Aurelia Butler

Maritime trade underpins Ukraine’s economy and the increase in seaborne exports via a newly established Black Sea corridor is giving Kyiv a badly needed financial boost and supporting its war effort.“In September, we were in single digit ships transiting the port of Odesa and surrounding areas,” says Arsenio Dominguez, secretary-general of the International Maritime Organisation. “In December and January, it went up to the levels of over 200 ships arriving and the same number departing each month. That’s where it’s being maintained.”The war with Russia is primarily land-based and it has not been going in Ukraine’s favour. Moscow’s forces are slowly pressing forward and the Russian air force has begun to exploit Kyiv’s shortage of air defences. Ukraine is in dire need of more men and the country faces a race against time to deploy the $60bn in US military aid passed in April.But Ukraine’s Black Sea success is of strategic and economic importance.Anti-ship missiles and sea drone attacks have had an outsized impact on Vladimir Putin’s fleet. Their combined threat has forced much of Russia’s navy to newly fortified ports on the eastern edge of the Black Sea, far from Ukraine’s coast, and shown that Kyiv can still operate aggressively.“The Ukrainians have spooked the Russians in the Black Sea,” says Daniel Fiott, assistant professor at the Centre for Security, Diplomacy and Strategy at Brussels School of Governance, with Moscow’s navy pinned back to what he calls their “more secure maritime bastion”.“That has really dented Russia’s ability to plan, coordinate and control transport routes [in the Black Sea]. I think that’s also one of the reasons why you have seen this uptick as well in grain deliveries.”Concerns for their own cargo vessels may also have deterred Russian missile attacks on Ukrainian commercial shipping.Both Russia and Ukraine have a vested interest in “having a Black Sea region that is safe for the traders to move shipments [of grain] in and out”, says Arnaud Petit, executive director of the International Grains Council, a London-based trade body, adding that grain exports provide “vital income” for Ukraine. “The Ukrainians have also shown that they could hurt the Russian shipping industry with these drones on the sea,” Petit adds. “I think each of them has understood that if there is trouble both of them will suffer.”The loss of naval assets does not make up for Russia’s advances on the battlefield, says Samuel Bendett, Russia analyst at CNA, a US think-tank. But the fact that a section of the Black Sea is now clear is “a huge win for Ukraine”.“Russia has one of the largest and supposedly more capable navies in the world. Yet it’s been pushed around by essentially commercial boats that are a fraction of the technological sophistication of a typical Russian naval vessel.”Sea drones, first launched in October 2022 when two Russian warships were hit in the port of Sevastopol, have been key to denying Moscow control of the Black Sea.The drones, or unmanned surface vessels (USVs), are fairly simple by modern warfare standards: small and uncrewed, they are filled with explosives and steered towards targets by controllers who watch live feeds via satellites.Often attacking from multiple directions, the drones strike in “packs” to mitigate losses and increase damage: if one drone is able to blow a hole in a target, another can be steered towards the impact point.
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Your browser doesn’t support HTML5 video.Footage from a drone attacking a Russian Navy Vessel in October 2022. Source: @ConflictsCruise missiles have also played a part. In April 2022, Ukraine’s Neptune anti-ship missiles sank the 186m long Moskva missile cruiser, Russia’s $750mn flagship in the Black Sea. Last month the Kommuna rescue ship was also damaged by Neptunes. Franco-British Storm Shadow and Scalp missiles have also been used in attacks.In total, 27 of the 80 warships Russia had in the Black Sea before the invasion have been damaged or destroyed, according to Ukraine’s navy, including large landing ships, missile boats, a submarine and a patrol vessel. About 15 vessels remain out of action and are undergoing repairs.Despite their simplicity, Ukraine’s sea drones tell a broader story about how innovation occurs within warfare, according to Fiott.“In the west, the concept we’ve got used to is that innovation is something that happens in labs and then you bring it to the military dimension. Whereas I think the Ukrainians have really got us back to a much more traditional understanding of what innovation means.”This is epitomised by the Magura V5, developed by Ukraine’s military intelligence directorate (GUR). Named after a Slavic goddess of war, the 5.5m long drone with a range of 800km emits little heat, Ukraine’s military intelligence agency told the BBC, making it difficult for thermal cameras to detect. It can carry 320kg of explosives and travels at 80km an hour.The Magura V5 sea drone is steered remotely and has a range of up to 800km © Reuters/Valentyn OgirenkoIn February, Russia’s 56m long, $70mn Ivanovets missile boat, intended for engaging combatant ships in the open sea, was destroyed after three direct hits by Magura drones. Six were involved in the sinking of the $60mn-$70mn Sergey Kotov patrol ship in March.Ukraine also has the Sea Baby drone, developed by its domestic intelligence agency, the SBU. It has been used in several attacks in the Black Sea. The latest version can be used as a kamikaze drone, capable of carrying a payload of up to 1 tonne over 1,000km.