Attacks carried out by Houthi rebels on commercial vessels in the Bab-el-Mandeb strait since 17th November are having substantial and wide-ranging repercussions in the Red Sea and beyond, ramping up tensions in the region, increasing container freight prices, extending shipping routes, timetables and costs, and fuelling rising insurance premiums. Together, this is serving to exacerbate already rampant uncertainty in the integrity of global supply chains.

The Red Sea is a major artery for global maritime commerce, accounting for one-third of worldwide container traffic and 40% of Asia-Europe trade. According to Allianz Trade, attacks led shipping volumes in the Suez Canal to decline by -15% year-on-year in the ten days leading up to 7th January, while it dropped by -53% in the Bab-el-Mandeb strait itself. The number of cargo ships decreased by -30% for cargo and -19% for tankers via the Suez Canal.

A British Chambers of Commerce survey of over 1,000 UK businesses over subsequent weeks suggested that more than half of UK exporters had been affected by the disruptions. Roughly the same proportion of manufacturers and B2C firms, including retailers, said they had also seen increased costs and delays, with some reporting rises of 300% for container hire, and logistical delays, adding up to four weeks to delivery times. Cashflow difficulties and component shortages on production lines have also been reported, and the government’s new customs checks and procedures for imports have only been fuelling costs and delays.

A separate report from QBE, Oxford Economics and Control Risks had earlier pointed to a contraction of 8.5% in the UK marine industry in 2023 – the sharpest decline since 2016 (aside from 2020 when the industry was grappling with the pandemic). It said the industry was expected to grow by 2025 but not before contracting this year. Employing more than 61,000 people on shore or at sea, the marine industry is a critical component of the nation’s economy, with more than 90% of the UK’s freight leaving or arriving by sea. It is widely considered to reflect the state of the UK economy, with the volume of goods traded and passenger numbers usually acting as reliable economic indicators. Recent events will do little to improve its fortune.

Meanwhile, despite the rise in insurance premiums across marine and war lines for the Listed Area, Moody’s maintains in a recent report on the likely impact of the ongoing incidents on marine insurance companies that claims are likely to be low. Indeed, they are a “remote scenario”, it said, noting that naval protection has so far been successful in warding off most attacks, and that the physical spacing of ships in the area reduces the risk of multiple ships being damaged in one attack. Such an accumulation risk is instead heightened at ports, Moody’s notes, and that in any case, were an attack to result in total loss to a vessel, it still expects severity for insurers to remain modest – given the value of container ships (which is somewhere in the region of US$80m to US$100m for a new Suezmax). A more remote scenario excepted, the ratings agency anticipates that insurers will bear most of the losses, with reinsurers going largely unscathed.

Separately, the ability of transport and logistics companies to access the insurance they need to manage supply chain risks had been flagged in an earlier Lloyd’s and WTW report. Calculating that transport and logistics underpin some £70bn of global trade, with a market value of £7.6trn, the joint report suggested that as many as 90% of the transport and logistics companies polled consider insurance for supply chain risk to be critical, but that 77% had problems obtaining it.

In spite of US-led airstrikes in Yemen, Houthis continue to attack ships in the crucial strait. If this crisis drags on further, the ramifications could be even more far-reaching.



This article was published in the Q1 2024 issue of CIR Magazine.

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