Red Sea Security Issues are Affecting Insurance Risks for Commercial Ships

According to an assessment published by the United Nations Conference on Trade and Development (UNCTAD) in February, many ships are now avoiding the canal and changing their routes from the Bab al-Mandeb Strait to the Cape of Good Hope and choosing a longer route. The evaluation states that the number of ships passing through the Suez Canal in January 2024 decreased by 42 percent.

This situation also causes companies’ insurance risks to increase significantly, with many experiencing insurance premiums increasing 7 to 10 times as high as previously assessed.

In the report, it was stated that fluctuating freight markets and interrupted deliveries put global maritime transportation under pressure..

It was stated in the report that there are very few precautions that a merchant ship can take to protect itself against weapons, and that changing the route and moving away from the area is considered the safest way, especially for ships at high risk….Additionally, in the statement, it was pointed out that there are some issues that ships that choose or must pass through the Red Sea can pay attention to, and the following was noted:

“First of all, the recommendations, warnings and updates of official authorities need to be strictly followed. For example, regarding the security steps that can be taken by ships, there have been some recommendations from the US Navy regarding night travel and turning off AIS. There are also recommendations in the Red Sea, Gulf of Aden, Indian Ocean and Arabian Sea.” Guidelines published by international authorities, such as Best Management Practices for Deterring Piracy and Improving Maritime Security in the Sea (BMP5), should be followed and implemented.

Choosing alternative routes doesn’t really decrease insurance costs much.

In the report, it was stated that choosing alternative routes to avoid paying high premiums brings almost the same cost, and that choosing safer but longer routes to avoid areas where there are safety concerns causes an increase in fuel consumption and travel time.

The report emphasized that the security risk in the Red Sea has now reached a crisis point, and said, “While some ship owners and charterers prefer to pass through the Cape of Good Hope as a medium-term strategy, others rely on the Houthis’ statement that they are targeting ships with connections to Israel, the United Kingdom and America, and the Red Sea.” It was added that “Searching for alternative markets and regions should also be seen as an option to distribute risks and reduce dependence on the Red Sea.” Expressions were used.