introducing temporary import price caps where appropriate.”
In a concluding news conference, German Chancellor Olaf Scholz, the host of the summit, said it was important to understand that the conflict in Ukraine is Russia’s war.
“We formulated this very clearly,” he said. “This is a Russian war of aggression that is having dramatic effects on the world economy… It is a Russian attack on a neighbor. [Ukraine] did not provoke this attack, and they are the victim of aggression.”
