Transcript
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The host introduces the episode and explains how the war in Ukraine has disrupted grain exports from the Black Sea. He outlines the stalled talks involving the UN, Ukraine, Russia, and Turkey, and describes the scale of grain trapped in Ukraine.
Speaker A
On this episode of what's Going on with Shipping, Maritime trade disrupted the war in Ukraine and its effects on maritime trade logistics.I'm your host, Sam Caglano.Welcome to this episode of what's Going on with Shipping.If you're new to the channel, take a moment, subscribe to the channel, hit the bell so you'll be alerted about new videos as they come out.So I was just on a podcast with John Conrad.
Chris Havis along with Chris Savello run this podcast through the Defense and Aerospace Report, and they asked John and I to come on to talk about a specific issue and that was can NATO get grain moving out of the Black Sea?I'll have the link to this podcast in the show notes and you can go over and take a listen to it.It's about 40 minutes and we discuss these issues.But I thought it would be a good opportunity to delve into some of the material and background I mentioned in that podcast and specifically some several reports that were done by the United Nations Trade Organization, which were really influential and important in understanding what's going on in the Black Sea and trade out of both Ukraine and Russia.So first off, the news on this is a bit mixed.So this is a Bloomberg report that was done on gCaptain progress reported in Ukrainian grain export talks.
And so right now there are talks that are ongoing between the United Nations, Ukraine, Russia and Turkey.And we'll talk about the importance, importance of Turkey here in this Turkey is hosting this meeting with the representatives from these other groups and trying to get the flow of grain out of Ukraine moving.And this is really important.Basically Ukraine ships about 6 million tons of grain a month.That is normally that has not been the case since February.Since February that has come to basically a screeching halt, although we're seeing some flow of grain out of southern Ukrainian ports.Talked about this a lot in previous what the ships and other reports on trade and the Black Sea and updates on Russia.Ukraine, basically about 1 to 1.5 million tons is coming out either through the southern Ukrainian ports of Remy and Ismail, which are on the Danube river, or overland into Romania and out of the ports of Constana or into Europe by truck and rail, but nowhere near the tonnage that that needs to come out.
Without the ports of Odessa and Mikhailov, you're not gonna get the amount of grain out.As a matter of fact, it's estimated about 22 million tons of grain is sitting in the Ukraine right now ready for export.Add to this the fact that Russia is being charged and allegations against them for exporting Ukrainian grain on board their ships.This is a BBC story about that particular subject, about tracking where Russia is taking Ukrainian stolen grain.What we're seeing here is the grain coming out on board trucks and being shipped out.One of the things we're seeing is that ability to track this by numbers of trucks, by open source intelligence, by monitoring of Russian trucks and vessels.
And this has created a very controversial issue with Ukrainian grain going on to Russian ships and then the Russians trying to sell that grain.We've seen protests against this by the Ukrainian government asking the Turks not to allow the ships to go through the Turkish Straits.Just a very controversial issue of Russians selling Ukrainian grain.Add to it the latest instance with the issue of Snake Island.The clearance of Snake island opens route to Ukraine's Danube river ports.Now, I talked about this the other day and what the ship.There was a lot of misinformation, like all of a sudden, grains coming out of the Danube River.That's not true.Grain has been coming out of the Danube River.It's just now a new route has opened up.
This section explains the Danube export route, Snake Island, and how shipping patterns have shifted around Romanian and Ukrainian waterways. It also covers Russian naval repositioning and the strategic risk of escalation around the Kerch Strait and Sea of Azov.
Speaker A
This story over in Maritime Executive.I want to take you down to the end here because they have a good little map here that shows you.This is the route that most of the vessels have been using.This is a canal that cuts through Romania and links into the Danube River.This is the Danube river, which is the border between Romania and Ukraine.
This.This section of the Danube had not been used too much.It had been used.I've been following it and watching it in marine traffic.But because of Snake island right here, there'd been fear that a ship could be sunk on this section of the river and block it.
