Tankers take insurance at record premiums; yet stay away from Hormuz

Several tanker owners are opting for revised and exponentially more expensive war risk cover, but they still remain wary to cross the dreaded Strait of Hormuz amid serious crew safety concerns, market participants said March 9.

War risk premiums have risen sharply to record highs in the Persian Gulf due to the ongoing war, in some cases quadrupling due to the enormity of risks involved, they said.

At least four tanker owning companies, mostly of Greek origin, have opted for the war risk cover at the new revised premiums, said two sources with direct knowledge of the matter.

A senior executive of an Asian tanker owning company also confirmed that his company has taken the revised war risk insurance coverage, but its ships have no plans to pass through the Strait of Hormuz, unless the situation improves and the conflict eases.

War risk insurance operates at two levels, including the primary cover, which most ships passing through high-risk zones opt for. There is also an additional war risk premium, or AWRP, that the International Group of Protection and Indemnity, or IGP&I, clubs charge when tankers pass through specific war-hit regions. IGP&I Clubs provide both mutual and individual insurance covers. It is the non-mutual covers offered by individual IG P&I Clubs that have become more expensive, shipping and maritime insurance executives said.

The AWRP is now at least 0.75% of the Hull and Machinery, or H&M value of ships, said an Oslo-based war risk insurance executive. He said these values are considerably higher if the tanker has ownership or management linkages to the US and Israel. An insurance broker pegged this higher level around 1% of the H&M value of tankers. Overall, the values are 10 times higher than in the pre-war period, both tanker and insurance brokers said.

A source at a company controlling Medium Range, or MR, tankers said the AWRP for each ship was now equivalent to $40,000 for spending seven days in the high-risk area, or HRA, up four times from the pre-war period. The younger a ship is, the higher its H&M value and, by extension, its AWRP. For some MRs, it is now $80,000-$120,000 for every seven days spent in the HRA, the same source said. MRs load up to 40,000 mt cargoes.

Crew safety damps Hormuz transit

Despite taking the war risk coverage, most of these companies are staying away from the Strait of Hormuz.

Automatic Identification System signals showed that four vessels transited the Strait of Hormuz on March 8, down from six vessels the day before, data from S&P Global Commodities at Sea showed.

Any fixture on an insured ship for loading cargoes in the Persian Gulf will command a record freight rate, but both owners and charterers are reluctant to do so because of the risks to the crew, tanker brokers said.

There are exceptionally few ships transiting the Strait of Hormuz now, the same Oslo-based insurance executive said.

Top priority will be given to crew safety, said a chartering executive with a tanker-owning company.

A large section of the shipping industry is highly skeptical of fixtures being done for Persian Gulf loading in the near term. "Getting a war risk premium is one thing, and passing through the Strait of Hormuz is a different matter altogether," said a chartering executive with a global commodities trading company.

He was alluding to the grave risk that even an insured tanker will take if it decides to pass through the Strait of Hormuz. A common refrain among the market participants is that it is at the discretion of a ship's master to pass through the war zone, and in many cases, he might decline.

Congestion, high bunker prices

"It's a big mess, dozens of tankers are idling while bunker prices are moving towards $1,000/mt," said an executive of a Long Range, or LR, tanker owning company. LRs load between 55,000 mt and 90,000 mt cargoes.

A North Asian trading company's loaded clean tanker, chartered from the spot market, is stuck in a Persian Gulf port for more than a week now, and is liable to pay demurrage to the owner, under the charter party agreement, one of its executives said.

More than 20 LRs are expected to ballast to the West of Suez region through the Cape of Good Hope, brokers said.