|23 July, 2019

Shipping costs in Bahrain hit by rising tensions in region

Tensions have spiked in recent months

Costs of shipping cargo to and from Bahrain have significantly increased after insurance firms slapped war risk premiums on vessels, as a result of heightened tensions in the region.

At least one major shipping company revealed it was now working on a contingency plan that it would resort to if Iran blocks the Strait of Hormuz.

A drop in the amount of cargo passing through the region, due to increased insurance premiums, has also raised the prospect of fewer goods being delivered here.

It follows the Iranian seizure of British oil tanker Stena Impero in Gulf waters on Friday.

Attacks

Tensions have spiked in recent months, with the US blaming Iran for a series of tanker attacks in and near the highly strategic Strait of Hormuz – the conduit for nearly a third of the world’s crude oil.

The cost of transporting cargo on freight ships, also known as shipping feeders, has increased by up to $60 per TEU (Twenty-Foot Equivalent Unit), which refers to a standard 20-foot shipping container and is used to measure a ship’s cargo carrying capacity.

This means an increase of up to five per cent in overall shipping costs is being passed onto customers.

Leading shipping agents in Bahrain told the GDN that while the number of vessels docking here was unchanged, some had recorded a drop in cargo due to the increased cost.

“We are working on a contingency plan as situations are unpredictable and volatile,” a senior representative of Kanoo Shipping, one of the largest firms in the region, told the GDN.

“The plan aims to be prepared to handle a scenario where the Iranians close the Strait (of Hormuz).

“All shipping lines have been slapped with war risk charges applicable to inbound and outbound cargo.

“There is a 2.5pc to 5pc increase on the overall freight charges of a vessel which has containers of different sizes, loaded by different shipping lines.

“This hike cannot be estimated accurately, as it depends on the capacity of the containers that are handled by different shipping lines – which vary on their rates as well.

“So it is easier to say that the war risk premium has increased between $30 and $60 per container, which varies with freight handlers.”

The company handles up to 10 vessels a week from around the world, including the US, Europe and the Far East.

It has witnessed an almost 25pc reduction in cargo, particularly electronic items, being shipped to the region as a result of higher insurance costs.

The Kanoo Shipping representative explained inbound vessels carried finished products such as electronics and food items, while outbound cargo from Bahrain was mainly aluminium, crude oil, chemicals and steel.

“The only way the vessels come in and go out is through the Strait of Hormuz,” he added.

“We have also observed a 20 to 25pc reduction of shipping content or cargo in these vessels.

“The dip in the content is basically electronic items, which would affect the market in different ways.

“Beyond the shortage of these items, it can further harm the already lull market in this part of the world.

“If the situation continues or gets worse, this could really hit the shipping industry hard.”

Another senior official at a leading shipping firm in Bahrain told the GDN it was finding it difficult to explain the increased shipping rates to customers.

He said most customers did not believe war would break out, but added increased insurance premiums and other measures were taken as a precaution in the event of military escalation.

“The war risk premium issued by insurance companies is on every ship that passes through the Strait of Hormuz, after the recent escalation in international waters,” said the official, on condition of anonymity.

“This is an additional premium, which is considered a ‘pass-on charge’, and the end impact is on the customer.

“The costs, for us, have gone up by $25 to $40 per TEU.

“The customers are not happy and they think there is no war, but we feel they don’t understand the situation well enough.

“What the customer needs to understand is that the shipping agents are not making any money here with the increase in the costs.

Risks

“It is a pass-on charge and there is insurance coverage for the extra amount they pay, which is important at such risky times.”

He also said the number of vessels entering Bahraini waters had not reduced, but added that the element of fear and risk had increased.

“The risk element has always been there in the shipping lanes, but nobody was bothered,” he said.

“However, with things happening in the open now, it is no longer the same situation.”

Despite this he said vessels were still navigating through the Gulf without military escorts.

“We are yet to see any convoy vessels or ships escorting the shipments,” he said.

Reuters reported on Wednesday that shipping companies were hiring unarmed security guards for voyages through the Gulf as an extra safeguard.

It said shipping associations were urging merchant shipping companies to avoid using private armed security personnel in critical areas, including the Strait of Hormuz, although some companies were using security firms to consult on a range of issues, from advising ship captains to monitoring vessels above the waterline – where explosives such as limpet mines may be placed.

raji@gdn.com.bh

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