War-risk premiums cause friction between liners and export companies

War-risk premiums in Middle East trades brought about conflict between shipping liners and export companies, adding to industry worries about US attacks on Afghanistan, which started early this month.

According to the Korea International Trade Association (KITA) on 22 October, large export companies such as Samsung Electronics Co., Ltd. and Kumho Tire got together to discuss shipping companies including Maersk-Sealand, Hyundai Merchant Marine, and Younhap shipping.

Export companies called for lowering the war-risk premiums, saying that they would be too much for them. Shipping companies, however, contradicted exporters saying that they continue to charge war-risk premiums due to not only war-insurance increases but also crew's life insurance increases.

The conflict mainly centered around what is a reasonable level of compensation for war-risk insurance hikes. Informal Rate Agreement (IRA) member shiping companies operating in Middle Eastern trades are currently charging an additional USD 150 per TEU.

An official at the Korea Shipper's Association declared that insurance premiums for 3,000 TEU vessels would go up by USD 66,000 per sailing. However, shipping companies will earn USD 315,000 from war ?risk surcharges. This assumes they ship 70% of their total capacities, or 2,100 TEU. So it should be enough to charge 50 dollars per TEU, even when considering crew life insurance increases.

In the mean time, exporters dealing in the Middle East are contracting on the condition that transportation fees be undertaken. KITA predicts that war-premium surcharges will lead to great losses and weak profitability for export firms.