The writer is a fellow at the American Enterprise Institute, a think-tank
On June 8 Sergei Lavrov and his Turkish counterpart Mevlüt Çavuşoğlu met in Ankara, where they discussed a deal that would allow ships to bring grain out of Ukraine. Such an agreement would be welcome news for global food security. But what governments agree on matters less than how shipping companies and insurers assess the risk.
The deal discussed by Lavrov and Çavuşoğlu would allow Russian forces to inspect inbound ships for weapons. Turkish ships would escort the merchant vessels, and the deal would also require Ukraine to demine its coast (which has been mined to keep Russian amphibious forces at bay). Kyiv said in response that it would demine a naval corridor only if it received guarantees that Russia wouldn’t attack its ports. If the deal comes to pass, it will achieve what weeks of talks in many other capitals have not: free passage for desperately needed Ukrainian grain. Some 20mn tonnes is stuck in the country.
But governments don’t ship grain — companies do. And if the looming global food crisis is to be averted, shipping companies, insurers and reinsurers need to be convinced that any deal agreed by governments does make the Black Sea’s waters safe enough for their ships, crews and cargo. “The shipping industry is extraordinarily risk-tolerant,” Cormac Mc Garry, a maritime analyst at Control Risks, points out. “The average seafarer deals with more risk on an average day than most people do in a lifetime, and that risk tolerance feeds up to the corporate level.”
That means that some shipping companies would risk sailing to ports such as Odesa, retrieving the grain and bringing it out of the Black Sea aided by a naval corridor and naval escort. “It doesn’t mean that most companies will go in,” Mc Garry cautions. “But you’d be surprised at how many are willing to take such risks.” So risk-tolerant are shipping companies that they kept sailing through the Strait of Hormuz during the Iran-Iraq war, even though both sides attacked merchant vessels there.
Shipping companies, though, can’t sail without insurance — and insurers are more risk-averse. In the Black Sea, they’re likely to be cautious even if Turkey, Russia and possibly other countries promise safe passage. That’s because they’ve already lost an estimated $5bn as a result of the Ukraine war, and even with little maritime traffic currently taking place, the losses keep piling up.
Those losses include 84 ships that have been trapped in Ukrainian ports since the beginning of the war. Insurers also have to worry about massive volumes of sea-bound cargo trapped on land. And the 450 seafarers trapped on the 84 ships will most likely demand compensation. Insurers are wary of even more financial loss.
According to Neil Roberts, the secretary of maritime insurers’ conflict-assessment body the Joint War Committee, “there . . . needs to be clarity regarding sanctions for all ship owners, ship operators and insurers.” That’s because the US Office of Foreign Assets Control, which monitors sanctions compliance, imposes hefty fines on violators (including unwitting ones) and sometimes even jails executives.
Once an intergovernmental agreement is signed, insurers will first look for assurance that the grain-export corridor is cleared of mines and sanctions exposure. Companies will assess the risk and the commercial benefit — and the humanitarian relief.
Either way, if governments create a maritime corridor, a small group of shipping companies and maritime insurers are likely to take on the challenge. They will, of course, do so for a price, which will be passed on to consumers. But before assuming that a diplomatic deal will release the trapped grain, Turkey would do well to consult the maritime industry. It would be an anticlimax if Ankara thought it was solving a looming food crisis and no ships turned up to transport the grain.
Source: Economy - ft.com
