Escalation of Red Sea attacks leads to surge in shipping insurance rates

Houthi attacks on commercial ships in the Red Sea hiked the shipping insurance rates, with fees being imposed to cover risks associated with conflicts.

Since last Nov. 19, Iran-backed Houthis have targeted ships in the Red Sea that they suspect are linked to Israel or heading to its ports.

Houthis say their attack is in support of the Gaza Strip, which has been witnessing a war since Oct. 7, 2023.

According to the International Monetary Fund (IMF), Red Sea container shipping dropped 30% within a year.

The Red Sea is a vital route that usually carries about 12-15% of global trade, based on European Union figures.

Commercial boats need to obtain three types of insurance: hull insurance covers damage to the vessel, cargo insurance covers the vessel's load, and protection and indemnity insurance includes coverage for damage caused to third parties.

According to a London Stock Exchange Group report, the cost of a trip from Asia to northwestern Europe increased by 35% for a large container ship, and up 110% for an Aframax, an oil tanker with a deadweight between 80,000 and 120,000 metric.

Analysts from Moody's Investors Services said on Thursday that attacks on merchant vessels in the Red Sea have delayed cargo and sent higher shipping costs, but soft demand and ample ship availability are muting the impact on inflation.

Rerouting ships around Africa requires anywhere from 6% to 10% more vessels due to longer sail times, slowing the return of ships to their origination points, and sending on-demand spot rates on some routes up more than 100%.

The increases came off rock-bottom levels, and shipping experts expect them to normalize.