A year of full-scale war. Ukraine has already lost many people. Kilometers of territories are temporarily occupied, and entire cities, enterprises, roads, and energy infrastructure have been destroyed. Ukraine’s GDP fell by an estimated 30.4% in 2022, and the cargo turnover in the country’s seaports has fallen by over 60%. Moreover, the Russians are constantly sabotaging the Black Sea Grain Initiative, resulting in a monthly shortfall of about 3 million tons in Ukraine’s grain exports. While Ukraine’s maritime exports are limited to a "corridor," Russia is shipping grain, record amounts of flour, and crude oil through its seaports and spending the money it generates on shells and missiles. 


Half a year since the launch of the "grain corridor"

The grain deal (the Black Sea Grain Initiative, which established a humanitarian maritime corridor to allow ships to export grain and other foodstuffs from Ukraine) was concluded at the end of July 2022, and a ship loaded with Ukrainian corn left the port of Chornomorsk on 1 August. According to the Ukrainian Seaports Authority (USPA), 689 ships carrying 19.1 million tons of Ukrainian agricultural products to countries in Africa, Asia, and Europe left the ports of Greater Odesa in the first six months after the launch of the humanitarian maritime corridor. However, this figure would have been significantly higher (about 28 million tons) if the humanitarian maritime corridor had operated normally. United States Ambassador to the United Nations Linda Thomas-Greenfield recently told a session of the United Nations General Assembly that the grain deal was not facilitating the necessary volume of exports.

The key problem is the restrictions that Russia has created artificially by reducing the number of inspections in the Bosporus Strait. "Previously, there were 15 inbound and outbound commissions. Now, there is a maximum of eight. The situation began deteriorating after the extension of the grain deal in October," the Risoil company’s owner Shota Khadzhishvili says. Andrii Stavnytser, the CEO of the TIS group of terminals, emphasized this same problem: "The operation is slowing down every day. The Russian participants are artificially delaying inspections. Instead of the 10 vessels possible, they are allowing 2 per day. I am surprised that Turkey is not intervening in this process but observing it from a distance, although it has influence. I think Turkey's word could move a mountain."

According to the latest data, a queue of over 140 vessels has formed near the Bosporus because Russia is delaying inspections. The vast majority of them have been waiting for more than one month. Meanwhile, operators are incurring billions in losses. The Black Sea Grain Initiative will expire in March. Market players are worried about its future and wondering whether it will be extended, the form in which it will be extended, and whether the situation will improve. Some companies are considering whether it is worth chartering vessels for the period of March-April now or whether it is better to wait. "There is currently a huge uncertainty regarding the operation of the ‘grain corridor’ from March 2023. We hope it will be extended and its efficiency improved. Under any circumstances, the grain deal must work both for the benefit of our victory and to support the vital economic operations and food needs of the entire world," the Kernel company’s CEO Yevhen Osypov says. 


What is the situation on the other side?

Maritime transport played a key role in Ukraine's export logistics before the start of the full-scale Russian invasion of the country, with more than half of all export cargoes passing through seaports. Last year, 59 million tons of cargo were transshipped thanks to the operations of the Danube ports and the partial operations of the ports of Greater Odesa. However, maritime export volumes reduced by 61.4% in 2022, compared with 2021. Still, it is better than nothing. According to Khadzhishvili, 25 million tons of the 2021/2022 crop harvest and this year's harvest would spoil without the Black Sea Grain Initiative because the Danube ports and Ukraine’s western border crossings cannot handle such volumes of cargo.

However, on the other hand, statistics show that the situation in Russian seaports is completely different. Cargo transshipment volumes in the country have not fallen despite Western sanctions. On the contrary, cargo transshipment volumes in the ports in the Black Sea - Sea of Azov basin have increased by 2.7%. Russia has exported 33 million tons of grain, and it is now reporting a record increase in flour exports. Exports of Russian crude oil increased by 25% in January 2023 alone (an increase of 250,000 tons compared with January last year). The main importers are Greece, Spain, the Netherlands, and Slovenia.

In other words, Russia continues to earn money and strengthen its economy while conducting a full-scale war on Ukraine’s territory, which enables it to continue financing the war. This situation hardly seems fair. "I believe that the rules of the game should be the same for all the participants in it. Is shipping free for everyone and are the requirements the same: inspections, the special procedure for registering ships, equal participation for representatives of all countries in this bureaucracy?" says Stavnytser.

Supporting the economy

Ukraine's GDP fell by an estimated 30.4% in 2022. In addition to grain cargoes, the mining and metallurgical sector was the backbone of the Ukrainian economy before the war, accounting for 10% of the country’s GDP. Currently, the sector has almost been blocked because of logistical difficulties and the loss of capacity (the mining and metallurgical sector exported about 80% of its products mainly through seaports and accounted for about 33% of Ukraine’s total exports).

