Ukraine Approves Shipping Compensation Fund as Grain Deal Falters

With further signs that the Black Sea grain deal is faltering, the Ukrainian government reports that it is moving forward with plans to support the commercial shipping industry by providing compensation for losses when insurers refuse to provide coverage due to the war. The plan, which was first proposed in February, was approved at a meeting on June 5 by the Cabinet of Ministers of Ukraine. Up to UAH 20 billion (approximately $541 million) has been allocated for this purpose.

"Ensuring the stable operation of civil navigation in the Black Sea, particularly within the framework of the grain initiative, is impossible without insurance coverage for carriers facing all risks associated with Russian aggression. We have observed that insurance companies are hesitant to cover such risks, and this poses a threat to the stable functioning of Ukrainian ports,” the government said in its official statement.

The coverage will be available for foreign-registered ships as well as those registered in Ukraine. Ships directly or indirectly controlled by Russia or Belarus are excluded as are individuals and legal entities who are subject to Ukrainian sanctions. 

The coverage is only for those who have entered into an insurance contract or P&I (Protection and Indemnity) policy. The companies are also required to provide written proof of a refusal from insurers to compensate for damage caused as a result of the war. The approved procedure provides guarantees of compensation for damages caused to charters, operators, and/or owners of sea vessels and inland navigation vessels.

“The implementation of the damage compensation mechanism will enable charterers and shipowners to maintain access to our ports, irrespective of the functioning or non-functioning of the grain agreement," commented Oleksandr Kubrakov, Deputy Prime Minister for the Recovery of Ukraine and Minister of Community, Territory, and Infrastructure Development. He noted that most of Ukraine’s ports and maritime activities remain blocked by Russia and that they are also blocking full implementation of the grain agreement which was extended into July 2023.

The Joint Coordination Center in Istanbul that oversees the UN grain agreement confirms the reports that the movement of ships has been slowed greatly despite the agreement in mid-May. Since the agreement, data from the center shows that only a total of 30 ships carrying just under 1.3 million metric tons have been permitted to depart Ukraine’s ports of Odesa and Chornomorsk. Since the first of June only 22 ships have departed and the port of Yuzhny although part of the deal has not had a ship since May 11. While there was a flurry of ships cleared for inbound voyages – 29 vessels – in the second half of May, there were no ships cleared to proceed to Ukraine for the first four days of June.  Between June 5 and 11 only seven ships were permitted to proceed to Ukraine.

The Ukrainian government hopes that its compensation guarantee might be used to help maintain some level of shipping and commerce, especially if the grain deal falters entirely. The May agreement had raised hopes with Turkey reporting that other ships trapped in Ukrainian ports since the invasion in February 2022 would be permitted to depart after more than a year. Foreign ship owners evacuated their crews leaving behind vessels in the first months of the conflict. Insurers have been reluctant to provide coverage and at times stopped writing coverage although the grain deal had provided some assurance and encouragement to maintain coverage.