Mar 25, 2024

Navigating Through Troubled Waters: Adjusting to New Insurance Realities Amidst the Red Sea Crisis

Navigating ocean freight is an intricate task. It isn’t as simple as auguring grain into a boat and you are on your way. It requires a specific set of skills and knowledge and is a time consuming task at the best of times. Navigating ocean freight during the ongoing conflict in the Red Sea is even harder. It has not only disrupted global shipping routes but has also led to significant changes in the maritime insurance landscape. A recent announcement from several leading insurers underscores the evolving nature of risk and coverage in this strategically important region. Several insurers have issued a 7-day Notice of Cancellation for all War and Strikes risks in specific areas of the Red Sea and surrounding waters, affecting their Combined Annual Cargo policies. This decision reflects the heightened risk profile and underscores the insurance industry's cautious approach to the escalating tensions. It also highlights the importance of having the right people to assist in the process.

What does the 7-day Notice of Cancellation mean?

This means that insures are issuing their notices on say the 20^th of March and advising that cover will cease on the 27^th of March. The reason for this is to ensure businesses have time to make other arrangements.

Understanding the implications?

The areas affected by the cancellation are geographically defined, encompassing key parts of the Red Sea and adjacent waters. This move by the insurers highlights the insurance industry's response to the increased risk of war and strikes in the region, with the potential for a significant impact on shipping operations and global trade.

Image caption: example of geographically defined location affected by cancelation.

Note: While one insurer has indicated that restrictions to cover apply within the specified Geographical Coordinate System (GCS), it is crucial for stakeholders to consult directly with their respective insurers. This ensures the most accurate and up-to-date information regarding the commencement points for individual restrictions of cover.

For charterers and ship operators, this development signals a critical shift. Most insurance policies that previously covered War and Strikes risks in these areas have had this coverage cancelled. Reinstatement of coverage is contingent upon discussions with insurers and may require the payment of additional premiums.

Precautions and Steps Forward for Charterers

Given these changes, it is essential for charterers to consider the following steps:

Enhanced Risk Assessments: Continual monitoring and reassessment of the geopolitical landscape are crucial. Charterers should stay informed about the latest developments in the region and adjust their operational plans accordingly.
Route Alteration: Consideration of alternative routes is advisable, despite potential increases in travel time and fuel costs. The safety of the crew and cargo should be paramount, with decisions made based on comprehensive risk analyses.
Security Enhancements: Implementing additional security measures, such as onboard security personnel or adherence to Best Management Practices for Protection against Based Piracy (BMP5), can help deter attacks. For more information on BMP5, follow this link.
Insurance Review: Engaging with insurers to ensure that policies adequately cover the specific risks associated with the Red Sea transit is essential. This includes clarifying any exclusions and understanding the extent of coverage for piracy, terrorism, and related perils.
Crisis Management Preparedness: Developing and regularly updating crisis management plans, including crew training on emergency procedures, is vital. Effective communication strategies and coordination with international maritime security forces can enhance response capabilities in the event of an incident.
Collaboration and Information Sharing: Participating in industry-wide information-sharing initiatives can provide valuable insights into potential threats and best practices for navigating the region safely.

Conclusion

The Notice of Cancellation by insurers is a stark reminder of the complexities and risks of operating in geopolitically sensitive areas like the Red Sea. It underscores the need for charterers to be agile, informed, and proactive in managing risks and insurance coverage. As the situation evolves, the maritime industry must navigate these challenges with a strategic approach, balancing operational needs with the imperative to ensure the safety of vessels, crews, and cargoes. Adapting to the new insurance realities is not just about managing costs but about ensuring continuity and resilience in the face of unprecedented challenges.

When engaging Basis Commodities to assist with your export needs, you are also gaining the many years’ experience in managing insurance and the risks associated with chartering freight into the Middle East from our partners HMD Insurance and MR Shipping. To learn more about our service offering, give the Basis Commodities team a call on the details below.

Chris Whitwell
Sydney, Australia
M: +61 419 833 356
E: Chris@basiscommodities.com

Steven Foote
Sydney, Australia
M: 0408 308 908
E: steven@basiscommodities.com

Nader Hassan
Dubai, UAE
M: +971566915688
E: nader@basiscommodities.com

Musab Diab
Dubai, UAE
M: +971568303164
E: musab@basiscommodities.com

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Basis Commodities expands service offering to soybeans.

18 Apr, 2024

In late 2023, Basis Commodities successfully executed its first shipment of premium non genetically modified soybeans from Romania to Egypt, via two small vessels. Basis has many years of experience managing trade flows and relationships within the Middle East and we were pleased when the opportunity to add a new product – Soybeans – arose out of discussions with our suppliers in Romania and buyers in Egypt. To ensure the safe arrival of the produce, the company worked with several parties to facilitate the execution of this new flow for the company including managing due diligence, testing, insurance and contract execution. Soybeans are a primary source of protein and edible oil, making them essential for human nutrition. The largest producers of soybeans in the world are the United States, Brazil, and Argentina. These countries account for most of the global soybean production. Ukraine is the leading exporter of soybeans in Europe. However, Romania is seeing growth in this market after a long hiatus. This growth can be attributed to various factors including increased demand for soybeans globally, improvements in agricultural technology, and favourable climatic conditions for soybean cultivation in Romania. Egypt is among the top importers of soybeans in the world. The country imports large quantities of soybean, primarily for the production of soybean meal, a key ingredient in animal feed formulations. The country's growing population and expanding livestock sector contribute to the increasing demand for soybeans as a source of protein-rich feed. Basis Commodities General Manager in Dubai, Nader Ahmed said assisting companies making connections in the movement of soft commodities is a speciality of the company “we are committed to fostering international trade partnerships and promoting the exchange of quality agricultural products in the Middle East” and “We’re proud to have played a role in bringing premium soybeans into Egypts market”. For more information on how Basis Commodities and assist your business, reach out to the team on the details below