Bloomberg reported that insurance costs for ships transiting the Red Sea are rising amid the growing threat of Houthi attacks in Yemen. Already designated as a hazardous area for commercial shipping by the U.S. Navy insurance barriers further exacerbate trade problems across the vital waterway. Since the United States and Britain launched coordinated airstrikes against Houthi forces late last week, insurance companies have increased premiums, charging between 0.75  and 1 percent of the value of ships passing through the region, according to Bloomberg.

Just a few weeks ago, the coverage was only 1 in 10. On a new ship worth $100 million, he applied for war insurance of 1%, equivalent to her $1 million of the cost of crossing the Red Sea and the Gulf of Aden. The insurance jump acts as an economic deterrent for shippers already struggling with Suez Canal transit fees. Shipowners and charterers are, therefore, beginning to consider alternative routes, particularly around the Cape of Good Hope.

Increase in Transportation

However, such long-distance transportation inevitably increases fuel costs for shippers and increases emissions. Analysts at Clarksons Securities, including Frode Morkedal, said in a report: “Shipowners and charterers may find it more cost-effective to reroute around Africa than incur the combined costs of Suez Canal transit fees and insurance.” Aden The risk of navigating the Gulf remained as of January 15th. A U.S.-flagged merchant ship. 

The Department of Transportation has since issued an updated alert warning commercial vessels to avoid the southern Red Sea, Bloomberg reported. “Interest rates are rising to reflect the significant and uncertain risk exposure in the Red Sea,” said Munro Anderson, director of maritime warfare risk and insurance at Vessel Protect. “The main difficulty in the current situation is the speed at which the risk profile is changing, resulting in much more dynamic pricing than usual.”