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A shortage of ships in Russia and Western grain traders' dwindling appetite for business with Moscow are increasing the costs of moving Russian wheat at a time when the war in Ukraine has come dangerously close to vital supply routes from the Sea. Black. President Vladimir Putin promised to replace Ukrainian grain with Russian shipments to Africa after Moscow in July ended a deal that gave safe passage to Ukraine's food cargo across the Black Sea, imposing a de facto blockade on its neighbor and attacking storage facilities. , in an escalation of the war.
Ukraine's response, marine drone attacks on a Russian oil tanker and a warship at its Novorossiysk naval base, next to a major grain and oil port, has heightened these new dangers for shipping in the Black Sea.
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Eduard Zernin, head of the Russian Grain Exporters Union, cited a potential worsening of what he called “hidden sanctions” that “could lead to an increase in freight and insurance costs” for Russia. This “will be reflected in the price level of wheat and other grains on the world market,” Zernin told Reuters.
While agricultural exports are not subject to direct European and U.S. sanctions imposed after Russia invaded Ukraine last year, Moscow says restrictions imposed on Russian banks and individuals are “hidden sanctions” on the food trade.
Financial and security risks associated with trade with Russia – compounded by the collapse of the Black Sea corridor – are driving up freight costs to Moscow and pushing it towards older, smaller ships run by less established shipping operators, the agency said. Reuters based on conversations with 10 marine insurers, traders and shipping companies showed.
The situation is raising questions about whether Russia can maintain a record pace of exports and, if not resolved, could push up global wheat prices, the sources said. Before the deal ended, grain shippers and commodity houses had already reduced exposure to Russia.
Global commodity houses are no longer helping Russia with the mechanics of trading its grain. Cargill, Louis Dreyfus and Viterra halted that work on July 1, increasing pressure on Moscow to handle all aspects of the grain business, including transportation.
Cargill said it will continue to ship grain from Russian ports. He declined further comment.
Dreyfus, Viterra and ADM declined to comment, while another major international group, Bunge, did not respond to a request for comment. “It’s not going to be easy for them (Russia),” said an industry executive with knowledge of grain exports.
Last year, Russia exported a record volume of wheat on ships chartered by international companies and traders. While exports remain strong, in recent months it has had to source more of its own cargo, increasingly relying on a “parallel fleet” of older ships typically operated by companies based in Turkey and China, three industry sources said. naval. “There is very little going out now for international companies,” said the executive, who, like other industry sources consulted for this article, asked not to be identified due to the sensitivity of the matter. “Most of what is going out is traded by Russian traders using (shadow) fleet ships, which international traders would not touch.”
In a sign of Russia's growing search for vessels, its charter orders doubled to 257 in July compared with the same month last year, according to data from maritime platform Shipfix, which brings together hundreds of market participants.
The data does not show how many orders were fulfilled or which ship operators were involved. Ship orders increased by 40% from June and are expected to increase further as the export season gathers pace. Denmark's NORDEN and two other Western shipping groups who declined to be named told Reuters they had stopped working with Russia following the February 2022 invasion of Ukraine.
SAFE
Without the Black Sea corridor in place, both Russia and Ukraine warned in July that ships destined for each other's ports could be treated as legitimate military targets, which three maritime insurance sources said was a further blow to risk appetite. of Western companies.
Insurance for ships heading to Russian Black Sea ports currently costs tens of thousands of dollars in additional daily premiums, the three sources said, with rates rising following Russia's attacks on other Ukrainian waterways across the Danube in recent days and Kiev's response.
The Black Sea remains a critical area for Russian exports, with other locations more complicated and expensive.
A shipping source familiar with the matter said that even before insurance, ship operators were charging up to US$10,000 more daily for Russian cargo than for cargo leaving nearby ports in Bulgaria and Romania, as the collapse of the agreement and the escalation of the Black Sea weighed heavily.
Mike Salthouse, head of external relations at major ship insurer NorthStandard, said that since the United States and Europe imposed sanctions, some traders and insurers fear that the ultimate beneficiaries of Russia's ports and terminals could be connected to designated individuals. “The ownership structure is not readily apparent in routine or even enhanced due diligence,” he said, leading to “a level of reluctance to engage in Russian negotiations.”
The industry executive said another risk was if a vessel needed to buy fuel from Russia, a situation the source said could create problems with Western sanctions enforcers, making it difficult to conduct business outside of Russia. “It’s not easy to return to normal commerce after this,” said the executive.
Russian Black Sea terminals handle around 70% of the country's grain exports. They include the ports of Novorossiisk and Taman.
“TRADE BARRIERS”
Despite the tensions, global wheat prices remain well below their peak after Russia's invasion last year sparked fears of a global hunger crisis. Removing more Ukrainian grain from the world market could increase supply pressure unless Russian exports or big harvests from other producers make up the difference.
Two sources said escalating tensions in the Black Sea are likely to affect Russia's export numbers and are discouraging shipping lines from bringing ships to Russian ports, especially newer ships that carry more.
In a statement to Reuters, Russia's Ministry of Agriculture predicted that grain exports will fall by around 8% during the 2023/24 season, from Russia's high of 60 million tonnes last year. He did not give a reason for the fall.
Wheat exports will fall slightly less, to 44-45 million tonnes, Zernin said, in line with International Grains Council estimates.
SHIP CONSTRUCTION
The ministry announced in December a plan to build a fleet of 61 new bulk carriers, citing “sanctions pressure and the refusal of many international carriers to cooperate with Russia.” Russian exporters need 34 grain ships with a carrying capacity of 60,000 tons and 27 with a capacity of 40,000 tons, the ministry said in December. It did not say when they might be built by Russian shipyards.
Russia's state-owned agricultural leasing company Rosagroleasing said in March this year that it had placed orders for a fleet of grain ships that it planned to launch within three years.
No orders were reported for Russian companies domestically or internationally, according to data from valuation firm VesselsValue. New ships typically take up to three years to build.
Many of the current Russian-operated fleet of 31 mostly smaller bulk carriers are more than 30 years old, data from VesselsValue showed, making it difficult to access some ports with strict requirements for ships over a certain age. “We do not see Russia building its own fleet from scratch in the short term to meet its immediate needs. The main focus will be on chartering the commercial market,” said Victoria Mitchell, analyst at consultancy Control Risks.
Source: Seane Lennon | agrolink
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