Ukraine: Ukraine Uncertainty Generates Freight Rate Risk

Last Updated: 22 April 2014
Article by Arthur Nitsevych

Local shipping law firm highlights possible political fallout CRIMEA includes five of Ukraine's 18 seaports, but handled well below 10% of the country's seaborne cargo throughput in 2013, according to data released by a local shipping law firm following the Russian occupation of the peninsula.

Even so, Arthur Nitsevych, managing partner of Odessa-based Interlegal, warned of the risk of higher freight rates on account of the stand-off, and the risk that the international shipping community could divert cargoes to mitigate uncertainty. Data from Ukrainian sea ports administration indicates that so far this year, Ukrainian seaports have handled just under 23m tons of cargo, broadly in line with the same point in 2013.

This indicates that political turmoil has actually had only a restricted impact on trade, despite the high degree of political tension in the region. In 2013 as a whole, Ukrainian ports processed 148m tonnes of cargo. The main cargoes are grains (20%), ore (18%), steels (15%), coal (10%), mineral oils (8%), fertilisers (5%), containers (5%) and other categories (18%).

Of the ports situated in the Crimean peninsula, throughput last year was as follows: Sevastopol 4.8m tonnes; Kerch 2.8m tonnes; Feodosiya 2.6m tonnes; Yevpatoriya 0.97m tonnes; and Yalta 0.16m tonnes.

In total, this comes to a little over 11.3m tonnes, which set against the perspective of the country as a whole, is a relatively small proportion. Mr Nitsevych commented: "One can see that these ports do not play the first violin in Ukraine although, of course, are very important for the industry." In February 2014 Ukraine exported over 2.3m tonnes of grains and pulses, which despite the widely-televised turmoil, actually established a new benchmark, beating the February 2009 total of 2.1m tonnes.

Maize formed the major share in the structure of grain exports, at 85%, or almost 2m tonnes. Wheat accounted for nearly 12% of the general grain exports, at the volume of over 287,000 tonnes. As for the shipment structure on a port-by-port basis, in February 2014, terminals in Odessa port zone handled 58.5% of the grain export volumes on foreign markets, with Nikolayev region terminals on 32.2%, and the terminals of Sevastopol on 3.6%.

"Despite all concerns, at the moment Ukrainian ports and shipping operations mostly continue as normal," Mr Nitsevych added.

"Cargo movements have not yet been affected by the escalation. On March 6 operations were suspended in Kerch, but only due to foggy weather."

Political developments have had no major impact on merchant shipping or operations at any of the country's commercial ports, Mr. Nitsevych – who is also chairman of the local branch of the Nautical Institute – added.

Meanwhile, maritime insurers have not declared Ukrainian waters a war risk area, despite a recent meeting of the International Group Joint War Committee to consider the developments in Crimea. That said, the position remains under close review.

Local P&I correspondents report most ports in Ukraine function as normal but foreign crew members are recommended to keep away from areas where any demonstrations are taking place and even to refrain from coming ashore.

"Shipping people expect shipping costs for commodities from Ukraine could be raised. But now is too soon to charge higher freight.

"Yes, owners and shipping executives are worried, but everyone is waiting on how the situation develops. So everyone is keeping an eye on what is happening every day in the country," he argued.

"Ports, logistics and shipping are very conservative. Quite probably no serious problems have been faced just because port terminals are handling cargoes that were delivered to ports long ago.

"It will be interesting to see how logistic chains now are being changed. For sure, logistic executives are going to mitigate risks and would rather send new lots of cargo to other ports, not engaged into the political conflict."

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