Soaring Global Shipping Costs, Stifles Trade

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According to the UN Conference on Trade and Development (UNCTAD), the conflict in the Ukraine is hindering trade and logistics within the nation and in the Black Sea region, driving up global vessel demand and shipping costs, reports UNCTAD.

About the report

In a report entitled “Maritime trade disrupted: The war in Ukraine and its effects on maritime trade logistics” published on 28 June, UNCTAD says Ukraine’s trading partners now have to turn to other countries for the commodities they import.

It cites trade restrictions, hampered regional logistics, the suspension of port operations in Ukraine, the damage of crucial infrastructure, and rising fuel and insurance prices for the shipping and transportation difficulties in the Black Sea region. Along with longer transit times and higher costs, shipping distances have expanded.

According to the research, grains are a particular concern because of their connection to food security and poverty reduction as well as their dominant positions in the agrifood markets of the Russian Federation and Ukraine.

Soaring shipping costs raise food prices

Fewer grain shipments over longer distances are leading to higher food prices.

Grain prices and shipping costs have been on the rise since 2020, but the war in Ukraine has exacerbated this trend and reversed a temporary decline in shipping prices.

The report says between February and May 2022, the price paid for the transport of dry bulk goods such as grains increased by nearly 60%.

The accompanying increase of grain prices and freight rates would lead to a 3.7% increase in consumer food prices globally.

The Russian Federation is a giant in the global market for fuel and fertilizer, which are key inputs for farmers worldwide.

Disruptions in their supply may lead to lower grain yields and higher prices, with serious consequences for global food security, particularly in vulnerable and food-import-dependent economies.

Higher energy prices exacerbate challenges for shippers

The Russian Federation is a significant exporter of gas and oil.

The cost of oil and gas has escalated as alternate sources of supply, frequently in more remote regions, are needed, the research adds, due to trade limitations and logistical difficulties.

The cost of operating smaller tankers, which are essential for intraregional oil trade in the Black Sea, Baltic Sea, and Mediterranean Sea regions, has skyrocketed.

Shipping expenses have increased for all maritime transport sectors as a result of the increasing energy costs, which have also increased marine bunker prices.

The analysis estimates that by the end of May 2022, the price of very low sulphur fuel has climbed by 64 percent globally since the year’s beginning.

Taken altogether, these increased costs imply higher prices for consumers and threaten to widen the poverty gap.

Policy actions needed to keep global trade flowing

UNCTAD calls for urgent action to open Ukraine’s ports to international shipping so the country’s grain can reach overseas markets, at lower shipping costs.

The organization says continued collaboration is needed among vessel flag states, port states and other actors in the shipping industry to maintain all necessary services, including bunkering supplies, health services for sailors and certification of regulatory compliance.

This will help to keep to a minimum the negative impacts on costs, insurance premiums and operations.

UNCTAD also says alternative ways of transport must be pursued and that easing transit and the movement of transport workers – even temporarily – can reduce the pressure on cross-border trade and transit.

Also, UNCTAD calls for more investment in transport services and trade and transit facilitation.

And more international support for developing countries, especially the most vulnerable economies, as the war in Ukraine adds to the challenges posed by the COVID-19 pandemic and the climate crisis.

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Source: UNCTAD

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