Enterprise explains: The impact of Israel’s war on Gaza on shipping in the region.Israel's war on Gaza is affecting shipments going through the Red Sea, one of the busiest cargo transit waterways in the world. Maritime cargo vessels, which are mostly insured on a subscription basis, are expecting plenty of changes to rates and procedures, including war premium surcharges, due to escalating and unpredictable risks in the region.

Classifying risk in Israel: Israel’s risk scale on JCC Cargo WatchList rose from a high (3.0) rating to very high (3.2), on 11 October, according to a statement. It later rose again to a 3.8 rating on 17 October, another statement said.

REMEMBER- Yemen’s Houthis leader warned of attacks on Israeli ships in the Red Sea and the Bab el-Mandeb Strait, on 14 November. “Our eyes are open to constantly monitor and search for any Israeli ships in the Red Sea,” leader of the Houthi group Abdulmalik al Houthi said.

Are non-Israeli vessels affected? Not directly. Within the terms of this threat, non-Israeli-linked tankers have a limited chance of being targeted by the Houthis at the current moment, as senior analyst at risk management firm Ambrey, Robert Peters, told S&P. The fall out is expected to be localized to Israeli-owned or affiliated vessels.

But all vessels will need to exercise caution: The International Group of Protection &Indemnity Clubs released a statement recommending exercising “extreme caution,” due to evolving threats that pose a significant risk to commercial vessels in the Persian Gulf, Hormuz Strait and Oman sea, on 17 November.

Disclaimer: Piracy risks in the region are not new. Both the Persian/Arabian Gulf and Yemen, experienced only a 0.1 rise on the JCC Cargo WatchList risk scale. The Persian/Arabian Gulf rose from a “very high” 3.4 rating to 3.5, while Yemen’s rating rose from “severe” at 4.8 to 4.9, on 8 November, according to a statement.

But the last month has seen an escalation of tensions: The Houthis took 25 members hostage on an Israeli-linked cargo ship it seized — the Galaxy Leader — in the Red Sea earlier in November. Two commercial ships connected to Ray Car Carriers, whose vessel was seized, diverted their course in the Red Sea following the incident. The US navy has also been getting involved, with the latest attack this week seeing a US destroyer shooting down a drone that was about to hit a commercial vessel in the Red Sea. This week, a US warship and three commercial vessels have come under attack off the Yemeni coast.

Seasoned vessel charterers are aware of the pre-existing risks and are still traveling Red Sea routes, Luv Kamar Menghani, a shipbroker and commodities trader with UAE-based BluePeak Commodities and Shipping, told Enterprise Logistics. “These routes optimize voyage duration, are seas they are experienced with, and work for them no matter what the situation is,” he explained. Regardless of short-term caution in the region, charters are still keen to travel the Red Sea South, including those in search of Russian G7 sanction-approved crude business.

New shippers, however, are cautious, and have been shifting towards shorter voyages in the Asian Gulf or towards the Eastern routes, Menghani told us. He expects this to be temporary, regardless of the reshuffle of shipping routes, provided that attacks do not escalate to occur on a regular basis.

As are some Israeli shippers: Israeli shipping company ZIM said it would be re-routing some of its vessels, in efforts to avoid the Red Sea channel. ZIM ships are in some cases going around the Cape of Good Hope in Africa, the Financial Times reports. The company warned customers to expect “longer transit times,” as a result of the lengthy and costly re-route.

Some are implementing war risk premiums: Israeli Shipping group ZIM said it will pass on a war risk premium surcharge at a range of USD 25 per TEU to USD 100 per TEU to customers on shipments to Israel, effective 22 November, according to a statement. South Korean shipping group HMM has also implemented a war risk surcharge, according to Reuters. Ships sailing for Israel are facing a 10-fold jump in war premiums, leading shipping firms in Israel to call for the government to get involved to ensure imports continue to arrive, Reuters reports.

They’re going up by the week: Ins. providers have already increased rates last week, in some cases up to 300%, head of maritime ins. broker Marsh Marcus Baker told the Financial Times. War premiums are up this week by 0.05-0.1% of the value of a ship, from around 00.3% the week before, ins. sources told Reuters. This converts to tens of thousands of USDs in extra costs, which will hike transport costs, the sources said.

Israel is trying to minimize the impacts of premiums: In October the Israeli government said it would pay compensation for damaged ships, in efforts to minimize risks for vessels using the country’s ports.

Ins. experts say they may need to slash their rates: Israeli-owned and linked ships may need to slash prices to remain competitive, an insurance executive told S&P Global.

Some shipping firms are finding other workarounds: Oil tankers in the Red Sea are shuttingoff their tracking transponders amid the Israel-Hamas war, in a bid to navigate waters without being detected.

Vessel owners are also looking to enhance their existing onboard security by employing armed guards onboard, Menghani said. Security group Seagull Maritime have received “more and more” requests for armed guards from shipowners, COO Dimitris Maniatis told the Financial Times. Having armed guards’ onboard tankers is a usual precaution in Suez Canal South, and vessels will “pick up armed guards” on their route, who will travel with them until they surpass the area, according to Menghani. Requesting additional security measures be added to an existing or new charter contract will be the shipowner’s prerogative, and the costs will be absorbed by those chartering the tankers, he explained.

Shipbrokers are also having to do additional in-depth KYC to mitigate risks,according to Menghani, who notes that the company has “removed a ship or two [from operation], because we don't have full KYC from the owners.” It has become imperative to declare the ownership of the ship and, disclose if it has any ties to Israel, to potential vessel charters, he added. “As a shipbroker, if I find a suitable ship, and it turns out that it has Israeli ownership, that will have to be declared,” he explained, adding that he would take a different route if available.

Looking ahead: “There will be a chance for shipowners from different nationalities and different flags to take the gap in the market share,” as shipbrokers and charters are cautious to utilize Israeli affiliated ships, stressed Menghani. In the long-term, the fall in crude prices means that eventually, regardless of war premiums rising, the flow of shipments will remain steady through the Red Sea passage.

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