Shipping costs soar in wake of Red Sea attacks

Shipping costs soar in wake of Red Sea attacks


For nearly two months, a spate of missile and drone attacks in the Red Sea by Houthi militants has presented a stark choice for ships using the Suez Canal: Take the risk of air attack and pay increasingly higher insurance rates, Or skip the canal and take the longer route around Africa, requiring tougher schedules and higher fuel charges.

The strikes – at a peak that handles 12 percent of global trade, including about a third of the world’s container ship traffic – have already forced some shutdowns at European auto plants and raised fears of rising consumer prices. Has created.

Costs have already increased for shipping companies. The Drewry World Container Index, an overall measure of global shipping costs, has more than doubled since the end of last year. This increase is partly related to the shortage of empty shipping containers, which has led to an additional time of up to two weeks for voyages around Africa’s Cape of Good Hope.

And using the Red Sea now required expensive war risk insurance. This is a feature offered by a group of brokers and underwriters based in London.

“We are not a fair weather underwriter,” said Monroe Anderson, chief of operations for Vessel Protect, a maritime war risk insurance firm. “We are there for our customers when things are the hardest,” he said.

War risk coverage is often required for ships sailing to areas designated as high risk by a group of insurers called the Joint War Committee, which includes underwriters from Lloyd’s and other organizations. Marcus Baker, global head of marine, cargo and logistics at Marsh, an insurer in London, said war risk is “an area of ​​business where generally if the underwriting community gets it right, they make money from it.”

But the cost of insuring container ships or tankers Crossings of the Bab el-Mandeb strait on the way from Yemen to Suez have increased in recent weeks.

Maritime warfare risk premiums have increased approximately fiftyfold since before the war, to 1 percent of the ship’s value, although around 0.7 percent appears to be more common. For a ship carrying $100 million worth of cargo, this means an extra $700,000 for the few days needed to pass through the Red Sea area.

Mr. Baker said war risk rates for the Red Sea are less extreme than for shipping from Ukraine to the Black Sea, which can be as high as 3 percent. One reason for the difference: The environment is considered more hostile because Russia is a more dangerous aggressor than the Houthis. Insurers say the Houthi attacks so far have caused relatively little damage while scaring.

Some underwriters are also insisting that clients’ contracts must contain language that guarantees they have no ties to Israel, whose military campaign in Gaza funds the Houthis for their attacks, or the United States. States from the US and Britain, which have launched air and missile attacks. Attacks on Yemen based groups. In an effort to avoid attacks, an increasing number of ships have broadcast messages such as “No contact Israel”, according to monitoring service TankerTrackers.

So far, a U.S.-led multinational naval task force to protect commercial vessels in both the Red Sea and the Gulf of Aden has not helped drive down insurance costs, although rates could fall, brokers say. Israel has offered to compensate the shipowners for any damage caused in Israeli waters.

But for now, most of the giant ships bringing bulk of containers from China to Western ports are taking the Africa route, which can require an additional two weeks with higher fuel costs. Jonathan Roach, who tracks container shipping for London shipbroker Braemar, said that in a recent 30-day period, 517 container ships left the Red Sea by going around the Cape of Good Hope, while 212 went through the Suez Canal. Continued. In November, he said, the ratio was almost the opposite.

Tankers carrying oil and liquefied natural gas around the world are also increasingly avoiding the Suez Canal. Even LNG tankers from Qatar, a major supplier of gas to Europe, whose ships were considered safe from Houthi attacks because the emirate hosted Hamas leaders, are now heading around Africa, Kpler said. said Laura Page, an analyst at Inc., which tracks shipping.

Over time, more tankers may choose the longer route. Lois Zabrocki, chief executive of International Seaways, which owns and operates oil and chemical companies, said, “There will come a point when the pain and cost of going into the Red Sea and through the Suez Canal outweighs the simple economics of going around the Cape Will go.” tankers said at an investor event last week. “And it’s a constantly evolving situation.”

Still, energy prices have declined, reflecting weak demand and rising production in the United States and elsewhere, with Brent crude below levels reached on October 7, the day Hamas attacked Israel. Tanker freight rates have risen about 25 percent since the Red Sea disruption began, according to Goldman Sachs, European natural gas prices remain soft, perhaps driven by large amounts of fuel in storage and alternatives from the United States. Due to supply.

CMA CGM, a Marseille-based company that is one of the world’s largest container shippers, is sending some vessels through the Suez Canal, sometimes escorted by the French Navy. Analysts say the ships transiting through Suez are still older and smaller vessels that would suffer less damage if hit.

It’s unclear whether rising shipping costs will be reflected in consumer prices, especially in Europe, where economies are barely growing. Morgan Stanley analysts said this week that weak consumer demand means businesses will face pressure to absorb additional shipping costs into their profit margins “rather than passing on price increases to the consumer.”

One factor mitigating the current crisis is the abundance of ships and cargo containers. After the severe shipping log jam of 2022, logistics companies ordered a large number of ships and containers which are now helping to ease the global crisis in the movement of goods.

Braemar’s Mr. Roach said the longer shipping routes resulting from avoidance of the Red Sea are actually helping the market absorb a substantially greater supply of ships, at least temporarily reducing pressure on companies to scrap excess ships. Happening. “Maybe it’s not such a bad time for this situation to arise,” he said.

Despite an adequate supply of ships and containers, freight costs have increased due to the hostilities of the Red Sea. Mr Roach said it would likely take three to four months or more because of the Red Sea disruption for prices to match the 2022 peak.

Christian Roeloffs, chief executive of Container xChange, a company that operates a marketplace for shipping containers in Hamburg, Germany, said box prices were rising because the sudden lengthening of shipping journeys had left the industry with misinventory of boxes. Places.

Importers are also rushing to stock up on orders from Chinese factories before they are closed for the upcoming Lunar New Year holidays, leading to a scramble for containers, he said.

“Even though, in theory, the capability exists, it cannot be deployed so quickly,” Mr. Roelofs said. He predicted that China’s holiday period next month would give shippers time to recover. “We will actually see normalization,” he said.

jenny gross Contributed to the reporting.



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