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Last updateΣαβ, 25 Ιουν 2022 4pm

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War in Ukraine, another challenge for the shipping industry

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Iakovos Jack Archontakis
Commercial Manager TMC MARITIME CO.

The war in Ukraine continues with the fighting lasting more than a month. Actions are already being taken, either through sanctions or through discussions, to end this war. But how does this war affect shipping and what will be the next day?
In summary, the effects of the war in Ukraine on the world economy are:
• Impulse of inflation, especially of food.
• Obstructing the development of the Baltic States and the countries that support their economy in the Black Sea.
• Disruption of the freight chain.
• Limiting global GDP growth.
But let's now look at some facts: Ukraine is one of the largest exporters of grain worldwide with cargoes to Africa, Asia and Continent. The price of grain on the 25th of February, 2022 (one day after the invasion of Ukraine) was at $ 856.6 per bushel (bushel - unit of quantity in the wheat trade) and reached on March 12th , $ 1250 per bushel, noting an increase of almost 46% within two weeks, while declining afterwards and on 1st of April it reached $ 984.25 per bushel.
A similar picture in steel, with the price levelling off from 4639 cny per tonne on the 25th of February, to 5079 cny per tonne on the 7th of March (+ 9.5%) and on the 1st of April it reached up to 5115 cny per tonne. It is noteworthy that Ukraine produced 21.4 million tons of steel in 2021.
In addition, the invasion of Ukraine results in enhancing the energy crisis as the price of Brent exceeded $ 100 per barrel from the first day of the invasion. To be more specific, Brent crude was at $ 93.4 per barrel on the 25th of February and at $ 128 per barrel on the 8th of March. However, after the initial shock, we saw that by the 16th of March, the price of oil firstly fell and then was increased. So on the 1st of April it closed nearly at $ 105 per barrel.
Military operations in Ukraine have a particular impact on the shipping industry in a variety of ways.
It should be noted that in broadly the general freight market index, BDI, did not appear to be affected by these facts. Similarly, the individual indexes BCI regarding Capes, BPI for Panamaxes, BSI for Supramaxes and BHSI of Handies, continued their upward trend. Only regarding the smaller sizes, Supramaxes and Handies, a drop was observed in Mediterranean-Continent routes during the first two weeks of the war, but then improvements were noted.
During the first period of the war, demand for transfers of dry cargo from the Baltic and Black Sea vanished, leading freights regarding all sizes in a significant drop for several weeks. Subsequently several shipowners decided to move either to the other side of the Atlantic Basin or to the east of the Suez, in order to move away from the "difficult" areas.
This will result in intensifying competition on the supply side in these areas during the next weeks by putting freights under pressure. However, owners that chose to remain in the Baltic and Eastern Mediterranean now have more options, claiming higher numbers. Moreover, trips from other areas (Latin America, U. S. Gulf, Middle East and Indian Ocean) with destination the above regions are providing premium. Furthermore, most owners and charterers are hesitant to book any cargo from a Russian port as the environment is cloudy regarding the sanctions that have been adopted or will be adopted in the future against Russia.
Moreover, the war has raised two major concerns, as regards insurance coverage and insurance companies' exorbitant claims for vessels that have hem in Ukrainian ports and the release of their crews, and regarding the conformation of new charter clauses for trips to and from the Black Sea.
Some of the chartering issues that are under anew discussion: what danger is, war peril and when a port is dangerous, when a vessel and the crew are in jeopardy, when and if charterers can command a vessel to head to a port in the war zone and if the owners and the captain have the right to refuse, what are the rights and the obligations of the parties involved, if the charter party can be cancelled and who bears the extra charges for chartering in dangerous areas. We should note at this point that there are several reports in the Black Sea of naval mines in the wider area.
Another consequence of the war will be economic and trade sanctions against Russia, which are expected to change trade routes in both wet and dry cargo. It is already rumored that the Americans are seeking other sources to fill Russia's energy gap. A large network of natural gas pipelines from Russia to the European Union passes through the territory of Ukraine as well. The cessation of the pipelines will result in all these cargoes being transported by vessels, ejecting demand for tankers and lng.
But how will the situation develop after the war in the Black Sea? The Ukrainian crop is damaged and it will take time for it to recover, in addition the Ukrainian ports have ceased to operate and we do not know under what conditions they will start the next day of the war. It seems that the intention of the Russians is to control the Ukrainian ports.
Therefore, all these are parameters that we will have to wait to see how they will be formed the next day of the war. One thing is for sure, shipping industry will adapt to the new conditions as it has done so far in so many other crises and wars.

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