The Russian invasion of Ukraine changed several aspects of the world as we know it, adding significantly to pandemic challenges. As a global industry that touches many countries, shipping could not stay unaffected: Loss of life, loss of ships, trade disruption, increased sanctions and growing costs are only a few of the adverse consequences that the Ukraine war created for the shipping industry.
The biggest effect of the war on shipping, according to Allianz, has been on vessels operating in the Black Sea and/ or trading with Russia. Ukraine’s major ports, including that of Odessa, were closed due to the conflict, which had a drastic impact on a country that ships over 70% of its exports, including 99% of its corn exports. Meanwhile, hundreds of vessels were trapped in ports or at anchor while thousands of crews faced an uncertain future, unable to leave vessels or return home.
#1 Safety and security of vessels and crew
The first obvious effect of the conflict on shipping was a serious and immediate threat to the safety and security of crews and vessels operating in the region. IMO data suggest that, at the start of the conflict, approximately 2,000 seafarers were stranded aboard 94 vessels in Ukrainian ports. 10 vessels subsequently safely departed the Sea of Azov. At the end of July, 84 merchant ships remained, with nearly 450 seafarers onboard.
Meanwhile, at least eight merchant vessels were attacked in Ukrainian ports and the Black Sea during the first month of the conflict -including the Namura Queen, Lord Nelson and Helt– resulting in seafarers losing their lives. The Helt consequently sank off Odessa. A bit earlier, a Bangladeshi cargo ship was attacked in the Ukrainian port of Olivia, killing one of its crew members.
#2 Increase in fuel prices and operating costs
Russia is a major oil and gas exporter, but the various trade restrictions and fuel logistics challenges in the aftermath of the attack have driven fuel prices up. As expected, the higher energy costs have also led to higher marine bunker prices, raising shipping costs for all maritime transport sectors.
A report by UNCTAD says that, by the end of May 2022, the global average price for very low sulphur fuel oil had increased by 64% compared to the start of the year. The consequences of this trend are not limited only to shipping, as these increased costs imply higher prices for consumers, threatening to widen the poverty gap.
#3 Shift to alternative fuels
Amid stringent environmental regulations and a shift to sustainability globally, the energy transition has been a hot topic in shipping for the past few years. The energy crisis that followed the war, as a result of an expanded ban on Russian oil, has pushed up the cost and availability of bunker fuel, which could, in turn, put the industry on track to adopt alternative fuels, such as ammonia, hydrogen or LNG, faster than expected. For instance, as the shipping industry is vividly exploring all its possible options to reduce emissions amid growing fuel costs, nuclear power seems to be regaining ground in the decarbonization debate.
#4 Trade disruption
Ukraine and Russia combined account for the export of nearly 12% of food calories globally. Before the war, Ukraine exported more than 90 % of its agricultural products, around 6 million tons per month, via the Black Sea. With commercial ships hit in the conflict, operators had to redirect freight transport and divert vessels. The bigger shipping companies, citing unpredictable operational impacts, suspended shipments to and from Ukraine and Russia. Important shipping routes in the Black Sea – in particular, Odesa and the Sea of Azov – were blocked, posing serious risks to global food security.
#5 Uncertainty in marine insurance and legal issues
Marine insurance policies normally exclude the seizure of ships or physical damage caused by war or hostile actions, such as damage from sea mines or attacks on vessels. And although insurers will be required to honor valid contracts until renewal, certain claims have to be denied under sanctions and war clauses, explained Justus Heinrich, Global Product Leader Marine Hull at AGCS. This means the conflict has triggered general uncertainty and legal questions for affected hull and cargo policies. In addition, disruptions in logistics and port operations, the destruction of infrastructure, and trade restrictions increased marine insurance costs.
#6 Crew shortage
There is a total of 1.89 million seafarers in the world and 10% of them are Russian, while 4% are from Ukraine, according to data by ICS. The armed conflict caused the suspension of many direct flights to Russia and fewer vessel calls at Russian and Ukrainian ports, which made it hard for seafarers from these countries to return home at the end of their contracts, just like during the pandemic.
The growing complexity of crew changes is expected to negatively affect the industry’s attractiveness to new talent. Last year, BIMCO warned of an expected “serious shortage” of officers by 2026 if action is not taken to increase training and recruitment levels. The report predicted that there will be a need for an additional 89,510 officers by 2026, yet there was a shortfall of 26,240 certified officers in 2021.
