Russia creating ‘shadow fleet’ of grain carriers- Reuters

Russia is increasingly turning to a ‘shadow fleet’ of old vessels, often owned by companies based in Turkiye or China, to export grain, industry sources have told Reuters.

The lack of grain carriers and limited presence of Western grain traders in Russia are driving up costs of freight for Moscow, pushing it toward older and smaller vessels run by less established shipping operators.

This "is raising doubts about whether Russia can keep up a record pace of exports and if not resolved could push global wheat prices higher", sources told Reuters.

Russia’s grievances related to the Black Sea grain initiative — which it eventually withdrew from — was related to the difficulties Russian grain exporters faced in dealing with Western shipowners, insurers, and banks. They often refused to work with Russia, something that the Kremlin called ‘hidden sanctions’.

According to Reuters sources, at least three major shipowners have refused to have any contact with Russia since its full-scale invasion of Ukraine last February, with insurers saying Russian terminals and ports often turn out to be connected to sanctioned individuals or entities.

Even refuelling a vessel in Russia could be a violation of Western sanctions, another source told Reuters.

Last year, Russia exported a record volume of wheat on ships chartered from international companies and traders. In the past few months, the situation has changed as major traders — Cargill, Louis Dreyfus, and Viterra — stopped working with Russia.

Therefore, Moscow started chartering vessels from small shipowners not affiliated with those traders, with Russia’s requests for ships up 40 percent — to 257 — in July compared to the month before, according to data from maritime platform Shipfix that collates from hundreds of market participants.

Following the breakdown of the ‘grain deal’, Russia began shelling Ukrainian ports. However, attacks on a Russian oil tanker and a warship at its naval base in Novorossiysk, close to a major grain and oil port, added new dangers.

This led to a sharp rise in insurance premiums for grain shipments through the Black Sea, which accounts for 70 percent of Russia's grain exports.

Shipowners who still work with Russian Black Sea ports have also sharply raised their prices. According to a Reuters source, it is USD 10,000 a day more for Russia than for Bulgaria or Romania.

This leads to a rise in the price of Russian grain on the world market, Eduard Zernin, head of the Russian union of grain exporters, told Reuters.

The Russian agriculture ministry told the agency it expects exports to decline by eight percent year-on-year, without elaborating.

In December 2022, the Russian ministry announced a plan to build a fleet of 61 new grain ships, citing "sanctions pressure and the refusal of many international carriers to cooperate with Russia".

However, orders are yet to be placed, and new ships typically take up to three years to build, Reuters notes.

Many of the Russian operated current fleet of 31 mainly smaller dry bulk carriers are over 30 years old, making it harder to access some ports with stringent requirements for ships over a certain age.