The Impact of Red Sea Tensions on Global Shipping Costs

The Huthi rebels in Yemen have launched attacks on commercial ships in the Red Sea, driving up insurance premiums and compounding the already high costs of freight and longer alternative trade routes.

Since November, the Huthis have attacked ships that are passing through the Red Sea, a maritime hub that typically handles 12% of all world trade. Their attacks have been persistent. IMF data shows that, as of now in 2024, maritime container transit has decreased by over one third when compared to the same period the previous year.

Huthis, backed by Iran, claim that the bombings are a show of support for Palestinians in Gaza who are facing opposition from Hamas.

Three different kinds of insurance are required for commercial vessels. Protection and indemnity insurance covers harm to third parties, cargo insurance covers the load on the vessel, and hull insurance covers damage to the vessel itself.

Following the Huthi attacks, premiums for ships and their cargo have "increased significantly," according to Frederic Denefle, CEO of Garex, a French company that specializes in marine risk insurance.

He pointed out that because the Red Sea is a Listed Area, any vessel intending to enter must notify its insurers.

After reviewing the ship and its journey, insurance companies have the right to request an additional war premium on top of the standard coverage.

Some maritime corporations have also decided to circumvent the Red Sea by going around southern Africa in response to the Huthi strikes. When compared to the Red Sea route, this takes an additional 10 to 15 days, and a slow ship may take an additional 20 days.

By doing this, shipowners can avoid paying hefty Red Sea tolls, but the longer journey will cost them more in fuel and labor. Furthermore, there is still a possibility of additional hazards like piracy. Breitbart

Historic Times

What will happen when the market finally recognizes that the entire economy is truly beginning to break apart at the seams, if stock prices are going to start falling simply because inflation is running a little bit hotter than expected? The commercial real estate crisis is gaining momentum, consumer delinquency rates are skyrocketing, banks across the nation are facing severe financial difficulties, huge firms are laying off employees in large numbers, and the number of homeless people is increasing at the quickest rate ever. However, if you choose to disregard all of those minor things, you may act as though everything is OK.

The Dow Jones Industrial Average fell 524 points on a recent Tuesday. Since March 2023, it was the biggest one-day loss ever. Why did this happen?

We are being told that stock prices fell because the inflation numbers that were just released by the Bureau of Labor Statistics were a bit disappointing…

The latest Consumer Price Index revealed that prices rose by 3.1% for the 12 months ended in January, according to Bureau of Labor Statistics data released Tuesday. On a monthly basis, CPI rose by 0.3% last month.
Both measures came in hotter than expected: Economists expected inflation to ease to 0.2% from December and slow to 2.9% annually, according to FactSet.

To be honest, I have no idea why those figures are taken seriously by anyone. The formula used to determine the consumer price index has undergone literally hundreds of changes over the years. Inflation would still be in the double digits at this point if it were still computed using the same methodology as in 1980.

In the meanwhile, there are more and more indications that the state of the economy is about to undergo a significant shift. Much of what we are witnessing at this moment reminds me of 2008.

The amount that commercial real estate values have already dropped is absurd. And our banks will be under increasing financial strain the lower they go. Banks have been cutting staff and closing branches at an alarming rate in a frantic attempt to survive...

American banks are continuing to close costly branches this year, notifying their regulator of a total of 36 closures in a single week.
At the head of the pack was US Bank, which between January 28 and February 3 told its regulator it would close 23 branches across the country – seven are in Oregon.
It was followed by Wells Fargo, which reported to the Office of the Comptroller of the Currency (OCC) it would shut five. Two were in California but the rest were scattered across the US.

In all honesty, the economic hardships we have already experienced pale in comparison to the immense mayhem that lies ahead. After simmering for several years, this problem has finally reached a breaking point. - Michael Snyder