Global shipping is not waiting for sanctions, it’s refusing to move Russian cargo, reports FreightWaves.
Russian bookings suspended temporarily
In September 2019, the U.S. sanctioned tanker company Cosco Dalian, a division of Chinese shipping giant Cosco, for carrying Iranian crude. The sanctions only covered the 20 tankers owned by Cosco Dalian, but that didn’t matter. As a precaution, charterers shunned the entire 150-tanker fleet of the Cosco parent, causing tanker spot rates to spike.
Shipping execs don’t just refuse vessels or cargoes based on what’s definitely sanctionable. They do so based on what they believe might possibly be sanctioned now or later. Sanctions are written in precise language, but they’re messy in practice.
That precept is now on full display. Sanctions have yet to specifically target Russian energy exports or (non-dual-use, i.e., non-military) containerized goods, but that doesn’t matter. Many tanker owners and container liner operators are preemptively pulling out of Russia.
On Tuesday, MSC, Maersk and CMA CGM — the top three liner companies in the world — temporarily suspended Russian bookings. Yang Ming, the ninth largest, suspended Russian bookings on Wednesday; ONE, the sixth largest, on Sunday; and Hapag-Lloyd, fifth largest, on Thursday. These six carriers control 62% of global capacity, according to Alphaliner data.
The world’s largest container lines are dropping Russia “to manage sanctions risk but also perhaps manage reputational risk,” said Michelle Linderman, partner of law firm Crowell & Moring, during a panel presented by shipping association BIMCO on Tuesday. “Do they want to be seen as supporting Russia? Or are they going to say at this moment, while this is going on, we don’t want to go anywhere near there.”
The tanker sector is seeing the same pattern of behavior among shipowners and operators. Many are refusing to load Russian oil cargoes even though sanctions don’t bar them from doing so.
“Few owners are now willing to transport Russian oil, resulting in an undersupply of ships [at Russian export terminals],” said Clarksons Platou Securities.
Why shipping companies ‘say no to Russia’
“This is the most comprehensive and coordinated sanctions regime we have ever seen before, let alone one including a former G8 member … and it is rapidly evolving,” said Crowell & Moring partner Dj Wolff during the BIMCO event.
He explained: “Not only do you have to make sure [a shipment] is legally permissible, you’ve got to make sure every other party to the transaction thinks so: your banks, insurer, shipper, receiver, charterer, owner, etc. Otherwise, you won’t get paid, you won’t have a completed shipment or you’ll lose your insurance.”
Linderman added: “Even if you do all of those checks and you are comfortable at this precise moment in time that you can take a ship and go and load cargo or do a transaction with some Russian connection, and you get comfortable with all the parties — that’s just for now. Things are shifting so quickly. What happens if the counterparty that you just signed a charter party with or shipped cargo for gets sanctioned tomorrow, or in the next hour, or in the next 20 minutes?”
Practically speaking, this is convincing shipping companies to “say no to Russia” because it’s not worth the risk, said Wolff.
“We have seen an enormous number of our clients ask: Should we pause or withdraw from Russia? They say: If you, the outside counsel, are telling me you haven’t been able to digest these 1,200 pages of regulations, then how the heck are we as a company supposed to ensure compliance with them? We should just press pause and wait for some sort of stable state to emerge.”
“Some companies have also decided, maybe for legal reasons, maybe for a practical reason, maybe for a reputational reason, to say: I am withdrawing from Russia. You’ve seen some really big energy companies under pressure to do that, and there are a whole lot of companies that we’ve seen who are making this decision off the radar.”
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!