Lack of fleet, high freight rates and low commodity prices kill Danube trade

High freight costs, low grains and oilseed prices and a lack of available vessels are making trade difficult in the key Danube river ports, trade sources have told Agricensus Thursday in a dynamic that could cut off the primary export route for much of Ukraine's agricultural export flow.

“Sea freight and demurrage looks like a killer,” one trader said. 

Even before the official suspension of the grain deal agreement, trading had already been switching towards exporting from the Danube as exporters considered it a safer option.

Even with mounting congestion at the entrance and exit to the Sulina canal, linking the Danube River with the Black Sea, trade has been more or less normal.

But after the first attacks by Russian drones on the Ukrainian Danube ports in July, some owners had abandoned the region, while those who stayed have started to increase freight rates amid increased risks, especially as Russian attacks continued.

This has also coincided with the seasonally higher flow of grains and oilseeds, as the new crop started to land.

That has seen economics moving against the trade, with freight for coaster vessels jumping by almost $25/mt to the current $65/mt for the Danube-Egypt route for example since the second half of July.

Many vessels have been fixed in advance for later loading, but are waiting for the terminal to confirm that the cargo is available before coming into port to commence loading.

Freight sources have also said that currently there are only a few vessels open in the region for spot loading, and as such those owners are asking for higher rates in the hope that those sellers who need the fleet urgently will pay it.

Along with that, the queues for entrance and exit of the Sulina canal are huge, with waiting time on average at the entrance said to be from 5 to 10 days, but there are also cases where some vessels will wait much longer.

Currently, up to 90 vessels are waiting at the entrance to the Sulina Canal along with up to 40 vessels in the queue to exit.

Market sources have heard reports that Romanian authorities are considering increasing the number of pilots operating in Sulina in order to improve the flow, but traders do not expect it to happen soon as Romanian authorities were said to be slow in taking any action.

"The problem is they (Romania) supply 4-5 pilots daily. But they can supply more. For entrance, after Ukraine opened the Bystre canal, Romania start to lose money and they started to work faster. But at exit, Bystre is not available due to the draft,” one trader said.

Currently, the draft is limited to 7 meters, so the Ukraine-controlled Bystre canal can be used to alleviate pressure at the entrance but the deeper draft of fully loaded vessels means it can only partly help when vessels are exiting.

“Ukraine's transport minister has offered them the option to use Ukrainian pilots, but Romania refused,” the trader said.

A similar situation was evident in May and June last year, as the number of vessels coming to the Danube approached the peak as Ukraine was using the route ahead of the opening of the Black Sea grain corridor, with 70 vessels waiting for the entrance in mid-May 2022, before it later increased further.

Activity only returned to more manageable levels after the corridor deal was signed on July 22, 2022, with a big part of traders switching to deep sea ports of Pivdennyi, Odesa and Chornomorsk.

However it is once again unclear when, or if, Ukraine's Black Sea ports will be available for export, though naval forces have opened the humanitarian corridors for now companies are refusing to enter as insurance companies are not covering such risks until Russia is not confirming the safety for such passage.

At the time, however, the invasion was in its early stages and agricultural commodity prices were elevated, but since then a huge Russian wheat crop has been harvested and a significant difference between the two periods has been the decline in wider agriculture commodities prices worldwide.

That price fall has been even more acute in the country's domestic market, as exporters have had to discount to offset increased freight and logistics costs.

A year ago, grain prices were at least $40/mt and up to $118/mt higher, depending on origin, compared to current levels and as such, even with high freight rates, Ukrainian traders were able to compete into destinations.

However, with the fall in prices it has got harder to remain competitive, especially as domestic prices in some parts of the country have already fallen below the costs of production.

That also comes against the backdrop of Ukraine expected to land a bumper crop - under the circumstances - with a forecast from the agriculture ministry showing a 5% increase year-on-year to 76.7 million mt.

Most of that volume is expected to head to the export market.

In order to facilitate that, Ukraine-based traders are looking for either higher world prices - to help boost export competitiveness and absorb higher logistics costs - or the re-opening of the Pivdennyi, Odesa, Chornomorsk (POC) deep sea grain corridor. 

"The solution is not to try and open up the hole, the solution is to get POC back on," a broker said.

CORRECTION: the article was updated with information for the route (Danube-Egypt) that was reported as an example for coaster freight increase from $25/mt to $65/mt.