Kyiv is devising a plan with global insurers to reopen a crucial grain-export route for vessels navigating the Black Sea, a shipping lane blockaded by Russia for the past month.
The Black Sea Grain Initiative had secured the wartime shipment of 32 million tons of food in less than a year until Moscow backed out of the deal in July and escalated attacks on the infrastructure underpinning the Ukrainian grain industry, the country’s economic heart.
Ukrainian officials are now in discussions with global insurance firms and commodity traders to create a government-backed program to enable ships to travel to Ukraine’s ports, according to Marcus Baker, head of marine, cargo and logistics at brokerage Marsh, and other people who participated in the talks.
The move seeks to defy Russian efforts to hobble Ukraine’s grain industry and disrupt a key source of revenue for Kyiv. After withdrawing from the grain deal, Russia unleashed a wave of missiles and drone strikes on port infrastructure in Ukraine’s Odesa and Izmail, damaging terminals and warehouses. In retaliation, Ukrainian drones attacked a Russian warship and an oil tanker transporting jet fuel for the Russian military.
Russia and Ukraine are two of the world’s largest producers of grain. However, Ukraine is more dependent on revenues from the industry as Russia is also a major exporter of oil and gas. Before the war, grain and other agricultural products made up 41% of Ukraine’s overall exports, according to the U.S. Department of Agriculture. Some 95% of those food exports went through Odesa and other Black Sea ports that Russia is now attempting to blockade.
This year, owing to favorable weather, Ukraine is expecting a larger-than-average grain harvest of around 70 million tons, according to Oleg Ustenko, an economic adviser to Ukrainian President Volodymyr Zelensky. Its stores are filling up, meaning they have to increase exports.
“This is a huge problem. Everything now depends on how we are able to move our grain,” Ustenko said.
The plan that is taking shape is for the Ukrainian government to shoulder the first losses in the case of a damaged grain ship, according to Marsh’s Baker. This is expected to encourage more companies to provide insurance to the ships traveling to Ukraine’s ports, reducing premiums. A small number of insurers has continued to offer coverage for the route but at a very high price.
Lloyd’s of London, a major marketplace that controls about a fifth of the global marine insurance market, said it was involved in the discussions.
Insurance is crucial to Ukraine’s efforts to resume its Black Sea efforts without Russia’s involvement. Earlier this month Ukraine announced a new shipping lane to allow ships to leave from Odesa. A cargo ship, the Hong Kong-flagged Joseph Schulte, became the first to successfully use the new corridor last week, reaching the Bosporus after sailing a route close to Ukraine’s shore, out of range of Russian artillery strikes, and then south into the waters of Romania and Bulgaria that are under North Atlantic Treaty Organization protection.
If the wider private sector is willing to take the risk, Ukraine hopes its new shipping lane could restore much of the shipping through the corridor established by the Black Sea Grain Initiative, in which military officers from Ukraine, Russia and Turkey worked together to guarantee the safety of vessels transiting the central Black Sea.
In recent months, Ukraine has been sending more of its grain over land, using railways and trucks to transport the commodities to European ports. This route is slower and more expensive than shipping by sea, and there are capacity constraints. The U.S. and European countries are also working to expand Ukraine’s export capacity via the Danube river.
“If they can get this [Black Sea] corridor up and running and vessels moving, this would make a massive difference,” said Alexis Ellender, an analyst with a focus on dry bulk commodities at Kpler. “It’s much more efficient, you can move larger quantities much faster on ships through the Black Sea.”
Russia also had a strong harvest in 2023, adding to its ample stocks of grain. Last year, the country boosted output of all major grains and oilseeds and produced record amounts of wheat, sunflower seed and rapeseed, according to a May report from the U.S. Department of Agriculture. Russia’s grain exports have overtaken Ukrainian flows since the war began, Kpler data showed.
Moscow is likely benefiting from reduced competition from Ukraine, according to SovEcon, a consulting firm with a focus on the grain trade in the Black Sea.
In a separate track of negotiations, Turkey and United Nations officials are urging Russia to return to the Black Sea grain deal. Russia has demanded that the West lower obstacles to the country’s agricultural exports, an entreaty that Western officials dispute since Russian exports are at a record high this year.
Turkish President Recep Tayyip Erdogan said Monday that he could meet Russian President Vladimir Putin in September to discuss a possible resumption of the agreement.
Global grain prices have come under pressure from high supplies from Russia and other major producers such as Brazil and Australia. Wheat futures traded in Chicago have declined 20% since the beginning of the year. The most actively traded contract was last priced at $6.27 a bushel.
Despite this, there are growing concerns about food security as disruptions to grain shipments emerged as a key battleground in the war.
“The suspension of the Black Sea initiative heightens risk and triggers uncertainty at a time when food insecurity has already reached record levels,” said Arif Husain, chief economist at the U.N.’s World Food Program.
