Sea transportation

Cargo insurance option is already available and triples this mechanism

The Unity Facility grain transportation insurance mechanism for the Ukrainian sea corridor, which has been in place since November 2023, will be extended to cover vessels carrying not only grain but also any other cargoes starting in February 2024. This was stated by Oliver Wyman partner Crispin Allison, Interfax-Ukraine reports.

«By combining the efforts of the industry and the government, we were able to create a mechanism where prices are much lower than half of those on the regular commercial market. And now, in this location, we have expanded that capability to include the transportation of all cargo, not just grain,» he said at a webinar on political risk insurance organized by the US-Ukraine Business Council (USUBC) and the US Department of Commerce.

According to him, the mechanism formally starts on March 1, 2024, but the possibility of cargo insurance is already available and triples the amount of insurance.

Ellison reminded that after Russia withdrew from the Black Sea Grain Initiative, insurance rates increased only for the military risk element to about 5%, which was absolutely unaffordable and led to the suspension of shipping in July-August.

Established through a public-private partnership (PPP) in which the Ukrainian government provided a $20 million indemnity fund, the Unity Facility allows for the insurance of approximately 1,000 vessels per year with a maximum insured value of $50 million per vessel, which exports about 30 million tons of grain. The indemnity fund is accessed through a letter of credit with Ukrainian banks and DZ Bank.

According to Ellison’s materials, a parallel mechanism is being considered to cover cargoes, supported by EBRD funding for the Ukrainian government.

The expert emphasized that a relatively small amount of insurance capital made it possible to export goods worth about $20 billion, and its estimate is 6-8% of Ukraine’s GDP.

The Unity Facility was created with the support of the UK government, Marsh McLennan, an international reinsurance broker, and more than a dozen other British insurance companies.

As GMK Center reported earlier, in 2023, 430 vessels were accepted for loading through the Ukrainian sea corridor, 400 vessels were shipped, exporting 12.8 million tons of cargo. It was the corridor’s operation that largely made it possible to increase cargo transshipment in Ukrainian ports by 5% y/y – to 62 million tons last year, although only the port of Odesa showed a 9% increase in transshipment to 8.4 million tons in the period under review.