Black Sea port attacks squeeze grain trade as diesel costs climb

Attacks on Black Sea ports and Russian energy infrastructure are tightening grain supplies and increasing fuel costs, adding to inflation risks for import-dependent countries, gCaptain reported in a Bloomberg dispatch. The disruption comes as conflict in the Middle East pushes up oil prices and draws market attention towards the Strait of Hormuz.

Russia and Ukraine account for more than a quarter of world wheat trade, according to the report. Attacks on ports, grain terminals, silos and vessels have restricted shipments since July, while damage to Russian energy infrastructure has pushed diesel prices to record levels. Higher costs for the fuel, a key agricultural input, threaten to compound the pressure on food prices.

Combined Russian and Ukrainian wheat exports during the July-September harvest period are estimated at roughly half their year-earlier level, based on SovEcon figures cited by gCaptain. Wheat prices have reached three-year highs. Egypt, the largest wheat importer, has gone about a month without receiving Black Sea grain, while buyers elsewhere are seeking replacement cargoes from suppliers including France, the Baltic states and the US.

Alternative export routes face substantial constraints. More than 70% of Russian grain exports normally pass through the Black Sea, and rail movements to Far Eastern ports involve thousands of additional miles at greater expense than sea freight. Russia plans to suspend grain export duties and provide subsidies for rail shipments to alternative ports, the report said.

Ukraine’s ports around Odesa usually handled about 90% of its grain exports. Efforts to increase shipments through Romania’s Constanta are being hampered by low Danube water levels and congestion on alternative routes. Ship-tracking data compiled by Kpler and Bloomberg showed about 80 vessels, mostly smaller ships, backed up around Ukraine’s Danube ports. Available railway border capacity of roughly 10,000 tonnes a day cannot replace the lost seaborne flows.

For buyers, replacement supplies bring additional costs without eliminating transport risks. Vietnam’s Golden Wheat shifted two cargoes to Bulgaria and sought US wheat to cover two missing or delayed shipments at significantly higher prices. Its chief executive also monitored Red Sea transit risks. With drought and heat limiting supplies elsewhere, the report warned that fuel, fertiliser and freight pressures could intensify the food supply squeeze.