MARKET ANALYSIS

DESPITE GRAIN DEAL, UKRAINE EXPORTS FACE CONSIDERABLE OBSTACLES

The first ship carrying Ukrainian grain through the Black Sea since Russia invaded Ukraine more than five months ago left Odesa under a safe passage agreement that has raised hopes hundreds of other vessels will follow. But there are many hurdles to overcome before millions of tons of Ukrainian grain depart from its Black Sea ports, which handle most of the corn, wheat, barley, sunflower seed and rapeseed exports of one of the world’s top grain suppliers. Some of the issues are, Russia and Ukraine accuse each other of planting the many naval mines that now float around the Black Sea. These pose a significant threat and were cited by one crew member on the first ship, the Sierra Leone-flagged Razoni, as the one thing he feared. The mines have drifted far from Ukraine’s shores, with Romanian, Bulgarian and Turkish military diving teams defusing those that have ended up in their waters. It could take months to clear them and there was not enough time to do so before the grains pact came into effect. In a key step following the 22 July agreement, Lloyd’s of London insurer Ascot and broker Marsh launched marine cargo and war insurance for grain and food products moving out of Ukrainian Black Sea ports. Insurers had previously said they were only willing to provide cover if there were arrangements for international navy escorts and a clear strategy to deal with sea mines. The cost of insurance, however, is likely to remain steep. Finding enough seafarers willing to sail ships stuck inside Ukraine’s ports is set to pose another challenge. At the start of the conflict there were around 2,000 seafarers from all over the world stranded in Ukrainian ports. Only around 450 are left and few are expected to be willing to travel until they see the safe passage of the first ships which will have to be guided around the sea mines. The deal envisages grain exports from three Ukrainian ports – Odesa, Chornomorsk and Pivdennyi – with shipments to be overseen by a joint coordination centre in Istanbul.  The first step is to start moving around 80 ships which have been trapped in Ukraine since the conflict began, some of which had already been loaded with grain. The second, and more challenging part of the equation, will involve creating a framework in which ship owners and insurers are willing to allow vessels to enter the conflict zone safely to pick up cargoes without the risk of attack or collision with mines floating around the Black Sea.

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