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Russia-Ukraine conflict to drive up seafarer wage inflation and vessel operating costs

Russia’s invasion of Ukraine will impact seafarer availability to crew the world’s merchant fleet, particularly for officers where supply has tightened, leading to rising wage inflation and higher vessel operating costs.

Both Russia and Ukraine have historically provided large numbers of officers and ratings to the global merchant fleet. Drewry estimates the current supply numbers for officers are Russia 46,500 and Ukraine 41,000, with ratings supply at around 41,200 and 32,400 respectively.

These estimates relate to the globally trading merchant fleet and excludes smaller locally trading vessels and inshore operations. Drewry estimates that the corresponding global supply of officers is around 650,000 and 920,000 ratings. In officer terms the combined Russia and Ukraine supply therefore represents around 13% of global supply, while for ratings it is 8%.

Detailed officer availability statistics will be covered in Drewry’s forthcoming Manning Annual Review & Forecast Report which will be published at the end of May, but the chart below illustrates the significance of Russian and Ukrainian seafarer supply relative to other countries. Previous analysis in this report has highlighted slowing supply of officers to crew the deep-sea merchant fleet leading to technical shortfalls.

Although the whole pool of Russian and Ukrainian seafarer supply will not be affected, the longer the conflict goes on the more potential there is to affect the supply of a large portion of this 13% available pool of officers. Ratings are slightly more flexible in supply terms as the required training period is much shorter than it is for officers.

Russian and Ukrainian officers are employed in high numbers on tanker vessels, both oil and gas, which already have the tightest supply of qualified and experienced officers. Hence it is on these trades that the main effects will be felt.

A reasonable proportion of Russian and Ukrainian seafarers will already have foreign homes and will therefore be less restricted in their travel to or from vessels during crew changes. But Drewry estimates these to represent less than 20% of the available pool and visa implications could arise if the free movement of Russian citizens is limited by the international community. Hence, a large number will therefore be directly affected now.

Ukrainian seafarers currently at sea will find repatriation very difficult with a best case that they travel to a nearby country by air and then onward home via whatever means is available. This obviously carries considerable danger but with family possibly still in situ and a desire to defend their country some may return. For Ukrainian seafarers off duty at home when the conflict started the situation will be even more difficult. For a range of reasons, it is thought that they will find it very difficult or impossible to travel to join a vessel for their next scheduled tour.

Extended tours of duty, as were common during the height of the COVID-19 pandemic, will be seen again. There is therefore some flexibility in the short term for managing this. But in the medium-term supply may be reduced as seafarers have to come off duty at some point and direct replacements may not be possible. In the longer-term seafarers may settle in other countries but this will be dictated by personal experience.

For Russian seafarers the ban on many non-Russian airlines using their airspace and reciprocal bans for Russian airlines are likely to affect travel both to and from vessels. However, in practical terms the supply of Russian seafarers may be most affected by visa restrictions imposed by the international community. Given the fast-changing situation employers may think twice about employing Russian seafarers if they cannot reliably get them to vessels as planned. Banking restrictions imposed on Russia may also make payment of seafarers problematic, adding to reasons companies may look to other nationalities to crew their vessels.

In this regard Indian seafarers are likely to be the prime option, although there are also other alternative nationalities. Indian wage rates are similar to Russian and Ukrainian and supply numbers are high. However, as mentioned earlier, given pre-existing tight officer availability, there will only be limited skilled labour available to fill any gaps.

Hence, Drewry expects the conflict’s impacts on seafarer availability to rear its head in higher wage inflation, particularly for officers where supply conditions were already tight. Bulk liquid and gas trades are most exposed. This together with rising marine insurance premiums will drive up vessel operating costs.

Clarity on Ship Operating and Manning Costs
With ship operating costs becoming increasingly unpredictable, we are here to provide clarity in the current climate of market volatility and disruption.

Our Ship Operating Costs Annual Review & Forecast 2021/22 report provides one of the most complete annual assessments of ship operating costs available in a single source which owners and managers can use to benchmark their opex. Operating cost assessments are provided for 47 representative ship types, spanning the container, dry bulk, oil (crude and products), chemical, LNG, LPG, general cargo, reefer, ro-ro and car carrier sectors. For each of the 47 vessel types and sizes the report contains detailed cost assessments by main cost head (e.g. insurance) and sub-cost (e.g. hull and machinery insurance) for 2021, operating costs by vessel age (newbuild, 5, 10, 15 and 20 years) broken down by main cost head, historical data for the period 2016 to 2021 broken down by main cost head, and annual projections of total ship operating costs to 2026.

Our Manning Annual Review & Forecast 2021/22 report provides seafarer cost assessments, trends and employment terms for 38 representative ship types, spanning the chemical, container, dry bulk, general cargo, LNG, LPG, offshore, oil tankers, reefers and ro-ro sectors. The report also examines current and projected supply and demand for seafarers and the likely impact on skills requirements and wage costs, 10-year historical time series and 5-year forecasts of manning costs, as well as country profiles of the top 11 suppliers of seafarers.
Source: Drewry

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