According to data the LR1 tanker rate for transporting 55,000 mt of clean products from the Arab Gulf to Japan stood at $40.15/mt on March 1. While this rate represents an increase from $31.92/mt on December 1, it has fallen from a recent peak of $92.28/mt on January 25.
The attacks on ships in the Red Sea had initially supported higher shipping rates as the perceived risk of transiting the area increased. However, the sinking of the Rubymar and the ongoing threats from the Houthis have added another layer of complexity to the equation.
Diversion and Insurance Challenges
Many commercial shippers have opted to divert their voyages to the longer route around the southern tip of Africa, seeking to avoid the risks associated with the Red Sea region. This detour not only adds to the overall transit time but also increases fuel costs and other operational expenses.
Furthermore, insurance companies have taken a cautious stance, with some providers stopping the offering of hull and machinery coverage for ship owners choosing to take the shorter Red Sea route. This lack of insurance coverage has made it even more challenging for shippers to operate in the region, potentially driving freight rates higher as the risk premium increases.
Environmental Concerns and Freight Rate Implications
The sinking of the Rubymar, which was carrying 18,000 mt of ammonium phosphate sulfate fertilizer, has raised significant environmental concerns in the Red Sea. The potential spread of the fertilizer cargo poses a threat to delicate marine ecosystems, including coral reefs, in the area.
Additionally, the sunken vessel itself presents a navigational hazard for other ships transiting the busy shipping lanes of the waterway. These environmental and safety risks could further deter shippers from using the Red Sea route, potentially leading to higher freight rates as demand for alternative routes increases.
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Source: S&P Global
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