Despite ongoing geopolitical issues in the region surrounding the Red Sea, it remains a major transit route powering the global economy. Every year, around 17,000 ships pass through the Suez Canal, accounting for 12% to 15% of global trade. The vast majority of vessels transit the Red Sea without incident. Since the crisis started in October, 2023, there have been 60 such security instances - representing a very small fraction of the total traffic which passes through the Red Sea during this period. Moreover, from the instances reported, very few can be considered critical.
Even though trade traffic in this route has reduced to between 40% and 50% compared to pre-crisis levels, the Red Sea route is still a vital trade route for the global economy and is essential for quicker and cost-effective connectivity between Asia, the Middle East, Europe and North America. Enhanced security measures, supported by global naval powers providing escorted passage for ships through trade lanes, are expected to contribute significantly to safeguarding this sector. Shipping companies are also actively contributing by exercising increased vigilance, adhering to recommended routes, maintaining heightened crew awareness, and fostering communication with regional authorities and security forces.
Given the ongoing security concerns, shippers can undertake the following precautions to safeguard themselves from any incidents.
* Since navies from across the globe have been deployed in this region to protect these sea lanes, shipping companies should plan their voyages across the region accordingly as well as coordinate their activities with the deployed naval forces.
* Take into account current information on geopolitical tensions, security incidents and weather conditions - adjusting cargo routes accordingly. Utilise technology to monitor vessel movements and update routes as needed to avoid high-risk areas.
* Develop and implement robust emergency response and crisis management plans to suit the specific challenges of navigating chokepoints. Implement regular drills and simulations to maintain readiness in the face of disruptions or emergencies.
* Lastly, vessel operators and shippers should reconsider their insurance and opt for extended covers which include:
* Hull and Machinery Insurance: Covers physical damage to the ship itself caused by piracy, attacks, or other incidents in the conflict zone.
* War and Piracy Insurance: Specifically covers losses arising from war, terrorism, piracy and other malicious acts. It can provide compensation for damage to the vessel, cargo, crew injuries, and even ransom demands.
* Loss of Hire Insurance: Covers the loss of income for the ship owner if the vessel is delayed due to an incident in the conflict zone.
* General Average Disbursement Insurance: General average refers to collective damage to both a ship and its cargo. If a ship is in danger, it may be necessary to make sacrifices to safeguard the ship itself, its crew and its cargo. All the costs associated with the salvage operation, including the value of any goods sacrificed, are shared proportionally between the ship owners and the cargo owners.
With these risk mitigation measures, and considering the statistically miniscule number of vessels which have been critically impacted by the Red Sea crisis, the route through the Red Sea is still a quick, cost effective and viable option for powering global trade.
“Econship continues to be committed to sailing our vessels via the Red Sea and we have taken adequate security and financial measures to safeguard our crew, our vessels, and the cargo of our customers who trust us to ship it across the seas safely. We currently average 2 vessels sailing through this route on a weekly basis. With the global security apparatus focusing on this region and covering our financial exposure, we feel confident in our continued use of the Red Sea sector on our vessel routes. This conviction serves our customers who stand to benefit from quicker sailing time and cost-effective ocean freight,” says Capt. PS Rath, Founder – Econship.