War risk insurance rates jump on Houthi attacks; tanker FFAs higher

Marine insurance rates for war risks have tripled following the latest spate of attacks in the Red Sea while tanker forward freight agreements are trading higher amid heightened shipping risks, market sources said Dec. 13.

The 49,478-dwt tanker Ardmore Encounter was attacked during a voyage transporting jet fuel from India to Northwest Europe, according to the ship's owner, Ardmore Shipping.

Separately, the UK Maritime Trade Operations said an unspecified ship sailing 90 nautical miles off Oman's Duqm port came under attack by five or six small boats.

While there was no reported damage to the ships, sources said additional war risk premiums are rising due to the repeated attacks.

The cost of insurance for sailing through the Gulf of Aden rose from 0.07% of a ship's hull value to 0.2% as of Dec. 13, one source said. For an average Aframax, the premium jumped from $30,000 to $100,000, another source said.

Meanwhile, the latest incidents have supported freight derivatives on clean tankers which are trading slightly higher for December, traders said.

The balance-of-month December contract for LR1, basis 55,000 mt, on the Persian Gulf-Japan route has traded around w163 Dec. 13, market participants said. It was bid at w152 and offered at w158 Dec. 11.

"Derivatives are more driven by sentiment, but physical rates have not seen a significant support due to the missile attacks," said a chartering executive in Dubai.

Platts, part of S&P Global Commodity Insights, assessed the Suezmax rate for shipping 140,000 mt from the Persian Gulf to the Mediterranean at $14.13/mt Dec. 13, slightly down from $14.76/mt on Dec. 11.

The physical freight market is often the function of the market availability of tankers, and so far, tanker rates have yet to reflect risk premiums as market players evaluate their trading patterns.

"Most owners did not [show] reluctance to call or pass through Red Sea, as they think they were not the target. But it seems the situation is changing," said a VLCC charterer.

Heightened risks

From a car carrier to tankers to dry bulkers, an entire range of commercial ships have come under attack by Houthis in recent weeks after the Iran-backed militant group announced its intention to join the Israel-Hamas war.

While the Houthis have claimed they would only threaten ships with Israeli interests or headed to Israeli ports, some of their recent targets do not have apparent Israeli links.

For example, the Ardmore Encounter doesn't have Israeli connections aside from Israeli tycoon Idan Ofer being a shareholder of Ardmore Shipping via affiliates as of January.

While mostly adopting a wait-and-see approach, tanker owners could start adding freight premiums to Red Sea voyages or avoid the region if marine insurance for war risks, crew kidnap and ransom becomes more expensive, brokers said.

In some scenarios, shipowners might need to sail via the Cape of Good Hopes rather than the Suez Canal, which could avoid additional insurance premiums but result in higher bunker costs as voyage time would increase by two weeks.

A laden Aframax would consume 38 mt/d of bunker fuel. The bunker price for very low sulfur fuel oil, the prevalent marine fuel, was assessed at $565/mt in Fujairah Dec. 13, according to Platts.

Large-scale rerouting of tankers would "100%" push up rates, said a pool manager, given that shipowners could bypass bunker expenses to charterers and earn some more amid more ton-mile demand.