Shipping companies in the Black Sea are reportedly facing war-risk premiums as high as $5 million

• Insurance companies are tacking on war-risk premiums, Bloomberg reports.
• Vessels that travel the Black Sea face an elevated risk of damage from missiles and mines.

War-risk premiums for cargo ships and tankers traveling the Black Sea have made the vessels nearly un-insurable and threaten to send prices even higher.

Insurance companies are tacking on premiums worth as much as 10% of a vessel's value for ships that traverse the Black Sea, according to a recent report from Bloomberg. The publication cited four people involved in the market, who said some underwriters are providing elevated prices in the hopes they are refused, while other insurers have left the market entirely.

Russia's attack on Ukraine has heavily impacted cargo ships that travel the Black Sea — a key route for oil and bulk food exports. Last month, a supply-chain expert told The New York Times the war could triple ocean-shipping rates at a time when the global supply chain is still reeling from the pandemic.

One of the insurers, who preferred to remain anonymous, told Bloomberg that the freight prices will be unsustainable for customers. Experts have previously told Insider that additional transportation costs will likely be passed on to customers. The conflict could send gas and food prices higher at a time when inflation in the US is near a four-decade high.

Before Russia's attack on Ukraine, there was almost no additional cost for ships in the Black Sea. But, now Bloomberg reports that the additional insurance cost would amount to about $5 million for a standard tanker worth about $50 million — 30% higher than the cost of hiring the ocean carrier itself.

Vessels traversing the Black Sea face an elevated risk of damage through striking a mine or becoming subject to a missile attack. When Russia first began invading Ukraine, multiple ships were struck by explosives and there were reports of Russia using some of the vessels as a "human shield." The ships could also become detained in the area, forcing the shipping companies to declare the cargo at a loss.

While shipping companies could choose to go without insurance, the decision could lead to significant risks for costs associated with oil leaks, cargo loss, and crew liability — all issues that could cause shipping company's costs to skyrocket.

Eytan Buchman, the chief marketing officer at Freightos, told Insider that ocean carriers are facing elevated prices from all sides as surging fuel prices are also adding to shipping costs.

"It's a ripple effect. In supply chains as a whole there's very little room for failure. All you need is one screw missing, one hiccup, and you have a problem," Buchman said. "Here we have a situation where logistics companies are facing multiple problems at once," he added.

Read the full report on rising insurance costs on Bloomberg's website.