War-risk insurance premium has now climbed to 0.75-1% of the vessel’s value, according to US-based supply logistics firm Flexport reports.
According to Flexport, shipowners will now have to pay roughly $1-2.5 million for war-risk insurance cover, depending on vessel age, size and type.
In addition to the soaring annual premium, shipowners will also have to pay an additional premium if they want to transit via the Red Sea. It is because several Protection and Indemnity (P&I) clubs have expanded their additional premium zones across the Indian Ocean, Gulf of Aden and Southern Red Sea.
“The heightened insurance rates can actually make the Cape of Good Hope routing more cost effective for carriers relative to the Suez Canal despite the higher fuel costs,” Flexport writes.
Major container lines avoid Red Sea as attacks enter third month
Yemen’s Houthi rebel group started attacking commercial ships in the southern Red Sea and the Bab al-Mandeb Strait between Yemen and Africa on 19 November 2023.
Since December, over 26 vessels have faced missile strikes, near misses or threats from the Houthis, according to marine risk management firm Ambrey. This includes vessels owned by major shipping companies, including A.P. Moller-Maersk, Mediterranean Shipping Company (MSC) and CMA CGM.
Several shipping companies, including MSC, Maersk, Hapag-Lloyd, Wan Hai Lines, Ocean Network Express (ONE), HMM, Evergreen and Yang Ming, have rerouted their vessels via the longer Cape of Good Hope route to avoid these attacks.
As of 18 January, 549 container ships have been diverted or are planning to reroute via the Cape of Good Hope instead of the Suez Canal route to avoid Red Sea attacks, Flexport says.
Meanwhile, Bloomberg reported that “some ship insurers are starting to avoid covering US and UK merchant ships against war risks when they navigate the southern Red Sea,” citing Marcus Baker, global head of marine and cargo at Marsh. This could result in US and UK-based commercial shipping companies also rerouting through The Cape of Good Hope in the near future.
By Konica Bhatt
Source: ENGINE
Photo credit: Chris Pagan on Unsplash
Published: 23 January, 2024
