How Russian aggression and martial law strike Ukraine's ports in Sea of Azov

Author : Olena Holubeva

Freight rates for the ships sailing to the Azov ports of Ukraine’s Berdyansk and Mariupol have increased significantly as a result of Azov crisis
11:45, 11 December 2018

Berdyansk port

After the Russian ships attacked the Ukrainian boats near the Kerch Strait and introducing martial law in Ukraine, freight rates for the ships sailing to the Azov ports of Ukraine’s Berdyansk and Mariupol have increased significantly. The main consignors of the two ports have already experienced this: grain traders and metallurgists. We have found out that large companies are preparing to redirect their cargo flows to the Black Sea ports. If the situation does not change and Ukraine fails to unlock the Azov direction, the ports of Berdyansk and Mariupol might even cease to exist, experts assure

The situation in the Sea of Azov hits the Ukrainian ports

After Russia captured Ukrainian ships and sailors at the entrance to the Kerch Strait and then introduced martial law in Ukraine, the freight rates on ships sailing to the ports of the Sea of Azov have significantly increased. This was due to an increase in insurance payments, which are components of the transport tariff, said Captain Vyacheslav Kislovsky, general director of the Association of Crewing Companies All-Ukrainian Association. According to information received from shipowners' representatives, the freight rates for vessels traveling to the ports of Ukraine in the Sea of Azov increased by 20–30% after martial law was introduced, Maksym Streletsky, head of the external communications and marketing department of the Seaport Administration, confirmed it to the agency.

Related: U.S. and Europe should close their ports for Russian vessels, - Poroshenko

In addition, the shipowners began to shift all costs associated with regular downtime of ships in the Kerch-Yenikalya Canal to charterers, Streletsky said. According to the State Border Service, as of the morning of December 7, more than 140 vessels, 98 of which came from the Black Sea, were kept in the anchorages and raids, waiting for passage through the Kerch Strait. At the end of November, the number of ships in the Kerch Strait was over 400. In the first days of December, the situation stabilized somewhat, and their number dropped to 105, but in recent days it has increased again.

The State Border Service noted that Russia deliberately continues to violate the provisions of the 1982 UN Convention on the Law of the Sea and the Treaty between Ukraine and the Russian Federation on cooperation in the use of the Sea of Azov and the Kerch Strait of 2003, so Ukrainian and foreign merchant ships are forced to wait for a long time.

Interestingly, interference is created precisely by those merchant ships that are sent to the Ukrainian ports.

The Ukrainian trade ports on the Azov Sea (Mariupol and Berdyansk) have been losing cargo flows since 2014, Maksym Streletsky noted: “Three main factors affected the transshipment in the ports of Berdyansk and Mariupol. Military operations in Donbas led to a significant reduction in the cargo base at the expense of enterprises, caught in the uncontrolled territory, as well as deterioration of logistics in the region, as a result, some shippers were unable to deliver their cargoes to the port of Mariupol. Construction of the Kerch bridge in 2017 complicated navigation in the Kerch Strait and created additional restrictions on the size of vessels that can pass under the arch of the bridge. Therefore, Ukrainian ports in the Sea of Azov cannot now accept Panamax-class vessels, previously used to export products of Ukrainian enterprises to Latin America and South-East Asia. Finally, from April 2018, unreasonable inspections and delays of vessels sailing to and from the ports of Mariupol and Berdyansk through the Kerch Strait began."


Related: Azov Sea, Kerch Strait: Evolution of Their Purported Legal Status (Part One)

Another negative factor affecting cargo traffic in the ports of the Sea of Azov, was that since the beginning of the Russian aggression they were cut off from suppliers in the north of the country, Andriy Isaev, senior consultant of the Center for Transport Strategies, claims. According to him, cumulatively, the transshipment base of the two ports fell from the pre-war 17.7 million tons of cargo in 2013 to the current 9-10 million tons per year.

Shippers go to the ports of the Black Sea

For the last four years, the Berdyansk and Mariupol ports served for transportation of only local cargoes: mainly cereals, grown in the areas adjacent to them and were delivered to the port by road, and the products of the metallurgical plants.

