Ukraine war stifling Black Sea trade, logistics, swelling global vessel demand: UN

The war in Ukraine is stifling trade and logistics of the country and the Black Sea region, increasing global vessel demand and the cost of shipping worldwide, the UN’s trade agency said on Tuesday. 

The UN Conference on Trade and Development (UNCTAD) called for urgent action to reopen Ukraine’s ports for international shipping so the country’s grains can reach overseas markets at lower shipping costs.

Increased costs lead to higher consumer prices and threaten to widen the global poverty gap, said a UNCTAD report.

“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,” read the report.

The UN agency said Ukraine’s trading partners have been forced to turn to other countries for the commodities they import.

It attributed the shipping and transport hurdles in the Black Sea region to disruptions in regional logistics, the halting of port operations in Ukraine, the destruction of critical infrastructure, trade restrictions, increased insurance costs and higher fuel prices.

Shipping distances have increased, along with transit times and costs, the report said, with fewer grain shipments over longer distances leading to higher food prices.

Grain prices and shipping costs have been on the rise since 2020, but the war that Russia launched in Ukraine on Feb. 24 “has exacerbated this trend and reversed a temporary decline in shipping prices,” the agency said.

Between February and May 2022, the price paid for transporting dry bulk goods - such as grains - increased by nearly 60%, the report said, while increasing grain prices and freight rates would lead to a 3.7% increase in consumer food prices globally.

Russia is “a giant in the global market for fuel and fertilizer, which are vital inputs for farmers worldwide,” the report said.

“Disruptions in their supply can lead to lower grain yields and higher prices, with serious consequences for global food security, particularly in vulnerable and food-import dependent economies,” the UN agency warned.  

Surging energy prices

Russia is also a leading oil and gas exporter, the report said.

“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,” it said.

Daily rates for smaller tankers, vital for regional oil trading in the Black Sea, Baltic Sea and Mediterranean Sea regions, have dramatically increased.

The higher energy costs have also led to higher marine bunker prices, raising shipping costs for all maritime transport sectors.

According to the report, by the end of May 2022, the global average price for very low sulfur fuel oil had increased by 64% compared to the start of the year.

“These increased costs imply higher consumer prices and threaten to widen the poverty gap,” read the report.

UNCTAD stressed the need for alternative ways of transport, saying that easing transit and the movement of transport workers – even temporarily – can reduce the pressure on cross-border trade and transit.

The UN agency also called for more investment in transport and trade facilitation, as well as greater international support for developing countries./aa