The dry bulk market should maintain healthy rates through the second quarter amid trade disruptions because of Russia’s invasion of Ukraine, as well as continued congestion. While supply growth is of little concern, with few planned additions to the fleet this year and an expected rise in removals activity, given high demolition prices, the more worrying aspect of the market is how the war in Ukraine will affect demand, not just in the short term. “The market will strengthen further… in line with normal seasonal demand developments, but the market may not improve as it would have done without the war in Ukraine,” said BIMCO’s chief shipping analyst Niels Rasmussen. “Also, as the year goes on, we may begin to see further weakening compared to previous expectations.” The main concern for the Danish shipping association is the impact of the war on the global economy, combined with demand destruction due to commodity prices, which remain volatile, though significantly higher than before the invasion. “Both of these factors can reduce volume demand, though such a reduction could be countered by longer distances sailed,” Mr Rasmussen said.

While some analysts and owners are more bullish, focusing on the increased employment time for bulkers, mainly affecting the sub-capesize fleet, others expect the lost volumes from the Black Sea region to outweigh any potential longer sailing distances amid the trade flow shake-up. Ukrainian ports were forced to shut when Russia launched its attack towards the end of February, putting mostly grain exports at risk. Some bulkers turned back, while others have been stuck there, as they were in the middle of loading cargoes. Many owners are avoiding the war risk area, due to hefty insurance premiums and safety fears for vessels and their crews, after a handful of ships were shelled. They are also self-sanctioning, preferring not to conduct new business with Russia, given the unprovoked attack on Ukraine, though they are still committed to existing contracts. There is also always the threat of tightening official sanctions on Russian companies and individuals, which could be extended to cargoes if the war is prolonged, and owners and operators do not want to be embroiled in such an outcome. However, there are pockets of willing owners and operators who will be paid premiums for calling in the area, and there was still activity at Russia’s Black Sea port of Novorossiysk at the time of writing in the final week of March. Even so, the threat to volumes is clear. Russia is the third-largest exporter of coal, shipping about 177 MMT in 2021, according to Banchero Costa. Almost half was sent from the Far Eastern ports to destinations in Asia, 30% moved to Europe from the Baltic, and just over 10% was shipped from Black Sea ports. The overall benefit to annual tonne-miles for a reshaping of Russian coal flows is in the region of 80bn, according to Arrow Shipbroking research, while iron ore from Ukraine will be hit by some 211bn tonne-miles. The overall effect is a negative 131bn tonne-miles.

Already there has been more coal moving to Europe from Indonesia and Australia, adding to tonne-miles, as the European Union curtails its dependence on Russian energy. Other alternative suppliers include Colombia and South Africa, but questions remain as to whether these additional volumes can be maintained. The picture is more worrying for grains. Russia and Ukraine account for slightly under one third of global wheat exports, with few alternatives to plug any shortfalls. While some volumes are being sent by rail from Ukraine to ports in Romania and Bulgaria — pegged at about 600K tons, or a fraction of the total — a significant decline is expected. Some grain analysts estimate the drop to be in the region of 20-25 MMT in the coming months. Ukraine also accounts for 13% of the global corn market, while sunflower oils and seeds represent 36% of global market share. For wheat, Russia’s share is 18%, at about 31 MMT, while for sunflower-related trades it is 17%, and for barley, 12%. Most of the shipments are short-haul to Turkey and countries in North Africa and the Middle East, moving on smaller-sized bulk carriers. Already, there are reports that Russia has banned exports of wheat, rye, barley, and corn, as well as fertilizer, threatening longer-term plantings and crop quality at a time when global reserves have been falling. Given the high wheat prices, India is said to be ramping up exports, targeted at 7 MMT. Australia, the Americas, and France and Germany could also add volumes to the seaborne market, although they may fall short, fueling concerns about food inflation leading to riots in the most dependent countries.

Steel is another bulk commodity that will be affected by the conflict, though to a lesser extent in terms of volume. In the past year, Black Sea steel exports were predominantly moved to the Mediterranean, Brazil, and the US. Replacement volumes could come from Asia, which would help supramaxes the most. Increased congestion, because of new coronavirus cases shutting ports in China, as well as logjams in Europe, is also feeding into the higher rates environment. At the time of writing, handysize and supramax spot rates had strengthened the most over the past month, followed by panamaxes. They have been outpacing capesizes, which are the least exposed to the Black Sea region.