Red Sea attacks ignite shipping insurance rates
Houthi rebel attacks on commercial ships in the Red Sea have caused a sharp rise in the price of shipping insurance contracts, with fees being imposed to cover risks associated with conflicts, in addition to the significant increase in the cost of shipping due to taking a longer alternative route.
Since last November 19, the Iranian-backed Houthis have been carrying out attacks on commercial ships in the Red Sea that they suspect are linked to Israel or heading to its ports. They say that this comes in support of the Gaza Strip, which has been witnessing a war since October 7, 2023. .
According to the International Monetary Fund, shipping containers through the Red Sea decreased by approximately 30 percent within one year. Before the conflict, between 12 and 15 percent of global trade transited through the region, according to European Union figures.
Commercial ships should have three types of insurance: insurance on the ship’s hull, that is, against damage that may befall it, insurance on its cargo, and finally “protection and compensation” insurance, which includes unlimited coverage for damage that may be caused to other parties.
However, the cost of insuring ships and cargo against risks related to conflicts “has increased significantly” in light of the existing conditions in the Red Sea region, according to Frédéric Donville, General Manager of the Garex Group, which specializes in insurance against risks related to conflicts, who confirmed that this happened in a manner “proportionate to Threats,” according to Agence France-Presse.
Neil Roberts, head of the marine and air insurance department at the British company Lloyd’s Market Association, explained to Agence France-Presse that “the Red Sea is a classified area, which means that ships intending to enter it must inform the insurance companies.”
In this case, insurance companies have the possibility to change the provisions of insurance contracts. This includes additional fees to cover risks associated with disputes that are sold as a supplement to basic insurance policies.
However, the person responsible for global cargo insurance at Marsh International Insurance Company explained that this new coverage is “usually valid for only 7 days, taking into account that hostilities may escalate.”
Claire Amonic, General Manager of Ascoma International Insurance Company, indicated that insurance rates “increased between 5 and 10 times, whether to insure ships or goods crossing the Red Sea.”
Huge sums of money
According to several sources contacted by Agence France-Presse, the current rate of insurance fees related to conflict risks ranges between 0.6 and 1 percent of the value of the ship… These amounts are considered huge, as the commercial ships that cross the Red Sea, the strategic waterway, are huge container carriers. Or oil tankers, often valued at more than 100 million euros.
The nationalities of the companies owning or operating the ships are also taken into account. In addition to ships linked to Israel and heading to its ports, the Houthis have begun targeting American and British ships, considering that they have become “legitimate targets” since Washington and London launched joint strikes on Houthi sites inside Yemen several times since January 12. (January) last. The US Army alone carries out strikes from time to time that it says target sites or missiles and drones prepared for launch, the most recent of which was last Wednesday.
Maritime security expert at Vessel Protect, a ship insurance company, Monroe Anderson, said, “The Houthis specifically indicated that they are targeting American and British ships” or those linked to Israel. He added that some ships are “linked to countries that do not have the same level of risk” as Chinese ships, a large number of which pass through this region, and are less vulnerable to attacks. For these ships, the value of insurance against risks associated with conflicts is lower than for other ships.
While Amonique pointed out that there is of course a “major increase” in contract prices on the part of insurance and reinsurance companies, she stressed that “there is no refusal to insure” a ship, stressing that it is a “good thing” for customers.
As for ships that choose to avoid passage in the Red Sea by taking an alternative route that circumvents the Cape of Good Hope in the far south of Africa, they face other costs associated with prolonging the journey.
The journey takes an additional 10 to 15 days via this route, and sometimes up to 20 days depending on the speed of the ship. In this case, the ships save the cost of securing passage through the Red Sea, but “there is an additional cost of fuel” and labor while paying higher wages to the crew.
According to a report by the financial company “London Stock Exchange Group”, the cost of a trip from Asia to northwestern Europe increased by 35 percent for a large container ship, and by up to 110 percent for an Aframax class oil tanker (that is, those with a carrying capacity between 80 and 120). thousand tons).
There are other risks as well, as Amonic warned that diverting many ships to the Cape of Good Hope “would likely lead to an increase in piracy operations in the Indian Ocean,” warning that “the danger extends down the Red Sea toward the Somali coast.”
Impact on inflation
Meanwhile, analysts from Moody’s Investors Services said on Thursday that attacks on commercial ships in the Red Sea lead to delayed goods and increased shipping costs, but weak demand and the abundance of ships mitigate their impact on inflation.
Transfers are not expected to have a significant impact on inflation, because they are not driven by demand, said Daniel Harreld, a transport sector analyst at the credit rating and risk analysis company.
Rerouting ships to sail around Africa requires an increase in the number of ships by 6 to 10 percent due to longer sailing times that slow the return of ships to their departure points, raising spot prices on demand on some routes by more than 100 percent.
These increases came after very low levels, and shipping experts expect things to return to normal. This is because shipowners, to whom new ships were arriving, were finding it difficult to fill existing ships with goods before the Houthi attacks began in November… The automotive sector appears to bear the brunt of the impact of the unrest, as Tesla and other manufacturers have temporarily suspended European production as a result Due to lack of components.
2024-02-23 14:04:05
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