Shipping disruptions cause the most expensive shipping season in history for global trade

Ask AI · How Soaring Premiums Are Disrupting Traditional Shipping Economics?

【Global Network Finance Comprehensive Report】According to CCTV, Lloyd’s of London maritime and aviation business head Neil Roberts stated that after the escalation of conflicts, war risk insurance premiums for ships have rapidly increased. The specific increase depends on the type and circumstances of the vessel, but insurance costs are only a small part of shipping operating expenses; shipping companies also need to consider freight costs, which have already increased by 11 to 12 times.

This impact has spread from large shipping companies to small and medium-sized enterprises in the United States. According to the Associated Press, small business owners such as shoe designers, pistachio growers, and horticultural suppliers are facing triple pressures of import/export disruptions, soaring costs, and shrinking demand.

Neil Roberts said that before the Middle East conflict, the general shipping insurance quote was about 0.2% to 0.3% of the vessel’s value; after the conflict escalated, premiums quickly rose to 1% to 3%. MSN cited Lloyd’s data indicating that premiums on some high-risk routes have climbed to 3% to 7.5%, whereas traditional war risk pricing is usually only 0.1% to 0.25%. For example, for a large oil tanker valued at $200 million to $300 million, the premium rose from 0.25% to 3%, meaning the insurance cost for a single voyage would jump from about $600k to $7 million to $9 million — this leap is enough to fundamentally rewrite the economic logic of voyages.

Insurance costs are only part of the overall increase in shipping operating expenses. Neil Roberts pointed out that shipping companies also need to bear freight costs, fuel costs, and delays caused by detours. According to MSN, to avoid high-risk waters, more shipowners are choosing to reroute via alternative routes such as the Cape of Good Hope, which significantly extends voyage times and further raises fuel costs.

The premiums for cargo war risk insurance have also risen sharply. MSN cited Lloyd’s data indicating that cargo premiums in affected regions have increased from about 0.03% to nearly 1%, directly raising the landed costs of crude oil, liquefied natural gas, and high-value finished products, forcing importers and exporters to renegotiate contracts or cut profit margins.

According to the Associated Press, small and medium-sized enterprises in the U.S. are experiencing the direct impact of the conflict. Nichols Farms, a four-generation pistachio exporter based in California, mainly sells to Europe and the Middle East, with exports accounting for 50%. After the Strait of Hormuz was blocked, supply disruptions to Saudi Arabia, Iran, and the UAE caused about $5 million worth of goods to be stranded at sea. Additionally, Kansas horticultural suppliers stockpiled fertilizer in advance to cope with rising prices, while Chicago electronics store owners are struggling with rising oil prices.

Estimates suggest that premiums on the most risky routes could approach 10%. Without government support or naval protection, this level could make some routes commercially unprofitable.

To address this, many governments and industry organizations, including India, are exploring the establishment of domestic war risk insurance pools to ensure the accessibility and affordability of coverage. (Chen Shiyi)