UKRAINE: MARKET ANALYSIS
UKRAINE – WHAT NEXT? The recent breakthrough on grain exports from Ukraine represents a ray of hope in an otherwise problematic picture that entails a significant impact on maritime trade. Andrew Penfold analyses the forward picture
8 Getting Ukraine’s grain moving again is not a simple matter – Russia has inflicted significant damage on port export capacity as witnessed at the port of Mykolaiv where a major export terminal has been the focus of air strikes
Russian hopes for a quick and relatively painless invasion of the Ukraine have stalled. As the war position stagnates, the economic impact of the ‘Special Military Operation’ is beginning to emerge. The effects range from widely increased uncertainty at the global economic level to concerns over grain trades becoming a bargaining chip in the conflict and the suppression of emerging opportunities in the Black Sea. These considerations seem certain to control the tactical and strategic nature of port investments in the next few years. MACRO-ECONOMIC IMPACTS The link between economic expansion and trade – especially in the container sector – is well known. Demand growth has been directly linked to the size of the world and regional economies. The outlook was already uncertain postCOVID-19, but a whole new set of risks are now determining the shape of the world economy. The Economist Intelligence Unit has sought to quantify the resulting downside on a national level and their latest thoughts are summarised in Figure 1. Only the commodity exporters (oil and grain) seem likely to see a positive benefit from increased prices for their exports. In the OECD, most countries will struggle to maintain a positive outcome for 2022. The world economy is forecast to grow at a rate of around 2.5 per cent in contrast with a prewar projection of 4 per cent. This is a major change. It should be noted that these projections may well prove to be over-optimistic. Emerging problems in the Chinese economy could well be much more far-reaching than here
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suggested, with some assessing that following the Shanghai lockdown and worsening property market scandals Chinese expansion could be struggling this year. So far, these changes have not hit the container trade sector, with underlying demand distorted by Covid recovery demand bounce back and supply chain congestion. There are signs that growth is now slowing and the long established link between GDP and container demand on the major eastwest trades is re-emerging – perhaps with a ratio of around 1 : 1.2. If this is the outcome – and OECD recession seems daily more likely – then a period of very slow container trade can be anticipated. The blame for at least half of any slowdown can be directly laid at the door of the Ukraine crisis aggravating an already difficult inflationary climate. Monetary tightening in the US (and Europe) in an attempt to control inflation will worsen the outlook. Perhaps the biggest long-term result will be a loss of faith in the seemingly unstoppable acceleration in container trades? Even if growth is maintained through this period, it seems likely that major restructuring will follow from a revised view of China as the major supplier of global manufactured goods. GRAIN SPECIFICS A global contraction will always be most felt in the poorest countries. Such a slowdown is already playing havoc with some economies. The effective bankruptcy of Sri Lanka, where questionable economic and agriculture policies have been exacerbated by a surge in import prices, is a harbinger of
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