UK´s Simpson Spence Young (SSY) a shipbroker with a long history as it was established in 1880 by Ernest Simpson, Lewis Spence and Captain William Young, and have been growing, evolving, and adapting ever since, issued an update about the impact on the market the collapse of the Black Sea corridor deal will have on the fundamental dry bulk market balance.
Simpson Spence Young notes that the impact of the end of the Black Sea Grain Initiative on the fundamental dry bulk market balance is expected to be modest, while Ukraine will struggle to replace lost volumes by ramping up Danube-based exports through the Romanian port of Constanta due to logistical constraints on terminals and vessel availability. Higher demands for these alternative routes will drive up local freight rates, making Ukrainian grain less competitive.
SSY says that the political uncertainty had already rippled through the supply chain, with only seven outbound bulker voyages reported in July and no vessels inspected and cleared for inbound voyages since June 28.
Hence, the impact of the unwinding of the deal has been gradual and is now basically already priced in the market, though the 20+ vessels positioned in Turkish waters with a view to securing high-paying Ukrainian cargoes will now have to look elsewhere in the short run.
Ukraine will struggle to replace lost volumes by ramping up Danube-based exports through the Romanian port of Constanta.
However, the added cost and complexity of shipping grain by rail to the Ukrainian Danube ports of Reni and Izmail and onwards on the river to Constanta is substantial. Following the failure to extend the Black Sea Grain Initiative deal, the demands on the inland logistical system will increase even further, increasing freight rates and make Ukrainian grain less competitive.
The SSY report also says that more price competitive long-haul suppliers, such as Brazilian corn into the Far East, look able to pick up the slack, leading to an expected slight increase in tonne mile demand.
Should the suspension of the Black Sea grain deal stand, the difficulty to reroute Ukrainian grain exports without affecting the price competitiveness of its supplies will leave the other major suppliers (Russia, Canada, USA for wheat; USA, Argentina, Brazil for corn) to pick up the slack, in most cases from longer distances to the key import markets.
However, the Ukrainian grain trade was extremely inefficient due to long inspection waiting times, notes SSY. These vessels will now be more efficiently employed elsewhere, increasing effective supply.