But now with Snake island in the hands of the Ukrainians, they have opened this up even more.If we go over here to marine traffic and look at the big issue here, you'll see that fleet right here off of the Danube.And if we zoom in here just a little bit here, you'll see how this anchorage has just absolutely exploded with vessels.Here is Snake Island.This is the canal route.Here you can see, or excuse me, the river route of the Danube.And then the canal route right here cutting through just a massive fleet of bulkers off there.The red ones are grain ships, are oil tankers that are heading over to the Romanian fields.There was also an interesting story that was done out there by HR Sutton over at Covert Shores about the repositioning of the Russian navy to an area off Sevastopol.
And there's A lot of questions about whether or not the Ukrainians are getting ready to potentially strike at the Kerch Strait.You see the Kerch Strait here.One of the things you're starting to see now we haven't seen at all is ships squawking AIs across the Sea of Azov.They hadn't been doing that for a long time until they secured Berdansk and Mariupol.They haven't done it.But now that the Ukrainians have himars, these long range guided missiles, there is a potential to strike vessels cutting across the Sea of Azov.
The Sea of Azov hooks up here to Rostov on the Don, which is the Don River.And when you look at the interior of Russia, one of the things that should become abundantly clear is the connection on the Rostov to the Volga, to the Caspian Sea, all the way up here into the Baltic and even up into the White Sea.See how vessels are moving all through the interior waterways here of Russia.Just absolutely key.And again, it goes back to this issue that I keep saying that should the Russians decide to strike at that fleet off of the Danube, then the Ukrainians would probably think about striking that fleet off the Kerch Strait, because again, they don't recognize the Russian occupation of Crimea.
The speaker walks through UNCTAD reports showing how dependent many countries are on Russian and Ukrainian food exports. He highlights wheat and sunflower oil exposure, especially in Turkey, China, Africa, and least developed countries, and discusses rising shipping costs and changing port activity.
Speaker A
But what I want to do is take you over to the reports that were done by unctad and this is the first of them back in March.So this is the United Nations Conference on Trade and Development.So when a lot of people start talking to you about statistics and why Russia and Ukraine are important, this is one of the two sources I'd hardly recommend.And one of the things you see right here.Let me go ahead and zoom in here a bit for you so you can take a look at it.
One of the things they like to talk about here is food items and countries exposed to supply shocks.The red shows you the Russian Federation.The blue shows Ukraine.So sunflower oil and seeds, 53% of that comes out of Russia and Ukraine, 36 of which is out of Ukraine.Now remember, this is share of global trade in select commodities.This is not total grown in the world.This is how much is put out onto export trade.9% of the world's wheat come out of Ukraine, 11% of the barley, 10% of the Kalza seeds and 13% of the corn.When you start looking about who uses that food, it becomes even more pressing.Why is Turkey playing such a huge role in the negotiation about freeing Ukrainian grain?Well, take a look right here.They get 22% of their food stuffs from Russia.And obviously Turkey is going to have a major interest here in Russian food.
But notice China.China gets almost 25% of their food supplies from either Russia or Ukraine.A large percentage comes from Ukraine, Egypt, India, the Netherlands, Spain.You're seeing here these nations that are really dependent on foodstuffs coming out of this region.And that's why you got to think about the Black Sea strategically.You can't think about the Black Sea being just Russia, UKRA.It has global implications here.
Talk about wheat markets.2018, 2020, Africa imported $3.7 billion in wheat.32% of total African wheat imports from the Russian federation and another 1.4 billion from Ukraine, 12%.The corresponding imports of wheat from the two countries by the least developed countries were respectively 29% and 10%.And when you look at this chart of wheat dependency in Africa and least developed countries, you can see nations like Somalia, which 1% imports its wheat from Ukraine and Russia.