Berdyansk and Mariupol ports in 2017 collectively handled 1.85 million tons of grain cargo, Andriy Isaev specified. At the same time, the total volume of transshipment amounted to 8.9 million tons, a significant part of it is accounted for ferrous metals - 4.8 million tons. He also noted that the ports serve "for the import of goods that the steel plants use in their commodity chains (ore and coal)."

Open source

Mariupol port

Last year only 255 thousand tons of ore were imported through the ports, this is not so much. Then they handled about 1 million tons of coal. This is especially important for the metal enterprises, given that after the trade blockade and the suspension of coal supplies from the uncontrolled territories in 2017, the only way for them was to import coal from abroad.

Related: Azov Sea, Kerch Strait: Evolution of Their Purported Legal Status (Part Two)

For traditional senders, ports are beneficial because they are located close to their enterprises: they do not need to spend money on land logistics.

Metinvest is currently exploring the possibility of reorienting export cargo traffic to the ports of the Black Sea: the final decision has not yet been made, but the company believes that the difference in transport costs (an increase due to transportation by rail) can be compensated by freight of ships with a large displacement and, accordingly, with a greater carrying capacity, which can go into the deep-sea ports of the Black Sea, our sources assure.

Metinvest itself did not comment on the situation. “The reorientation to the Black Sea ports will be accompanied by additional costs. Rail transportation is always more expensive than sea shipping,” says Andriy Isaev.

Grain traders can also reorient themselves to the Black Sea ports, Mykola Horbachov, president of the Ukrainian Grain Association, notes. According to him, "if the freight from popular export destinations to the Sea of Azov is about $ 30-35 / t, then a rise in prices of even 20% is about $ 7 to the rate. If you multiply this by the amount of grain that is loaded in total out of two ports per year, that's $ 14 million." At the same time, Ukrainian Grain Association assures that an increase in freight rates would not have a particularly negative effect: “The volume of grain exports from the ports of the Sea of Azov is only 5% of the total from Ukraine. Considering that the annual volumes grain trade for export from Ukraine, the volumes sent through the ports of Azov are not that big.”


Related: Germany offers U.S., EU to close ports for Russian vessels coming from Sea of Azov

“However, in order to completely minimize the negative effect of the growth of freight rates, grain traders will indeed redirect cargo traffic to the ports of the Black Sea,” Horbachov said.

If the grain traders leave the ports of the Azov Sea, it will have a negative impact on agricultural producers from the regions adjacent to the ports: Zaporizhia region, controlled parts of Donetsk and Luhansk. "Delivery of their grain to the ports of the Black Sea is an additional $ 15-20 per ton of additional costs. Approximately this amount will decrease the purchase prices from them, and this is cumulatively about 15-20 million dollars a year," Horbachov notes. Also, according to him, the load on the railway will increase.

Russia is doing everything to close Ukraine’s Azov ports

After the events of 2014, the Berdyansk and Mariupol ports lost investment attractiveness in the eyes of companies that could implement infrastructure projects in them. “Due to the current situation after 2014, large investors did not particularly look towards the ports of Azov: over the years, infrastructure facilities were practically not built there. The exception is the Mariupol investment group, which built a large grain terminal in the Mariupol port,” said Isaev. After 2014, private investors with infrastructure projects did not enter the Berdyansk commercial port at all.

Related: Russia keeps blocking Ukrainian ports in Sea of Azov, - Minister of Infrastructure

Now with the growth of freight rates and the delay of the vessels of the Russian Federation, the situation might deteriorate: with the departure of shippers to the ports of the Black Sea, the cargo turnover in the ports of the Sea of Azov will drop significantly.

This means that the port infrastructure, which already needs to be modernized, will not improve soon. In addition, dredging works, which are critical for the ports of the Sea of Azov, will slow down. The maximum weight of the vessel that the port can accept depends on dredging: the smaller is the depth, the less is the tonnage of the vessel and the benefit for the shipper and the port. In Mariupol, in 2017, maximum navigable draught was reduced to 7.5 m. At the same time, sedimentations stemming in the Azov basin is particularly active, therefore dredging works in Berdyansk and Mariupol ports are a condition for their competitiveness.

However, if Ukraine fails to defend its position in the Sea of Azov and Russia finally closes it for the passage of foreign ships to Ukraine, the existence of Berdyansk and Mariupol ports will be questionable, Andriy Isaev thinks.

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