MARITIME TRADE PROBLEMS IN THE BLACK SEA AND BEYOND / GEOPOLITICAL FUTURES

Maritime Trade Problems in the Black Sea and Beyond

Regional countries are struggling to adapt to new realities. 

By: Antonia Colibasanu

It’s no secret that international trade is still reeling from the COVID-19 pandemic, the war in Ukraine, and the energy and monetary problems both have caused. 

But a recent episode involving Turkey and its Black Sea trading partners shows how countries are adapting – and struggling to adapt – to these new challenges.

Lloyd’s List, a global shipping publication, reported late Dec. 5 that the G-7 and the EU intervened in negotiations between Turkey and the International Group of Protection and Indemnity Clubs over insurance guarantees, which Ankara had requested for oil shipments passing through the Bosporus strait. 

Turkey issued a notice two weeks before it implemented restrictions requiring all tankers from Russia and Kazakhstan transiting Turkish waters to provide letters of confirmation from their P&I clubs attesting that insurance coverage will remain in place under any circumstances throughout their stay. 

(Notably, the notice was issued too late to make it anything but impossible for insurers to comply with.) 

The measure follows G-7 and EU sanctions that were put in place on Dec. 5 and allow insurance only for Russian oil shipments that have been purchased at or below $60 a barrel. 

Turkey claims this makes it impossible for port authorities to use conventional insurance verification systems. 

Ultimately, this has led to congestion in the Black Sea and the Bosporus, creating even more uncertainty in the shipping industry.

 

To avoid creating more uncertainty in the markets, the G-7 and the EU had awarded a grace period on oil cargoes from Russia that loaded before Dec. 5, while Russia said it would wait until the end of the year to ban companies selling oil using the price cap. 

Neither the West nor Russia seems to have taken seriously Turkey’s ability to suspend traffic in the Bosporus, a historical source of its regional influence.

Navigating the Water

Since the war in Ukraine started, Turkey has been accommodating both sides, positioning itself as a mediator between the West and Moscow. 

Before the embargo placed on Russia for its invasion, the EU received about two-thirds of its oil imports from Russia by sea, most of which must first pass through the Bosporus. 

Put simply, both sides need Turkey, and any threats to hold up traffic in the Bosporus can – and have – concerned Russia and the West.

Geopolitical balancing acts aside, the situation was caused by something Turkey had little to do with: the war in Ukraine and Western sanctions, which have been difficult for businesses to adapt to. 

This is especially so for companies that did business with both Russia and Ukraine, many of which had to hire consultants to help them navigate the legal waters, as well as companies that depend overwhelmingly on the Black Sea for shipment and delivery.

Unsurprisingly, maritime traffic in the Black Sea dropped dramatically after the war started. 

Liner shipping services – transporting goods and cargo from one destination to another by ships on a regular schedule – were among the first to fall. 

Ukraine has been completely cut off from the market since February due to security concerns. 

Nine out of 10 global container liners have suspended their operations in the Black Sea region. 

In Russia, liner shipping services were at a loss for all its ports. Before the war, Germany was Russia's largest partner, with a monthly average of 114 voyages. 

That number has fallen to 32 since the war began. 

However, liner business with Turkey remained constant at around 70 voyages per month, and connections with China increased from 29 to 50 voyages.

Cargo ships departing from the northern shores of the Black Sea have also dropped since February. 

Departures from Ukraine’s ports dropped from 100 per week to 10 per week, recovering only after the Black Sea grain initiative went into effect. 

(They are still 35 percent below prewar traffic.) 

Ships departing from Russian ports also decreased. 

As a result, the number of calls in the Turkish ports dropped as fewer ships going from Ukraine and Russia were looking to pass through the Turkish straits in the first months after the war. 

There has since been an increase in Romanian port calls, particularly from Constanta, where cargo can then be shipped to the rest of Europe and the world. 

It was these ships that called on the Turkish ports, later in the year, to pass through the Bosporus. 

Other Ukrainian shipments have gone from Ukraine through the Romanian Danube port of Sulina into the Black Sea. 

As Romanian ports grew congested, Bulgarian ports became an alternative.

An Inland Shift

There were also shipments coming from Ukrainian river ports through the Danube that were then carried on land, by rail or truck, to their destinations. 

