The ongoing Houthi actions in the Red Sea are causing the maritime industry to address the consequences of frequent attacks in a changed risk landscape. Container shippers were quickly faced by rapidly increased costs from box hire adding perhaps $10m to a 15,000 TEU charter in early January and even more since. That makes any additional insurance premiums look very insignificant and explains why box ships diverted early.

There is undoubtedly a risk of collateral damage to set alongside the deliberate targeting which may or may not be entirely accurate. More than thirty vessels have actually been hit, but what remains unclear is why the missiles have been relatively ineffective in terms of explosive damage. 

The crews were already entitled to higher wages for transits but the ITF have taken the further precaution of designating the Red Sea an area where, with 7 days’ notice, crew have the option to refuse passage. This highlights the level and perception of danger both feared and actual. All parties are very aware that when the chips are down, no amount of assessment deflects a missile. Shipowners are confronted by rising costs on all fronts plus practical difficulties should they need to replace crew.

Insurance losses to date remain within underwriting tolerance. At the time of writing, the Ruen and Galaxy Leader are potential total losses, and the stricken Rubymar had sunk, but for different reasons, none of these cases have affected hull war insurers’ risk appetite significantly. The Indian Navy quickly attended the True Confidence whose crew had suffered the first fatalities since the attacks began. Houthi threats have now also been made against ships diverting to the Cape and to add to an evolving picture, the Ruen was reportedly being used as a pirate mother ship.

For the time being, international commerce is enjoying naval support, and that is certainly a factor that helps charterers and owners opt for the Red Sea. Nearly 50% of shipping is still choosing that route and for those vessels, the London market continues to offer cover, tailored for the specifics of the individual voyages. Naturally, enhanced risk attracts an enhanced premium but the threat is clear to all.

In the meantime, the Egyptian economy is feeling the pressure of a 40% decline in the Suez transit fees that are a key feature in their economic stability, and had been taken more or less for granted up to now. The overall risk picture continues to develop with no clarity over worst case but for as long as owners take the short-cut, the cover they rely on will be available.