The Russian invasion of Ukraine changed several aspects of the world as we know it, adding significantly to the challenges of the pandemic. As a global industry affecting many countries, shipping could not remain unscathed: loss of life, loss of ships, trade disruption, increased sanctions and rising costs are just a few of the adverse consequences that the Ukrainian war created for the shipping industry.
The biggest effect of the war on shipping, according to Allianz, has been on ships operating in the Black Sea and/or trading with Russia. Ukraine’s main ports, including Odessa, were closed due to the conflict, which had a drastic impact on a country that ships more than 70% of its exports, including 99% of its corn exports. Meanwhile, hundreds of ships were stuck in ports or at anchor, while thousands of crew members faced an uncertain future, unable to leave the ships or return home.
#1 Safety and protection of vessels and crew
The first apparent effect of the conflict on shipping was a serious and immediate threat to the safety of crews and vessels operating in the region. IMO data suggests that, at the start of the conflict, approximately 2,000 seafarers were stranded on board 94 ships in Ukrainian ports. Subsequently, 10 ships safely left the Azov Sea. At the end of July there were 84 merchant ships left, with about 450 sailors on board.
Meanwhile, at least eight merchant ships were attacked in Ukrainian and Black Sea ports in the first month of the conflict. -including Queen Namura, Lord Nelson and Helt– resulting in seafarers losing their lives. Consequently, the Helt sank off Odessa. Shortly before, a Bangladeshi cargo ship was attacked in the Ukrainian port of Olivia, killing one of her crew.
#2 Increase in fuel prices and operating costs
Russia is a major exporter of oil and gas, but various trade restrictions and fuel logistics challenges in the aftermath of the attack have pushed fuel prices up. Unsurprisingly, higher energy costs have also led to higher prices for marine fuel, raising shipping costs for all sectors of shipping.
An UNCTAD report says that as of the end of May 2022, the world average price of very low sulfur fuel oil had increased by 64% compared to the beginning of the year. The consequences of this trend are not limited to shipping alone, as these higher costs imply higher prices for consumers, threatening to widen the poverty gap.
#3 Switch to alternative fuels
Amid strict environmental regulations and a global shift towards sustainability, the energy transition has been a hot topic in shipping for the past few years. The post-war energy crisis, resulting from an expanded ban on Russian oil, has raised the cost and availability of bunker fuel, which, in turn, could lead the industry to adopt alternative fuels such as ammonia, hydrogen or LNG, faster than expected. For example, as the shipping industry is intensively exploring all its possible options to reduce emissions amid rising fuel costs, Nuclear power appears to be catching up in the decarbonization debate.
#4 Trade Disruption
Ukraine and Russia combined account for the export of almost 12% of food calories globally. Before the war, Ukraine exported more than 90% of its agricultural products, some 6 million tons per month, through the Black Sea. With commercial ships affected by the conflict, operators had to reroute freight and divert ships. The largest shipping companies, citing unpredictable operational impacts, have suspended shipments to and from Ukraine and Russia. Important shipping lanes in the Black Sea, in particular Odessa and the Azov Sea, were blocked, posing serious risks to global food security.
#5 Uncertainty in maritime insurance and legal issues
Marine insurance policies normally exclude seizure of ships or physical damage caused by war or hostile action, such as damage from sea mines or attacks on ships. And while insurers will have to honor contracts valid until renewal, certain claims must be denied under sanctions and war clauses, explained Justus Heinrich, global leader for Marine Hull products at AGCS. This means that the conflict has caused general uncertainty and legal questions for the affected hull and cargo policies. In addition, disruptions to port and logistics operations, destruction of infrastructure, and trade restrictions have increased the costs of marine insurance.
#6 Crew shortage
There are a total of 1.89 million seafarers in the world and 10% of them are Russian, while 4% are from Ukraine, according to ICS data. The armed conflict led to the suspension of many direct flights to Russia and fewer ship calls in Russian and Ukrainian ports, making it more difficult for seafarers from these countries to return home at the end of their contracts, just as during the pandemic.
The increasing complexity of personnel changes is expected to negatively affect the attractiveness of the industry for new talent. Last year, BIMCO warned of an expected “severe shortage” of officers by 2026 if steps are not taken to increase training and recruitment levels. The report predicted that an additional 89,510 officers will be needed by 2026, but there was a shortfall of 26,240 certified officers in 2021.