The ongoing conflict between Russia and Ukraine has far-reaching repercussions, says Drewry, assessing the immediate impact on the main shipping sectors.
Dry bulk
According to Navin Kumar, Director, Drewry Maritime Research, the war will hamper grain and coal trades. Both Russia and Ukraine are major players in the global grain export market, and the war will lead to a slump in the grain trade out of the Black Sea region.
Chemical
The ongoing war could squeeze sunflower oil exports from Russia and Ukraine, forcing their trade partners in Europe and Asia to fill the void created with other distant sources. However, those more distant countries will find it difficult to completely supplement the shortfall as Russia and Ukraine are the largest exporters of the commodity and accounted for 79% of the global trade volume in 2021.
Crude tanker
The ongoing Russia-Ukraine conflict is boosting the otherwise weak crude tanker market. Freight rates, which were weak for much of February 2022, surged towards the end of the month on concerns over the possible disruption to Russian oil supply. Although the direct impact of the conflict was initially visible only in the Aframax market in the Black Sea, a surge in overall Aframax rates quickly spread to the bigger vessel segments.
Despite seasonal weakness in demand, tonnage demand in the crude tanker market is expected to increase as financial sanctions on Russia have been compelling buyers of Russian oil to scout for alternative supply
says Mr. Kumar
LNG
Drewry expects European LNG imports to rise in the short term as these countries will reduce Russian gas imports. Even though there are no sanctions on Russian gas, European countries are expected to avoid Russian flows of gas and LNG.
Currently, pipeline flows have increased from end February as European buyers look to accumulate lower priced pipeline gas before any serious escalation in the conflict and with that a potential stop to Russian pipeline exports. Some of this pipeline supply will be substituted with higher LNG imports, with the US touted to be the leading supplier as Europe bans Russian vessels from docking at its ports.
However, LNG shipping rates will remain subdued as most of the vessels will be headed to Europe since trade will rise on the shorter US-Europe route instead of the US Asia route, thus reducing LNG tonne-mile demand in 2022.
LPG
The Russia-Ukraine war has led to uncertainty in the market regarding possible sanctions on Russian entities, which could create demand for substitute LPG cargo from the US.
While Russia has suspended LPG rail supply to Europe through Ukraine and Belarus, we believe continued suspension could create severe LPG shortages in the region as Russia supplied 3.7 million tonnes of LPG to Europe through rail and sea in 2021
What is more, Drewry estimates that a prolonged suspension of Russian LPG exports due to the conflict would create an additional vessel demand of 7-10 VLGCs to substitute the Russian cargoes.
Container
The conflict has affected the container sector in two ways:
- It has resulted in higher oil prices.
- Has led many countries to impose sanctions on Russia in order to isolate the latter.
The increase in bunker prices will likely put further upward pressure on freight rates in an already historically high market.
We also expect a number of changes to liner service structures by major shipping lines which have stopped taking bookings from and to Russian ports in line with sanctions announced by various countries. MSC and Maersk have mentioned that their service suspension will also encompass Russian ports in the Baltic and Far East apart from the Black Sea ports
Drewry concluded.