Title: Rising Costs and Security Concerns Challenge Russian Grain Exports
Subtitle: Lack of ships and reduced appetite from global traders impact Russian wheat exports amidst rising tensions in the Black Sea
LONDON, Aug 8 (Reuters) – Russia’s plans to replace Ukrainian grain with its own shipments to Africa have hit a roadblock as the lack of ships and reduced interest from Western grain traders are driving up costs and jeopardizing the country’s ability to maintain record-high export volumes. These challenges come at a time when tensions between Russia and Ukraine have escalated in the Black Sea region, posing risks to vital supply routes.
The recent escalation of the war in Ukraine has added to the dangers of transporting grain in the region. Sea-drone attacks on a Russian oil tanker and a warship at the Novorossiysk naval base, near a major grain and oil port, have heightened concerns about the security of Black Sea supply routes.
Eduard Zernin, head of Russia’s Union of Grain Exporters, warned of potential “hidden sanctions” that could increase freight and insurance costs for Russia, ultimately impacting the global wheat and grain market prices.
The combination of financial and security risks associated with trading with Russia, along with the collapse of the Black Sea corridor, has led to higher freight costs for Moscow. As a result, Russia has turned to older and smaller vessels operated by less established shipping operators, known as the “shadow fleet,” to meet its transportation needs. However, these vessels are typically avoided by international traders.
Even before the recent escalation, global commodity houses such as Cargill, Louis Dreyfus, and Viterra had reduced their involvement in Russia’s grain trade, shifting the burden of handling all aspects of grain deals, including transport, to Moscow.
The lack of ships and higher insurance premiums have further complicated Russia’s grain exports. Insurance costs for ships heading to Russia’s Black Sea ports have skyrocketed, and Western companies are becoming increasingly reluctant to engage in Russian trades due to the unknown ownership structures of Russian ports and terminals.
Russia’s Black Sea terminals handle around 70% of the country’s grain exports, making the tensions in the region a significant barrier to maintaining export numbers. The Russian agriculture ministry has forecasted an 8% decrease in grain exports for the 2023/24 season compared to last year’s record-high volume of 60 million tonnes. Wheat exports are also expected to decrease slightly to 44-45 million tonnes, according to industry estimates.
To address these challenges, Russia had previously announced plans to build a fleet of 61 new grain ships. However, no orders have been reported for Russian companies, and experts believe that the primary focus will be on chartering ships from the commercial market rather than building a fleet from scratch.
As the situation unfolds, the rising costs and security concerns surrounding Russian grain exports pose a potential risk to global wheat prices and supply stability.
Reporting by Jonathan Saul and Nigel Hunt in London, Reuters reporters, additional reporting by Polina Devitt in London and Gus Trompiz in Paris; editing by Frank Jack Daniel