Rewriting of shipping risk rulebook

The closure of shipping through the Red Sea in 2023-2024, followed by the Strait of Hormuz in 2026, has forced shipping companies, underwriters, shippers and cargo owners to revise their approach to risk, with multiple risks on global shipping lanes. “Blockage of the strait has long been understood as a risk, but this blockage is proceeding differently than the Trump administration appears to have planned for,” write Samantha Gross and Ryan Beane of the Brookings Institute. “Iran has demonstrated that threats and a few attacks can effectively block traffic through the strait, while it allowed its own shipments through prior to the US blockade. “Reestablishing freedom of navigation through the strait militarily is not just a naval issue but would require control of Iranian territory from which missiles and drones could be launched,” they say. With the Houthis entering the conflict and attacking vessels in the Red Sea, the two can no longer be treated as independent events, according to analysts. Vessel traffic through the Bab el Mandeb strait fell 24% after the Houthis imposed a maritime blockade on Saudi Arabia, according to Lloyd’s List Maritime Intelligence Unit. “Security risks remain elevated, with continued Houthi attacks and attempted strikes demonstrating both capability and intent to target commercial shipping linked to Saudi Arabia. “Escalating attacks or broader targeting could rapidly trigger larger-scale vessel diversions, higher costs and further pressure on Red Sea trade routes,” it adds. Risks are global and interrelated. Researchers Jasper Verschuur, Johannes Lumma and Jim Hall have identified 24 “chokepoints” around the world. Risks identified by the three include cyclones, drought, earthquakes, blockages (due to accidents), terrorist attacks, armed conflict, interstate conflict and piracy. Trade flows often cross multiple chokepoints, with the risks varying by commodity and country. “In value terms, around 20% of global maritime trade is shipped through the Taiwan Strait and Malacca Strait, making them the most important chokepoints globally,” they state. Insurance became the real chokepoint. “Rerouting from the Strait of Hormuz is increasing pressure on secondary maritime chokepoints, including the Panama Canal and Malacca Strait,” observe Chris Rogers and Ines Nastali of S&P Global. “This is creating geographically diffuse supply chain risk, where network congestion – rather than a single point of failure – is becoming the primary channel for global trade disruption. “As peak shipping season approaches, the spillover effects from disruptions in the Strait of Hormuz are no longer contained. “Increased tanker traffic and weather-driven constraints are tightening capacity at the Panama Canal and Malacca Strait. “This dynamic means simple rerouting strategies are becoming less effective, and firms must now account for broader, interconnected network risks that extend beyond a single geopolitical flashpoint,” they write. ER