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Shipping lines in Asia brace for additional costs

SINGAPORE Shipping lines and exporters in Asia are bracing for additional hikes in insurance and fuel costs as the prospect of war in Iraq looms.

They are already paying the highest fuel costs in more than 10 years and could soon be forced to pay thousands of dollars more to insure their vessels for each trip.

"Insurance companies have been revising their premiums and it is likely they will try to push up the premiums, but of course there is a lot of resistance," said an industry source from a container shipping line. "Who wants to pay more?"

He estimated war-risk premiums on vessels entering the Middle East could range from 0.25-1.25 per cent of the hull value of a vessel, depending on factors such as location, size and condition of the ship.

Shippers slapped with the 0.25 per cent premium would pay an additional $125,000 for a new ship with a capacity of 5,000 containers - twenty-foot equivalent units (TEUs) - with a value of $50 million.

In a circular to brokers, seen by Reuters, one leading syndicate in the Lloyd's insurance market said war-risk premiums have already risen to 0.6 per cent for calls to the port of Umm Qasr and 0.5 per cent to Mina Al Bakr in Iraq.

Gulf ports and huge swathes of the Middle East were added to the war risk exclusion list in the aftermath of the September 11 attacks. The move means underwriters are able to charge what they deem necessary to cover the risk of visiting those areas.

Shipping lines said any new war risk premiums are expected to be passed on to customers through a surcharge.

During the 1991 Gulf War, shippers imposed a surcharge of up to $250 per TEU, said a director of a European shipping line.

That would have translated into a $1.25 million surcharge for customers exporting 5,000 typical containers of goods, although they may have negotiated caps with the shipping lines.

While crude prices are at 28-month peaks, shipping fuel in Asia is its highest since the Gulf war, adding to what analysts say usually accounts for a small percentage of overall expenditure for shipping lines.

"For the industry as a whole, fuel accounts for about 10-12 per cent of operating costs," said Ong Seng Yeow, analyst at Kim Eng Ong Asia Securities.

"Shipping lines have this ancillary charge known as the bunker adjustment factor charge which takes care of any rises in the fuel component. What they do is they pass on these costs to their clients at the end of the day."

Sunny Ho, executive director of the Hong Kong Shippers Council, said shippers have not imposed a surcharge on exporters yet because fears of war in Iraq were not impacting business yet.

"Hong Kong shippers have not yet felt the impact," Ho said, adding freight is about a third of normal levels following the Lunar New Year holiday, which is just ending.

Shipping lines said there has not been any rush to ship goods to the Middle East for fear that war might break out soon. Some shippers said that going by the Gulf war experience, disruption could prove minimal if war does break out. "During the Gulf War, we operated regular services all the way into the Gulf,"said Ron Widdows, acting chief executive at APL.