IIt’s hard to believe now, but the start of 2022 offered hope… The world seemed to be finally emerging from the Covid-19 pandemic and the havoc it had wreaked on the global supply chain. The public and private sectors were mostly back to “business as usual” and logistics companies were less concerned about global disruptions. Little did we know 2022 would deliver more of the same (and maybe even worse). The Omicron outbreak threatened further economic and supply chain setbacks, and then Russia decided on a full-scale invasion of Ukraine on February 24, 2022.
Since the dispute began three months ago, Windward’s Insight Series has carefully analyzed trends and unique and proprietary data points to keep those who rely on us ahead of the curve. This special episode of the series looks back on the first three months of the Russian-Ukrainian conflict to summarize the many effects on the shipping ecosystem and provide you with actionable insights.
For most of those three months, the shipping market was unofficially ruled by the threat of “moral sanctions” and “‘soft restraints’.” Deceptive shipping practices and shadowy activities have rapidly increased, as this summary will show.
However, this can change quickly. Failure to comply with EU sanctions against Russia is now a criminal offense in 12 EU countries, according to a recent Reuters article. The European Commission has decided to make the violation of European Union sanctions against Russia a crime. This would allow EU governments to confiscate the assets of individuals and organizations involved in circumventing sanctions or colluding with Russia
Meanwhile, the United States has recently attempted to fill loopholes in existing sanctions legislation “to tighten the noose around the Russian economy a few more notches.” This included technology export bans
Deceptive sailing practices and dark ships
Windward’s proprietary, AI-powered data revealed a growing trend of Russian oil majors selling their vessels to non-Russian companies. Since the start of the invasion, there have been 180 ownership changes from Russian to non-Russian entities. This number represents 53% of the total ownership changes that took place in 2021 – in just three months!
Some of these vessels have been sold to companies based mainly in Turkey, Singapore, the United Arab Emirates and Norway. The same places that housed the main buyers of Russian-affiliated ships before the war.
Interestingly, Hong Kong was one of the top countries in terms of buying Russian-affiliated ships in 2021, but since the invasion they have only bought one. On the contrary, Latvian companies, which bought only two ships in 2021, have already bought six Russian-affiliated ships since the start of the invasion. This is in addition to five other ownership changes from Russian to Latvian entities.
Upwind glimpses also show a significant and steady increase in dark activity by Russian-affiliated tankers since the start of the Russian invasion of Ukraine, due to the series of moral restrictions and official sanctions that have emerged. .
Before the sanctions were put in place, the average number of clandestine activities by Russian-affiliated tankers was 1.9 per day.
That number has since more than tripled to a daily average of 6.3 dark activities.
Prior to the invasion and subsequent sanctions, Russian tankers were barely involved in obscure activities, with a weekly average of 1.1 such activities per week. Between February 24 and May 24, that number skyrocketed to an average of 10.75 dark activities per week!
Trade in Russian crude oil sanctioned via STS operations
● The number of ship-to-ship (STS) operations between tankers after one of the vessels called port in Russia is currently 50 (from February 24 to May 24). For comparison, in the same three-month period in 2021, there were a total of 34 such STS meetings between tankers.
● These 50 meetings were conducted by 35 unique tankers who have already delivered approximately 27,500,000 barrels of Russian crude oil.
● Russian tanker cargoes arrived in Asia, European countries and the United States
● 41.8% of sanctioned Russian oil goes to China, with the majority passing through two main STS hubs – Denmark (three meetings) and South Korea (six meetings).
● One such example is the Yang Li Hu ship detailed in Business Insider. This tanker, flying the Chinese flag, operates a very busy line between Russia and South Korea, with numerous STS operations.
● Yang Li Hu departed the port of Kozmino in Russia on May 17, 2022, reporting a nearly fully laden draft of 15.2m.
● He then arrived at the waiting area of the port of Gwangyang in South Korea on May 19.
● Following his arrival in South Korea, he initiated a ship-to-ship (STS) operation with the tanker VLCC (Yuan Qiu Hu) arriving from the port of Ningbo, China. ○ The two tankers were assisted by three local tankers flying the South Korean flag.
● When the operation was completed, the Yuan Qiu Hu sailed to Lanshan, China with Russian oil, while the Yang Li Hu returned to the port of Kozmino, presumably to bring more oil back to the meeting point.
● While the Business Insider article indicates that some ship brokers have stated that these STS are not being done to avoid sanctions, but rather because tanker availability is decreasing, it is difficult to understand the operational or business rationale ○ The Yuan Qiu Hu VLCC returned to China only ¾ charged. If there had been a real problem with the availability of tankers with the legal transport of Russian oil, he would have been entirely responsible for optimizing trade.
Black Sea Trade Flows
Even before the announcement of the sanctions by the European Commission, the invasion had a great effect on the general trade flow in the Black Sea.
● The change in terms of traffic and vessel movements is noticeable when looking month by month since the beginning of 2022:
● To study the evolution of trade in more detail, we compared the last state picture (April-May 2022) to the same period in 2021. It seems that trade activity in the region has actually increased since 2021 , but changed course, because almost no ships go north of Romania
● There was a spike in commercial port operations by tankers and cargo ships in Romania and Bulgaria during the first weeks after the invasion. But it seems that as the conflict drags on, business is getting back to normal and calls are returning to their usual pace in all Black Sea ports.
● In March-May 2021, the monthly average number of port calls in the Black Sea area was 3,481. During the same period of 2022, this monthly average fell only by 17.5% to 2 870 stopovers per month.
● A detailed subclass analysis for the same period shows that port operations decreased by 16% for bulk carriers, 46% for container ships and 20% for general cargo vessels, clearly disrupting wheat export trade flows from Ukraine and the area (trade lines that usually use these types of vessels).
● On the contrary, tankers saw a 25% increase in port operations in the region comparing March-May 2021 to March-May 2022. This raises questions as the region is not a major oil trade hub…
● The country that has suffered the most commercial damage so far is of course Ukraine, with a 36% drop in its monthly average commercial calls compared to 2021.
● When we dive into Windward data on Ukrainian ports, we see yet another effect of the invasion on trade flows in the region. The data clearly indicates that Izmail, a minor port near Romania, has adapted to the new trading landscape and scaled up to keep international trade flowing.
● In March-May 2021, the port of Izmail recorded 337 stopovers of tankers and international cargo ships. This number increased to 494 during the equivalent period in 2022
● Diverting so many containers and cargo to a smaller port than usual is definitely creating port congestion and significantly disrupting the supply chain of the entire Black Sea region
The tightening of sanctions will encourage many countries, ships and shipping companies to avoid certain ports, ship-to-ship encounters and travel routes. This is already happening, as we have seen with the effect on the Black Sea region and its surrounding countries. Expect this phenomenon to continue and transform into different regions. A maritime AI system can help you track congestion in real time, find out which ships are in certain areas, stay up to date on ETAs for containers, and more. If EU governments follow through and start confiscating the assets of individuals and organizations that evade sanctions, it will be more important than ever for entities operating in these countries to know exactly who they are doing business with, including non-maritime counterparties. A dynamic and comprehensive due diligence process is essential for stakeholders in the maritime ecosystem (and around the world). No matter how severe the sanctions, some Russian-affiliated entities will continue to try to evade sanctions and sell Russian crude oil and the like. They will likely change their escape methods and look for loopholes. Predictive intelligence will continue to grow in importance for the maritime sector. Windward, your trusted maritime AI advisor, will continue to analyze our AI-powered data and bring you the latest trends and actionable insights, to ensure you stay up-to-date and anticipate the next wave.