South Korea's SK E&S reroutes US LNG cargo to Cape of Good Hope amid Red Sea concerns

South Korea's SK E&S has rerouted one US LNG cargo via the Cape of Good Hope shipping route following the recent series of security issues in the Red Sea, a senior SK E&S official told S&P Global Commodity Insights Dec. 22.

The LNG carrier Prism Courage, part of SK group's fleet, has been rerouted to avoid the Suez Canal and is now heading toward the Cape of Good Hope route, the official said.

The Prism Courage had been scheduled to use the Suez Canal to arrive in South Korea late-January.

"But the Prism Courage has rerouted to avoid the Suez Canal to use the Cape of Good Hope route after consideration of risks factors," the official said.

The move by SK E&S followed South Korean shipping company HMM deciding to reroute ships via the Cape of Good Hope temporarily to avoid the Suez Canal, joining major shipping companies of the world in suspending sailings through the Bab al-Mandab Strait due to a spate of attacks by Yemen-based Houthi militants.

The Prism Courage, which is currently sailing toward the east of the Caribbean, is estimated to arrive in Hosan or Samcheok in South Korea Jan. 24 after having loaded an LNG cargo from the US Freeport terminal as of Dec. 16, according to S&P Global Commodities at Sea.

The South Korean LNG importer and power utility has a contract to lift 2.2 million mt/year of Freeport LNG.

Red Sea transit

As of Dec. 21, there have been reports of around 55 ships belonging to major shipping lines being diverted to cross round the Cape of Good Hope on Africa's southern tip, according to a customer advisory issued by West P&I Club, one of the providers of protection and indemnity insurance for shipping companies.

It said such a diversion adds around 3,000 nautical miles and days -- if not, weeks -- to the sailing times of vessels booked to transit the Suez Canal, with significant operational, logistical, and cost implications.

The longer shipping routes will mean higher freight costs -- it takes 24 days for an LNG cargo from Sabine Pass in the US Gulf Coast to reach Northeast Asia via the Panama Canal, but 36 days via the Suez Canal and 38 days via the Cape.

West P&I, one of the 13 clubs that comprise the International Group of P&I Clubs (IG), which collectively insure around 90% of the world's ocean trading tonnage, said it is estimated that around 12% of global trade and 40% of Asia-Europe trade passes through the Red Sea.

Due to the fast-moving situation in the Red Sea, a number of shipping lines have issued advisories instructing their vessels to "reach safe areas and pause their journey in safe waters with immediate effect until further notice" as of Dec. 21, the club said.

West P&I also said the Joint War Committee had widened the areas in the Red Sea categorized as "high risk", which will have a trickle-down impact on war risk insurance premiums for vessels intending to sail through such areas.

"Specifically, additional war risk premiums have risen to circa. 0.5%-0.7% of the value of a vessel, up from approximately 0.07% in early December 2023," the club said.

The club also warned that sourcing a replacement vessel may be financially burdensome, especially since freight and hire rates have increased substantially as a consequence of vessels electing to deviate from planned voyages, and the market estimates that there will be at least a 20% decrease in global vessel availability, owing to longer voyages under existing charterparties.

Various practical, insurance and legal issues may arise out of the recent attacks in the Red Sea and the legal position and contractual mechanisms available to the club's members may vary and should be reviewed on a case-by-case basis, West P&I said.

It said generally it is reasonable for ship owners to request that routes through the Rea Sea be avoided, on a commercial basis, due to overriding safety concerns for both the vessel and the crew, but disputes may arise with charterers later.

It said in most cases where industry clauses have been incorporated into the charter party contracts, charterers will be liable to reimburse owners for the cost of any additional insurances in connection with war risks, but disputes can arise depending on different situations.