Zodiac, Eastern Pacific ships advised to avoid Red Sea transits amid growing risks

LPG and other vessels owned by at least two Israel-linked shipping companies -- Zodiac Maritime and Eastern Pacific Shipping -- have been advised by insurance firms and maritime agencies to avoid transits via the Red Sea or take precautions while transiting, following the recent spate of attacks by Yemen's Houthi rebels on ships plying the vital shipping route, according to industry sources.

The impact on wider LPG freight rates and cargo markets has been muted as attacks have been limited to Israel-linked vessels, freight markets are subdued and LPG demand in Asia has not been substantial.

But shipping sources have also cited concerns that transit risks extend to Israel-linked vessels plying the Arabian Gulf, not just the Red Sea, and the vessels being targeted include any Israeli connection, and not just ownership or management by big shipping tycoons.

The precautionary directive seems specific to both Zodiac Maritime and Eastern Pacific Shipping, as they have Israeli shareholders, but the warnings have not been communicated to the wider shipping market, a shipping source said. "Owners are all cautious of course, but they still find the risk manageable, for now at least," the source said.

Zodiac Maritime declined to comment, and Eastern Pacific Shipping did not immediately respond to S&P Global Commodity Insights' email requests for comment.

Market impact

Tensions in the Red Sea came amid rising flows of Very Large Gas Carriers via the Suez Canal, diverted due to restrictions on Panama Canal transits that is facing low water levels caused by the worst drought in 70 years.

Charterers have been concerned about higher freight costs if the Houthi threat forced vessels to take even longer routes around the Cape. "Going via the Cape is brutal, costwise and timingwise," another shipping source said.

Higher freight costs would curb trade flows as LPG demand in Asia has been weak and worsening arbitrage economics has resulted in cancellations of cargoes from the US Gulf Coast to Asia for January and February delivery.

VLGC rates on the Persian Gulf-Japan route declined to a 37-day low of $137.5/mt on Dec. 8 from a near two-month high of $153.5/mt on Nov. 27, S&P Global data showed, amid concerns over the closed arbitrage.

Freight costs could also be inflated by insurance premiums.

"There has been an increase in additional war risk premiums from early October itself, when the conflict escalated, particularly for those ships with Israeli links and those calling on Israeli ports and further hikes cannot be ruled out if the frequency of attacks increases," a maritime insurance executive said.

The premium varies depending on vessel specifications, and time spent in the designated high-risk area, and is passed on from owners to charterers based on actual costs incurred.

Even before the current Gaza conflict, an international shipping transit system was in place due to the war in Yemen. In November, when Houthi rebels publicly threatened to attack ships with any affiliation to Israel, international shipping industry associations had recommended using the already laid out transit corridor at Bab el-Mandeb and urged shippers to avoid the official International Maritime Organization-designated shipping lanes through Iranian waters.

Israeli links

London-based Zodiac Maritime is controlled by Israeli billionaire Eyal Ofer and his family, but according to the company none of the ships managed by it are Israeli owned or carry Israeli flags, and Singapore-based Eastern Pacific is controlled by Eyal's brother Idan Ofer. Both Eyal and Idan have been named among the most influential people in shipping by Lloyd's List, often in the top 10 rankings.

Zodiac owns four VLGCs -- controlled by various charterers -- with two more to be delivered, shipping sources said. Eastern Pacific has eight Medium Gas Carriers and has on order four Very Large Ammonia Carriers, which are VLGCs modified to hold ammonia, shipping sources said.

Israel-linked vessels transiting the Red Sea have faced hijacking, interceptions by warships and attacks by missiles and drones in recent weeks.

On Nov. 19, the Israel-affiliated Galaxy Leader was seized offshore Hodeida. On Dec. 3, the US Central Command reported four attacks against three commercial vessels in the southern Red Sea, one of which -- the Unity Explorer -- reported minor damage from a missile.

In a Dec. 6 advisory, maritime risk firm Ambrey said the Unity Explorer was linked to British citizen Dan David Ungar and Galaxy Leader was owned by Abraham Ungar's Israeli company Ungar AR. "A link between the two owners exists through Dan David Ungar's previous involvement in Ray Car Carriers, a subsidiary of Ungar AR," the firm said.

Another vessel targeted was the Number 9, operated by Israeli company Zim Integrated Shipping Services until November 2021, outdating Houthis' records by two years, Ambrey said.

Hence, Ambrey advised of the potential of mistaken targeting as seen in similar incidents involving Iran, that it assessed to be an integral part of the Houthis' maritime intelligence gathering.

The firm's advisory included assessing whether a vessel was owned or managed by an Israel-affiliated company within the last three years, whether the vessel's route passes near Islamic Revolutionary Guard Corps, Iranian Navy assets and Houthi-controlled sites, and recommended schedule adjustments accordingly.