2024-02-23T13:33:25+00:00
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/ The prices of marine shipping insurance contracts have risen sharply with the imposition of fees to cover risks associated with conflicts due to Houthi attacks on commercial ships in the Red Sea, which is considered in addition to the significant increase in shipping costs as a result of taking a longer alternative route.
Since November 19, 2023, the Iran-backed Houthis have been carrying out attacks on commercial ships in the Red Sea and the Arabian Sea that they suspect are linked to Israel or heading to its ports. They say this comes in support of the Gaza Strip, which has been witnessing a war between Hamas and Israel since October 7, 2023, according to Agence France-Presse.
According to the International Monetary Fund, container shipping through the Red Sea has fallen by nearly 30% in a single year. Before the conflict, between 12% and 15% of global trade passed through the region, according to European Union figures.
Commercial vessels must have three types of insurance: hull insurance, i.e. against damage to the vessel, cargo insurance, and finally “protection and indemnity” insurance, which includes unlimited coverage for damage to third parties.
However, the cost of insuring ships and cargo against conflict-related risks has “increased significantly” under the circumstances in the Red Sea region, according to Frederic Denneville, CEO of Garex, a group specializing in conflict-related risk insurance, who confirmed that this happened in a way “proportionate to the threats.”
“classified area”
“The Red Sea is a classified area, which means that ships intending to enter it must inform their insurance companies,” Neil Roberts, head of marine and aviation insurance at British Lloyd’s Market Association, told AFP.
In this case, insurance companies have the possibility to change the terms of insurance contracts. This includes additional fees to cover risks related to disputes that are sold as a supplement to basic insurance policies.
However, the official in charge of global cargo insurance at the global insurance company “Marsh” explained to AFP that this new coverage is “usually only valid for seven days, taking into account that hostilities may escalate.”
Claire Amonik, general manager of Ascoma International Insurance, said insurance rates “have increased by five to ten times, whether for ships or goods crossing the Red Sea.”
According to several sources contacted by France Presse, the current rate of insurance fees related to conflict risks ranges between 0.6 and 1% of the value of the ship.
These sums 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 one hundred million euros.
The nationalities of the companies that own or operate 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 them “legitimate targets” since Washington and London launched joint strikes on Houthi sites inside Yemen several times since January 12. The US military has occasionally carried out strikes that it says target sites or missiles and drones ready to be launched, the latest of which was on Wednesday.
“The Houthis have specifically indicated that they are targeting American and British ships” or those linked to Israel, said Monroe Anderson, a maritime security expert at Vessel Protect, a ship insurance company.
He added that some ships are “linked to countries that do not have the same level of risk”, such as Chinese ships, many of which transit this area and are less vulnerable to attacks. For these ships, the value of insurance against conflict risks is lower than for other ships.
While Amonik pointed out that there is of course a “major increase” in contract prices by insurance and reinsurance companies, she confirmed that “there is no refusal to insure” a ship, considering it a “good thing” for customers.
Additional costs
For ships that choose to avoid the Red Sea by taking an alternative route around the Cape of Good Hope at the southern tip of Africa, they face additional costs associated with the length of 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 for fuel” and labor with higher wages paid to the crew.
According to a report by the London Stock Exchange Group, the cost of a voyage from Asia to northwestern Europe has increased by 35% for a large container ship, and by up to 110% for an Aframax tanker (i.e. one with a capacity of between 80,000 and 120,000 tons).
There are other risks, too. Amunek warned that diverting many ships around the Cape of Good Hope “will likely lead to an increase in piracy in the Indian Ocean,” warning that “the risk extends down the Red Sea to the Somali coast.”