Windard: Further escalation of economic sanctions expected in light or Ukraine crisis

Regulation and market trends

According to Windward the industry is seeing the increasingly important phenomenon of “conscious capitalism”, where companies choose the maximum distance from Russia, rather than clearing the minimum bar of compliance.

This overturns the market perception, which was that the Biden and Johnson administrations would not be keen enforcers of sanctions

More specifically, banks and trading companies are increasingly engaging in “self-sanctioning” against Russian entities in the shipping and commodities sector to avoid issues with regulators and public displeasure.

Furthermore, Windward noted that:

• War risk insurers that charge a premium for providing insurance coverage for trading in disputed areas are halting coverage of the Black Sea and Sea of Azov due to fear of secondary sanctions.
• Pulling out of Russia is expanding regionally and among business sectors – with Rio Tinto becoming one of the latest to pull out of Russia. This is important, since they are from the dry bulk sector and from Australia (which has lagged behind on Russian sanctions).
• The British decision to ban ships with a Russian connection from its ports, seemingly set to be followed by the European Union, has broadened the potential scope of sanctions.
• Oil and gas trade haven’t yet been sanctioned. But we have seen oil majors, such as Shell, shun Russian oil completely, with U.S. and UK buyers expected to be under increased scrutiny due to the upcoming ban on these imports.

Level of transactions with Russian entities

Based on Windward’s analysis of the reported data since February 28, the daily number of Russian-owned vessels seeking jobs has tripled. Namely, during the first six days of March, the average number of Russian port calls was 120 per day. During the same period in 2021, the average number of daily port calls by commercial vessels was 40% higher.

The sanctions, according to Clarksons, have led to significant freight rate increases:

• Large crude carriers (VLCCs; tankers that carry 2 million barrels) built in 2015 or later are $27,500 per day, an increase of 591% (week on week).
• Rates for newer Suezmaxes (capacity: 1 million barrels) are at $28,000 per day, an increase of 285% and rates for newer Aframaxes are at $41,800 per day, an increase of 157%.
• Product tanker rates are up double digits from last week.

As of March 10, the number of ship-to-ship operations between non-Russian and Russian-flagged vessels was halved from the previous week. The number of bunkering operations between non-Russian flagged bunkering vessels and Russian-flagged vessels shows a decrease.

Maritime security

Different reports show that many of Ukraine’s ports have been mined, effectively blocking traffic in and out of the port. Approximately 200 vessels and 3,500 sailors are directly affected.

Reports on seizures of oligarch yachts and other Russian key assets, including ships, are increasing and we expect significant scrutiny to increase on this front.

As Windward data indicated an increase in Russian vessels seeking their next charter, it is fair to say that unemployment is one of the strongest drivers for an increase in crime rates.

Containerized goods

Container vessels owned or operated by the top three liners active in Russia have made 1,244 port calls in Russian ports in the past 12 months. This represents 28% of all container vessel operations taking place at Russian ports.

Using data from Windward’s Ocean Freight Visibility solution and the World Bank, MSC, CMA and Maersk would have been in charge of moving approximately 101,000 containers in and out of Russia in the coming month of March.

However, Windward also reported an interesting side effect of the supply chain disruption caused by the conflict, as ports in Cyprus, Bulgaria, Latvia & Finland have a 40-80% increase in congestion, which will have a significant effect on global shipping.

Expectations

We expect further escalation of the economic sanctions and the reaction of market participants. It seems many banks have been busy until now with blocking sanctions and will now expand their focus to further reviewing their trade finance and ship finance books

says Windward, adding that “the supporting maritime ecosystem will be looped in to the sanctions play and will review their books of business with anything and everything Russia.”

Belarus and Russia will also be increasingly put into a bucket of economic sanctions, while the Western powers will accelerate negotiations with Iran and Venezuela to free up more crude supply ahead of a possible ramp-up of sanctions on Russia’s energy sector to prevent crude prices getting to $200 per barrel.