There have been a multitude of sanctions. Russia has indeed faced challenges importing and exporting. But cargo has continued to flow, like water drawn by gravity around a stone.
Cargoes either take a longer route, or a replacement source steps in. Across all the major ocean shipping segments — containers, tankers, dry bulk, gas — the first year of the war has shaken up markets but hasn’t stopped trade
Virtually all of the major container shipping lines suspended all service to Russian ports shortly after the war broke out and have not returned. Maersk and CMA CGM have divested Russian port holdings.
Mediterranean Shipping Co. (MSC), the world’s largest container shipping line, still serves Russia. “Connecting Russia to the world … MSC has been helping customers to ship cargo to and from Russia since 1998,” MSC boasts on its website.
The effect of the war on container shipping has been minor, because Russia is a relatively small market. Not so in tanker shipping.
Russia is the world’s second-largest exporter of crude oil and second-largest exporter of diesel. Tanker markets have been heavily impacted by the war.
The cap plan is specifically designed to force Russia to sell its petroleum at a discount but keep cargoes flowing. To leave the doors of the castle open, in Bugbee’s words.
Most Russian cargoes are not loading aboard traditional tankers with standard U.K. insurance. Most are moving on tankers in the “shadow fleet” — vessels with opaque ownership that operate outside Western insurance and financial systems.
In addition to the emergence of the shadow fleet, the other big consequence of the war is much longer voyage distances. The longer the voyage distance, the more tanker capacity is soaked up and the better for spot rates.
Russian crude that used to go short-haul to the EU now goes almost exclusively on long-haul voyages to China and India. Russian diesel that used to go to the EU is traveling much farther afield, as well.
“Africa and Latin America are likely to be key destinations for Russian clean products moving forward, especially for diesel and gasoil,” said Reid I’Anson, senior commodity analyst at Kpler.
Prior to the war, U.S. crude exports to Europe were loaded aboard midsize Aframaxes (tankers with capacity of 750,000 barrels) and Suezmaxes (1 million barrels). U.S. crude exports to Asia were loaded aboard very large crude carriers (VLCCs; 2 million barrels).
Europe hiked its crude imports from the U.S. in the wake of the invasion, replacing seaborne imports from Russia, which have been banned since Dec. 5.
*Much of Europe’s incremental volume from the U.S. has moved aboard VLCCs, not midsize tankers — a transport model that was extremely rare before Russia’s invasion of Ukraine. *
“Virtually all the additional [U.S.] sales to Europe were done on VLCCs,” wrote Erik Broekhuizen, manager of marine research at Poten & Partners, in a report Friday.
Tanker demand is measured in ton-miles: volume multiplied by distance. If ships switch to shorter routes, it’s a negative for demand, and thus, for spot rates.
VLCCs have “cannibalized” the shorter-haul U.S.-Europe business of Aframaxes and Suezmaxes. Simultaneously, China has increased imports from Russia, limiting Chinese demand for longer-haul U.S. exports. Both are negative for VLCC voyage distance.
“The problem is that more VLCCs are arriving in the Atlantic than leaving,” said ship brokerage BRS on Monday. “The latest data suggests that 108 VLCCs are currently trading west of Suez and that more are arriving every day, making the Atlantic crude tanker market more competitive.
“Preliminary information suggests that the number of VLCCs transporting U.S. crude to Europe could hit a record over the coming weeks,” BRS said.
U.S. Gulf ports do not have the water depth to accommodate fully loaded VLCCs. Instead, these cargoes are “reverse lightered.” They are loaded first on Aframaxes or Suezmaxes, with the oil then moved to VLCCs via ship-to-ship transfers.
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