Grain corridor: first results

On August 15, exactly half a month, Ukraine resumed exports by sea, albeit in a truncated version. So far, the transit regime is valid only for agricultural cargo – a “humanitarian” and not a commercial component, and the reference to the vital necessity of Ukrainian grain for thousands of people around the world made it possible to reach an agreement on the port blockade. And although during this time only one ship with a humanitarian mission called in Odesa – Brave commander to load 23,000 tons of wheat for Ethiopia within the framework of the UN World Food Program, the main thing can be stated – the grain corridor is working.

About 0.5 million tons of grain (370,000 tons in 9 days) were exported from Ukraine in half a month (not all vessels have yet reached their destinations). According to the results of the month, the volume of shipment will exceed 1 million tons, as the pace of export is increasing. The UN expects that in the future the indicator will increase by two to five times.

“We expect a significant increase in applications for transit. The goal of 2 to 5 million metric tons is achievable,” said Frederick Kenney, UN Interim Coordinator at the Joint Coordination Center in Istanbul.

The statements of the Ukrainian side are more realistic. “We are systematically moving towards the intended ambitious plan – the transshipment of 3 million tons of food per month through the ports of Great Odesa,” said Oleksiy Vostrykov, head of the Administration of Sea Ports of Ukraine.

As of August 12, the ports of Great Odesa (“Odesa”, “Chornomorsk” and “Pivdenny”) received (inbound and outbound) 18 ships in the direction of seven countries of the world. Apart from the adventures of the pioneer – the RAZONI vessel – other flights passed safely.

After the elimination, albeit conditional, of military risks in the Black Sea region, the main factors inhibiting trade became economic ones.

From the start, increased risk coefficients were applied to ships entering the ports of Odesa. The official insurance premium, which previously fluctuated at the level of 3-3.5%, increased to 5%.

Also, increased rates for renting ships (freight) were applied to Ukraine. The freight cost of a ship with the maximum carrying capacity of 30,000 to 55,000 tons for the first voyages to Odesa was estimated to be four to five times higher than a similar voyage to the peaceful port of Constanta.

Due to the fact that due to logistical and military risks port tariffs are far from a fair level, the opening of Odessa did not shake the attractiveness of exports through the land border. Export transportation of grain cargoes for March – July 2022 increased almost 2.2 times – from 0.42 million tons in March to approximately 0.91 million tons in July.

But the first safe flights within half a month have a calming effect on sea tariffs.

According to the Ministry of Economy, the cost of chartering ships to Turkey has already halved, and the cost of cargo insurance – from 4 to 1.5%.

“Decreasing costs will have a positive effect on the stabilization of the work of Ukrainian agricultural enterprises”, – believes the Minister of Economy of Ukraine Yulia Svyridenko.

As noted by Xclusiv Shipbrokers experts, sea trade in grain is about 4% of the total volume of sea transportation, Ukrainian grain export by sea was about 10% of the total sea grain export in 2021. “Actual export (of Ukrainian grain) will be only 70-80% of the level of 2021,” brokers believe. This is less than 0.3% of the total volume of maritime trade.

Ukraine, Turkey and the UN signed the “Initiative for the Safe Transportation of Grain and Food Products from Ukrainian Ports” in Istanbul, which is designed to partially unblock the ports of “Odesa”, “Chornomorsk” and “Pivdenny” for the export of grain and fertilizers, on July 22.

The terms of the Istanbul Agreement are valid for 120 days and after this period – i.e. at the end of November – should be extended. Given that the grain corridor is conditionally effective, its significance is growing and it is increasing the chances that Russia will want to use the revision of the agreement in order to carve out preferences for itself.

According to the State Customs Service, from July 1 – the beginning of the 2022/23 fiscal year to August 8, Ukraine exported 2 million tons of grain and leguminous crops, including 387,000 tons in August. This is almost half of the same period last year, when 3.87 million tons were exported, of which 832,000 tons were shipped this month.

The main export crop is wheat, of which 467,000 tons were exported. In second place is barley (180,000 tons). 1.343 million tons of corn were exported. The total export of Ukrainian flour on August 8 amounted to 4,800 tons (the previous season – 13,500 tons), including wheat – 4,000 tons (13,400 tons).

According to the results of the first half of the year, the export of agro-food products amounted to $10.11 billion, retaining the status of the main export category with a share of 44%.

Presumably, representatives of other industries, primarily the metallurgical industry, will also lobby for the right to use the sea corridor. Last year, the export of ore and metal brought Ukraine $21.1 billion, it is the second most important article of Ukrainian foreign trade, after agricultural trade. However, it will be difficult to justify such an export, since metallurgical cargoes, unlike food ones, lack a humanitarian aura.

Tags: grain, barley, wheat, Chornomorsk, vessels, UN, ships, Odesa, Ukraine, transit regime, export, Pivdenny