by Chris Black
The Red Sea is the eastern funnel into the Suez Cannel, and accounts for about 22% of the international container trade (https://www.insurancejournal.com/news/international/2023/12/06/750961.htm) and about 10% of the global oil trade.
That Maersk is pausing all Red Sea voyages is significant because they operate (https://www.statista.com/topics/9607/ap-moeller—maersk-a-s/#topicOverview) 15.3% of the global container ship fleet, taking second place after the Mediterranean Shipping Company (MSC), controlling 18.6%.
“Following the near-miss incident involving Maersk Gibraltar yesterday and yet another attack on a container vessel today, we have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice”, a Maersk spokesman was cited as saying (https://www.bloomberg.com/news/articles/2023-12-15/maersk-tells-all-its-container-ships-to-pause-red-sea-voyages).
The attacks appear to have escalated in the past several days with the ships’ connections to Israel appearing to be less direct.
That suggests risks are widening beyond the Israeli theater. At least three container ships have been attacked or disrupted near Yemen in the past day or so.
If this materializes into closures at Suez Cannel, etc., oil is extremely mispriced.
Also note that container ships, particularly those passing through geopolitical flashpoints like the Suez Canal, are subject to steep insurance premiums (https://www.maersk.com/transportation-services/cargo-insurance), which the shipping company then passes down to the consumer (an example of supply-side inflation, not really seen since COVID).
“Some war-risks insurers are in the process of applying higher additional premiums for the already listed high-risk area in the Red Sea,” said (https://www.bloomberg.com/news/articles/2023-12-06/chunk-of-global-trade-menaced-by-attacks-on-red-sea-shipping) Despina Kalfa, general manager at the Greek branch of Aries Marine Insurance Brokers Ltd (https://ariesmarine.eu/the-team/despina-kalfa/).
Others are applying additional terms or even not offering cover where Israeli interests are involved.