"We have lost the ability to deliver products to our traditional markets, and we now transport them to Polish seaports by rail and road. Without maritime exports, metallurgical companies will not be able to operate at more than 50% of their capacities and break even," says ArcelorMittal Kryvyi Rih integrated steel plant’s Director of Logistics Andrii Miahkov. According to the Metinvest company, the complete unblocking of maritime commercial transport in the Black Sea for everyone will create conditions for rapid recovery of industrial production and Ukraine’s GDP, save jobs, and allow the generation of foreign-exchange revenue.

However, port closures have affected not only port operators and manufacturers. Operators of freight cars are also incurring losses. The prices of private gondola cars have fallen tenfold in the past year, and they are currently critically low. The cargo base has generally decreased due to the destruction of many enterprises, and logistical difficulties do not allow the export of what is available. "The freight rates for gondola cars fell approximately ten (10) times in 2022 and the volume of goods transported more than halved in the first 10 months after the start of the full-scale Russian invasion of Ukraine, compared with the same period in 2021, including a fall of more than six (6) times in exports," says Andrii Brudnyi, the board chairperson of the Ukrenerhotrans freight car operator. Metallurhtrans, another railway operator, is in a similar situation. Serhii Holub, the head of Metallurhtrans’ supervisory board, notes that 80% of the freight transport volume to seaports has been lost, compared with the pre-war period. Ukraine’s western border crossings remain accessible, but even the freight transport volumes there are lower than they were in the past. 


Unblocking shipping

Denise Brown, United Nations resident coordinator in Ukraine, recently said that work to extend the Black Sea Grain Initiative was underway. "We cannot allow it to end, and we will not allow it to end. We cannot afford it and neither can Ukraine," she said. Saviano Abreu, the head of communications and spokesperson for the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) in Ukraine, added in comments to the CFTS portal that the United Nations is currently studying all the possibilities of extending the grain initiative in March. Through their representatives in Istanbul, the parties to the initiative continue to discuss and make decisions on the movement and inspection of vessels. Negotiations to avoid the blocking of the grain initiative are also taking place at all levels. 

However, the issue for Ukraine now is not just the extension of the Black Sea Grain Initiative. "We need help in unblocking the Black Sea ports. For us, an export-oriented country, this is necessary to ensure exports. We need the joint efforts of the United States and the European Union on this issue. Undoubtedly, this issue is related to security, but we have to make joint efforts to resolve it," Ukraine’s First Deputy Prime Minister/ Economy Minister Yulia Svyridenko said at the World Economic Forum in Davos. 

Obviously, how the grain initiative currently operates makes sabotage from Russia inevitable in the future. Ukraine’s Minister of Foreign Affairs Dmytro Kuleba and Minister for Development of Communities, Territories, and Infrastructure Oleksandr Kubrakov have issued a joint statement, in which they called on the United Nations and Turkey, which are the guarantors of the Black Sea Grain Initiative, to demand that Russia immediately stop artificially delaying the operation of the "grain corridor," stop attempting to use food as a weapon, and unblock commercial shipping to/from Ukraine’s Black Sea ports. 

Complete unblocking of merchant shipping is now a key message to Ukraine’s partners and the entire world. "Military operations are essentially not taking place in Russian seaports, so insurers have no issues with them. If we are interested not in ‘checkers’ but in real justice and elimination of the threat of famine, I would consider it right to allow Ukraine to fully engage in shipping without ‘corridors.’ Otherwise, the risk-related requirements for Russia should be raised to the same level as those for us. Better still, they should be raised to a much higher level for the aggressors and perpetrators of what is happening," said Stavnytser. 

To summarize, it should be said that Russia can no longer use the Black Sea Grain Initiative as a lever for exerting political pressure. What is needed is a diplomatic discussion and an understanding by Ukraine’s partners that Russia can continue financing the war because ships have free access to its seaports. The rules of the game should be the same for everyone. Therefore, it is important to ensure equal conditions for the performance of maritime transport operations in the Black Sea for both Ukraine and Russia. This can be achieved either by extending the Black Sea Grain Initiative’s Istanbul-based Joint Coordination Commission (JCC) mechanism (with the inclusion of Ukraine’s representatives in the work of inspection commissions) to all transportation to/from both Ukrainian and Russian seaports in the Sea of Azov - Black Sea basin, with complete removal of the restrictions on freight classes or by completely liberalizing commercial maritime transport in the Black Sea from both Ukrainian and Russian seaports.