“It’s technology applied to winning wars,” says Fiott. “And if you see what the Ukrainians are doing in the naval dimension, I think that’s a really powerful example of this.”“But I think the bigger problem for the Russians is that they haven’t yet found an effective way of deterring the method of which Ukraine attacks,” he says. “So there would be no point in Moscow putting more of a fleet in the Black Sea, because the likelihood is that they’ll be struck again.”According to Bendett, Ukraine’s achievements have also been based on its flexibility. Upstarts can move a lot quicker than established navies, he says, which have to deal with a lot of bureaucracy. “Meanwhile, Ukraine is already on its sixth or seventh generation USV.”All of this has been enabled by commercial technology that can now be assembled into a military system, says Bendett, citing Ukraine’s use of Starlink satellites to steer the drones.“That’s completely unprecedented. Because 20 years ago, if we talked about war, we talked about military grade systems only. And now we have commercial systems which are not only enablers, but key components to conducting very advanced operations which, before this war, were in the purview of the military only.”Shared riskRussia’s retrenchment in the Black Sea is only one factor in the recent surge in seaborne trade. Another is the pioneering insurance deal that has given fresh confidence to the shipping sector.The deal signed in November saw global insurers agree to provide affordable cover to ships carrying grain and other critical food supplies from Ukraine’s Black Sea ports.The contract was updated in March to cover ships carrying all non-military cargo, such as iron ore, steel and containerised shipping. Marcus Baker, global head of marine, cargo and logistics at Marsh McLennan, says the deal has been of “enormous benefit” to Ukraine.“If you wanted to take your ship up to Odesa to pick up cargo, it would have cost you about 4 per cent of the value of the ship. That’s quite significant when you’re looking at cargo values at around $10mn-$15mn. And that increased cost obviously goes on the cost of the cargo.”“Now the rates are probably around net to the client of between 0.4 and 0.75 per cent, depending on the type of ship”, says Baker. “So you’ve gone from a 4 per cent rate to about a 0.4 per cent rate.”The risk is shared between insurers and Kyiv, with the state bearing the first portion of any claims up to an undisclosed level.“I don’t want to make insurance sound like it is some kind of saviour for Ukraine,” adds Baker. “But I don’t think it’s ever been done before where a country that is actually at war is taking the decision to invest in what is effectively an insurance facility.”Ukraine’s new export corridor has allayed concerns that the collapse of the grain deal would endanger global food security. Ukraine is the world’s largest supplier of sunflower oil, while its grain exports account for a significant portion of the global market. “Prior to the outbreak of the full-scale war, Ukraine accounted for over 15 per cent of global corn exports, 10 per cent of wheat, 15-20 per cent of barley and over 50 per cent of sunflower oil,” according to Ukraine’s foreign ministry.In 2021 Ukraine’s agricultural exports totalled $27.8bn, more than 40 per cent of the country’s overall export revenue. 90 per cent of these agricultural products were exported through ports on the Black Sea.But Russia still poses a threat to seaborne traffic. In November a missile damaged a cargo ship entering the port of Odesa, killing a harbour pilot and injuring three of the crew. In April Russia struck two food export terminals in Yuzhny’s Pivdennyi port, destroying agricultural products destined for Asian and African countries.It was the 39th Russian strike on the Odesa region’s port infrastructure since the war began. Russia’s targeting is an “attempt to disrupt Ukraine’s food exports to the global market”, Ukraine’s president Volodymyr Zelenskyy said. Russia also has submarines in the Black Sea, which can operate beyond the reach of drone and missile attacks.Despite this turbulent environment, Ukraine’s newly established trade corridor has allowed the country to ship over 40mn tonnes of goods in little more than six months — more than the amount transported during the entire year the Black Sea Grain Initiative was in operation.Baker believes Ukraine’s naval success has played a part. “If it was still a really hot spot, people wouldn’t be going out there,” he says. “We’ve seen how crews have reacted to trading through the Red Sea. They basically said, ‘no thanks, drop me off in Egypt’. And that’s not happened in Odesa and Chernomorsk and Yuzhny.”“I think what the Ukrainians have been able to do in terms of damage to the Russian fleet and the lessening of attacks on port infrastructure — I mean, it still happens, but there’s much less of it — has given a huge amount of confidence to the shipping community.”It has also given belief to western partners seeking evidence that Ukraine can still win the war. “Ukraine is demonstrating that . . . even when it’s got issues at home, with a lack of military systems, a lack of western support, it can still do things on its own, which are not only placing it ahead of the entire world, when it comes to the development and use of these technologies, but actually impacting Russia,” says Bendett. More