Same thing with Benin, same thing with Allow, People's Republic, Egypt, Sudan, the Democratic Republic of Congo.If you're just looking at over 50%, you're going back to countries all the way up to Yemen that are getting their foodstuffs from these two countries.And for example, Tunisia gets a huge percentage from Ukraine, Libya, Gambia, all those nations do this.And again, when Russia starts exporting Ukrainian grain in their ships, there's going to raise questions about sanctions against Russian grain.And what happens?Should Russia be tagged with sanctions for exporting Ukrainian grain in their vessels and selling it as Russian grain?This is the second report I cited.Matter of fact, I use this cover for the thumbnail for today's video.This is the 28 June report by UNCTAD Maritime Trade disrupted the war in Ukraine and its effects on maritime trade logistics.And when you jump here, they look at several key issues.
So for example, one of the things they highlight here is the price of shipping is rising.Again, talked about COVID they talked about this.We saw the drop after the peak here, but with the war in Ukraine, we saw a little bit of a spike here today in the index in dollars per day for shipping charters.And that's what we are seeing across the board when you start looking at food prices.This is the changing pattern right here of port calls of dry bulk in the Black Sea.
So blue is arrivals in 2021, GRE arrivals in 2022.And one of the things you'll see here is we are down number of ship arrivals is down for 2022.Look at Ukraine, Ukraine Drops and these are by weeks weak numbers.So after week eight in Ukraine, that's the end of February when the invasion happens, it zeros out and then it starts ticking back up again as they start using those Danube ports.Whereas if you look at Russia, Russia also suffers a downward trend.This is because the Sea of Azov was shut down because the UKRA held Berdansk, but not for very long.But more importantly they hold Mariupol for a much longer time.Turkey is basically running the same as they did Romania.Big uptick because of the use of the port of Constana to get around the sanctions and getting grain out.
This chapter examines container volume declines, the collapse of Ukrainian shipping, and the impact of sanctions on Russian trade. It then reviews UNCTAD's proposed remedies, including reopening ports, clearing mines, easing logistics, and supporting vulnerable importing countries.
Speaker A
And so we're seeing that shifting patterns here.
I want to show you this chart which is a really interesting one, which shows you container volume coming in.So this is going down container shipping development for the Russian Federation, Ukraine.So in 2018, Ukraine was dealing with maybe 2 million containers a year.Coming in Russia about 5 and a half million containers.And pretty average, pretty average is what you saw there.Now again put this into context.Port of LA handles about 10 million containers a year.And so it puts a little context there for you.But what you notice is start of the war, both these drop off, Ukraine falls to zero.There's no container shipping at all going into Ukraine, which has a big impact on its consumer and national economy.
Russia, because of the self sanctions by the large shipping companies, lost half of its container volumes.Remember, not everybody has self sanctioned against Russia, Cosco, some of the smaller firms and Russia has its own fleet of container ships.Not very large.But again, Russia isn't importing a huge amount.And what we see is Russia has about half the container capacity coming in that they normally had prior to the war.
So at the end of the UNCTAD report they have this what can be done?And they have seven issues that they put down here that they identified need to be done to alleviate and prevent this maritime trade disruption.Number one, there will be no effective solution to the food crisis without reintegrating Ukraine's food production.I think we're going to see major problems across the world in food shortages unless we can get Ukraine integrated back in, understand the disruption and the damage is done.Crops are not being planted, they're not being harvested.We're going to have a year or two where this is going to be.Even if it ends tomorrow, you have this disruption and this is going to cause food shortages in those countries identified largely in Africa, in Asia, in Southern Europe and in South Asia.Second, ensure that Ukrainian ports are open to international shipping this is the effort to open the Ukrainian ports.
Now understand, Ukrainian ports are shut for two reasons.One, the Ukrainians have mined the ports.They have shut the ports to prevent the Russians from coming in in a coup de mine and seizing the port.So they have mined it.On the flip side, we believe the Russians have mined it.They haven't admitted that yet, but more than likely they have mined the ports too.And they have attacked the ports.
