31 March 2023
Ukraine war soars insurance costs of shipping in the Black Sea
Insurers have raised the cost of providing cover for merchant ships through the Black Sea. Hence, insurance costs to transport goods through the region soar for vessels still willing to sail after the Ukraine war.
Ship owners pay annual war-risk insurance cover as well as an additional “breach” premium when entering high-risk areas. Note that these separate premiums are calculated according to the value of the ship, or hull, for a seven-day period.
Ship insurers have quoted the additional premium rate for seven days at anywhere between 1% to 2% and up to 5% of insurance costs. Considering an estimated 0.025% on Monday before Russia’s invasion began, according to indicative rates from marine insurance sources.
This would mean additional costs of hundreds of thousands of dollars for a ship voyage depending on the destination.
“Given the Russian offensive from land, sea and air, it would not be surprising if some insurers will be reluctant (to provide cover),”Insurance company
A missile hit a Moldovan-flagged chemical tanker on Friday near Ukraine’s port of Odessa, seriously wounding two crew. The 2,091 dwt chemical tanker, Millennial Spirit, was ablaze with the crew jumping overboard. Ukrainian officials reported that the vessel was carrying 600 tons of fuel oil at anchor south of Odessa.
On Thursday, a Turkish-owned ship was hit by a bomb off Odessa. Fortunately with no casualties and the ship sailed safely into Romanian waters.
Ukraine has appealed to Turkey to block Russian warships from passing through the Dardanelles and Bosphorus straits. Hence, blocking the entrance to the Black Sea, after Moscow on Thursday launched a full-blown assault on Ukraine.
Russian forces landed at Ukraine’s Black and Azov Sea ports as part of the invasion.
Ukraine’s military has suspended commercial shipping at its ports. Although, some Russian Black Sea ports remain open, including Novorossiisk, traders said on Friday.
“Due to the sea invasion potential and Crimea’s location in the Black Sea, freight destined for surrounding countries will likely see re-routings and longer transit to meet its final destination,”Glenn Koepke with supply-chain tracking platform FourKites.
Mark Nugent, with shipbroker Braemar ACM, citing satellite tracking data, said several dry bulk vessels in the Black Sea had reversed course. Thus, they were sailing towards Bosphorus to exit the region.
Moreover, freight rates have jumped after shipping companies suspended sailings through the region. These include the world’s top container lines MSC and Maersk and many oil tanker owners.
Note that, average earnings for smaller aframax tankers trading in the Black Sea jumped to over $100,000 a day on Thursday from $8,000 a day on Monday.
Earlier this month, London’s marine insurance market added the Ukrainian and Russian waters around the Black Sea and the Sea of Azov to its list of areas deemed high risk. Therefore, it prompted some shipping companies to hold back on sending vessels into the area due to the Ukraine war.