Richard Meade’s Post

Shipping has been in wait and see mode for the past four days. Well, they waited, they saw, and it seems that a tipping point has been reached. We can expect further diversions from tankers and bulkers to emerge over the next 24 hours. This was not just a question of whether the Houthis were suitably hobbled by the US and UK air strikes — this was about balancing physical and legal risk against cost and hoping that someone else would make the decision for them. The owners were waiting for the charterers to blink. We are just running taxi service here, they argued. And don’t forget the Red Sea is not officially a war zone, so basically, we don’t have a choice here — it’s up to the charterer, they shrugged. The charterers, however, disagreed. They know that the owners could refuse orders if they believe that it is unsafe, but they haven’t, and until they do so, the charterers aren’t going to be the ones that land themselves in the realm of legal risk once all sides start arguing who foots the bill. It is a difficult legal argument to refuse a voyage when insurers are still prepared to insure a voyage. The legal stand-off between owners and charterers, however, is likely to be resolved one way or the other by the insurers now because, over the past 24 hours, rates have been rising significantly. What was 0.75% Friday is currently 1% as of Tuesday, with the market yet to settle, and every possibility it could climb further. At those levels, the decisions to take the hit and go the long way round become much easier for everyone. We have already seen Shell finally follow BP in pulling its ships out and, according to the off the record conversations we have been having with major traders and charterers today, it seems likely others will now follow. Different companies, of course, have different risk acceptance levels and there are plenty who are still prepared to take the rewards that come with higher risk. In the wake of the latest attacks, it seems clear that the Houthis have not been cowed — quite the contrary — they expanded their scope to include any ship with a US or UK nexus. They are also expanding the geographical scope of the danger zone, making it increasingly difficult for the navies, who are having to spread their already limited assets over a wider area. All this could change again overnight. A ceasefire in Gaza could yet make all this go away. A miscalculated missile could escalate things even further. One way or the other, shipowners and charterers have to make a call on how much risk they are prepared to endure.