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04 Mar 2024 | 20:06 UTC
By Max Lin and Sameer Mohindru
Highlights
LR1 FFAs jump as supply could tighten on renewed safety worries
Additional war risk premiums unlikely to fall anytime soon: charterer
Looming environmental disaster might be left uncovered
Heightened maritime risks in Middle Eastern waters underscored by the sinking of general cargo ship Rubymar could offer support to tanker rates and insurance premiums, according to market participants, even though no immediate price hikes were observed.
Nearly two weeks after being severely damaged by a Houthi missile launched from Yemen, the 32,211-dwt Rubymar sank in the Red Sea March 2 and became the first vessel lost since attacks on ships transitting the Red Sea started in November.
Platts, part of S&P Global Commodity Insights, assessed the LR2 tanker rate at $54.67/mt and Suezmax at $27.4/mt on the Persian Gulf-UK Continent route March 4, same as on March 1 following slides in recent weeks.
Rates had spiked in late January and early February as many ships steered away from the region, before retreating to current levels as tonnage availability gradually increased.
While physically tanker supply remains ample in the Persian Gulf, market participants said derivatives jumped after the sinking of Rubymar amid renewed security worries.
The freight forward agreements for transporting 55,000 mt of clean products on an LR1 tanker for the benchmark Persian Gulf-Japan route traded around w200 for March contracts and w220 for April on March 4, compared with w199 and w210.5 at the end of last week, respectively.
The latest incident came at a time when several companies were toying with the idea of resuming trades through the Red Sea. "The switch over may get delayed or at least slow down," said a tanker broker in Seoul.
Another broker in Copenhagen said the more important fallout of such incidents is that some of the tanker companies are not moving through the Suez Canal at all, thereby tightening ship supply and delaying cargo deliveries by up to two weeks.
Meanwhile, additional war risk premia for Red Sea transits were discussed at around 0.5%-1% of the value of the ship's hull and machinery following the sinking, same as the level seen last month(opens in a new tab) but much higher than 0.05% before the Israel-Hamas war broke out on Oct. 7. Chinese and Hong Kong-owned ships could receive discounts due to Beijing's political links with Iran, which supports the Hamas and Houthi militants, said an underwriter.
The lack of immediate reaction came as insurers had already taken the incident into account, with the Rubymar losing power and drifting for some time before sinking, some market participants said. However, the development also means insurance rates are unlikely to decline in the near future, a charterer said.
"The losses to date remain within underwriting tolerance and none of these cases have affected hull war insurers' risk appetite significantly," said Lars Lange, secretary-general of trade association International Union of Marine Insurance. "But, naturally, enhanced risk attracts an enhanced premium."
Moreover, there is speculation that some ships in the Red Sea might have only secured limited hull and machinery coverage as their owners assume risks themselves. S&P Global Commodities at Sea data showed tankers were transporting 8.9 million barrels of Russian crude in the waterway as of Feb. 27, and based on the G7 price cap, their operators had to carry cargoes sold at no more than $60/b to purchase insurance from Western firms legally. But this could prove difficult as the price of Russia's main export grade, Urals, has been above the threshold on an FOB Primorsk basis since Feb. 6, according to Platts, part of S&P Global Commodity Insights.
"In response to the risk profile, there has been a quite natural increase in transits of vessels that are either self-insured or ageing tonnage," said Munro Anderson, head of operations at marine war risk and insurance specialist Vessel Protect, part of Pen Underwriting.
"Each commercial operator will have their own risk appetite, and for some the ability to operate self-insured with an older vessel that has no mortgage presents opportunity."
The Rubymar, a 27-year-old ship, was carrying 21,000 mt of ammonium phosphate sulfate fertilizer from Saudi Arabia when it was attacked. The sunk vessel's fertilizer cargo and bunker fuels on-board present environmental risks to the Red Sea's delicate marine ecosystems, including coral reefs.
In general, a ship's protection and indemnity insurer would be responsible for claims arising from pollution. But the Rubymar is not insured by the International Group of P&I Clubs, whose members cover over 90% of the world's ocean-going tonnage, according to the group's website.
Capt. Wael Chahadah, referred to as the ship's owner by Rubymar's broker Blue Fleet, did not respond to an email seeking comments on insurance details.
The ship's registered owner is Golden Adventure Shipping, which has a UK address. Having targeted US, UK and Israel-linked ships in response to the Israel-Hamas war, the Houthis over the weekend singled out UK Prime Minister Rishi Sunak and his government as being responsible for Rubymar's sinking, threatened to sink more British ships while suggesting George Galloway -- a newly elected member of parliament with pro-Palestine views -- as a potential mediator.
The International Maritime Organization sees increased risks for marine environments and seaborne trade security following the incident, according to Secretary-General Arsenio Dominguez.
"We are in contact with the Government of Yemen and other UN organizations to provide necessary assistance," Dominguez said at an IMO meeting March 4.
Many ship operators have diverted their voyages from the Red Sea to the longer route around the southern tip of Africa due to safety worries. According to IMF PortWatch data, daily ship transits via the Bab al-Mandab Strait stood at 29 on a seven-day moving average as of March 1, down from the year-ago level of 71. Just 13 cargo ships and four tankers sailed through the chokepoint on that day, lowest in recent years.