When sanctions hit shipping

The vulnerability of the international supply chain is once again under the microscope following Russia’s invasion of Ukraine and subsequent sanctions on Moscow.

The vulnerability of the international supply chain is once again under the microscope following Russia’s invasion of Ukraine and subsequent sanctions on Moscow.

The ripple effects of the war in Ukraine are already reaching faraway seas: from rising fuel prices to depleting wheat stocks. Black Sea shipping accounts for only a fraction of global transport, but the nature of international trade means one broken cog disrupts the whole supply chain. 

From the Sea of Azov down to the Black Sea, there are still more than a hundred cargo vessels – manned by skeleton crews – stranded in war-torn Ukrainian waters. The humanitarian crisis poses problems for global shipping companies, who now have to make up for a sudden 15% drop in the number of seafarers around the world. At ports across Europe, sanctions against the Kremlin have meant hundreds of cargo containers, destined for Russia, have remained stacked on docks, creating bottlenecks in trade.

The latest crisis in shipping creates huge seafaring, shipping, logistics and legal implications. 

A seafaring crisis

Around 15% of the world’s seafarers are either Russian or Ukrainian. Many of these hold officer rank, says Natalie Shaw, director of employment affairs at the International Chamber of Shipping (ICS). As a result, the war in Ukraine is creating an HR nightmare for shipping companies. 

“There are still around 500 seafarers who remain on vessels stuck at ports in and around the Black Sea,” says Shaw. “Ukrainian seafarers have been called into national service; others have left vessels and been unable to return home. Many shipping companies are also thinking twice about employing Russian seafarers – economic sanctions mean there are challenges currently paying them.”

This leaves an industry, already playing catch-up from various COVID-enforced lockdowns and staffing issues, now having to recruit from a shallower pool of labour amid a wider hiring crisis. “We’re going to see a deficit of qualified officers in the coming months,” adds Shaw. “And we saw many colleges pause their cadet training during the pandemic, creating further strain on a tight market.”

LR Natalie Shaw 9 May 2022 Credit ICS
Natalie Shaw MBE is director of employment affairs with the ICS (Credit: ICS)

The shipping take 

The biggest global container lines, such as Maersk, have halted deliveries to and from Russia. Smaller shipping operators, however, are stepping into the breach, explains Sal Mercogliano, a former merchant mariner and associate professor of history at North Carolina’s Campbell University. “Watching traffic in and out of the Black Sea, there are many companies taking risks and paying high insurance premiums because of the high returns right now in oil and grain, coming out of Russia.” 

As well as impacting demand from Western markets, sanctions mean shipowners are refusing to load Russian exports. For some commodity traders, however, they can buy crude and grain out of the Black Sea at big discounts – turning even bigger profits in countries further afield. “Following the suppression of Mariupol, we’re seeing smaller ships leave Rostov, transit down the Kerch Strait connecting the Sea of Azov to the Black Sea, and heading to ports in northern and eastern Africa,” adds Mercogliano.

LR 9 May 2022 Mercogliano Sal Credit Campbell University
Former merchant mariner Sal Mercogliano is associate professor of history at North Carolina’s Campbell University. (Credit: Campbell University)

The challenge of logistics 

After navigating various challenges in 2021 – including the Suez Canal blockage, port closures, COVID-19 outbreaks, rising freight costs and unprecedented consumer demand – supply chain management is now figuring out its next crisis.  

“These disruptions have heightened the risks associated with being dependent on suppliers or production – in a single country or region – even further,” says Derek Gittoes, vice president of supply chain management product strategy at Oracle. “Organisations are making supply chain risk a top priority and adjusting their supply chains accordingly.”

Companies lumbered with extra charges as a result of the crisis, meanwhile, are handing those costs directly to the consumer. “Adjustments that we’re seeing may result in higher supply chain costs, which in turn may add to inflation pressures for certain products,” adds Gittoes. “In addition, rising oil and gas prices are adding to already high transportation costs – ultimately resulting in higher consumer prices for a wide range of goods.”

LR 9 May 2022 Derek Gittoes Credit Oracle
Derek Gittoes, vice president of supply chain management product strategy at Oracle (Credit: Oracle)

Legal matters

Sanctions against the ruble mean the ability to pay Russian seafarers is becoming harder and harder. While shipping companies began compensating such workers via digital payments – including cryptocurrencies – this has become challenging as the measures against Moscow have tightened. 

“It may restrict shipping companies from employing Russian seafarers from a legal perspective,” says Shaw. “As sanctions have hit, even paying workers in US dollars has become impossible. If you can’t pay them, how can they work for you? It becomes an issue of breaching modern slavery laws.”

From a shipping standpoint, Mercogliano believes those companies still trading in the Black Sea are more likely to run into financial trouble, because of high insurance costs, than they are legal hot waters. “Sanctions are levied by certain countries; operators are international with open-registry ships. Unless the vessel is flying with a Russian flag, unravelling ship ownership is a hard business.”

Read more on the vulnerabilities of the supply chain in 'Can shipping move on?' from February's On the radar newsletter.

LR 9 May 2022 Alex Christian
Alex Christian, recipient of the inaugural Kevin Tester Award for Journalism, is a freelance journalist.