Despite Turkish President Recep Tayyip Erdogan’s confidence that the Black Sea Grain Corridor will be extended, Russia has been threatening to pull out of the deal – agreed to along with the UN and Turkey – which is set to expire Monday, July 17. Kyiv Post asked the heads of some main forwarders at Odesa ports what would happen to maritime trade and what options are available if Russia pulls out of the agreement.
Gennadiy Ivanov, Director of BPG Shipping (UAE-Ukraine-Greece-India-Hong Kong)
Today, the situation with the export of grain is repeated with the events of a year ago, when the possibility of exporting grain through the ports of Odesa, Yuzhne and Chornomorsk was actively discussed everywhere. This led to the launch of a grain corridor through which Ukraine exported about 31 million tons so far. In parallel, exports were carried out through the Danube ports and by land.
Imagine a situation if there were no grain corridor: huge grain stocks would accumulate in the fields and silos, most of which would most likely be lost (considering the balances of the 2021/2022, harvest as of Feb. 24 2022). For example, to load 70,000 metric tons of grain through the ports of the Danube, you need to use 10 to 15 coaster ships and 15 to 25 days. Through Yuzhne, loading of the said quantity on Panamax vessel will take three days with a considerable freight difference (less), due to economies of scale. Therefore, for sure all available export capacities of Danube and land transportation would be enough to handle 31 million tons.
However, there is the vital issue of profitability for farmers, since, in addition to freight and logistics, they also had to include in pricing the cost of waiting for inspections [Joint Coordination Centre, (JCC) at $7-$13 per ton] war risk insurance [$4-$7 per ton], plus an additional premium for freight [$3-$5 per ton]. If we compare the value of exports through the corridor with these additional costs, the value of losses for the Ukrainian market is huge.
Today we can hear various forecasts for the grain corridor, including a plan B in the form of the development of dry ports and infrastructure at the Danube ports.
In general, it is important to have a plan B in any situation, and especially if you have such a “neighbor” as Russia. At the same time, when investing in alternative export capacities, in my opinion, it must be kept in mind that as soon as the ports of Mykolaiv, Yuzhne, Chornomorsk and Odesa are open for full scale export (like before Feb. 24, 2022 ), the “mathematics” would redirect most of the exports back to these ports (land transportation/Danube cannot be a competitor of the Panamax “big Odesa” ports).
But again, like any plan B for the future, it’s important to have one. From the side of the government to have their own plan B will ensure the constant loading of these export capacities. As for the prospects for the operation of the corridor, the most successful solution is to work without the participation of Russia. But in this case, the security risk for the merchant fleet increases, given the unpredictability of Russia’s behavior.
A possible solution to the problem of further operation of grain corridor ships could be a military convoy in the Black Sea based on the experience of passing through the pirate zone in the Strait of Aden in 2009-2012, when convoys of civilian ships accompanied by warships were formed. In the current situation, ships can follow the route within the territorial waters of Bulgaria, Romania. This additional deviation will be negligible compared to the cost of waiting for a JCC inspection.
In general, the “immunity” received by shipowners over the past war year gives grounds for confident optimism that even after the abandonment of the JCC, the list of candidate ships will not significantly decrease. And in the case of normal operation, it will only increase. But this is on the condition that, at a minimum, insurance companies will be ready to continue insurance of war risks.
In any case, Turkey must have its weighty say. Given the recent comments of the Turkish President [Recep Tayyip Erdogan], there is reason to believe that the corridor will continue to work. But if the corridor continues to work in the current format, it is definitely necessary to resolve the issue of sabotage by Russian JCC inspectors, who in every possible way contribute to an increase in the duration of the inspection and, accordingly, losses to supply chain participants. It is also necessary to cancel the outbound/laden condition inspection, which is a guarantee to add a minimum of five to six days of waiting, which is necessary for the degassing of the holds after fumigation at the port of loading.
As for the freight market, the closure of the corridor and the resulting decrease in demand for freight will significantly reduce freight rates in the region, which will primarily benefit the Russian Federation.
Nejat Uluevren, owner of Gateway International Transportation Logistics
Trade by container vessels have already been stopped after the war and alternative ways are expensive and not sufficient. Via Constanta (Romania), it is far and congested and via Sulina by Reni and Izmail (Ukrainian ports on the Danube River), operations are very slow and ports are not good enough to operate container vessels due to low draft.
I believe the grain corridor will continue with or without Russia. Russia also makes money from this, but if they go out, this corridor can continue by the protection of Turkish navy in the Black Sea.
Recently, we saw that Turkey showed its side by sending back Azov soldiers to Ukraine and President Erdogan expressed his wishes about the grain corridor to stay active, which he will negotiate in the near future with Putin’s visit to Ankara. He wouldn’t say this if he didn’t have a plan and his last move, some days ago, was to give green a light to Sweden for NATO.
Also, during President Zelensky’s recent visit to Ankara, President Erdogan also confirmed that Ukraine should be a NATO member. I believe Turkey is the key point and I still have hopes for solutions.
Oleg Kostyuk, CEO of Global Transport Investments
I really don’t know what is going to happen it’s such a complicated game for me. I mean, from one side Russians don’t need this deal anymore, from the other side, either Erdogan will push Putin to continue the grain corridor, or Turkey will give its own guarantees to the grain corridor players.
And if it is like that, then Ukraine will have better vessels turnover with inspection, and it means cheaper freight, at the same time, Turkey may ask additional money for escorting or any other guarantees. I don’t think it will be a full route escort, but maybe partially. Still I believe one way or another it will continue working even if Russians refuse to participate.
Dmitriy Minov, Director of Risoil Ukraina
There’s active work going on with regard to this question right now. There appeared some signs recently that grain vessels could have the possibility to enter seaports, but still the situation is complicated and needs more clarity.
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