SlothSea

An overview of the black sea market

The effects of Russian decisions

On 17th July 2023, Russia withdrew officially from the safe corridor deal which allowed to get out grain from the black sea. It also stated that each ship, albeit commercial one, will be treated as a military ship to avoid any possible risk. Then, the safe corridor in the Black Sea is only a distant memory for shipowners and charterers which have readily left their willing to trade in such ever more dangerous area, as evidenced by a decrease of 35% already recorded. From the Ukrainian side the answer has been hard, threatening the Russian ships with the same modus operandi of the opponents. Therefore, it stated that a way to export wheat shall be created somehow.

It was thought that the river system through the Danube was a partially safer alternative route, but unluckily Russia continued attacking Ukrainian ports, infrastructures, and warehouses. The last attack happened yesterday and regarded the port city of Reni on the Danube, adding to previously attacked Odessa, Mykolaiv, and Chornomorsk. Despite the initial confident statements, the chances to get grain out of Ukraine became more and more challenging. The safer way would seem just one, it would be yielding to Russian demands pushing them back into the agreement. At least it would be the fairest, considering the people’s lives involved in the conflict and the poorest countries that are strongly affected by these events. The latter are impacted both from the point of view of inflation and the need for wheat as underlined by many world leaders in their recent speeches.

The above events have clearly affected the financial commodity and the dry bulk market, as well as the insurance one.

Initially, traders, having anticipated the outcome of the renewal, bought many cargos and contrary to all expectations, the price of grain fell slightly. However, in the recent days the price of grain increased strongly, reaching levels as in the early days of Russian invasion, because of the attacks themselves that destroyed tons of wheat spreading the speculation on it, and other factors, such as droughts and floods, which are reducing the world supply of grain.

On the dry bulk side, although a first approach may suggest that longer routes and grain’s prices increases will bring a positive rebound in the freight market, the result is worrying. It is necessary to deepen more facets to understand well the next trend of the market, which is unstable and unpredictable but certainly complicated. The freight market, despite the raise on grain prices, showed up a slight negative trend. The cause could be provoked by less cargos available (also due to Argentinian droughts) resulting in a negative spread of the demand of transport. Therefore, a major part of the vessels not being interested in trading in increasingly dangerous areas, together with higher war risks’ insurance costs, have repositioned their fleet in other routes bringing an oversupply.

Consequently, it is possible to note that the closing corridor is affecting and will affect the freight market negatively. Above all, the difficulties of the Supramax and Panamax segments, which were already at minimal levels, are hitting the rates continuing this period of market stagnation.

In the meanwhile, the insurance market is on the bubble struggling between exorbitant premiums, withdrawals of and/or denied requests for coverage. Currently it has not increased the war risks’ rates yet and it has not modified anything regarding additional exclusions, limitations of cover or limits reduction. However, the last circular, issued by a major part of underwriters (P&I clubs) for the policy year 23/24, had already limited the war risks’ cover in second risk having decreased the Insurers’ liabilities for vessels transiting and/or calling within all Russian waters including their coastal waters up to 12 nautical miles offshore. The P&I war risk cover’s limit switched from 500M to 50M for any event, then updated to 80M, but as it always enters in force in second instance after having reached the limits of the first war risks’ underwriters up to the value of the ship or the sum recoverable by them, whatever is greater, and so it didn’t affect the war risks’ cover much for shipowners in the past months.

Even though there aren’t news from the insurance market still, the war risks’ insurers are surely updating their rates and/or terms for covering vessels in Black Sea as a result of the Russia’s decision.

Grain Blacksea SlothSea Shipping deals

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alberto.testino1996

alberto.testino1996

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