This increased not only traffic but also congestion at customs points. 

Romania has put together a logistics hub in the northeastern town of Suceava to accommodate incoming Ukrainian truck shipments and will likely have to erect another one in the coming months. 

However, Romania’s non-membership in the Schengen zone means that all Ukrainian shippers entering the country need to fill out paperwork and prepare documentation for the Schengen area. 

These kinds of hubs are meant to help shippers do their paperwork while relieving some of the pressure from the already crowded customs points into and out of Romania on their way to actual Schengen members and destinations elsewhere.

This is one of the reasons that the European Commission supports the admission of Romania and Bulgaria into Schengen; not being able to help Ukraine conduct business with the world will likely make for a troubled neighbor and new security threats that the EU doesn’t want to have. 

This is also the reason that both Romania and Bulgaria have announced various infrastructure projects to accommodate the growing traffic.

With the Black Sea becoming a de facto war zone in 2022, maritime shipment in the region has been affected by vessel insurance premiums, leading to more land-based shipping. 

The Danube has become more important as one of the cheapest ways to get trade going between the region and Western Europe. 

While Russia’s liner shipping connectivity index dropped in 2022, Ukraine’s index is zero, meaning liner shipping fully stopped.

 

Perhaps more important, the European revised military mobility plan focuses largely on increasing Europe's intermodal transport connection, which would create faster harbor-rail-road transport for military assets. 

Military mobility would need to be ensured by digitalizing paper-based national border clearances for troops and materiel. 

Incidentally, the revised plan also mentions enhancing Western Europe's rail connections to Ukraine and Moldova, according to reports quoting unnamed EU officials.

An integrated transport system would make sense for economic and defense-related reasons. 

The enlargement of the Schengen area means northwestern Europe would be connected to the southeast by land, which would lower shipping costs for all trade entering the EU, particularly trade coming from Ukraine into Europe through Romania and Bulgaria. 

All this runs counter to Russia’s strategy, fueling rumors that it is using its connections in Austria to ensure a veto on Schengen enlargement, which the EU is slated to discuss on Dec. 8.

Beyond the Black Sea

But even if Russia succeeds, the best it can do is buy time. 

The changes underway in global trade patterns have less to do with state policy tactics and more to do with business practices. 

The Black Sea shipping problems were largely “welcomed” because of what they meant for Ukrainian food exports through the Black Sea. 

India, for example, expanded its wheat exports to East Asia in the early months of 2022 (though it later banned exports in an effort to ensure it has enough for domestic consumption), and Brazil has increased its exports to China. 

The EU has secured more corn imported from Brazil and the U.S. next year in case Ukrainian corn doesn’t come through. 

Russia has increased the usage of the so-called North-South Transport Corridor, sending its goods (including food) through Azerbaijan and Iran to the Middle East and beyond. 

(The war has also changed the energy sector. The EU is considering building new liquefied natural gas infrastructure, and Germany has secured a 15-year agreement with Qatar.)

Consequently, the maritime shipping industry is changing. 

In the latest “Review of Maritime Transport,” the U.N. Conference on Trade and Development said that maritime trade growth would fall from 3.2 percent in 2021 to 1.4 percent in 2022 before rising to 2.1 percent in 2023-27 – well below the historical average of 3.3 percent. 

This is, of course, due to the war in Ukraine, but it is also due to the pandemic and the uncertainties surrounding the outcome of both.

And in light of the fact that Russia can’t seem to win the war in Ukraine outright, Moscow’s strategy is to prolong it long enough to undermine Ukraine’s economy and sap its morale through strikes on civilian infrastructure – all while exhausting Ukraine’s partners. 

This means that energy exports from Russia to Europe will not only decline but could also be suspended. 

Inflation will remain problematic for months to come. 

Maritime shipping, then, would fall, while sustained demand, however moderate, would increase road and rail shipping. 

Rivers like the Danube and other transport infrastructure will become essential for sustaining socio-economic stability.

Even if Europe continues to struggle to fill its gas storage sites in 2023, the current shifts in the Black Sea and global trade will drive the next challenges that Europe will face, including building an integrated infrastructure system able to accommodate Ukraine after the war. 

Either that or it will fail and fragment under new growing threats at its borders.