The effects of the Russia-Ukraine conflict on maritime trade

How will the military invasion of Ukraine affect sea commerce? Will it affect the seafarer workforce?

The story so far: As Russia continues its military onslaught on Ukraine, the Western economies and its allies have taken retaliatory steps, in the form of heavy sanctions, to effectively paralyse 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.

When the war started, some 15 sea ports in Ukraine were shut down. The loading and discharging of cargo ceased. Around 140 ships that were berthed in the Ukranian ports at that time have stayed in the ports since then. None of the ports or the ships berthed in these ports has been attacked so far. Two ships were attacked while in anchorage leading traders to avoid Black Sea routes for their ships.

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, says Sanjay Prashar, managing director of VR Maritime Services. One of the company’s ships is stranded at a Ukranian port. Some of the stranded ships in Ukrainian ports have Indian crew on board.

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, says Pritam Banerjee, a logistics expert. Port cities such as Mariupol have been attacked from land but as Ukrainians hold out and resist the invasion, 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.

Crude oil prices have gone up 20% over the last week in-part 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. 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.

The pandemic drove up container freight rates which have seen a further escalation. Pritam Banerjee however, says the escalation may only be short-term and is largely due to the oligopolistic control some firms have over container shipping. He explains that 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.