The conflict in Ukraine is likely to have a very limited impact on the Indian shipping industry. With severe sanctions imposed against Russia by the US and its western European NATO allies, it is the bilateral trade, insurance premiums and hiring of Russian and Ukrainian crew that could be markedly affected.

“For instance, we import crude oil from Russia using the Vladivostok to Chennai route. India imports on a free on board (FOB) basis and sells on cost, insurance and freight (CIF) or cost and freight (CFR) basis. Due to the ongoing conflict, Indian Oil PSUs may convert contracts to CFR basis to not expose Indian ships to the war-like dangers in that region,” CEO, Indian National Shipowners’ Association (INSA), Anil Devli told Business Today.

In FY2020-21, the trade between India and Russia totalled $8.1 billion, according to commerce ministry data. Indian exports amounted to $2.6 billion, while imports from Russia were $5.48 billion. Russia also serves as a gateway for Indian exports to other Commonwealth of Independent States (CIS) countries including Armenia, Azerbaijan, Belarus, Kazakhstan, Moldova, Tajikistan and Uzbekistan.

Mineral fuels, oils and distillation products comprise India’s chief imports from Russia.

“Russia has good reserves of coking coal, which is used for making of steel. Supply disruptions in that area could lead Indian steel producers to look at other sources like Australia or Indonesia,” observed director and practice leader for transport & logistics at CRISIL Infrastructure Advisory, Jagannarayan Padmanabhan,

With Indian merchant vessels in the spot market shifting to safe routes, international cargo movement from and into India will be left largely unaffected. And this may work to the advantage of such operators.

“Amid the blockade of Russian vessels, there are signs that spot tanker freight rates are witnessing an upswing. This will benefit merchant shipping companies including those registered in India who are trading in spot,” informed Devli.

Insurance premium climb up

In the nine days since Russia launched military action against Ukraine, the war risk premiums for ships sailing to the region have moved up commensurate with the uncertainty. Amid allegations of an Estonian-owned cargo ship sinking off Odessa after detonating a sea mine and a Bangladeshi vessel being hit by a missile near Olvia, several shipping firms have suspended operations.

“Insurers are wary about the Black Sea and Sea of Azov from a heightened war-like situation and repercussion is in the form of sporadic issuance of notices of cancellation for cargo moving in those geographies,” said chief underwriting, reinsurance and claims at ICICI Lombard, Sanjay Datta.

However, under international insurance regulations, the war risk cover can be removed if “major countries” go to war.

“As Russia is classified as a major country, one could see the removal of the war risk premium. Another aspect is the protection & indemnity (P&I) insurance extended under the third-party liability cover. In the case of insurance companies withdrawing cover given to Russian flag vessels, they may not be able to sail internationally. However, this will need to be watched out for,” said Devli.

Meanwhile, the situation of the crew from Russian and Ukrainian crew employed by shipping companies is also left hanging in balance. If such crew wish to go home back to their families, it is not clear where they could be signed off or relieved for their journey home given that the airspace over the Russia-Ukraine region is currently a no-fly zone.

“A concern being faced by those who employ these nationalities is over salary payments due to the removal of the Russian banking system from SWIFT. Signing on of Russian crew will also become difficult due to airspace closure,” observed Devli.

“Heavy machinery like boilers, etc., onboard merchant vessels are Russian-made. Therefore, Russian original equipment (OEM) firms have long been providing operations & maintenance (O&M) support. A shortage of engineers can hamper operations going forward,” added an industry source requesting anonymity.

Shipping companies employ a large number of maritime engineers from especially Russia.