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Red Sea and Strait of Hormuz situation: Risks and insurance coverage

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Commercial shipping in the Red Sea region and the Strait of Hormuz is regularly attacked by Houthi forces. This leads to significant disruptions in freight traffic through the Suez Canal. Shipowners are faced with the choice of taking a risky route and taking extra (and often costly) safety measures. In the first place, this creates additional risks for the crew who may be uninsured, but also for the ship and cargo. An alternative is to take a detour along the Cape of Good Hope, with an extra sailing time of 10 to 14 days and ditto costs.


VNO-NCW and MKB-Nederland also indicate that this situation has far-reaching consequences; "Shipowners are in a state of uncertainty, container transport costs are rising rapidly, extra surcharges are not going down well with shippers, and according to the UN, the crisis is putting extra pressure on inflation, food deliveries and detours are also resulting in higher emissions. However, maintaining stability and calm in the midst of these challenges is paramount." That is why VNO-NCW and MKB-Nederland, together with KVNR and evofenedex, organised an information meeting online and in the Malietoren in The Hague on 7 February. The Dutch Association of Insurers was present to explain questions about insurance coverage and possible exclusions.

Because there are many uncertainties and each insurer determines its own policy and sets its own conditions, it is especially important to contact your own insurer or insurance broker if you have any questions about coverage.

Leendert-Jan Visser of VNO-NCW / MKB-Nederland opened the meeting and pointed out the situation outlined above.

Annet Koster of the shipping company association KVNR outlined the importance of safe passage and maintaining a level playing field for all parties. Of course, it affects the shipowners directly, but ultimately everyone. At the same time, we should not exaggerate the impact at the moment. The economy is flexible and shortages on the shelves are not too bad for the time being. Unfortunately, the crew of the Galaxy Leader, one of the first ships to be attacked, is still not free. The initial Israeli link has been expanded step by step, further increasing uncertainty, despite military presence in the region. For Dutch shipowners, entering the region was no longer an option when the Dutch government indicated in early January 2024 that new applications for military security would no longer be honoured and insurance coverage was no longer possible. This is despite the fact that, for example, the Italian government still escorts and protects ships under the Italian flag.

The KVNR calls for the defensive operation to be strengthened, with further broadening of the coalition. Security guards on board are a requirement to increase the safety of ships, cargo and, above all, the crew. This is also a condition of insurers to offer coverage again. A barely named victim of this crisis is Egypt, which is missing out on a lot of income from passage through the Suez Canal.

Casper Roerade of evofenedex informed the audience about the impact of this crisis on logistics chains and future prospects. It agrees that the safety of seafarers is of paramount importance. The impact of having to detour takes time, but is also abused by container companies to disproportionately increase freight rates. It also leads to more emissions and therefore to unsustainability. It's also not the first crisis to negatively impact the supply chain. However, the chances of the Red Sea and Suez Canal route becoming truly safe and no longer causing delays are slim. As a result of all these crises, the resilience of Dutch companies has increased, partly due to better planning, scenario analyses and chain cooperation.

The policy and its impact on the Dutch business community was explained by Jules Gerzon of the Ministry of Foreign Affairs. He indicated that the Houthi attacks are an increasing threat to our economic interests, despite attempts at de-escalation. That is why political support has been given to the international coalition that provides protection and military action.  The UN trade agency UNCTAD reported at the end of January that the number of goods transported through the Red Sea fell by 45 percent in 2 months. The number of ship movements in the region has decreased by 39 percent. As a result, the risk of higher inflation increases, there is more uncertainty about food supplies and there is an increase in greenhouse gas emissions. The cooperation with the branches is good and the concerns of Dutch entrepreneurs are well on the mind. Where possible, the policy to be pursued will take into account.

On behalf of DNB, Jan Willem van den End indicated that the Netherlands is sensitive to fragmentation of the international trade system.

The Netherlands is one of the most open economies in the world. A scenario analysis shows that the Netherlands, as a small open economy, is strongly integrated into the global financial system. And is therefore particularly sensitive to the global increase in geo-economic fragmentation. In the event of disruption of global value chains, for example as a result of the situation in the Red Sea region, the Dutch economy will be strongly affected. As a result, inflation in the Netherlands is rising faster than in other countries, imports and exports are falling more sharply and the Gross National Product is recovering more slowly.

Rabobank's Edwin de Groot outlines the trends in the geopolitical world. The consequences are still manageable, but the uncertainties are great. Further expansion of risk areas cannot be ruled out and the chance of rapid de-escalation is small. The effect of the current conflict is expected to be a 0.5 percentage point higher inflation.

The Ministry of Defence indicated that various options are being explored to improve safety. Such as active participation in Prosperity Garden.

The Ministry of Infrastructure and Water Management is looking at the safety of Dutch-flagged ships in particular. Partly through international cooperation, the current safety picture is sketched as accurately as possible.

Insurance issues

For answers to questions about the possibilities of (continuing to) insure these risks, the Dutch Association of Insurers has set up an information page . Here we outline the risks and the insurability of transport (ships, crew, cargo) in the areas threatened by violent actions in the Red Sea area and the Strait of Hormuz, among others. These can include piracy, terrorism and acts of war, such as hijackings, shelling, rocket attacks and sea mines. The question of whether or not there is coverage on a policy depends on what conditions are set. And whether it is clear what the situation is (is there a war, is it piracy, is it terrorism, was it still unforeseen), what can be affected (the ship, the crew, the cargo and the interests of third parties due to, for example, delay or pollution) and which law applies (Dutch or English).

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