Global trade under pressure from Red Sea disruption

investmentnews.com:

The cost of insuring vessels that will transit the Red Sea jumped again this week after mounting attacks in the region forced some ships to avoid the vital waterway, underscoring the need to secure an area that’s pivotal to global trade. 

Cover has now surged to about 0.5% of the value of a ship’s hull, according to three people involved in the market. That’s a sharp increase from earlier this month, when costs were about 0.1% to 0.2% of the hull value. 

The US and its allies are bringing together a new task force to tackle Iran-backed Houthis who’ve stepped up attacks on the merchant fleet in a new risk for the global economy. They’re also weighing up possible military strikes, but diplomacy remains the preferred approach for now, according to people familiar with the matter.

So-called war risk insurance is generally quoted as a percentage of the value of the ship for the period that a vessel is trading in risky areas. That figure has climbed more than tenfold from before the attacks escalated in earnest. On Monday, London insurers expanded the regions within the Red Sea that are designated as risky — a move that effectively boosts the area in which war cover is needed.

A.P. Moller-Maersk A/S and most of the other top container shipping lines have said they will pause shipments through the area. Crude prices rose on Monday when oil and gas giants BP Plc and Equinor ASA said they would take a similar approach — adding to global inflation risks. Many are choosing to sail thousands of miles around the tip of Africa instead.

“Both options of increased premiums and rerouting around Africa will see a knock-on effect on the price of goods,” said Toby Vallance, Executive Committee Member of the London Forum of Insurance