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Shipping insurance rates rise on Red Sea crisis

  • Operators taking longer route
  • Red Sea considered high risk
  • Maersk imposing higher charges

Insurance rates for shipping companies operating in the Red Sea are likely to rise further, according to industry experts, as the area continues to be the target of terrorist attacks by the Houthi militia.

Some of the biggest operators in the industry, including CMA CGM of France, MSC of Switzerland and A.P. Moller-Maersk of Denmark, have chosen to avoid the Suez Canal and Red Sea after a number of missile and drone attacks from the Yemen-based militants.

Shares in the Danish shipping giant Maersk were up 6.64 percent in seven days on Friday afternoon, since December 15, when the US Navy said that the Houthis targeted two ships with missiles, the MSC Palatium and MSC Alanya, as they traversed the Red Sea.

“It shows that the market believes this is going to be for a considerable period of time and that the charge rates for containers are going to increase dramatically,” said Marco Forgione, director general at the Institute of Export & International Trade, Aston University.

Insurers must be notified by ships when they are sailing through areas of heightened risk, which results in additional premiums, typically over a cover period of seven days.

Although insurance rating negotiations are considered confidential, Jakob Larsen, head of maritime safety and security at Bimco, the world’s largest international shipping association, told AGBI he had heard of rates going up “several hundred percent for vessels in the increased risk category”.

This includes the attack criteria defined by the Houthis: ships with links to Israeli interests and/or nationals and ships coming from or going to Israel.

Quotes have increased to up to 0.7 percent of a vessel’s insured value – up from 0.07 percent at the start of the month “which obviously can translate into tens of thousands of dollars of extra costs”, said Louise Nevill, UK head of marine at Marsh McLennan, the professional services company.

“While this premium increase sounds quite high, there are other areas in the world where rates are higher.”

In Ukraine, vessels carrying grain are paying rates of around 3 percent.

Earlier this week the Joint War Committee, which is made up of syndicate members from the Lloyd’s Market Association and representatives from the London insurance company market, increased the high risk zone in the Red Sea to 18 degrees north, from 15 degrees north previously, to reflect the missile range of the Houthi militants.

The shortest shipping route between Europe and Asia is from the Mediterranean to the Red Sea through the Suez Canal, through which around 12 percent of global shipping traffic passes.

The alternative route from east to west, around the Cape of Good Hope and the tip of Africa, adds an extra 3,000 nautical miles and 10 days to the journey.

The cost to ship a container from China to the Mediterranean increased 44 percent in December, hitting $2,413, as a result of the issues in the Red Sea, according to Freightos, a digital booking and payment platform for the international freight industry.

On Thursday Maersk said that it would immediately impose additional charges as a result of “severe operational disruption” on containers travelling the longer route around Africa. 

This includes a transit disruption surcharge (TDS) to cover extra costs associated with the longer journey, and a peak season surcharge (PSS) from the start of next year.

It will mean a standard 20-foot container travelling from China to Northern Europe will see an increased charge of $700, which is made up of a $200 TDS and $500 PSS.

Forgione said: “The reality is, I think there are 150 ships have diverted around the Cape of Good Hope and I think there will be many more deciding to take the alternative route.”

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