Shipping insurance costs rise as Houthi threats intensify in Red Sea Shipping routes

Posted on January 22, 2024   |  

Rising insurance costs are making trade challenges worse for vessels navigating through a crucial waterway.

After joint US and UK airstrikes against Houthi forces, underwriters now charge 0.75%-1% of a ship's value for voyages in the region.

For a newbuild ship worth $100 million, a 1% war insurance cost means paying $1 million to cross the Red Sea and the Gulf of Aden.

Higher insurance expenses act as a financial hurdle, adding to the difficulties faced by shippers dealing with Suez Canal transit fees.

Shipowners and charterers are looking at alternative routes, possibly going around the Cape of Good Hope. 

However, these longer journeys mean more spending on fuel and increased emissions.

Persistent risks, like a missile hitting a US-flagged commercial ship on January 15, continue to pose dangers in the Gulf of Aden. 

This has prompted the US Department of Transportation to issue updated alerts, advising merchant vessels to avoid the Southern Red Sea.