Any illusions of a peaceful resolution in the current Russo- Ukrainian conflict evaporated on the 24th of February, as Russia’s invasion of its Eastern-European neighbour began in earnest. Whatever the outcome, shipping markets will be significantly impacted and in particular the threat to Dry Bulk from the dislocation of the important Ukrainian trade.
In the short term, Ukrainian ports have all ceased all operations, stranding a number of vessels in port whilst two dry bulk vessels an Ultramax and a Kamsarmax have been hit and damaged by missiles.
Chart 1. Ukrainian Primary Bulk Exports
Looking at the bigger picture, in 2021 Ukraine was responsible for approximately 100mt Dry Bulk export trade numbering around 2,200 voyages principally in grains, steel, iron ore, and minor bulks such as aggregates, alumina, fertilizers and forest products (see Chart 1). Handysize tonnage accounts for about half of the vessels calling at Ukraine to carry its ex-ports but all the other sectors are impacted as for instance Capesize tonnage transports almost all the 20mt of iron ore shipped to China each year. But whereas Ukraine’s iron ore exports account for little more than 1% of world seaborne iron ore trade and this loss of cargo could probably be substituted by additional ore from Australia in Capesize or India in Supra-max, replacing Ukrainian grain will represent a much greater challenge.
Last year Ukraine exported nearly 24mt corn making it the world’s third-largest exporter, as well as over 20mt of wheat and 5.5mt barley as the fourth biggest global shipper of both these grains. For corn and barley China is by some distance Ukraine’s biggest customer importing 8mt corn and nearly 3mt of barley in 2021 and the USA which already has limited existing additional supply, is the only realistic alternative given that China does not buy from Brazil (due to its GM element) whilst It would have to substitute barley if available from either France or Australia. Other major importers of Ukrainian corn include Spain (2.5mt) Netherlands (2.2mt)
Egypt (2.2mt) Iran (1.6mt) and Turkey (1mt) which at 0.9mt is also the other main customer for Ukrainian barley. Replacement corn could perhaps be sourced from Brazil or USA adding additional tonne: mile demand but again concerns sur-round ever lower corn reserves. Should Ukrainian farmers be unable to plant corn (and barley) in March/April for this year’s harvest then global supplies could potentially become even more critical.
Ukrainian wheat is much more widely distributed, with Egypt and Indonesia at around 3mt each the largest markets with Turkey third at 1.5mt. However Ukraine is an important source for the demands of several African and Middle East countries with for example Yemen importing 0.75mt in 2021, three-quarters of all its shipments, Saudi Arabia (0.7mt) and at 0.6mt half of Libya’s wheat whilst Ethiopia also at 0.6mt and Kenya 0.35mt Ukraine is a vital supplier of wheat. But whereas Indonesia and Saudi Arabia could probably find additional supply from Australia which has had a bumper harvest, other countries closer to Ukraine may struggle for alternatives as doubts also surround the ongoing export capability of the world’s largest wheat exporter, Russia (25mt – 2021).
With some evidence of concerns over the future security of grain supply, in particular, trading activity within the Black Sea has been intense so far this year, with a record 340 Dry Bulk vessels currently recorded in the area, over 100 more than this time last year (see Chart 2).
Chart 2. Dry Bulk Vessels Positioned in the Black Sea Area
As Russia and Ukraine represent around 80 per cent of all Black Sea Dry Bulk trade, the numbers of vessels in the area are expected to shrink quite rapidly as tonnage, where possible, seeks alternative employment outside of the current Black Sea conflict zone.
(Howe Robinson Research)