By Al-Fassel | 2024-02-27

Commercial shipping companies that once sailed through the Red Sea without incident are now facing myriad problems and tough decisions as they navigate -- or avoid -- the key trade route.

As the Houthis continue their indiscriminate attacks on vessels in the southern Red Sea and Gulf of Aden, with most attacks clustered around Bab al-Mandeb strait, shipping companies are being forced to weigh their options with care.

The choice is a difficult one: They can reroute their vessels and incur additional cost, or they can choose to transit the Red Sea, where they could come under attack -- a reality reflected in soaring insurance rates.

A detour around the Cape of Good Hope at the southern tip of Africa takes between 10 and 15 more days than the Red Sea route -- and it can take 20 extra days for a slow ship, AFP reported.

Shipowners also face higher fuel and labor costs for the longer trip, as well as other risks, such as piracy.

Seafarers have signed industrywide agreements giving them rights to refuse to sail on ships passing through the Red Sea and to receive double pay when entering high-risk zones, according to Reuters.

Following the Houthis' February 18 attack on the MV Rubymar, which inflicted the most significant damage yet to a commercial ship amid the Red Sea crisis, the Houthis pledged to continue their escalation.

Rubymar, a Belize-flagged, British-registered and Lebanese-operated cargo ship that was destined for Belarus with a cargo of fertilizer, was hit by two missiles near Bab al-Mandeb.

The ship's multi-national 24-member crew were evacuated to Djibouti, as the vessel leaked oil and was in grave danger of sinking.

In a televised speech, Houthi leader Abdulmalik al-Houthi on February 22 threatened more escalation in the Red Sea and Gulf of Aden, vowing to use "submarine weapons" against Western vessels, Asharq al-Awsat reported.

Shipping insurance rates soar -- for most

The Houthis' attacks on commercial ships have sent insurance premiums surging, exacerbating costs already stretched by soaring freight rates and longer alternative trade routes, AFP reported.

Maritime container transport has sunk by almost one third in 2024 to date, compared with a year earlier, per International Monetary Fund (IMF) data.

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.

Premiums for ships and their cargos have "increased significantly" following the Houthis' attacks, according to Frederic Denefle, head of the French firm Garex, which specializes in marine risk insurance.

And they have increased in proportion to the threat level, he said.

The Red Sea is a Listed Area, meaning that vessels planning to enter have to notify their insurers, said Lloyd's Market Association (LMA) head of marine and aviation Neil Roberts.

Insurance providers can then review both the vessel and its voyage, and can demand an extra war premium on top of normal coverage.

This war premium, however, is limited to a short period.

LMA's Joint War Committee gathers regularly to assess security risks to shipping worldwide.

"If you're trading into an area where this committee says that this is a bit dangerous, effectively cover ceases as soon as you go in, and then you have to pay for that period while you're in it, and then it reattaches when you get out," said Marcus Baker, global head of marine, cargo and logistics at Marsh.

Special treatment for Chinese ships

Ascoma International general manager Claire Hamonic estimated that the war insurance premium has multiplied by between five and 10 times for vessels and cargo crossing the Red Sea.

According to several anonymous industry sources, the current rate of war risk premium stands at between 0.6% and 1.0% of the value of the ship.

Some vessels are worth in excess of €100 million ($108 million).

Additionally, particular attention is given to the nationality of a ship, according to war insurance specialist Vessel Protect head of operations Munro Anderson.

"The Houthis have specifically said that they're targeting US and UK connected vessels," Anderson told AFP.

"There's a number of vessels that are flagged or associated to countries that simply don't carry the same risk profile," he said.

"For example, Chinese-connected vessels. Hong Kong Chinese-connected vessels, of which there are lots, are trading in that area. Those will be able to add less premium than those connected with Israel, UK and US," he said.

In an interview published by Russia's Izvestia on January 19, a senior Houthi official promised safe passage for Russian and Chinese vessels through the Red Sea.

Iran is closely aligned with Russia and China and has been supplying the Houthis with weapons. With the announcement, the Houthis appeared to be rewarding Russia and China and underscoring their alliance with these countries and Iran.

In an attempt to avoid becoming targets of the Houthis, "a number of vessels have resorted to Automatic Identification System (AIS) messages indicating their non-affiliation with Israel," Al-Jazeera reported.

Spire Global has shown that vessels are using protective AIS destination messages such as "allchinesecrew" or "norelationtoisrael," it said.