Russia faces grain shipping challenges as international traders reduce Russian activity

Published August 9, 2023

RUSSIA – Major grain exporter, Russia, is facing shipping challenges and rising wheat costs because of a lack of ships and Western grain traders’ shrinking appetite for business with Moscow.

These challenges come while the war in Ukraine has spilled quite close to vital Black Sea supply routes.

The financial and security risks associated with trading with Russia are driving up freight costs for Moscow and pushing it toward older and smaller vessels run by less established shipping operators, Reuters reported based on conversations with marine insurers, traders, and shipping companies.

According to the sources, the situation is raising doubts about whether Russia can keep up a record pace of exports, and if not resolved, could push global wheat prices higher.

Additionally, before the expiry of the deal, grain carriers and commodity houses had reduced exposure to Russia.

Global commodity houses are no longer helping Russia with the mechanics of trading its grain. Cargill, Louis Dreyfus, and Viterra stopped such work on July 1, adding more pressure on Moscow to handle all aspects of grain deals, including transport.

Last year, Russia exported a record volume of wheat on ships chartered by international companies and traders.

While exports remain strong, in the recent past, it has had to source more of its freight, increasingly relying on a “shadow fleet” of older vessels typically operated by companies based in Turkey and China, three shipping industry sources said.

“There is very little coming out now for international companies, and most of what is coming out is dealt with by Russian traders using (shadow) fleet ships, which international traders would not touch,” an anonymous source told Reuters.

According to data from maritime platform Shipfix that collates from hundreds of market participants, in a sign of Russia’s growing hunt for vessels, its requests for charters doubled to 257 in July compared with the same month last year,

The requests for ships were up 40% from June, and are likely to climb further as the export season gathers pace.

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 marine insurance sources said was a further blow to Western companies’ risk appetite.

High insurance costs persist

Meanwhile, insurance for ships heading to Russia’s Black Sea ports currently costs tens of thousands of dollars in additional premiums daily, the three sources said, with rates ticking higher following Russia’s attacks on Ukraine’s other waterways through the Danube in recent days and Kyiv’s response.

Mike Salthouse, head of external affairs with leading ship insurer NorthStandard, said that ever since the United States and Europe imposed sanctions, some traders and insurers fear doing business in Russia.

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.

In December, the agriculture ministry announced a plan to build a fleet of 61 new grain ships, citing sanctions pressure and the refusal of many international carriers to cooperate with Russia.

According to the ministry, Russian exporters need 34 ships with a carrying capacity of 60,000 tonnes to carry grain and 27 with a capacity of 40,000 tonnes.

However, no orders have been reported for Russian companies, according to data from valuation company VesselsValue. New ships typically take up to three years to build.

“We don’t see Russia building its own fleet from scratch in the short term to meet its immediate needs. The primary focus is going be on chartering from the commercial market,” said Victoria Mitchell, an analyst with Control Risks consultancy.

For all the latest grains industry news from Africa, the Middle East and the World, subscribe to our weekly NEWSLETTERS, follow us on LinkedIn and subscribe to our YouTube channel.