MUSCAT, JULY 20 - With shipping lines levying insurance surcharges in the form of ‘war risk premiums’ on ships visiting Omani ports, local cargo importers and importers impacted by the measure, are weighing the implications of the additional costs on their bottom-line. A protracted application of the measure, some market analysts have warned, could force the affected businesses to pass on the surcharge to their customers. As many as half a dozen prominent container shipping lines have announced war risk surcharges, ranging from $36 to $52 per TEU (Twenty Equivalent Unit) of container cargo on vessels transiting the Arabian Gulf and Sea of Oman, effective from the start of this month.
The spike came in the wake of a flurry of attacks on oil tankers in the Strait of Hormuz and Sea of Oman over the past two months. Higher insurance costs could potentially hurt the margins of Omani exporters, on the one hand, and cause prices of imports to spike, some experts have pointed out. “Ultimately, the cargo owner — whether an importer or exporter — will have to shoulder the extra costs. But if this additional cost burden on him is prolonged, he will have no choice but to offload it on to consumers,” said M C Jose, CEO — Khimji Ramdas Shipping & Logistics, one of the largest shipping agencies and service providers in the Sultanate.
Speaking to the Observer, Jose said the war risk levy is not limited to ships calling Omani ports or plying Omani territorial waters, but covers shipping transiting the Arabian Gulf and Sea of Oman. Consequently, the levy also impacts ships calling at ports in the UAE, Saudi Arabia, Qatar, Bahrain, Kuwait, Iraq and Iran. Significantly, nearly all of the leading ocean carriers operating to and from the Arabian Gulf have added a war risk surcharge to their insurance cover based on premiums applied by underwriters in the wake of the recent attacks on ships in the Gulf.
French-based global container shipping giant CMA CGM was among the first to announce a surcharge. A statement issued by the company earlier this month noted: “Considering the recent incidents in the Strait of Hormuz and the related significantly increasing insurance costs in the Middle East Gulf region, CMA CGM is to implement an Extra Risk Coverage Surcharge as follows: Effective July 5, 2019 (B/L date) for all trades, except Brazil and China (August 1, 2019) and except USA (August 5, 2019): From/To: Oman, the UAE, Qatar, Bahrain, Saudi Arabia (Dammam + Jubail), Kuwait, Iraq.” It set the additional levy at $36 per TEU, payable on all cargo by the freight payor.
Swiss based Mediterranean Shipping Company (MSC), ranked as the world’s second largest container shipping line, follow suit with a similar announcement setting the surcharge at $40 per TEU. Following advisories from the London-based Joint War Committee designating the Arabian Gulf and Sea of Oman as a ‘Listed Area’, several other shipping lines have introduced surcharges that have gone into effect in recent days. The list includes Maersk ($42 per TEU), APL ($38 per TEU), Hapag-Lloyd ($42 per TEU) and Panalpina ($52 per TEU).
The increases were endorsed by BIMCO, the world’s largest international shipping association with more than 2,100 members globally. “ As a result of increasing tension in the (Arabian) Gulf area following recent attacks on two tankers, War Risk underwriters are charging additional premiums (AP) for calls to the Arabian Gulf/(Sea) of Oman. Some underwriters are charging a flat rate for all tonnage operating in the area, while others are differentiating based on the type of tonnage, flag and port of call.