Fast moving developments in Ukraine have generated the most significant disruption to geo-political “norms” for decades. Dealing with both direct operational disruption around the conflict zone and the impact of new sanctions has been an immediate focus for shipping. But as tensions continue to escalate, there are wide ranging uncertainties for shipping markets; our Analysis aims to provide some context.
Escalating tensions have produced immediate regional disruption with commercial operations at Ukrainian ports suspended and activity in the broader Black Sea (0.9% of all port calls by GT in 2021) disrupted. A reluctance by owners to commit to Russian ports and cargoes generally has also been a factor in tanker market tightening (see our ex-Baltic Sea Aframax rates, up 294% w-o-w). Shipping has been a focus for international sanctions for much of the past decade but sudden changes can help tighten markets (e.g. the October 2019 tanker “super spike”: at the time the largest Chinese owner represented ~3% of the tanker fleet). While the specific extent of new sanctions will become clearer, we estimate the Russian owned fleet totals ~3,000 ships of 18.1m GT and 1.2% of global tonnage. Over half of the tonnage is oil and gas tankers: 2.4% of global tankers and 2.1% of the LNG fleet. In Aframax, the figure is 7.7%; for the Ice Class 1A Afra fleet it is 18%. Meanwhile, 0.8% of the global fleet is Russian Register and 0.6% Russian flag.
Trade Flow Context
Russia is estimated to account for ~5% of global seaborne exports (2021: >630mt), though a smaller percentage in terms of tonne-miles with short-haul exports to Europe (from Western Russia) and to Asia (from the East) significant. Ukraine accounts for a further ~1% (c.100mt) of export volumes. Energy is the major focus for Russian exports – the country accounts for 10% of seaborne oil exports (9% crude, 11% products), 8% of LNG exports, and 13% of coal shipments. Significant volumes of oil and gas are also moved to Europe via pipelines, including c.40mt of crude through the Druzhba pipeline in 2021 and c.170bn cbm of gas.
Grain is significant for both – Russia is 7% of global exports, with Ukraine a further 9%, virtually all shipped ex Black Sea.
Uncertainty And Complexity
As reflected in stock market volatility this week, material uncertainty, particularly of this scale, is always a challenge for investors. While the uncertainty itself adds to macro-economic risk, there is also impact on inflation (via energy prices, with oil over $100/bbl and gas >$30/mmbtu in Europe). Depending on how, and how quickly, disruption and sanctions play out, market impact complexities may include: trends towards longer haul oil trade to replace Russian volumes; shorter haul LNG trade as cargoes are diverted to Europe from Asia; longer haul grain trade; local container impacts. Bunkering costs (now at record highs of $730/t for VLSFO in Rotterdam) could increase freight rates generally besides supporting earnings premiums for ‘eco’ and scrubber-fitted tonnage. Longer term geo-political trends may also now develop (impacting pipeline development, increased trade or shipbuilding activity between China and Russia, prioritising security of energy supply via LNG). Again shipping sits at the centre of a global disruption event and we hope our data will help frame some of the huge uncertainty. Our very best wishes.
The author of this feature article is Stephen Gordon. Any views or opinions presented are solely those of the author and do not necessarily represent those of the Clarksons group.