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Kyiv is devising a plan with global insurers to reopen a crucial grain-export route for vessels navigating the Black Sea, a shipping lane blockaded by Russia for the past month.
The Black Sea Grain Initiative had secured the wartime shipment of 32 million tons of food in less than a year until Moscow backed out of the deal in July and escalated attacks on the infrastructure underpinning the Ukrainian grain industry, the country’s economic heart.
Ukrainian officials are now in discussions with global insurance firms and commodity traders to create a government-backed program to enable ships to travel to Ukraine’s ports, according to Marcus Baker, head of marine, cargo and logistics at brokerage Marsh, and other people who participated in the talks.
The move seeks to defy Russian efforts to hobble Ukraine’s grain industry and disrupt a key source of revenue for Kyiv. After withdrawing from the grain deal, Russia unleashed a wave of missiles and drone strikes on port infrastructure in Ukraine’s Odesa and Izmail, damaging terminals and warehouses. In retaliation, Ukrainian drones attacked a Russian warship and an oil tanker transporting jet fuel for the Russian military.
Russia and Ukraine are two of the world’s largest producers of grain. However, Ukraine is more dependent on revenues from the industry as Russia is also a major exporter of oil and gas. Before the war, grain and other agricultural products made up 41% of Ukraine’s overall exports, according to the U.S. Department of Agriculture. Some 95% of those food exports went through Odesa and other Black Sea ports that Russia is now attempting to blockade.
This year, owing to favorable weather, Ukraine is expecting a larger-than-average grain harvest of around 70 million tons, according to Oleg Ustenko, an economic adviser to Ukrainian President Volodymyr Zelensky. Its stores are filling up, meaning they have to increase exports.
“This is a huge problem. Everything now depends on how we are able to move our grain,” Ustenko said.
The plan that is taking shape is for the Ukrainian government to shoulder the first losses in the case of a damaged grain ship, according to Marsh’s Baker. This is expected to encourage more companies to provide insurance to the ships traveling to Ukraine’s ports, reducing premiums. A small number of insurers has continued to offer coverage for the route but at a very high price.
Lloyd’s of London, a major marketplace that controls about a fifth of the global marine insurance market, said it was involved in the discussions.
Insurance is crucial to Ukraine’s efforts to resume its Black Sea efforts without Russia’s involvement. Earlier this month Ukraine announced a new shipping lane to allow ships to leave from Odesa. A cargo ship, the Hong Kong-flagged Joseph Schulte, became the first to successfully use the new corridor last week, reaching the Bosporus after sailing a route close to Ukraine’s shore, out of range of Russian artillery strikes, and then south into the waters of Romania and Bulgaria that are under North Atlantic Treaty Organization protection.
If the wider private sector is willing to take the risk, Ukraine hopes its new shipping lane could restore much of the shipping through the corridor established by the Black Sea Grain Initiative, in which military officers from Ukraine, Russia and Turkey worked together to guarantee the safety of vessels transiting the central Black Sea.
In recent months, Ukraine has been sending more of its grain over land, using railways and trucks to transport the commodities to European ports. This route is slower and more expensive than shipping by sea, and there are capacity constraints. The U.S. and European countries are also working to expand Ukraine’s export capacity via the Danube river.
“If they can get this [Black Sea] corridor up and running and vessels moving, this would make a massive difference,” said Alexis Ellender, an analyst with a focus on dry bulk commodities at Kpler. “It’s much more efficient, you can move larger quantities much faster on ships through the Black Sea.”
Russia also had a strong harvest in 2023, adding to its ample stocks of grain. Last year, the country boosted output of all major grains and oilseeds and produced record amounts of wheat, sunflower seed and rapeseed, according to a May report from the U.S. Department of Agriculture. Russia’s grain exports have overtaken Ukrainian flows since the war began, Kpler data showed.
Moscow is likely benefiting from reduced competition from Ukraine, according to SovEcon, a consulting firm with a focus on the grain trade in the Black Sea.
In a separate track of negotiations, Turkey and United Nations officials are urging Russia to return to the Black Sea grain deal. Russia has demanded that the West lower obstacles to the country’s agricultural exports, an entreaty that Western officials dispute since Russian exports are at a record high this year.
Turkish President Recep Tayyip Erdogan said Monday that he could meet Russian President Vladimir Putin in September to discuss a possible resumption of the agreement.
Global grain prices have come under pressure from high supplies from Russia and other major producers such as Brazil and Australia. Wheat futures traded in Chicago have declined 20% since the beginning of the year. The most actively traded contract was last priced at $6.27 a bushel.
Despite this, there are growing concerns about food security as disruptions to grain shipments emerged as a key battleground in the war.
“The suspension of the Black Sea initiative heightens risk and triggers uncertainty at a time when food insecurity has already reached record levels,” said Arif Husain, chief economist at the U.N.’s World Food Program.