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Disruption to world shipping likely to worsen, warns global insurer

CARGO ships are docked in the Black sea port of Odessa, Ukraine. Picture: Reuters.

CARGO ships are docked in the Black sea port of Odessa, Ukraine. Picture: Reuters.

Published May 24, 2022

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THE MARITIME industry has warned that the war in Ukraine since March is likely to exacerbate ongoing supply chain disruption, port congestion and crew crises caused by the Covid-19 pandemic.

Allianz Global Corporate and Specialty (AGCS) yesterday said the war had already caused widespread disruption to global shipping, with the loss of life and vessels in the Black Sea, disruption to trade with Russia and Ukraine, and the growing burden of sanctions.

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The global corporate insurance carrier said the direct impact on shipping from the war in Ukraine had so far been largely contained to the Black Sea.

AGCS global head of maritime Captain Rahul Khanna, however, said the war was creating an additional burden on the maritime industry.

“Trade with Russia and Ukraine will suffer, adding to already strained global supply chains,” Khanna said.

“Longer term, sanctions and a reduction in trade with Russia could result in the redrawing of some supply chains and trade routes, but this all takes time and comes at a cost.”

According to AGCS research, the biggest impact of the war so far has been on vessels operating in the Black Sea and/or trading with Russia.

As of the beginning of April 2022, numerous merchant vessels were trapped in Ukrainian ports along the Black Sea and the Sea of Azov.

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Ukraine’s major ports, including that of Odessa, were closed due to the conflict and a Russian naval blockade of Ukraine.

Ukraine ships more than 70 percent of its exports, including 99 percent of its corn exports.

Russian vessels were also banned from entering UK and EU ports, and have been detained due to suspected sanctions breaches.

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The Russian fleet has also been denied access to vital maritime services as a number of ports have withdrawn bunkering services for Russian-owned or flagged vessels.

Engine manufacturers, maintenance companies, classification societies and insurers have also said they will no longer serve Russian vessels.

Khanna said a large part of the shipping sector would in some way be touched by the conflict.

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“Many container companies have already pulled out of Russia, while the tanker sector faces huge restrictions and disruption, as do bulk and general cargo operators shipping Russian coal, wood and grain,” he said.

“Seafarers in the Black Sea are in a perilous situation, stuck on board vessels or in ports with dwindling supplies and under fire. This is yet another blow for the industry and global supply chains.”

Coinciding with Covid-19 outbreaks in China, the war in Ukraine is compounding ongoing supply/demand pressures for shipping, which have resulted in port congestion, higher freight fees and longer transit times.

AGCS global product leader for marine hull Justus Heinrich said a prolonged conflict was also likely to have deeper economic and political consequences, potentially reshaping global trade in energy and other commodities.

Heinrich said an expanded ban on Russian oil could push up the cost and availability of bunker fuel and potentially push shipowners to use alternative fuels.

“We have already seen requests from ship owners who are considering using non-compliant bunker fuel that has a lower explosive temperature,” he said.

“Longer term, we may see a shortage of bunker fuel with more and more vessels having to turn to non-compliant or substandard fuels, which could result in machinery breakdown claims in the future.”

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