Self-Sanctioning, Soaring Freight Rates & Security – Weekly Summary of the Conflict’s Impact on Trade & Finance
The Russia/Ukraine conflict continues to escalate, leading to a parallel escalation in “conscious capitalism.” Fortune notes:
“Despite the cost of abandoning major investments and the loss of business, there is a strong reputational incentive to withdraw (from Russian companies). Companies that fail to withdraw face a wave of U.S. public resentment far greater than what they face on climate change, voting rights, gun safety, immigration reform, or border security.”
Despite the cost of abandoning major investments and the loss of business, there is a strong reputational incentive to withdraw (from Russian companies). Companies that fail to withdraw face a wave of U.S. public resentment far greater than what they face on climate change, voting rights, gun safety, immigration reform, or border security.
Private corporations are going beyond the letter of the law, with banks and trading companies increasingly engaging in “self-sanctioning” against Russian entities in the shipping and commodities sector to avoid both issues with regulators and public displeasure. And many governments are being tougher than expected.
- Insurers that offered coverage for trading in disputed areas are halting coverage of the Black Sea and Sea of Azov, due to fear of secondary sanctions
- The British decision to ban ships with a Russian connection from its ports, seemingly set to be followed by the European Union, has broadened the potential scope of sanctions
- Some oil majors, such as Shell, have decided to completely shun Russian oil, with U.S. and UK buyers expected to be under increased scrutiny due to the upcoming ban on these imports
Additionally, the world’s largest shipping companies – CMA, MSC, Maersk, Hapag Lloyd, One, and others – have halted all activity with Russia. Using data obtained from Windward’s Ocean Freight Visibility solution and the World Bank, we estimate that MSC, CMA and Maersk would have been in charge of moving approximately 101,000 containers in and out of Russia in March.
Feeling the Effects…
Windward’s proprietary data shows that the daily number of Russian-owned vessels seeking jobs since February 28 has tripled.
During the first six days of March, the average number of Russian port calls was only 120 per day (and declining). During the same period last year, the average daily number of port calls by commercial vessels was 40% higher.
Windward’s proprietary vessel behavior data has unveiled an interesting side effect of the supply chain disruption caused by the conflict: ports in Cyprus, Bulgaria, Latvia & Finland have a 40-80% increase in congestion, which will have a significant effect on global shipping.
As of March 7, there were 248 tankers reporting they were headed to Russia – 149 sailing under the Russian flag and 13 owned or operated by Russian affiliated companies.
There were 90 tankers with an estimated amount of 65,000,000 Russian crude oil barrels that still hadn’t arrived at their final destinations as of March 9. There were seven Russian crude oil carriers with about 5,000,000 barrels of crude oil reporting that they were heading to the United States, with expected arrivals in the coming days.
Clarksons reports that the sanctions have led to significant freight rate increases: large crude carriers built in 2015 or later are $27,500 per day, an increase of 591% (week on week).
Rates for newer Suezmaxes (capacity: 1 million barrels) are at $28,000 per day, an increase of 285%. Newer Aframaxes are at $41,800 per day, an increase of 157%. Product tanker rates are up double digits from last week.
And the number of bunkering operations between non-Russian flagged bunkering vessels and Russian-flagged vessels (grouped by weeks) shows a decrease.
Reports indicate that many of Ukraine’s ports have been mined, effectively blocking traffic. Approximately 200 vessels and 3,500 sailors are directly affected.
Windward’s data indicates an increase in Russian vessels seeking their next charter and it is fair to speculate that unemployment is one of the strongest drivers for an increase in crime rates.
We expect further escalation of official and self-sanctions. Until now, many banks have been busy with blocking sanctions and will now expand their focus to further reviewing their trade finance and ship finance books.
The supporting maritime ecosystem – insurance companies, classification societies, P&I clubs, etc. – will be looped into the sanctions play and will review their books of business for anything and everything related to Russia…
The Western powers will accelerate negotiations with Iran and Venezuela to free up more crude supply ahead of a possible ramp up of sanctions on Russia’s energy sector. These governments don’t want to see crude prices rise to $200 per barrel…
Click here for the full report/data.