Israeli-owned ships are facing particularly high insurance rates due to being directly targeted as Red Sea shipping attacks continue, according to AM Best Senior Economist Graziano Brady. Some insurers are refusing to cover these ships altogether, he said.
Geopolitical unrest in the Red Sea has severely impacted global trade, with the disruptions mainly caused by Houthi Rebels who have been attacking the ships using the Suez Canal as a main trade route, market watchers said. Companies are continuing marine coverage but at a war risk premium due to the high risk of protection/indemnity claims. These ships face navigational risks such as missiles and mines. There is also fear of cyberattacks and the resurgence of piracy.
Ships going to and from Europe are being rerouted to Cape of Good Hope. However, these vessels are facing their own set of problems as a result.
The route adds 10 to 15 days of travel and cost of emissions and fuel out pace the tolls of the Suez Canal route. Global Head of Marine Risk Consulting for Allianz Rahul Khanna notes the increased emissions have also created environmental, social and governance concerns for marine insurers.
Extreme weather has also caused issues. Low water levels in the Panama Canal, which add to problems with supply chain disruptions. This could cause spikes in freight rates and supply chain constraints.
Additional concerns come from shadow fleets believed to be carrying oil from sanctioned countries, according to Khanna. These vessels are often older ships that are likely not that well-maintained causing even higher risk to an already shaky operation. Another issue for these fleets is that insurance often will not cover them.
This is especially dangerous in the case of a wreck as resulting clean up efforts will likely be minimal resulting in heavy environmental damage.
The economic impact has also affected various countries. Revenue in Egypt from the Suez Canal has been halved because of the fighting. This has worsened their shortage of foreign currency.
Europe has also taken a hit from the reduced transit, particularly companies that rely on trade with Asian countries. Despite increased shipping costs, inflation has been minimal due to low demand and the cost of shipping in total production being smaller.
Companies have begun taking steps to adapt to these recent challenges. Programs are being developed to enable grain exports out of the Ukraine. Though complexities of global shipping remain complicated due to the fighting.
The insurance Market and Joint War Committee are working with shipping companies and governments to maintain trade flow and provide coverage despite increased risks, according to Andrew Moulton, executive underwriter for Ascot Group.
The United States and United Kingdom have had little success in curbing rebel attacks. Their own ships also being part of those explicitly targeted. It is uncertain how long the when the conflict will end.
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