TOKYO (Reuters) – The yen gave up ground in early trade on Thursday, reversing direction after a sudden surge against the dollar overnight that traders and analysts were quick to attribute to intervention by Japanese authorities.The dollar was 0.9% higher at 155.98 yen as of 0100 GMT, retracing about half of its late Wednesday surge from around 157.55 to exactly 153 over a period of about 30 minutes.The sharp overnight move came in a quiet period for markets after Wall Street had closed and hours after the Federal Reserve had wrapped up its policy meeting, with Chair Jerome Powell reiterating that sticky inflation meant interest rate cuts may be a while in coming.When contacted by Reuters, Japan’s vice finance minister for international affairs, Masato Kanda, who oversees currency policy, said he had no comment on whether Japan had intervened in the market.”It caught markets off guard because, obviously, it happened in the U.S. session and seemed to be timed with the FOMC to take advantage of a weaker dollar,” said Kyle Rodda, senior financial market analyst at Capital.com in Melbourne.”The ‘sneak attack’ element really is the MOF (Japan’s Ministry of Finance) looking to punish speculators and send a warning about shorting the yen.”The dollar remains up more than 10% against the yen this year, as traders push back expectations on the timing of a first Fed rate cut, while the Bank of Japan has signalled it will go slow with further policy tightening after raising rates for the first time since 2007 in March.The gap between long-term government bond yields in the two countries is a yawning 376 basis points. That helped lift the dollar to a 34-year peak of 160.245 yen on Monday and also spurred a sharp reversal which official data suggested was due to Japanese intervention totalling about $35 billion.The dollar index, which measures the currency against the yen, euro and four other major peers, ticked up 0.07% to 105.78 on Thursday, following a 0.56% retreat on Wednesday from near six-month highs.The euro was little changed at $1.071025, after climbing 0.45% in the previous session.Sterling was steady at $1.2530, following a 0.28% rise a day earlier.The dollar was already on the back foot before the yen’s spike, after Fed Chair Powell reiterated the central bank’s bias for easing policy – even if the timing has been delayed – while giving no sign that further rate hikes are under consideration.”There was a collective sigh of relief in the financial markets after the Fed refrained from increasing its hawkishness,” said Jack Mclntyre, portfolio manager for global fixed income and related strategies at Brandywine Global.”Think of this outlook as ‘high for longer’ as opposed to ‘higher for longer.’ The latter implies rate hikes, which is not today’s story.” More

TOKYO (Reuters) -Many Bank of Japan board members agreed the country’s long-term interest rates should be set by markets, with some saying the central bank should at some point slow the pace of bond buying, minutes of their March policy meeting showed on Thursday.At the March meeting, the BOJ ended eight years of negative interest rates and its bond yield control in a historical shift away from its prolonged radical stimulus programme.”With respect to yield curve control, many members expressed the view that it was appropriate for the Bank to change its framework. These members shared the view that long-term interest rates would be determined by financial markets in principle,” the minutes showed.While one member said the BOJ should take time adjusting the pace of bond buying, others saw the need to breathe life back to a market made dormant by its huge presence, the minutes showed.”Some members expressed the view that it was desirable for the Bank to reduce the amount of Japanese government bond (JGB) purchases at some point in the future, and also reduce the amount outstanding of its JGB holdings through redemptions of JGBs,” the minutes showed.The remarks underscore the BOJ’s resolve to start tapering its bond-buying once markets restore calm from the March policy shift, and eventually reduce its massive balance sheet.At a subsequent meeting in April, the BOJ kept interest rates around zero but projected inflation to stay near its 2% target in coming years. It also made no change to its guidance offered in March to keep buying government bonds