War in Ukraine Disrupts Ships Around the Globe

Date: Thursday, March 3, 2022
Source: The Wall Street Journal

The world’s biggest container ship operators—A.P. Moller-Maersk A/S and Mediterranean Shipping Co.—said they would temporarily suspend services to Russian ports, including those far from the conflict in Ukraine.

Maersk said Tuesday it was halting bookings in light of the sanctions imposed on Russia, including congestion being caused by customs authorities inspecting cargo bound for the country and changing credit terms impacting its customers. Maersk and MSC said they would continue to move foodstuffs to and from Russia.

The Russian invasion of Ukraine is causing major disruptions for the global shipping industry, with hundreds of vessels trapped at ports, cargo being derailed and freight rates surging.

The cargo ship Mustafa Necati was ready last week to set sail from a port near Odessa, Ukraine, with sunflower seed oil bound for Sardinia. After Russia invaded, “the Ukrainian port authorities told the crew to stop,” said Bulent Dandin, a director of the ship’s Istanbul manager Statu Gemi Kiralama. “Now it’s blocked.”

The impact is most severe in the Black Sea where some commercial ships are being fired upon or detained, but it is also being felt far from the conflict zone, according to shipping executives and brokers. The disruptions are adding strains to a global supply chain already stressed from two years of pandemic imbalances.

On Monday, the U.K. banned entry to all Russian vessels to its ports. Shipping executives and port officials in Belgium, the Netherlands and Germany said containerized cargo destined for Russia would be stopped and inspected.

“All those hubs in Northern Europe are already pretty congested, and every little thing that delays cargo flows will intensify the problem,” said Vincent Clerc, head of ocean and logistics services at Maersk.

Ship movements in the Black Sea, a key oil and foodstuff export route whose northern side is shared between Russia and Ukraine, have been frozen. More than 200 vessels are waiting to cross the Kerch Strait, which connects the Black Sea and the Sea of Azov, according to Lloyd’s List Intelligence, which monitors ship movements.

“No one saw this coming,” said Slava Sorochan, a deputy director at Stark Shipping LLC, a shipping agent in the Ukrainian port of Odessa. “That’s why so many vessels are stuck in ports.”

On Friday, the Millennial Spirit, a Moldova-flagged tanker, caught fire after a missile strike in the Black Sea, the Naval Agency of the Republic of Moldova said. Moldova said it didn’t know who fired the missile. The Millennial Spirit was carrying 600 tons of oil and diesel. A day earlier a ship chartered by Cargill Inc. was hit by a projectile in the Black Sea.

With few daring to travel the area, daily freight rates for tankers have risen to their highest in two years, shippers and insurers say, while insurance premiums have jumped by as much as 4% compared with last week, before the Russian attack, they say.

Although the sanctions so far haven’t targeted Russian exports of oil and gas, the U.S. last week banned American companies from dealing with the long-term debt or buying new shares of 13 Russian entities including state-controlled Sovcomflot, which operates a fleet of 108 crude carriers and 14 natural-gas movers.

“Tanker owners are facing a very uncertain situation and are reluctant to charter ships to buyers of Russian crude,” said Peter Sand, chief analyst at Xeneta, a transport analytics market platform. “Very few ships are picking up Russian crude, and that has significantly pushed up freight rates.”

Daily rates for smaller-size Aframax tankers, which are key for regional oil trading in the Black Sea, Baltic Sea and Mediterranean, jumped to an average $68,000 last week from $11,000 the week before. Daily rates for medium-size Suezmaxes surged to $41,000 from around $4,000. The rates are the highest since the Organization of the Petroleum Exporting Countries Plus, which includes Russia, cut oil production in June 2020.

Shipments of foodstuff are also being disrupted. Within hours of U.K. measures against Russia being announced, London lawyer Nigel Kushner said he received a panicked call from a British trader: A massive cargo of Russian foodstuff was now stranded as the buyer couldn’t pay to a now-sanctioned Russian bank. The London trader is now “trying an alternative payment route to a different Russian bank,” he said.

The number of dry-bulk carriers in the normally crowded Black Sea has fallen by 62% compared with last week amid rising concerns about safety or getting stuck, said Mark Nugent, from London broker Braemar ACM Shipbroking. And 22 of these vessels left empty after being unable to load cargo, he said.

Ships are getting rerouted by governments. France seized the Baltic Leader, a Russia-bound cargo ship in the English Channel over the weekend, with authorities checking whether it is owned by a Russian on the EU sanctions list.

Two Ukrainian-flagged bulk carriers, the Afina and Princess Nicole, which were sailing in Romanian waters, were captured Sunday by the Russian Navy and brought to Crimea, according to the Ukrainian government.

Shippers may be facing further disruptions. The European Union is considering blocking Russian ships from calling at its ports, according to people familiar with the matter. The U.K. took such a step on Monday.

“Russia’s assault on Ukraine is an unprovoked, premeditated attack against a sovereign democratic state,” Transport Secretary Grant Shapps wrote in a letter to U.K. ports. “In these circumstances, the Department of Transportation does not consider it appropriate for Russian vessels to continue to enter U.K. ports.”

 

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