West Asia crisis: Shippers expect cost spikes on reroutes, insurance

With the closure of the vital trade route through the Strait of Hormuz by Iran’s Islamic Revolutionary Guard Corps (IRGC) amid the country’s military conflict with Israel and the United States (US), India’s shippers and freight players are expecting West Asia-bound cargo to pile up at ports, and cost spikes owing to rerouting and insurance.

 

Most large shipping lines have cancelled transits through the Strait of Hormuz following heavy military action and the subsequent killing of Iran’s supreme leader, Ayatollah Ali Khamenei, on Saturday night, and Indian exporters and freight forwarders are finding themselves caught up in yet another geopolitical turbulence.

 

“Exports of fruits, vegetables, and meat products — which are ferried via air — are severely impacted. Moreover, for future sea shipments, insurance companies are not offering any insurance as of Sunday. We will find out on Monday whether force majeure applies,” said Dushyant Mulani, director, Khimji Poonja Freight Forwarders, and former chairman, Federation of Freight Forwarders Associations of India.

 

Mulani said the development had come at a time when ships had begun returning to the Red Sea, providing some relief, as the industry had been taking a longer route via the Cape of Good Hope since 2023.

 

According to reinsurance experts, some underwriters in London have begun issuing notices of cancellation. “However, a notice of cancellation does not mean immediate termination of cover; it is done over 48-72 hours or maybe seven days, during which reinsurers reassess the heightened risk,” a reinsurance expert said.

 

According to Kunal Khanna, managing director (reinsurance) and global head of natural resources, Edme Insurance Brokers, as the situation escalates, reinsurers are likely to issue notices of cancellation, and some have started doing so. “However, not all reinsurers have issued such notices,” he said.

 

After the review period following the notice of cancellation, underwriters may reinstate coverage at significantly higher premiums, particularly for war-related risks, or impose new restrictions such as excluding specific geographic coordinates deemed uninsurable.

 

At this point, no vessel is being allowed to pass through the Strait of Hormuz, and it has become a complete chokepoint, said Ashish Sheth, chairman and managing director, Sarjak Container Lines, a container carrier.

 

“This is not a pricing issue. It is a safety issue. Crew members are not willing to sail into a missile range,” he said.

 

An oil tanker with 15 Indian crew members was attacked off the coast of Oman while passing through the strait.

 

An executive at Japanese carrier Mitsui OSK Lines told Business Standard the company did not see the route as safe for operations.

 

“We have suspended transits through the Strait of Hormuz and ordered the vessel to wait in a safe area. We are monitoring the situation with our Safety Operation Supporting Center, which operates 24/7,” the executive said.

 

Another executive in one of the largest global carriers said the entity was in “wait and watch mode”.

 

Meanwhile, French shipping giant CMA CGM has introduced an emergency conflict surcharge ranging from $2,000-4,000 per container.

 

According to an advisory from the Gulf Cooperation Council to stakeholders, ports in several parts of West Asia remain in operation, albeit with riders.

 

“If rerouting via the Cape of Good Hope becomes the only option, freight rates could rise between 40 per cent and 50 per cent, and war-risk insurance premiums can spike almost fivefold overnight,” said Sheth. 

With inputs from Aathira Varier