They've attacked the ports with surface to surface missiles by aerial attacks.And they have hit neutral vessels not involved in the Ukraine Russia conflict.And to get vessels into the ports of Odessa, into Mykolov, you would have to remove the mines.And removing mines takes a long time.It is not an easy process.
You have bottom mines, you have influence mines, you have contact mines.It will take a lot to do this.Third point they make here, lower transaction costs for food and fertilizer exports of the Russian Federation.The problem is the Russians in this conflict have got sanctions against them and the fertilizer shortage is going to be a crippling thing for future food production.Fourth, ensure collaboration among the vessel flag states, port states and industry to provide services, bunkering, health services for sailors.All this has to be done because the bulk of the vessels operating in the Black Sea are either open registries or or national vessels of the states in the Black Sea.And right now you're not going to get a lot of open registry flags to run there without war risk insurance, without offsets for the crews.It's just that type of conflict.Fifth, ease the transit and movement of transportation workers, always a big thing.
They always want to make it easier to get workers in there.
Six, invest in transport services as well as trade and transportation facilitation.And finally, support developing nations, especially the most vulnerable economies in Asia, in Middle east that are really dependent on these food sources.To achieve this, you're going to need naval forces brought into the Black Sea.And there's obviously two issues associated with that.Number one, the Montreal Convention where Turkey can limit the entrance of foreign navies into the Black Sea.
And second, the willingness of navies to go into the Black Sea to ensure the safe shipment of grain out of Ukraine.
The discussion turns to whether naval forces should help secure Black Sea shipping, using U.S. freedom of navigation operations in the South China Sea as a comparison. The episode closes by stressing that Black Sea disruptions affect global food security and broader trade, followed by the usual sign-off and channel promotion.
Speaker A
This story on G Captain Reuters talks about an American destroyer, the Benfold, doing what they call a fonop, a freedom of navigation operation off the Paracel Islands in the South China Sea.Very big story.Talking about sailing a Navy destroyer within 12 miles of one of these islands in the South China sea.Well, the U.S. navy is fine executing fonops in the South China Sea to tell China, listen, you don't control the South China Sea.
Are we willing to do this in the Black Sea?There's more and more call for this.Admiral James Stavitas have talked about this, Admiral Jimmy Fogo, A lot of people are starting to talk about whether or not there should be some sort of naval military presence on the Black Sea.And understand you're talking about two different black Seas.The southern and eastern Black Sea is much different than the northern western Black Sea.
Talked a story the other day about the Russians operating a cruise ship on the Black Sea.We're seeing ships come out of the Kerch Straits out of nowhere, out of Georgia, out of the northern Turkish ports, out of Bulgaria and Romania.The area of contention right here is the Gulf of Odessa with the potential to spread back into the Sea of Azov and maybe into the northern Black Sea.We have seen the warnings come out from NATO, from the Maritime Administration on these areas.Understand shipping firms are fighting very hard not to have areas of the Black Sea declared a war zone because they don't want to pay the higher insurance rates to operate there.
They want to be able to get an over risk.They want to be able to get to the Kerch Straits to transload cargo into bulk vessels and head them out to the Turkish Straits.They want to get vessels into Constana, into Bulgaria and even into the Danube.These are issues that all the major players, shipping players want to see happen.But again, shipping impacts the global economy.
It impacts food.And one of the sayings I tell my students all the time is three days away, nine meals away from killing your best friend for a Twinkie.And when you start dealing with global food shortages, that's going to be an issue.And if you can't get the grain, the wheat, the barley, the corn into economies and into societies in Africa, in the Middle east, in Asia, in Europe, you're going to have problems.You're going to have problems, especially if the rest of the world can't fill that shortages because of global warming, because of temperate issues.
We're not seeing grain come out of India like we thought we would.We're having problems with exporting grain out of the United States because container carriers don't want to take American exports out.This has a domino effect in global trade.And that's why what happens in the Black Sea doesn't stay in the Black Sea.And we need to be aware of that.
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Until our next episode, this is Sal signing off.