Shipping costs soar in wake of attacks
LONDON — For about two months, a barrage of missile and drone attacks in the Red Sea by Houthi rebels has posed a difficult choice to shippers using the Suez Canal: They can risk an airborne strike and pay sharply higher insurance rates, or forgo the canal and take the longer route around Africa, snarling schedules and entailing higher fuel charges.
The attacks — at a choke point that handles 12% of global trade, including nearly one-third of the world’s container ship traffic — have forced some shutdowns at European auto plants and raised fears of a surge in consumer prices.
For shipping companies, costs have already increased. A composite measure of global shipping costs, the Drewry World Container Index, has more than doubled since late last year. The rise is partly tied to a shortage of empty shipping containers, caused by the up to two weeks of additional time for trips going around the Cape of Good Hope.
And using the Red Sea now requires expensive war-risk insurance. It’s a specialty that a group of brokers and underwriters centered in London offer.
“We are there for our clients when things are at the most difficult,” said Munro Anderson, head of operations at Vessel Protect, a marine war-risk insurance firm.
War-risk coverage is often required for vessels going into areas designated as high risk by a group of insurers called the Joint War Committee, which consists of underwriters at Lloyds and other organizations. War risk is “an area of business where generally if the underwriting community get it right, they make money out of it,” said Marcus Baker, global head of marine, cargo and logistics at Marsh, an insurer in London.
But the cost to insure container ships or tankers transiting the Bab al-Mandeb strait off Yemen en route to the Suez has jumped in recent weeks.
Marine war-risk premiums have soared around fiftyfold since before the war, to as high as 1% of the value of the ship, although about 0.7% appears to be more common. For a ship carrying goods worth $100 million, that means an extra $700,000.
Some underwriters are also insisting that clients have language in their contracts guaranteeing that they have no connection to Israel, whose military campaign in the Gaza Strip is the reason the Houthis give for their attacks; or to the United States and Britain, which have launched air and missile strikes on the Yemen-based group.
The U.S.-led multinational naval task force that protects commercial ships in the Red Sea and the Gulf of
Aden has not helped lower insurance costs, brokers say, although rates may be leveling off.
But at the moment, most of the giant vessels that bring stacks of containers to Western ports from China are taking the Africa route, which could require an extra two weeks with higher fuel costs.
Over a recent 30-day period, 517 container ships steered clear of the Red Sea by going around the Cape of Good Hope, while 212 continued through the Suez Canal, said Jonathan Roach, who tracks container shipping for Braemar, a London ship broker. In November, he said, the ratio was roughly the reverse.