US tariffs to alter global supply chains, trade flows amid shipping risks: Singapore minister

The additional import tariffs that the US has imposed on various countries are expected to shift global supply chains and trade flows at a time when shipping is already vulnerable to geopolitical risks, a junior Singapore transport minister said Sept. 8.

Due to the US tariffs, "businesses will seek new trading partners and shipping routes," Singapore Minister of State for Transport Baey Yam Keng said at the International Union of Marine Insurance conference in Singapore.

"These new routes come with varying risk profiles, once again altering shipowners' risk maps," Keng said, adding that these maps had already been revised in recent years following attacks on ships traversing the Red Sea, with routes adjusted to safeguard ships and crew.

Keng was referring to the longer voyages ships now take around the Cape of Good Hope to avoid the risks of transporting cargo through the Suez Canal.

The US has imposed an additional 40% tariff on most imports from Brazil, on top of the 10% baseline tariff earlier this year, while most imports from Japan and the EU now face a 15% US tariff under separate trade agreements.

Since late August, tariffs on several US imports from India have reached 50% or higher, while US tariffs on various Chinese goods are currently at least 30%, with proposals to raise them to 145% suspended until Nov. 10 amid ongoing trade negotiations.

Meanwhile, Southeast Asia's only mutual war-risk insurer, Singapore War Risks Mutual, may continue to see growth amid the current volatile geopolitical environment, the minister said, adding that ships underwritten by SWRM are digitally tracked in real time, with premium notifications and debit notes issued automatically.

War-risk insurance ensures that essential food, energy and medical supplies continue to be transported even during times of crisis, Keng said.

Maritime insurance executives at the conference said that the additional war risk premium for transporting cargo through the Red Sea is not as high as projected, but many shipowners remain unwilling to take the route due to the significant security risks involved.

The maximum AWRP for a seven-day transit through the Red Sea is currently around 0.5% of the ship's hull and machinery value, but actual payments are much lower due to a 50% discount if no claims are made, the executives said.

The executives added that owners can also qualify for additional discounts, such as those granted for strictly maintaining and following prescribed security protocols.

There are bundled deals for large fleets, which make the premium much lower than the market quotations or dashboard rates, one of the maritime insurance executives said. Another executive said that nearly a third of the premium goes to insurance brokers, whose commission for AWRP can reach 30%-40%.

Ongoing geopolitical risks have divided the global shipping fleet into two tiers, with one continuing to transit through the Red Sea.

An IUMI council member said it is common for ships controlled by Russians, Greeks, Chinese, Turks and a few government-run companies in the Persian Gulf to regularly transit through the Red Sea.

"While owners of these ships have to pay the Suez Canal fees and AWRP, it can either be passed to the charterers as an actual invoice or factored into the freight," the council member said.

This enables quicker delivery of oil cargoes to Europe from the Persian Gulf, the member added, as the voyage is up to two weeks shorter than the route around the Cape of Good Hope.

The member also said that ships taking the Cape of Good Hope route face higher risks from adverse weather and weaker port infrastructure.

"Recently, a ship moving via [the Cape of Good Hope] needed an urgent radar replacement, but the specific grade of steel needed to manufacture it was out of stock in South Africa," the member said.

The member added that since the pandemic, manufacturers no longer maintain large inventories, which makes such requirements easier to manage on voyages through the Mediterranean.