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Good news from Gaza, but shipping needs to wait and see

Houthi violence against vessels has cost the world economy billions

Hope for the best, prepare for the worst, and be unsurprised by anything in between

A CEASEFIRE between mutually exhausted Israel and Hamas is good news for the Middle East and good news for the world. It should eventually prove good news for shipping too, although that assertion comes with inevitable caveats.

The release of Israeli hostages and a lull in the killing for at least six weeks, with the anticipation a fuller settlement to come, will immediately be welcome to anyone motivated by rational and humanitarian values, however they earn their living.

We will have to wait and see whether we get there, of course. There are ample precedents for those disposed towards a dramatically world-weary take.

But for our industry, matters will inevitably take longer to return for what passes for normal in that troubled region. The disruption to maritime trade as usual — if ‘usual’ is a word that can ever be applied to the Middle East — has been immense.

The outbreak of conflict in Gaza had the immediate consequence of disrupting port calls to Israel and adjoining Lebanon. That has more or less been forgotten in the light of what happened next.

The main impact for shipping has been one of their manifold regional ramifications of the hostilities. The month after the fighting started, the Houthi faction in Yemen commenced a wanton campaign of violence against vessels in the Red Sea.

Ostensibly they are acting in support of Hamas, although their own agenda of carnage is all too apparent. Their onslaught has included the hijack of a car carrier and dozens of missile and drone strikes on ships seeking to make use of their legally enshrined right of innocent passage.

This has cost the lives of at least four seafarers, and the 25-strong crew of Galaxy Leader (IMO: 9237307) are still being held hostage in Hodeidah after well over a year. There have been at least five actual or constructive total losses, running to hundreds of millions of dollars.

 

 

 

London-based marine insurers have taken the payouts on the chin, to such an extent that one leading broker believes that the hull war risk market, normally a reliably profitable line, made a loss in aggregate last year.

But the wider economic losses to the world economy, resulting from the correct decision of most shipowners to reroute from the Suez Canal to the Cape of Good Hope, have been substantial.

Rough and ready quantification is possible. Data from Lloyd’s List Intelligence suggests that 12,305 more vessels have opted for the longer voyage.

Meanwhile, data provider the London Stock Exchange Group assesses the incremental cost, mostly attributable to extra fuel costs, at $932,905 per trip.

By way of an offset, there needs to be a deduction for the savings on Suez Canal fees, which are negotiated individually, but typically run to hundreds of thousands of dollars.

But any way you slice it, it ends up in the mid-single-digit billion dollar range, and probably a multiple of four or five times the value of the Manchester United squad.

Container lines have responded by jacking up prices, which will likely mean that 2024 will be another year of bumper profits, with shippers ultimately footing the bill.

The consequences don’t end there. To take another example, the waters around South Africa are notorious for poor weather, palpably increasing insurance risk from factors such as stack collapse, as Gard has pointed out.

The outlook now hinges on whether the ceasefire evolves into a peace treaty and whether the Houthis desist from aggression rather than seek alternative dubious justifications for it. Both are big ifs.

In the best-case scenario, the working assumption is that most vessels will ultimately resume transits through the Suez Canal. That will come as an immense relief to the Suez Canal Authority, which lost around $2bn in revenue in the last fiscal year.

But for now, an air of caution rightly prevails, as is clear from the state attitudes of such shipping leaders as Maersk and Frontline. Meanwhile, the threat assessment from EU Naval Forces Operation Aspides understandably remains unchanged.

It will need some months before responsible shipowners conclude that the Red Sea is once again safe. Once they do, the rescheduling will take weeks to plan and further months to roll out. Inevitably, the knock-on effects will include port congestion and disorder throughout the supply chain.

The marine insurance market will respond according to its own commercially driven imperatives. Soundings from market sources suggest hull war risk rates have already fallen in the absence of major casualties since Sounion (IMO: 9312145), and the prospect is for a further decrease.

Watchfulness remains a valid stance for all concerned. But perhaps the best advice at this juncture comes from American author Maya Angelou: hope for the best, prepare the worst, and be unsurprised by anything in between.

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