A view of the impact of the conflict in Ukraine is slowly beginning to form. A bit more than three months into the event, and the implications for transport are increasingly clear, exacerbating an already difficult situation caused by the pandemic. According to recent freight publications, freight rates have reached levels, up by a factor of five compared to before the pandemic. PCS research suggests that multi-billion-dollar industry-wide marine insured losses could result from several factors, including blocking and trapping and ports and terminals, with cargo also a contributing factor.
Of course, much remains unknown and undetermined, and the losses that do emerge could wind up classified differently. However, the underlying cargo business shows indicators of a potential insurance impact. The amount of grain moving through the historically active ports on the Black Sea and Sea of Azov, for example, has either been halted or redirected to surrounding areas. Neighbouring countries have ramped up their operations to help keep the supply chain working. Romania and Bulgaria have issued public commitments about delivering Ukrainian product to countries that heavily rely on it.
Blocking and trapping is a longer-term issue, and initial PCS client conversations suggest it could reach as much as $1 billion. The inability of vessels to move freely and safely in the region makes trapping and blocking a real concern. These losses could take time to materialize – potentially six months to a year – not to mention further claim handling considerations after that. Ceased operations in the ports could generate physical damage exposures along with business interruptions which tend to have considerable amounts of uncertainty, while stranded ships could take twelve months to be addressed.
Many in the industry are facing a cross-class loss which would have multiple lines affected, and currently marine seems to be the second largest affected after aviation. The renewable energy sector is one that will also suffer an impact as a result of the entire situation. The flow of losses will likely continue to only trickle as long as hostilities continue. Once the kinetic phase of the conflict ends and adjusters have boots on the ground that is when the real picture will likely unfold.