Russia’s Grain Rerouting Falls Short as War Hits Black Sea Ports

Russia is responding to Ukraine’s Black Sea attacks by seeking to reroute its grain exports, but so far the efforts are falling short — only about 1/10th of the volumes are being shipped through the key alternative ports, data show.

It’s the latest sign of how the escalation in hostilities is roiling commodity markets. Russia is the world’s top wheat exporter, and a drop in its shipments risks exacerbating already high global food costs, as geopolitical tensions and extreme weather disrupt farming across the world. Some Russian farmers are already considering planting less wheat as a domestic glut builds.

Five main alternative ports have managed to boost grain and oilseed shipments from negligible levels to about 1.3 million tons during the July-to-September peak season, according to data from consultancy Kpler. That’s still well below the roughly 12 million tons Russia’s main Black Sea ports can handle over the same period, the data show.

While some analysts have pegged Russian grain exports slightly higher, it’s not always clear what routes those sales take.

Russia and Ukraine’s attacks on each other’s port infrastructure and vessels in the Black Sea region — the main conduit connecting their crops with global buyers — have brought trade to a near standstill since July. The Kremlin has been pushing growers and traders to maintain Russia’s position as the world’s top wheat exporter. The trade is not just a source of revenue but also a tool to wield geopolitical influence.

“The harsh reality is there are no export routes, in principle, that can replace the Black Sea,” said Andrey Sizov, managing director of SovEcon. Russia could potentially ship as much as 3 million tons each month later this year, “but there is no magic trick to somehow double exports. It’s just not possible.”

The scale of the rerouting highlights how important it is for Russia to find ways to sell its grain.

In September alone, exports from Ust-Luga and Vysotsk in the Baltic, Astrakhan and Makhachkala on the Caspian Sea and Slavyanka in the Far East reached nearly 800,000 tons. That’s about eight times July levels.

The Russian government has also announced a temporary suspension of export duties on wheat, corn and barley and offered subsidies to encourage rail transport from the southern regions to the Baltic ports.

Still, the ability to move grain to an alternative port is just one part of the challenge. Making the trade economically feasible is the bigger roadblock.

Grain has to be transported from southern growing regions near the Black Sea to the alternative ports. Daily rail loadings of agricultural products from southern Russia bound for the Baltic ports of Ust-Luga and Vysotsk jumped 465% between Sept. 1 and 22, according to two people familiar with the data.

The Russian government press service and its agriculture and transport ministries did not respond to emails seeking comment.

Part of what makes the Black Sea ports so crucial is their proximity to some of Russia’s biggest import-dependent buyers, particularly in Africa and the Middle East. Moving grain through northern ports — or the even more distant Far East — would add significant time to voyages, driving up freight costs.

Moving cargoes to Egypt via the Baltic Sea — widely regarded as Russia’s most viable alternative grain export route — costs roughly 30%-35% more per ton than shipping via Black Sea ports before the latest escalation, according to shipping market estimates from Serena Piazzo and Barbara Rossi, dry bulk shipping market analysts at ship broker Ifchor Galbraiths.

That comparison is based on Handysize vessels, bulk carriers that typically carry around 30,000-35,000 tons of grain. Current Black Sea rates are difficult to establish because there is no demand from buyers, they said.

“If you look at the geography of Russian sales of grains, I think it just doesn’t make sense,” said Alexey Kuzmis, head of the Black Sea desk at shipbroker Thurlestone Shipping. “Russia sells many cargoes to North Africa — Tunisia, Algeria, Egypt.”

Efficiently switching to an alternative port also requires infrastructure to store and handle grain. Russia plans to start using the Arctic port of Murmansk, its fourth-largest, for grain exports from October, Interfax reported last month. It has millions of tons of export capacity, but much of that is geared toward commodities such as iron ore, coal and metals, making it unclear how much grain it could actually handle.

Additional government subsidies would be needed to make the Murmansk route economically viable, according to several Russian grain exporters who asked not to be named when commenting on Kremlin initiatives.

Building new infrastructure is costly and complex. A new grain terminal in Vladivostok could cost about 25 billion rubles, they added. That would be a significant investment for VTB, which controls Russia’s major grain exporter Demetra.

Demetra did not not respond to an email seeking comment.

Any immediate construction work would also be complicated by the approaching winter.

“It is not always possible to reconfigure port loading equipment for grains,” said Alexis Ellender, head of dry bulk insights at Kpler. So, while volumes through the Baltics or Murmansk could throw up a surprise, “they will not be able to compensate for the loss in Black Sea export capacity.”

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