“Underwriters are adding clauses saying no US, UK or Israeli involvement,” he said. “Just about everybody is putting something like that in, and many include the words ‘ownership’ or ‘interest’”
War risk rates have gone into a frenzy in recent days following the US and UK strikes, with cover surging to 1% of a ship’s value from about a tenth of that a few weeks earlier. That would mean it costs about $1 million to cover a vessel worth $100 million
Some ship insurers are starting to avoid covering US and UK merchant ships against war risks when they navigate the southern Red Sea, another sign of blowback since the two nations’ airstrikes on Yemen last week.
Houthi militants have stepped up attacks on commercial ships in the past few days, making good on a threat to respond to airstrikes that the US and UK carried out on Friday. They’ve struck two commodity carriers with missiles since Monday, although both were able to continue their voyages.
As a result, underwriters are seeking exclusions for vessels with links to the US, UK and Israel when issuing cover for trips through the area, according to Marcus Baker, global head of marine and cargo at Marsh. It essentially means they won’t provide insurance.
“Underwriters are adding clauses saying no US, UK or Israeli involvement,” he said. “Just about everybody is putting something like that in, and many include the words ‘ownership’ or ‘interest’.”
It’s the latest development showing the fragile security situation in the southern Red Sea, where western naval forces have warned that it’s unsafe for merchant shipping to pass.
On Tuesday, the Greek-owned commodity carrier Zografia was hit by a missile while sailing in the south of the waterway. A day earlier, a US-owned bulk freighter called the Gibraltar Eagle was struck.
Swaths of the world’s top owners are pausing voyages in the area, although many are continuing to do so.
Yemen’s Houthis said that US and UK ships were legitimate targets for attack,
after the two nations launched their barrage of airstrikes.
British oil major Shell Plc halted tanker transits through the region, according to the Wall Street Journal. Japanese shipping giant Mitsui OSK Lines Ltd., with a fleet of about 800 vessels, also halted transits, a spokesperson said Tuesday. Nikkei reported on Wednesday that two other Japanese shippers, Nippon Yusen KK and Kawasaki Kisen Kaisha Ltd., are also suspending all routes going through the area.
The insurance exclusions run the risk of creating problems because of their breadth.
While ownership is a relatively straightforward term, “interest” can be interpreted more widely, Marsh’s Baker said. It could span more tangential factors like charterers or previous port visits.
While attacks have been frequent, there is yet to be a missile strike that has prevented a ship from carrying on its journey.
Many vessels are suffering damage to cargo holds, or superficial damage, rather than more destructive impacts, meaning insurers are continuing to provide cover for many vessels sailing through the Bab el-Mandeb.
But risks for the wider shipping industry ares evident.
While Monday’s ship involved a US-owned vessel, it’s unclear why the Greek-owned carrier was hit on Tuesday. In the past, some ships — notably two carrying Russian oil — appear to have been targeted in error.
War risk rates have gone into a frenzy in recent days following the US and UK strikes, with cover surging to 1% of a ship’s value from about a tenth of that a few weeks earlier. That would mean it costs about $1 million to cover a vessel worth $100 million.
The cost of war-risk insurance for vessels sailing through the Red Sea is spiraling, adding a further potential impediment to trade passing through a waterway already labeled too dangerous for merchant shipping by the US Navy.
Underwriters are now charging between 0.75% and 1% of the value of the ship to sail through the region, according to people familiar with the matter, jumping significantly since US and UK airstrikes targeted the Houthi rebels in Yemen at the end of last week.
Just a few weeks ago, quotes for cover were about one tenth of that amount. The sharp increase runs the risk of making it too expensive to traverse the vital waterway.
Shipowners and charterers who are prepared to risk sailing through the Red Sea are having to weigh whether it’s cheaper to pay the mounting additional insurance costs as well as the transit fee for the Suez Canal, or instead take the long route around the Cape of Good Hope and in so doing rack up additional fuel bills.
“War risk insurance premiums for ships have skyrocketed,” Clarksons Securities analysts including Frode Morkedal said in a report. “Shipowners and charterers may find that rerouting around Africa is more cost-effective than incurring the combined costs of Suez Canal transit fees and insurance premiums.”
A war insurance cost of 1% for a newbuild ship worth $100 million would mean having to pay $1 million just to sail through the riskiest parts of the Red Sea and Gulf of Aden. Cover is generally quoted as a percentage of the value of a vessel over a given time period.
In addition, the US Department of Transportation issued an updated alert advising its merchant vessels to avoid the Southern Red Sea until further notice. A previous alert had warned vessels to stay away for 72 hours.
“Rates are increasing which is reflective of the significant and opaque risk exposure within the Red Sea,” said Munro Anderson, head of operations at marine war risk and insurance specialist Vessel Protect. “The key difficulty presented by the current situation is the rate of change in risk profile leading to far more dynamic pricing than would normally be the case.”
On Monday, a US owned commercial ship was hit by a missile while sailing in the Gulf of Aden, underscoring the persistent risk to vessels in the region. That came as Bimco, a key trade group, highlighted a US Navy warning that shipping companies should consider avoiding the area.