at roughly a pace of 6 trillion yen ($38.5 billion) per month.Financial markets are focusing on when the BOJ could start to significantly reduce its bond buying, with some traders betting it could do so soon to allow long-term yields to rise and help slow the yen’s declines.BOJ Governor Kazuo Ueda on Friday brushed aside the chance of using the bank’s bond buying or its monetary policy as tools to directly influence the yen.In a sign the BOJ could face political push-back in raising rates further, government representatives who attended the March meeting voiced hope the central bank will keep supporting the fragile economy with low interest rates, the minutes showed.”The BOJ must continue firmly offering financial support to the economy to ensure it achieves sustainable growth led by private demand,” a Cabinet Office official was quoted as saying.At the March meeting, the board also discussed staff findings on the long-term impact of the BOJ’s past monetary easing measures, including on the exchange-rate market.A few members said the yen’s value had deviated notably from purchasing power parity. One of them said this might be because market players have come to focus more on the interest-rate gap between Japan and other countries, the minutes showed.Another member said there were significant differences between current stock and exchange-rate levels, and those before the BOJ’s introduction of massive monetary stimulus in 2012.This member said the differences could be a result of changes in the transmission mechanism of monetary policy, as well as its positive ripple effects and side effects, the minutes showed.($1 = 155.8900 yen) More

MONTREAL (Reuters) -Canadian Airbus A220 jet assembly workers approved a five-year contract with more than three-quarters of votes in favor, their union said late on Wednesday, ending fears of a lockout at the planemaker’s Montreal-area plant.The approval of the deal came after the company’s estimated 1,300 Montreal-area A220 workers represented by the International Association of Machinists and Aerospace Workers union (IAM) had agreed to conciliation following the rejection of two earlier offers and a tentative agreement with union leaders that was declined by members. The workers, whose last contract ended in December 2023, will get a 23% salary increase over five years, improvements in group insurance access, and an increase in evening premiums that would encourage work on later shifts.The union had also tried to make gains on work-life balance, with some workers pressing unsuccessfully for a four-day week for afternoon shift employees.The agreement averted a labor disruption that risked leading to delays in deliveries to airlines. A conciliator in the Quebec province’s labor ministry had noted Airbus would “exercise its right to lockout on May 2” if a contract was not reached by that date. The European planemaker’s Canadian unit is trying to boost production and control costs on the loss-making narrowbody jet, which is smaller than the Airbus A320neo and Boeing (NYSE:BA) 737 MAX. Airbus said the agreement would facilitate a better balance between shifts and the transfer of knowledge between more experienced employees who generally work day shifts and those who have less seniority and often work on later shifts. “This condition is essential as the A220 production rate is ramping up,” Airbus said in a statement.Unions have recently capitalized on tight labor markets and high inflation to win hefty contracts at the bargaining table across North America, with airline pilots, autoworkers and others scoring big raises in 2023.The Airbus talks in Canada were being watched closely by IAM leaders in Washington state, where Boeing’s production workers want wage increases exceeding 40% over three to four years. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.April was a testy month for Japan. The yen tumbled to a 34-year low before the government appeared to barge in with over $35bn worth of currency support. A prominent think-tank warned that well over a third of the country’s municipalities may vanish. A key industrial policy committee warned of chronic threats to national prosperity.Japan — out of deflation, out of monetary policy sync with the rest of the developed world and, increasingly, out of people — has been plausibly described for more than a year now as being at a historic turning point. April, and the yen show in particular, have made its destination considerably less clear.Among the various possible paths throughout 2024 and into its mid-term future, there is one that Japan affects to fear most: a notional descent into the disorder, disparities and dysfunction it associates with emerging economy status. As the first Asian country to achieve the developed economy label, Japan has worn the badge for decades with as much pride as it has shown its terror at losing it. The idea of that happening, however absurd or remote, has elbowed itself a place in public discourse, often as a motivational tool. The sustained battering of the yen since January, along with the excitement that has encouraged among