The July agreement between Russia and Ukraine which was mediated by Turkey and the office of the U.N. Secretary General was intended to kick start a resumption of Ukrainian grain exports from the ports of Odesa, Chernomorsk and Pivdennyi which collectively accounted for about half of the country’s grain exports in the 2020-21 season. In this we must be hopeful for success, however there are several hurdles remaining.
The format of the agreement was unusual in that it consisted of two parallel agreements since Ukraine declined to sign a direct agreement with Russia or even to sit at the same table. Such is the level of mistrust, further underlined by Russian missile attacks on the port of Odessa just one day later following the signing of the agreement. Subsequently, a Russian missile strike on the port city of Mykolaiv killed a leading Ukrainian shipping and agriculture executive Oleksiy Vadaturskyi, the founder and CEO of Nibulon, a company he founded in 1991, in what appeared to be an accurately targeted hit.
Translating the agreement(s) into action and the physical export of grain which is much needed across the globe will require acts of faith by governments, port authorities, ship owners and the marine insurance industry. On top of that is the issue of mine clearance since the two sides do not even agree on whose mines they are, and Ukraine will not permit merchant vessels to be escorted by Russian warships. Turkey’s leadership of a Joint Co-ordination Centre, established in Istanbul to oversee the July agreement certainly therefore looks to have its work cut out.
On the thorny question of vessel and cargo insurance, in addition to standard Hull and Machinery and cargo insurance, all sides will have to factor in the additional cost of war risk coverage and the willingness of crews to take their vessels into a hazardous zone. In this context, it should be noted that In March this year, The International Transport Workers’ Federation (ITF) and the employers’ representative Joint Negotiating Group (JNG) came to an agreement on pay and conditions for seafarers working in the Black Sea and Sea of Azov. The benefits include a bonus equal to basic pay and payable for a minimum of five days, the right to refuse to sail with repatriation and compensation at the company’s cost in addition to expanded compensation for death and disability.
Responding to the Ukraine export agreement, in late July, Lloyds of London insurer Ascot and broker Marsh launched the first such arrangement with up to $50 million of cover in marine cargo and war insurance. Coverage has recently expanded to a 10 mile protected corridor to cover vessels entering the Black Sea to lift grain exports.
Logistically, Ukraine has been trying to direct part of the 25 million tonnes backlog of grain in storage through neighbouring countries by rail. For this reason, much of the country’s rail capacity is snarled up and will take time to redirect to service the three ports. Added to this, about 80 ships are currently stranded across Ukrainian ports and will need to be cleared
The 15 countries that exported the highest dollar value worth of wheat during 2021 were:
- Russia: US$7.3 billion (13.1% of total wheat exports)
- United States: $7.29 billion (13.1%)
- Australia: $7.2 billion (13%)
- Canada: $6.6 billion (11.9%)
- Ukraine: $4.7 billion (8.5%)
- France: $4.6 billion (8.2%)
- Argentina: $3 billion (5.3%)
- Germany: $2 billion (3.6%)
- Romania: $1.8 billion (3.3%)
- India: $1.7 billion (3.1%)
- Bulgaria: $1.4 billion (2.5%)
- Kazakhstan: $1.1 billion (1.9%)
- Poland: $994.3 million (1.8%)
- Lithuania: $826.2 million (1.5%)
- Hungary: $670.8 million (1.2%)
These 15 countries shipped around 92% of globally exported wheat in 2021 by value with the total value of wheat exports reaching an estimated US$55.8 billion. Interestingly, from 2020 to 2021, the value of globally exported wheat is estimated to have increased by 24% with the five major wheat exporters (Russia, United States of America, Australia, Canada and Ukraine) providing about 60% of the overall value of international shipments.
On the import side of the equation, below are the 15 countries that imported the highest dollar value worth of wheat during 2021.
- Indonesia: US$3.5 billion (6.1% of total imported wheat)
- Nigeria: $2.7 billion (4.7%)
- China: $2.72 billion (4.6%)
- Turkey: $2.69 billion (4.6%)
- Egypt: $2.47 billion (4.2%)
- Algeria: $2.34 billion (4%)
- Italy: $2.30 billion (3.9%)
- Bangladesh: $1.96 billion (3.3%)
- Philippines: $1.95 billion (3.3%)
- Japan: $1.79 billion (3%)
- Brazil: $1.67 billion (2.8%)
- Morocco: $1.59 billion (2.7%)
- Mexico: $1.4 billion (2.3%)
- South Korea: $1.34 billion (2.3%)
- Vietnam: $1.27 billion (2.2%)
The largest importers of Ukrainian wheat in 2021 were Egypt, Indonesia, Bangladesh, Turkey and Yemen while for Indonesia and Bangladesh, Ukraine is the second largest supplier of wheat.
In a pilot project, the first vessel to ship grain out of Odesa was the Sierra Leone flagged bulk carrier Razoni. She was destined for the port of Tripoli, Lebanon. Ironically, it was Lebanon that had previously ordered the detention of a sanctioned Syrian ship allegedly laden with 10,000 tonnes of stolen Ukrainian flour and barley. A trickle of subsequent vessels have left Ukraine with grain cargoes but a much expanded consistent program of exports is now needed.
Odessa Grain Terminal – courtesy Mamai Production