Bulkers carrying Russian coal were left stranded mid-voyage without insurance this summer after the European Union changed its sanctions guidance, lawyers have told TradeWinds.
One bulker stuck in the Mediterranean was forced to divert to a safe port before reaching its planned destination to unload cargo to avoid falling foul of regulators, they said. All sides suffered losses over a deal that will end up in the courts.
Law firm Wikborg Rein warned that shipowners could face similar problems in December, when the EU plans to introduce a ban on seaborne crude oil imports allied to a complex price cap plan designed to keep oil flowing to countries outside of the 27-nation bloc.
Details of the stranded bulkers were not disclosed, owing to client confidentiality, but Wikborg Rein said that at least two ships were left without insurance outside the Suez Canal and in the Mediterranean after insurers pulled cover after a shift in EU guidance.
The EU banned the import of Russian coal into the EU as part of a fifth package of sanctions targeting Russia after its invasion of Ukraine in April but appeared to leave open the option of shipping it to third countries.
That opportunity was closed off in further guidance in June and August after some bulkers had already been loaded and left Russian ports, leaving owners in a no-win situation, according to the London-based lawyers.
Some vessels were left stranded for weeks before deals were struck between charter parties to avoid completing deliveries of sanctioned cargoes on uninsured vessels.
The number of cases caught by the changing regulations remains unclear, but Wikborg Rein said it expected every shipping law firm in London to be handling similar cases.
- 8 April: “As part of the EU’s fifth sanctions package, the restrictions state: It shall be prohibited to purchase, import, or transfer, directly or indirectly, coal and other solid fossil fuels… into the Union if they originate in Russia or are exported from Russia.”
- 14 June: “The prohibition on purchase applies irrespective of the final destination of the goods.”
- 10 August: Russian coal sanctions come into force after four-month wind down. “It is not relevant whether the goods are destined for the EU or not.”
- 19 September: “It is not relevant whether the goods are destined for the EU or not… However, the Union is committed to avoiding that its sanctions impact food and energy security of third countries around the globe, in particular of the least developed ones.”
The cases followed questions over the 57,982-dwt Stavros (built 2010), which reportedly loaded 53,000 tonnes of coal at the Taman Bulk Cargo Terminal on the Black Sea on 29 August. The Eastern Mediterranean Maritime-managed ship arrived in Iskenderun, Turkey, on 5 September, according to Bloomberg.
Based on data from Refinitiv and MarineTraffic, campaigning group Global Witness also said that Oldendorff Carriers was moving multiple shipments of coal from Russian ports after the coal sanctions kicked in on 10 August.
The German-based company said that it had not lost its insurance cover for any of its shipments over the summer.
“We have always operated strictly within the limits of the sanctions regulations and have not had any issues with insurance cover,” said Oldendorrf in a statement.
In the case of the unidentified vessel stranded in the Mediterranean, there was a risk of a misdelivery claim if the ship diverted to the nearest safe port after losing insurance cover, said lawyer John Butler.
If it returned to the port of loading there would be “some difficult questions” from Russia. If it continued its journey, it would be travelling uninsured with a sanctioned cargo, he said.
Butler told a briefing in London that the effect of the EU's guidance was to “leave clients in a very difficult position with no good options".
He added: “I would love to say that we took them to arbitration and won. The reality is that case ended with a commercial settlement which was the best possible outcome.”
The ship sailed to a safe port, where it unloaded part-way through the voyage where it was collected by the owner of the coal.
U-turn
The deal was struck before the EU changed its rules again in September to clear the way for shipments to non-EU countries struggling with the impact of soaring energy prices.
The West of England P&I Club highlighted the U-turn in a statement on 21 September in which the EU took a stance that was “contrary to the position taken … in August”.
Lawyers said the dispute was likely to be a foretaste of larger potential problems after 5 December after the EU agreed on a price cap plan.
Daniel Martin, a sanctions expert at London-based shipping specialist law firm HFW, said that owners and insurers were grappling with Russian-related sanctions that were more complex than anything they had seen before.
“As part of this, they crave certainty, predictability and consistency,” he said. “They need to know that there is a level playing field for all operators, with clear rules and confidence that any change will not be back-dated.”
He said the updated guidance on coal imports “have led to uncertainty and disruption within the market, making the position of owners and their insurers more difficult, as they struggle to keep up with the changing landscape.”
He said that future restrictions on oil needed to be clear and consistent so they did not impose a “disproportionate burden on owners, operators, charterers and insurers”.
The EU reached an agreement on Wednesday to include the cap as part of an eighth package of sanctions currently despite concerns from Greece, Cyprus and Malta, who feared the impact of the package on their maritime industries.
The plan places the onus on the shipping industry and insurers to ensure the price of the cargo does not breach the cap, which is designed to stop profits from Russian oil exports and limit Vladimir Putin’s war chest for continued fighting in Ukraine.
But even if owners perform their due diligence before lighting oil, the system as it stands appears to be open to abuse and problems may only come to light during voyages, said a second Wikborg lawyer, Sebastian Sandtorv.
He said many owners will decide not to carry Russian oil because of the regulatory, legal and reputational fears, leaving such trades to a small section of the market willing to accept the risk because of the prospect of high returns.
He said falsified paperwork discovered after loading could lead to “shipments at sea with unclear insurance positions”.
