Shipment insurance

The first grain cargo has left Ukraine since the beginning of the war – what is the importance of this case?

On Monday, a Sierra Leone-registered vessel, ‘Razoni’, carrying 26,527 tonnes of maize (maize) from the Ukrainian port of Odessa. It was the first time since the Russian invasion on February 24 that a ship loaded with Ukrainian grain had left its Black Sea ports. The bulk carrier, bound for Tripoli in northern Lebanon, passed through a specially cleared “safe humanitarian sea corridor” near Ukrainian ports on the Black Sea, whose waters it had mined in order to protect against amphibious attacks from Russia .

What is the importance of an important stage of this expedition? Is there anything beyond symbolic value?

The M/V Razoni ship, which anchored near the entrance to the Bosphorus off the Turkish coast on Tuesday and was cleared to continue its voyage after inspection, is the first under a deal backed by the United Nations allowing the resumption of exports of Ukrainian agricultural products through its Black Sea ports. the said Black Sea Grain Initiative – involving the signing of separate agreements by Russia and Ukraine with the UN and Turkey on July 22 – foresees exports from three ports: Odessa, Chornomorsk and Yuzhny. According to the agreement, ships are to be guided through Black Sea waters by the Ukrainian Navy to avoid mined areas. The ships will then proceed to the Turkish Bosphorus Strait along an agreed corridor and from there to various ports around the world. Vessels must also be inspected (to ensure that only food products and commercial fertilizers are transported) by teams from a joint coordination center set up in Istanbul with representatives from the UN, Ukraine , Russia and Turkey.

As far as effectiveness is concerned, it all depends on the agreement being properly implemented in the midst of a war that shows no signs of ending. Obviously, the more successful the voyages made, the more confidence will be established among exporters, importers, shipowners and insurance companies who indemnify carriers and cargoes. For now, the resumption of maritime exports from Ukraine – there are about 17 more vessels in the three designated ports with grain already loaded and “awaiting clearance to leave” – seems to have given rise to some optimism. Since Friday, wheat prices on the Chicago Board of Trade commodity exchange have risen from $296.79 to $280.63 a tonne. The same goes for corn, from $242.61 to $232.86 per ton.

The Sierra Leone-flagged freighter Razoni, carrying Ukrainian grain, is seen in the Black Sea off Kilyos, near Istanbul, Turkey, August 3, 2022. (Reuters Photo)

How important is Ukraine in world agricultural trade?

Ukraine, before the war, was the world’s fifth largest exporter of wheat (after Russia, the European Union, Australia and the United States) and barley (after Australia, the EU, Argentina and Russia), while No. 4 in corn (after the United States, Argentina and Brazil); No. 1 in sunflower oil, meals/meals and seeds; and No. 2 in rapeseed (after Canada).

According to the US Department of Agriculture, Ukraine’s total agricultural exports were valued at $27.8 billion in 2021. This included sunflower oil ($6.4 billion), corn (5, $9 billion), wheat ($5.2 billion), rapeseed ($1.7 billion), barley ($1.3). billion) and sunflower meal ($1.2 billion). The country’s top three markets were the EU ($7.7 billion), China ($4.2 billion) and India ($2 billion). Exports to India largely consisted of sunflower oil, worth $1.9 billion. Given that much of Ukraine’s trade passes through the Black Sea, unblocking the roads is a big deal – both for itself and for the world.

How important is Ukraine to India?

The country, as already noted, is a major supplier of sunflower oil. India imported 21.76 lakh tonnes (lt) in 2020-21 (April-March) and 20.45 lt in 2021-22, worth $1.96 billion and $2.88 billion respectively of dollars. Of this amount, Ukraine’s share was 17.40 liters ($1.60 billion) in 2020-21 and 14.83 liters ($2.09 billion) in 2021-22. Russia and Argentina were a distant No. 2 and No. 3, at 3.40 liters ($479.16 million) and 1.85 liters ($258.66 million) respectively, in 2021-22.

Sunflower oil is the fourth vegetable oil consumed in India (22-23 litres), after palm oil (80-85 litres), soya (45 litres) and mustard/rapeseed (30 litres). It is estimated that 70% of sunflower oil consumption is in the South, with Maharashtra (10-12%) and the rest of India accounting for the rest. The bulk of imports also go through the four southern ports of Kakinada, Krishnapatnam, Chennai and Mangalore, with some tankers also coming to Kandla and Nhava Sheva/JNPT in the west. The three major domestic sunflower oil brands are Hyderabad-based Gemini Edibles & Fats (“Freedom” brand), Chennai-based Kaleesuwari Refinery (“Gold Winner”), and Adani Wilmar Ltd (“Fortune”).

What was the impact of the war on this segment?

Before the war, nearly 2 liters of sunflower oil were imported into India every month, 70-80% of which from Ukraine. These were mainly bulk carriers of 35,000 to 45,000 tons from the ports of Odessa and Mariupol. After the invasion, imports plummeted to barely a litre, even as landed prices (cost plus insurance and freight) in Mumbai topped $2,200 a ton, rising from $1,450 to $1,500 until in mid-March.

Imports have since recovered, however, to around 1.5 liters per month. But about 50% of it comes from Russia, 30% from Argentina and only 20% from Ukraine. “Russia has stepped up its exports, mainly through its ports of Taman and Rostov-on-Don on the Sea of ​​Azov. Landed prices also fell to $1,500-1,550 a ton,” an industry official said.

The voyage of the Razoni flying the flag of Sierra Leone |  First grain cargo ship Ukraine’s Black Sea ports are connected to the Mediterranean Sea and beyond by the narrow Bosphorus Canal, which is controlled by Turkey. (Source: Google Maps)

Will the reopening of Ukrainian Black Sea ports make a difference?

Currently, Ukrainian exports are carried out entirely by land or through the ports of Romania, Bulgaria and Turkey. “Freight costs from Odessa to pre-war Indian ports were $40-50 a ton. Today, it costs $150 to $200 a ton just to transport oil cargoes from Ukraine (by road or in small barges of 2,000 to 3,000 tons) to ports such as Mersin in Turkey. Freight from these ports to India still costs $90 to $100 per ton,” the official added. The resumption of direct trade from Odessa and other Ukrainian ports would certainly be welcome, but it could take time: under the UN agreement, the evacuation of wheat and corn will take priority over the ‘sunflower oil.

Are there any other products that India imports from Ukraine?

It is mainly ammonia used for the manufacture of fertilizers. In 2021-2022, India imported 3.63 liters of ammonia worth $220.44 million from Ukraine. The country, in the past, was also a major exporter of wheat to India. These amounted to 29.04 liters ($603.25 million) in 2016-2017 and 6.92 liters ($149.93 million) in 2017-2018. But any wheat imports are unlikely today. Black Sea wheat from Russia for delivery from August to September costs between 340 and 360 dollars per ton, excluding freight which will cost another 40 to 50 dollars. At these prices, imported wheat will cost Rs 31-32/kg at the ports alone. For India, the importance of Ukraine (and the UN deal) is essentially limited to sunflower oil.