The final weeks of 2023 brought news of attacks on ships sailing through the Red Sea and announcements from major carriers stating their intention to avoid the area. Ahead we review the impact this situation has for traders and provide some pointers to help you mitigate its effect on your operations.
The attacks, carried out by rebels in the Yemen region, are particularly problematic since they impact cargo approaching the Suez Canal, the key trade artery between Asia and Europe. Consequently, the attacks affect a considerable portion of global trade and are therefore predicted and indeed already beginning to impact supply chains. Unsurprisingly, this disruption has consequences for consumers and traders alike.
Following Maersk’s example, most major shipping lines are now avoiding sailing through this area. Carriers are instead taking an alternative route around the Cape of Good Hope. This has numerous consequences.
Firstly, this alternative route around Africa adds thousands of miles to each movement. In addition to delaying shipments by approximately 10 days, this increased distance means increased fuel consumption. Longer transit times, then, are likely to be reflected in higher ocean freight rates and either an increase in bunker adjustment factor (BAF) fuel surcharge or additional 'emergency bunker' fuel surcharge.
For cargo still travelling through this area, traders are likely to see a 'war risk' or 'piracy' surcharge applied to their freight rates. Each shipping line will handle this differently, so it's important to speak to your provider.
Marine or Cargo insurance will be a key factor in both circumstances. Shippers continuing to move goods through this area will have to consider whether existing policies cover loss or damage in this emerging situation, whilst those without cargo insurance in place at present might find it difficult to get cover for cargo moving through the area or at least will face inflated premiums.
Likewise, since the alternative ‘round Africa’ route also presents its own piracy risks, traders moving goods on this lane are also likely to see increased insurance premiums. Again, the circumstances surrounding each shipment will vary and so traders should contact their insurance provider to determine their own situation.
Whilst there has been talk more recently of intervention by various governments and their naval forces, this situation is ongoing, and the full scale and extent of its impact is difficult to predict. We will continue to bring you the latest updates and their implications for traders as they arise.
In the meantime, we would urge all shippers who believe their goods might be impacted to contact their carrier, in the first instance, to determine the route that their goods will take and the impact this might have on both freight rates and transit times. After this has been clarified, traders can then contact their insurance providers, if policies are in place, to check whether their cargo is covered on the current route and in the event of any loss or damage as a result of potential attacks.
**As of 11.01, the US and UK have carried out air strikes on Houthi rebels in Yemen, according to US officials. This military response has prompted Houthi groups to vow retaliation. A major escalation in this situation seems likely. We will continue to bring you the latest updates and their implications for traders as they arise.
