Marine transport is well known as a business that remarkably suffers from numerous exogenous variables and external events. All this destabilizes marine traffic that is gradually consolidated in time.
As of February 2022, due to the geopolitical context (Russian-Ukrainian war and tensions in the Red Sea due to Houthi attacks) and climatic conditions on the Panama Canal, the shipowners and more in general the operators of the market are finding themselves operating inside of a complicated context and full of traps.
Regarding the current geopolitical context, it is clear that any new war action entails an important limitation to international trade and transport activities. Just think, for example, of the application of the International Sanctions imposed by the G7 countries on Russia for the trade of certain goods (oil and derivatives on all, but also steel) or the growth and continuation of terrorist activities by the Houthis in the Gulf of Aden area.
The crisis triggered by the Houthi movement in the Red Sea, starting from November 2023, is generating multiple difficulties for navigation and the global logistics chain.
The shipowners and/or the charterers, indeed, have found themselves having to choose between crossing the Suez Canal, with greater exposure to the risk of being targets of attacks from Houthi or circumnavigating the Cape of Good Hope, with a consequent increase of the costs (bunker costs) and an estimated longer sailing time in ten days. Currently, some of the main container carriers like Maersk and Hapag Lloyd are completing the circumnavigation of the continent of Africa, generating important repercussions on the actors downstream of the logistic chain, like the port’s operators, the recipients of the goods, and finally the final consumers of the product (suffice it to think that in January 2024 the passage through Suez is diminished of 38% regarding December 2023 for the container ships).
The transit through the Cape of Good Hope generates a considerable reduction of the marine traffic inside the basin of the Mediterranean Sea (with a deviation of this towards the so-called “Northern Range” and a consequent decrease of the “touched” in the main ports like Barcelona, Athens, and Genoa).
On the other hand, a common thought can be made about the recipients and end consumers of the product. Both parties are heavily penalized in two respects: the first is the delay in the delivery of goods (with strong repercussions on the logistics chain, such as semi-finished products and raw materials from Asian countries) and the second, no less important, is the cost aspect that is directly transferred to these two categories, in particular that of final consumers.
The above has had and continues to generate significant repercussions regarding the insurance of the ship and especially the component related to the so-called war risks (a situation that in some respects reminds that of 2022 when it was necessary to face the problem of navigation within the Black Sea and in which rates between 0.90% and 1.25% of the value of the ship and with validity 24/7, still in force).
Over a few weeks, the shipping market, because of the more and more frequent attacks of the Houthi and the criteria more and more uncertain (from the ships tied to Israel to those that fly British and American flags), faced both an increase in rates and a tightening of the conditions of coverage (time validity reduced to 24 hours).
The insurance market, mainly London market, from the first moments has moved decisively in one direction (with few exceptions): it has promoted an increase of the rates from 0.0100% to peaks of 0.7000% – 0.7500% of the value of the ship, to stand until the first half of June 2024 at a rate of 0.55% with a reduction in the No Claim Bonus that somehow generated a less heavy impact from a monetary point of view (from 17/06/2024 there was a general increase in rates, caused by the attack on the bulker ship Tutor). This is equivalent to hundreds of thousands of dollars if we consider, for example, a ship with a value between 80 – 100 million dollars. In light of this scenario, most people would think (and rightly so) of an enrichment of insurance companies; however, one could say that we are faced with a contradiction. Indeed, as reported by Frédéric Denèfle, President of the International Union of Marine Insurance (IUMI), against a robust rise in rates, is considered that from November 2023 today the number of ships attacked by the Houthi attests in a range between 150 and the 175 units, with potential damage for the marine insurers pairs to 5 billion dollars. Moreover, the large price increases applied by the maritime insurance market have effectively discouraged transit through the Suez Canal (which saves time but still does not guarantee the safety of sailors and the ship, even if insured).
This has induced shipowners and charterers to favor the circumnavigation of Africa.
As a result, costs have increased, but a higher fill rate has been achieved (reduction in the supply of transport) and a general increase in freight rates.
#Shippping #Geopolitics #RedSea #Insurance #MarineInsurance #Houti
(Source: reinasia.com; maritime-risk-intl.com; IUMI Singapore Meeting, speech focal points)
