The removal of the Russian Maritime Register of Shipping (R.S. Class) from the International Association of Classification Societies (IACS), effective as of March 11, is set to impact ships obtaining insurance and entry into ports worldwide.
Wholesale distributor of specialty insurance products, CRC Group said that classification societies, including the IACS ensures that ships are seaworthy, and “certification is essential for obtaining insurance and entry into ports worldwide.”
More than 90% of the global merchant shipping tonnage is classified by IACS member societies.
Other major shipping organisations are said to be monitoring the situation closely, but none have removed any Russian members so far, but Russia’s withdrawal from the IACS is likely to expedite the removal of Russian shipowners from additional IACS class societies, further isolating the country’s ability to trade internationally.
“Any change in classification for a vessel typically requires shipowners to either renew or obtain alternative insurance coverage; however, if classification is provided through a non-IACS society, coverage options are severely limited, especially in light of current global reluctance to engage with Russian entities,” said CRC Group.
Ships without valid classification cannot enter ports or transactions, and shipments involving Russia face significant obstacles around receiving, delivering and paying for any goods and services.
For shipping snarls, the largest impacts are being felt nearest the ongoing conflict – in the Black Sea and the Sea of Azov.
Over 100 ships so far are stuck in Ukrainian ports, leaving them vulnerable to missile strikes. The International Maritime Organisation (IMO) has also confirmed that it is a serious concern that seafarers in the area could become collateral damage during the ongoing conflict.
CRC Group have described the situation across the Black Sea as both “fluid and complex” and that shipping clients need to understand their insurance provisions and pay attention to any coverage changes to stay ahead.
“Standard marine cargo policies include a ‘Classification Clause’ to ensure that clients utilize seaworthy vessels that are appropriately registered with an IACS member society,” said CRC Group. “Using vessels registered with a non-IACS society can have serious consequences, including exclusion from insurance coverage.”
Marine cargo policies do commonly include coverage for acts of war while at sea, and strikes, riots and civil commotion (SRCC) risks.
In light of the current conflict, the majority of U.S and London carriers have already issued a notice of cancellation in respect of war and SRCC risks for shipments into and out of Russia and Ukraine through the Black Sea and the Sea of Azov.
However, while war and SRCC coverage in the region is still generally available, the risk has changed significantly, requiring an additional premium to reinstate the coverage. So far, clients are wisely opting to avoid doing business in the area rather than attempting to re-purchase the coverage.
In addition to cancellation of war and SRCC coverages, there is a growing concern surrounding underwriters. As underwriters can currently confirm coverage and compliance within the current sanctions, there is no guarantee that any new sanctions will not be issued and preclude underwriters from being able to pay a claim.
Russian-related sanctions have been impacting all shipping industry segments, which includes tankers, containers, commodity traders, gas, and dry bulk goods. Restrictions have been applied to a wide variety of individuals and organizations, including oil companies, financial institutions, cargo owners, shipowners, service providers, port operators, shippers, receivers, and charterers, among others.
To help clients protect themselves from the possibility of sanction violations, CRC have said that carriers are “treading carefully” when it comes to sanctions checking for their clients.
Shipping companies can very easily violate sanctions by making crew member payments through a sanctioned bank, or paying for repairs, supplies, or services provided in-port to a Russian-managed vessel. Because of this, CRC have stated that virtually all clients are being advised to be on the side of caution and avoid doing any business with Russia.
“The Ukraine-Russia crisis isn’t expected to end quickly or resolve without long-lasting economic consequences. Sanctions are likely to stick around for a long while. Doing business in Russia will likely never be the same, and all clients are advised to proceed with extreme caution when dealing with Russian-owned or managed entities for the foreseeable future.
“Clients will also need to partner with their shipbroker or shipowners to proactively communicate and confirm that they aren’t using vessels subject to sanctions. Agents should remind insureds about the Classification Clause in their policies to avoid potential issues.”