Russia’s lack of ships and a reduced willingness of Western grain traders to do business with Moscow are driving up the cost of transporting Russian wheat at a time when the war in Ukraine has stretched dangerously close to vital Black Sea supply routes, Reuters reports.

President Vladimir Putin has promised to replace Ukrainian wheat with Russian supplies to Africa after Moscow ended a deal in July that ensured safe passage of Ukrainian food cargoes across the Black Sea. Moscow imposed a de facto blockade on its neighbor and attacked its warehouses and ports, escalating the war, news.ro said.

Ukraine’s response, naval drone attacks on a Russian oil tanker and warship at the Novorossiysk naval base near a major grain and oil port, added new dangers to shipping in the Black Sea. In addition, Ukraine announced that it believed it was entitled to retaliate and announced that it would, in turn, target Russian ships in the Black Sea.

The head of the Union of Russian Grain Exporters, Eduard Zernin, fears a potential escalation of what he called “hidden sanctions” that “could lead to an increase in transport and insurance costs” for Russia. This “will be reflected in the level of prices for wheat and other grains on the world market,” Zernin told Reuters.

Although agricultural exports are not subject to direct sanctions imposed by Europe and the US after Russia invaded Ukraine last year, Moscow says the restrictions on Russian banks and individuals are “disguised sanctions” on the food trade.

Russia is forced to use old and small ships

Financial and security risks related to trade with Russia, exacerbated by the collapse of the Black Sea Corridor deal, are driving up freight costs for Moscow and pushing it to older and smaller vessels operated by less stable shipping operators, Reuters reported, which spoke to 10 insurance, trading and shipping companies.

The situation casts doubt on Russia’s ability to maintain record export rates and, if not resolved, could push global wheat prices even higher. Already before the expiration of the agreement, grain carriers and commodity companies reduced their influence on Russia.

International companies specializing in cargo transportation no longer help Russia sell grain. Cargill, Louis Dreyfus and Viterra ceased operations on July 1, adding even more pressure on Moscow to handle all aspects of its grain operations, including transportation.

Cargill said it would continue to deliver grain from Russian ports, but declined to comment further. Dreyfus, Viterra and ADM declined to comment, while another major international group, Bunge, did not respond to a request for comment.

Denmark’s NORDEN and two other western shipping groups, which declined to be named, told Reuters they stopped working with Russia after the February 2022 invasion of Ukraine.

“It’s not going to be easy for them (the Russians),” said an industry executive familiar with grain exports.

Last year, Russia exported a record amount of wheat on chartered vessels of international companies and traders. While exports remain strong, it has had to provide its own cargo in recent months, relying increasingly on a “ghost fleet” of older ships typically operated by companies based in Turkey and China, three naval industry sources said .

Vessel inquiries are up 40% from June and are likely to increase further as the export season accelerates.

Increase in insurance rates

Without the Black Sea Corridor, both Russia and Ukraine warned in July that ships bound for each other’s ports could be seen as legitimate military targets, in what three marine insurance sources said was another blow to the risk appetite of Western companies.

Insuring ships bound for Russian Black Sea ports currently costs tens of thousands of dollars in extra daily premiums, three sources said, with rates rising after Russia’s attacks on other Ukrainian waterways, the Danube and Kyiv’s response.

The Black Sea remains an important region for Russian exports, other places are more difficult and expensive.

A shipping source familiar with the matter said shipping operators were demanding up to $10,000 more per day for Russian cargo than for cargo from neighboring ports Bulgaria and Romania as the deal collapsed and the Black Sea situation materialized. .

Mike Salthouse, head of foreign affairs at NorthStandard, a major ship insurer, said that after the United States and Europe imposed sanctions, some traders and insurers feared that the beneficial owners of Russian ports and terminals could be linked to blacklisted individuals. .

“The ownership structure is not easily discernible under routine or even more thorough due diligence,” he said, leading to “a level of reluctance to engage in transactions with Russia,” he notes.

The official said another risk would be that the ship would need to buy fuel from Russia, a situation the source said could create problems with Western sanctions authorities, making it difficult for non-Russian companies to continue operating.

“It’s not easy to get back to normal trading after that,” Salthouse said.

Russian Black Sea terminals handle approximately 70% of the country’s grain exports. These include the ports of Novorossiysk and Taman.

Exports of wheat are decreasing

Despite the tensions, global wheat prices remain well below their peak since last year’s Russian invasion, which sparked fears of a global food crisis. Removing more Ukrainian grain from the world market could increase supply pressure, unless Russian exports or large harvests from other producers make up the difference.

Escalating tensions in the Black Sea are likely to affect Russian export figures and discourage shipping companies from bringing ships to Russian ports, especially new larger-carrying vessels, two sources said.

In a statement to Reuters, Russia’s agriculture ministry forecast that grain exports would fall by about 8 percent in the 2023/24 season from Russia’s peak of 60 million tons last year. He did not specify the reason for the rejection.

Wheat exports will fall slightly less, to 44-45 million tons, Zernin said, according to estimates by the International Grains Council.

A new fleet of merchant ships

In December, Russia’s grain ministry announced plans to build a fleet of 61 new grain vessels, citing “sanctions pressure and the refusal of many international carriers to cooperate with Russia.”

Russian exporters need 34 grain vessels with a carrying capacity of 60,000 tons and 27 with a carrying capacity of 40,000 tons, the ministry said in December. He did not specify when they might be built by Russian shipyards.

The state-owned Russian agricultural leasing company “Rosagroleasing” announced in March this year that it had placed an order for a fleet of grain trucks, which it plans to launch within three years.

According to data from the evaluation company VesselsValue, no orders have been received for Russian companies either inside the country or abroad. Construction of new ships usually takes up to three years.

Many of the 31 mostly smaller bulk carriers in the current Russian fleet are more than 30 years old, according to data from VesselsValue, making it difficult to access some ports with strict requirements for vessels over a certain age.

“We do not see Russia building its own fleet from scratch in the short term to meet its immediate needs. First of all, it will be focused on renting in the commercial market,” said Victoria Mitchell, an analyst at the Control Risks consulting company (Photo Dreamstime).

Follow the latest events of the 532nd day of the war in Ukraine LIVETEXT on HOTNEWS.RO.