Current trends in the development of the marine dry bulk cargo transportation market in Ukraine

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State Organization «Institute of Market and Economic&Ecological Researches of the National Academy of Sciences of Ukraine»

CURRENT TRENDS IN THE DEVELOPMENT OF THE MARINE DRY BULK CARGO TRANSPORTATION MARKET IN UKRAINE

Svitlana Ilchenko Dr. Sc. (Economics), Professor,

Head of the Department of Transport Market

Vadym Gryshchenko Cand. Sc. (Economics), Associate Professor,

Senior Scientific Associate of the Department of Transport Market

The armed aggression of the Russian Federation against Ukraine, which began in February 2022, led to a complete blockade of Ukrainian seaports, the destruction and damage of infrastructure facilities, and made it impossible for cargo ships to enter Ukrainian ports. However, the number of cargo ship calls to ports has increased in other countries, especially in Europe, although they have yet to reach the levels that existed before the COVID-19 pandemic. In 2022, terminal operators, government authorities, and shipping companies took measures to deal with port congestion amid the containment of the COVID-19 pandemic, which forced ships to spend more time in slower ports.

The most delayed are dry cargo ships transporting bulk cargoes, cargo operations on which are, as a rule, less automated and more time-consuming. This explains the slowdown in European ports due to the armed aggression of the Russian Federation against Ukraine and measures to limit physical contact between people. With the beginning of the war, the weekly number of ship calls to Ukrainian ports decreased from 60 to zero, and the number of ship calls to the ports of other countries of the Black Sea region also decreased.

Ukraine is a leading player in the world agricultural and food markets, including the animal feed market. Together, they account for 36% of global trade in sunflower oil and seeds, 13% in corn, 11% in barley, 10% in rapeseed, and 9% in wheat [1]. About 21 countries import more than 50% of their wheat from Ukraine [2]. In 2021, Ukraine exported about 50 million tons of grain. Before the full-scale invasion of the Russian Federation into Ukraine, the growth of Ukrainian grain exports by sea was predicted to increase by 3% annually. However, it is now predicted to decrease by at least 3.8% in 2022 [3]. Given Ukraine's leading role in food markets and its significant impact on food security and poverty reduction, exports of grain crops from Ukraine are of particular concern. Grain prices and shipping costs have been rising since the start of the COVID-19 pandemic, but the Russian Federation's armed aggression against Ukraine has exacerbated this trend. From February to May 2022, the price of transporting dry bulk goods by sea, including grain, increased by almost 60%. The accompanying increase in grain prices and freight rates leads to an increase in prices for food consumers worldwide by about 4%. Almost half of this impact is due to rising shipping costs.

The Baltic Dry Index is a global benchmark for determining the cost of transporting dry bulk cargo. Between February 2022 and May 2022, this index increased by approximately 59%. This led to an additional 3.7% increase in consumer prices worldwide. Almost half of this increase can be explained by higher transport costs, which have arisen due to rising tariffs for transporting goods by sea and the increased distances over which they are transported.

The change in patterns of grain trade is reflected in the number of calls by bulk carriers to the ports of the countries of the Black Sea region. In the pre-war period, Black Sea ports usually served more than 90% of grain exports from Ukraine. However, with the blockade of Ukrainian seaports and the suspension of port operations, grain exports from Ukraine were limited to shipments through the western borders, by rail, and through the small ports of Izmail and Reni on the Danube River. This alternative was not enough to compensate for the lost capacity provided by Ukrainian ports on the Black Sea.

Immediately after the beginning of the blockade of Ukrainian ports by the troops of the aggressor country, the Government of Ukraine appealed to the international community to allow merchant ships and their crew members to be evacuated from the affected areas and high-risk zones in the Black and Azov seas. As a result, the International Maritime Organization (IMO) [4] called on the aggressor country to urgently create a blue safe sea corridor to ensure the safe exit of merchant ships from Ukrainian ports. However, the issue was partially resolved only on July 22, 2022, in Istanbul with the participation of the UN, Ukraine, Turkey, and Russia as part of the signing of two separate documents on the implementation of the Initiative on the safe transportation of agricultural products from three Ukrainian ports [5] - Odesa, Pivdennyi, and Chornomorsk. As of March 2023, during the creation of the grain corridor, more than 900 ships with more than 23 million tons of grain and other food products on board left Ukrainian ports.

In the post-war period, Ukraine will need to increase the number of investments in the development of sea transport and port infrastructure, as well as in promoting the increase of transit volumes even more than in pre-war times. That is, in the post-war period, Ukraine and its trading partners should focus on such vital factors of the development of maritime transport as promoting the development of international trade, digitalization of maritime transport, modernization of port infrastructure, economies of scale, elimination of existing imbalances and ensuring free competition.

References

1. UNCTAD (2022). The impact on trade and development of the war in Ukraine. UNCTAD Rapid Assessment. 16 March. Retrieved from: https://unctad.org/system/flles/officialdocument/osginf2022d1_en.pdf

2. UN Sustainable Development Group (2022). Global Impact of war in Ukraine on food, energy and finance systems. Briefing Note No. 1. April 13, 2022. Retrieved from: https://unsdg.un.org/download/5549/76820

3. Dry Bulk Trade Outlook. (2022). Clarksons Research Studies, Volume 28, No. 4, April 2022. URL: https://www.crsl.com/acatalog/dry-bulk-trade-outlook.html

4. The International Maritime Organization (2022) IMO Extraordinary Council Session held to discuss the impacts on shipping and seafarers of the situation in the Black Sea and Sea of Azov. Retrieved from: https://www.imo.org/en/MediaCentre/PressBriefings/pages/ECSStatement.aspx

5. Ministry of Foreign Affairs of Ukraine. (2023). Grain From Ukraine. Retrieved from: https://mfa.gov.ua/en/grain-ukraine

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