How the Russia – Ukraine War Impacts the Shipping Industry
The liquid and dry bulk markets will be affected this year due to the ongoing conflict in Ukraine and the supply chain disruptions that are expected to continue through 2022. Experts predict trade growth to be 1 – 2 percent based on type of cargo. While trade growth has lost momentum due to the war, there are mitigating factors such as route changes and cargo flows being redirected. To what extent carriers will be impacted depends on contracting and specific markets.
Types of Cargo Most Affected
According to analysts, coal is the main dry bulk flow that is expected to be redirected. About 46 percent of EU’s coal imports currently come from Russia. However, from August onwards, EU’s coal imports will come from Australia, South America, Colombia, and the U.S., requiring longer sailings.
When it comes to oil cargo, Russia accounts for 12 percent of the oil shipped globally, with the UK and EU importing 172 million tonnes this year. As EU member states look to reduce their oil dependency on Russia, additional imports would likely come from the Middle East. Russian oil is likely to be redirected to China, India, and other countries, resulting in a significant reshaping of trade flows.
In 2021, the UK and EU imported 78 million tonnes of liquified natural gas. Additional imports will come from the US and possibly Australia and Qatar despite the fact that spot market supply is scarce. Also, LNG ship capacity is limited, as there is a total of 681 vessels, and about 200 ships on order.
An added hurdle is the build-up of containers at European ports due to additional customs checks and major carriers halting Russian-bound sailings. Large carriers such as CMA CGM, Maersk, and MSC announced they would be suspending cargo services to and from Russia. This has resulted in a more limited vessel capacity and terminal inefficiency. Also, cargo remains stuck at the ports of Mariupol and Odessa, which are damaged, closed, or under attack. Containers need to undergo lengthy customs inspections and procedures to ensure that semiconductors, spare airplane parts, and other blacklisted items are not being shipped.
Coastal nation’s authorities have deactivated drifting mines at the Black Sea but searches for mines are still underway. The threat of direct hits and collateral damage on certain routes remains high, and carriers have been advised to only use safe shipping routes. The threat of cyber-attacks, electronic interference, communications jamming, AIS spoofing, and GPS jamming in the war risk area also remains high. Diversion of shipping and harassment cannot be ruled out. Sea freight in Europe has been significantly affected, and the restoration of sailings in the war risk area remains doubtful irrespective of future war developments. Rising insurance premiums and fears over crew and ship safety have resulted in some carriers halting sailings to Russia and Ukraine. There have also been cases of crews abandoning vessels in Ukraine due to safety concerns.