Japan shipper seeks government support for Russia insurance risk

Major Japanese shipping company Nippon Yusen KK is seeking a government guarantee to insure vessels at risk from Russia’s war in Ukraine. 

Conditions for getting war insurance for ships entering Russian territorial water have gotten stricter, said Takaya Soga, the company’s chief financial officer who will become president in April. He said the private sector alone can’t cover for the risks. 

“We think that a framework similar to the one made for Iranian crude oil is something that can be taken as a next step, and we have asked the government to consider,” he said in an interview with Bloomberg News. Japan in 2012 passed a sovereign insurance bill for tanker owners carrying Iranian oil amid European Union sanctions. 

The issue has been bubbling since December, when Japanese insurance firms announced a halt of coverage for marine hull war risks in the region. Companies including Tokio Marine Holdings Inc. were later able to negotiate reinsurance coverage, but there hasn’t been a comprehensive solution as the war in Ukraine continues. 

Vessels are covered for each trip made, meaning “the ships might be insured today, but could lose that coverage next week,” Soga said. Creating a bill similar to the one made for Iranian crude will likely take time, but Soga said he hopes there will be a framework within the fiscal year starting next month. 

Japan’s government has an interest in the continuance of shipping coverage, especially as it has emphasized the importance of liquefied natural gas supplies from the key Sakhalin-2 project in Russia’s Far East for the country’s energy security. Japan relies on Russia for about 9% of its LNG. 

Soga discussed a range of topics during the interview, including the outlook for shipping:

• Container shipping demand for the Pacific route is low, and may return when inventories in the US fall, possibly after this summer, he said
• Term contracts signed last May had higher freight rates, which will help full-year earnings
  • Contract renewals will begin in April, and fees could be dragged down by the current lower shipping rate
  • Nippon Yusen’s container transportation service joint venture Ocean Network Express “has cost competitiveness, so we do not expect lower rates to lead to losses”

On possible deals and shareholder returns: 

• Company’s midterm plan includes 140 billion yen ($1.1 billion) for management allocation including M&A
• Depending on how much Nippon Yusen spends on deals, it may consider using leftover funds for shareholder returns

On climate change goals: 

• Slow steaming and using efficient shipping routes are steps that can be immediately taken to lessen carbon emissions
• Company will gradually change its fleet ahead of 2050, opting for more vessels that burn alternative fuels such as ammonia and hydrogen