The war in Ukraine is seriously impacting the trade and logistics of Ukraine and the Black Sea region, according to a new study released by the United Nations Conference on Trade and Development (UNCTAD).
The issues at a glance:
- Shipping costs are rising
- Fewer grain shipments over longer distances lead to higher freight rates and higher food prices
- Container shipping and global supply chains are also disrupted
The search for alternate routes has put increased demand on land and maritime transport infrastructure and services, which has, in turn, increased the cost of shipping around the world, according to UNCTAD.
Grain prices and shipping costs have been especially affected. Both had been on the rise since 2020, but the war in Ukraine had exacerbated the trend and reversed a temporary decline in shipping prices.
The report noted that between February and May 2002, the price of transporting “dry bulk goods” such as grains increased by almost 60%.
The Russian Federation and Ukraine account for 53% of global trade in sunflower oil and seeds, and 27% of wheat.
A total of 36 countries import more than 50% of their wheat from the Russian Federation and Ukraine alone.
Says UNCTAD, “The concomitant increase of grain prices and freight rates would lead to a nearly 4% increase in consumer food prices globally. Almost half of this impact is due to higher shipping costs.”
The Russian Federation is a leader in the global market for fuel and fertilizer, which is projected to drop by 7% in 2022, according to the report. Disruptions to their supply chain can impact farmers worldwide and lead to lower grain yields and higher prices. This can have serious consequences for global food security, particularly in countries that are dependent on food imports.
Several countries are expected to increase their food shipments to partially offset the impact of reduced grain exports from Ukraine. According to UNCTAD, Brazil is expected to increase its wheat and coarse grain exports by an impressive 37% in 2022, and the UK and the European Union are set to expand their exports by 8%. Soybean exports are expected to increase from Argentina, Brazil and the United States of America, and Australia, Brazil and the United States are expected to compensate for reduced grain exports into North Africa and the Middle East.
Russia’s position as a leading oil and gas exporter is also pushing up energy prices worldwide, according to the UCTAD study, which stated: “Confronted with trade restrictions and logistical challenges, the cost of oil and gas has increased as alternative sources of supply, often at more distant locations, are called upon.”
Higher energy costs have increased shipping costs for all sectors. From January 2022 to May 2022, the global average price for very low sulphur fuel oil (VLSFO) increased by 64%.
UCTAD concluded that “Global trade depends on a complex system of ports and ships that connect the world. If global trade is to flow more smoothly, it must be ensured that Ukrainian ports are open to international shipping and that collaboration among transport stakeholders continues to provide services. Alternative ways of transport must also be pursued. And investment in transport and trade facilitation should be fostered as well as the support for the most vulnerable economies.”
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