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Insurers reviewing Black Sea ship cover after Russia quits deal

July 17, 2023 at 8:39 pm

Cargo ship Razoni, carrying a cargo of 26,527 tons of corn, departed from the port of Odessa arrives at the Black Sea entrance of the Bosphorus Strait, in Istanbul, Turkiye on August 03, 2022 [Lokman Akkaya/Anadolu Agency]

Insurers are reviewing whether to freeze cover for any ships willing to sail to Ukraine after Russia, on Monday, quit a UN-backed deal that allows the export of grain through a wartime Black Sea safe corridor, industry sources said, Reuters reports.

The agreement, brokered by Turkiye last July, aimed to alleviate a global food crisis by allowing Ukrainian grain blocked by Russia’s February 2022 invasion of its neighbour to be exported safely.

“Due to the collapse of the Black Sea corridor deal, most ship owners will now refrain from calling Ukrainian ports,” said Christian Vinther Christensen, chief Operating Officer with Danish shipping group, NORDEN.

The last ship left Ukraine under the deal on Sunday.

Insurance has been vital to ensure shipments through the corridor and industry sources said Russia’s decision was being evaluated in terms of whether cover in some form could continue.

“Some underwriters will look to take advantage with a hefty increase in rates. Others will stop offering cover. The (key) question is whether Russia mines the area which would effectively cease any form of cover being offered,” one insurance industry source said.

READ: Nearly 33m tons of grain transported by over 1,000 ships through Black Sea grain corridor

The Lloyd’s of London insurance market has already placed the Black Sea region on its high risk list.

“Annual cover remains in place but voyages to listed areas will be assessed individually as and when seen,” said Neil Roberts, head of Marine and Aviation at Lloyd’s Market Association (LMA), which represents the interests of all underwriting businesses in Lloyd’s.

Additional war risk insurance premiums, which are charged when entering the Black Sea area, need to be renewed every seven days. They already cost thousands of dollars and are expected to go up, while ship owners could prove reluctant to allow their vessels to enter a war zone without Russia’s agreement.

“I don’t believe there are many enquiries at the moment as getting an owner to operate on past charter terms without an initiative would be difficult,” another industry source said.

“Danger money hire rates would probably be required, aside from the provision for extra insurance costs.”

Moscow’s withdrawal from the deal means “the guarantees for the safety of navigation issued by the Russian side will be revoked,” Russia told the UN shipping agency the International Maritime Organisation on Monday in a letter seen by Reuters.

The LMA’s Roberts said the letter “adopts a tone that diverges from previous pronouncements”.

“From the insurance angle, quotes for corridor voyages would have expired, so renegotiation of terms should be expected,” he said.

“With the withdrawal of the Russian security guarantees, the risk profile would need to be re-assessed. It may also be the case that some charterers will reconsider their options.”

READ: Russia suspends Black Sea grain deal