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Ukraine’s export problems are back
Oct. 24 marked eight months since Russia invaded Ukraine. Within a few days of the initial invasion, Russian troops managed to occupy large territories in the southern part of the country, blocking all Ukrainian ports on the Black and Azov Seas.
Before the war, up to 95% of Ukrainian grain and oilseeds were exported through the ports of Odesa, Chornomorsk, Pivdennyi, Kherson, and Mykolaiv on the Black Sea, and the ports of Berdyansk and Mariupil on the Sea of Azov. Once the war began, the ports on the Sea of Azov and Kherson were occupied by Russian troops, while the ports of Odesa, Chornomorsk, Pivdennyi, and Mykolaiv were blocked.
As a result, grain and oilseeds exporters began to frantically look for other options and turned to exporting their products through the western land borders and ports on the Danube River (Reni, Izmail, Kiliia, and Ust-Danube). Chaos on the western borders at railway crossings quickly began to grow because of the number of stalled grain wagons. In addition, lines of trucks tens of kilometers long, especially on the Ukraine-Poland border, had formed.
The four ports on the Danube River have limited capacity (about 600,000 tons per month of commodities shipped to barges that transfer grain and oilseeds to the nearby Romanian Port of Constanta for further transportation), and they were quickly flooded with the flow of trains and trucks filled with grain. On April 27, the situation deteriorated even further after Russians destroyed the bridge over Dniester Estuary, and exporters were forced to use the detours to move grain and oilseeds to the ports on the Danube River via Moldova.
Export to the Baltic states via Belarus also stopped as Belarus sided with Russia in its aggression. Because the gauge of the railroads in the Baltic states is the same as in Ukraine, the export by the railroads has become disadvantageous because it meant two transshipments of cargo (from the Ukrainian gauge of 1,520 mm to Polish 1,435 mm and then back to 1,520 mm). To fulfill their contracts, exporters to the Baltic states started to use trucks instead of railways.
To ease the dire financial problems of Ukraine, on June 4 the EU suspended the quotas on Ukrainian agricultural commodities such as dairy products, flour, and bran for one year, which also added to the growing flow of exports. There were many reasons for the clogs at the borders:
- The different gauges of railways in Ukraine and its Western European neighbors. The cargo either must be transshipped from Ukrainian wagons to European ones or wheel sets must be changed. Both operations significantly slow down export.
- The limited capacities of border crossings to transship cargo or to change wheel sets.
- The different dimensions of Ukrainian and European wagons, so Ukrainian wagons with the changed wheel sets can run on the very limited European routes.
- The different allowed weights of trains. While Ukrainian trains can weigh 5,400 tons in some European countries the weight of trains must not exceed 2,700 tons. Because of this, in some cases grain had to be divided and an additional set of documents had to be provided.
- The limited rolling stock and throughput of the European railroads.
- The limited capacities of the grain terminals on the Baltic Sea.
- Bureaucratic delays at the border associated with customs clearance, border inspection, and phytosanitary and veterinary control. In contrast, to export grain by sea only one set of certificates is required for the entire cargo. When exporting grain by rail, it requires one set of certificates per wagon or truck.
The Black Sea Grain Initiative
Based on the “Black Sea Grain Initiative” agreed upon in August, Russia unblocked the ports of Big Odesa, allowing the export of grain and oil to be restored. This also allowed the export of sunflower oil to be restored, with the main consumers in India and China. By late October, over 400 voyages had successfully left Ukrainian ports carrying nearly 9.5 million metric tons of grain and other food products.
Because the initiative is set to expire on Nov. 19, the future of grain export remains uncertain. Since Vladimir Putin has threatened numerous times over the past month not to extend, or at the very least disrupt, the initiative because he believed it was not beneficial to Russia, there was little assurance it would be extended.
In the early morning of Oct. 29, Russian warships in the Sevastopol Bay were attacked by drones. Though Ukraine has not admitted it was behind the attack, Russia blamed Ukraine. Russia claims, without any proof, that drones were launched from a cargo vessel moving along the “green corridor.” Using this attack on its warships as a pretext, Russia announced the breach of the “Black Sea Grain Initiative.”
Even if Ukraine did strike the Russian warships, it did not violate the initiative. According to clause C, “The Parties will not undertake any attacks against merchant vessels and other civilian vessels and port facilities engaged in this Initiative.”
It must be noted that the day after the “Black Sea Grain Initiative” was agreed upon, the Russian army shelled the Port of Odesa. In the recent drone attack, Russian warships were hit, which are legal targets for the Ukrainian army.
Russia claims the warships were guarding the “green corridor.” However, a brief glance at the map shows that the warships were more than 220 kilometers from the “green corridor” when they were attacked.
Also, according to clause E of the Initiative, “To prevent any provocations and incidents, the movement of vessels transiting the maritime humanitarian corridor will be monitored by the Parties remotely. No military ships, aircraft, or unmanned aerial vehicles may approach the maritime humanitarian corridor closer than a distance agreed by the JCC (Joint Coordination Centre), without the authorization of the JCC, and after consultation with all Parties.”
Thus, the Russian warships have no right to approach the “green corridor” and guarantee the safety of the maritime humanitarian transport. The statement of the Ministry of Foreign Affairs of the Russian Federation says that “The Russian side cannot guarantee the safety of civilian bulk carriers participating in the “Black Sea Grain Initiative” and is suspending its implementation from today …”
What does this statement mean?
One may expect that Russia will carry out attacks on merchant and other civilian vessels (e.g., tugboats, pilot boats) as well as on port facilities of the Big Odesa.
This also means that although the initiative allowed Ukraine to export by sea about 9.5 million tons of agricultural products as of Oct. 31, significantly decreasing the lines of wagons and trucks on the Western borders of Ukraine, the situation returns to the pre-initiative time.
However, now, Turkey is guaranteeing safety for another 12 bulkers bound to Istanbul from Odesa. One may hope the President of Turkey, Recep Tayyip Erdoğan, will interfere and convince Putin to continue the deal. Moreover, Turkey is economically motivated to continue the initiative as Turkey gets 25% of exported grain as payment for its mediation and services.
NATO may provide its own warships to guarantee the safety of the “green corridor,” but whether it will provide safety to the “green corridor” is the real question.
The Ukrainian export of this year's crops is expected to be 62 million tons. The situation may be even worse than before the war, since 218 cargo vessels are stuck at their current locations. Of these, 95 loaded vessels have left Ukrainian ports and are awaiting inspection in Istanbul. Another 101 vessels are awaiting inspection to sail to Ukrainian ports, and 22 vessels are waiting to leave Ukrainian ports. Correspondingly, there are long lines of railroad wagons and trucks with grain and oilseeds waiting to be unloaded at the ports of Big Odesa.
Thus, the mess of exporting Ukrainian grains and oilseeds has returned.
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