speculators and the government intervention apparently triggered on Monday, have led some to declare the situation a currency crisis. Some have invoked the idea that this exposes emerging economy-like vulnerabilities in Japan. And foreign tourists turning up in record numbers and declaring on social media how cheap the place feels may have added to a sense of accelerated diminishment. But the hand-wringing, for now at least, feels misplaced. Japan’s economy could clearly be in better shape, and the weak yen risks suppressing a recovery in domestic consumption. But Japan’s foreign currency reserves stand at well over $1tn. The yen’s movement, however alarming on a chart, is beneficial to large parts of corporate Japan. The $1.4tn Government Pension Investment Fund holds roughly 50 per cent of its assets overseas and made record gains of $232bn in 2023.Nevertheless, the emerging economy bogeyman has recently been deployed more persuasively. Last week, the Population Strategy Council, using the latest government projections for regional populations of women of childbearing age by 2050, defined 43 per cent of Japan’s 1,729 municipalities as “likely to eventually disappear”. The contours of future ghost towns, economic dead zones and chronic poverty, it implied, are already drawn. On the same day, an influential industrial policy committee of the Ministry of Economy Trade and Industry published its latest report laying out the sort of radical changes the country now needed to remain ahead of emerging economies. Without serious changes in corporate management, it argued, real wage and GDP growth will remain flat. “As a result, even social stability could be lost,” the Meti report concluded.There are, currently, some compelling counterpoints to the gloom. Among those, labour shortages are forcing long-overdue reform on companies, are allowing younger Japanese to take greater risks and show greater entrepreneurialism than they would in the past, and may ultimately provide the context in which the central bank is able to confidently raise rates as real wage growth becomes entrenched.But what the recent ructions in the yen should most powerfully remind everyone is that Japan is in a moment of historic emergence. It is, all at once, exiting decades of deflation, stagnant wages, suppressed equity prices, change-resistant governance and labour excess and, given the unprecedented nature of what it has been through, doing so without guides. These are huge breaks with the recent past. The yen is finding its level in a setting where more or less every path is untrodden. The central bank has no peer that has been here. The corporate sector must react to a workforce, a shareholder base and a consumer mindset with which it is largely unfamiliar. The risks of miscalculation — and, possibly, a severe diminution of living standards, are high, and will become higher over time in ways that Meti and others are right to lay out in dire terms. For policymakers and others, the emerging economy spectre may be a useful destination for Japan to constantly steer itself away from. The trick is sprinkling a long-developed economy with some of the optimism that comes with the act of [email protected] More

SEOUL (Reuters) – South Korea’s factory activity contracted again in April, but manufacturers’ optimism climbed to the highest level in nearly two years as output and orders managed to post marginal growth, a private-sector survey showed on Thursday. The purchasing managers index (PMI) for manufacturers in Asia’s fourth-largest economy, compiled by S&P Global, fell to 49.4 in April, from 49.8 in March, on a seasonally adjusted basis. It was the second month that the index had dipped below the 50-mark, which separates expansion from contraction, and the lowest reading since August 2023.”While output and new orders returned to fractional growth territory, the headline PMI was weighed down by falling employment and stocks of purchases,” said Usamah Bhatti, economist at S&P Global Market Intelligence. “Falling employment, backlogs and inventories suggest that the sector still has some way to go before growth can be sustained.” The South Korean economy grew at the fastest pace in more than two years in the first quarter, data showed last week, beating all estimates on the back of a pick-up in domestic consumption and robust exports.In the manufacturing survey, sub-indexes for output and new orders rose in April to 50.1 and 50.3, respectively, after falling below 50 in March for the first time in three months. New export orders grew for the fourth straight month in April on strong demand from mainland China and the wider Asia-Pacific region, but the pace was a bit slower than the prior month, the survey showed. On a negative note, employment fell in April after 11 months of increases, while inflation in both input and output prices were the sharpest since November. Even so, manufacturers’ optimism for the year ahead logged the highest reading since May 2022, as firms hoped for a sustained recovery in domestic and export orders, aided by new product launches and lower interest rates. More