Major insurers announced this week that cargo ships sailing past Iran, Oman and the United Arab Emirates are no longer automatically insured against war risks. Ships that set sail in the region after the March 5 deadline do so in some cases without cover or at greatly increased premiums.
The measure applies to a large area around the Persian Gulf and the Arabian Gulf, including the Gulf of Oman and waters near the Iran–Pakistan border. Insurers such as Skuld and Gard are part of a global network of insurers and reinsurers that cover a significant share of the world’s shipping fleet.
A modern cargo ship with capacity for eight to ten thousand containers already costs around 100 million euros. However, the cargo on board can be worth far more. Depending on the type of goods, the total value of a fully loaded container ship can easily reach one billion euros or more.
Ninety per cent of intercontinental trade is transported by sea
That value makes insurance essential for international trade. Virtually every container shipment is insured, from consumer goods to industrial equipment. When risks increase, this quickly translates into higher premiums for shipowners and carriers.
The insurance market for global shipping is largely determined in London, at Lloyd’s. There, hundreds of brokers and reinsurers set the price of maritime risks worldwide. Since tensions around Iran escalated, premiums for ships passing through the Strait of Hormuz have risen sharply.
Where carriers normally pay around 0.25 per cent of the cargo value for war risk cover, premiums in conflict zones can rise to one per cent or more. In some cases, costs have even tripled. According to insurance brokers, a simple rule applies: the greater the unrest, the higher the premium.
About 90 per cent of all intercontinental goods are transported by sea. Only around 10 per cent of global trade moves by air freight.
Meanwhile, the tensions are also directly affecting shipping itself. In the Persian Gulf, ships from several countries are anchored as passage through the Strait of Hormuz is considered too dangerous. According to the Royal Association of Dutch Shipowners, nearly 100 vessels owned by Dutch shipping companies are currently in the region.
For shipowners, this means they must look for alternative insurance cover or different routes. Ships already underway sometimes have to divert to other ports in the region. At the same time, storage costs increase and pressure builds on ports where containers are temporarily stored.
Higher insurance costs ultimately affect transport prices. Shipowners must finance higher premiums, additional safety measures and diversion routes. As a result, international logistics become more expensive and goods cost more to transport worldwide.
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