Insurance Rates for Malacca Strait Traffic to Rise Dramatically

Ship owners whose vessels transit the Malacca Strait or call on Indonesian ports will soon have to pay for additional insurance coverage after the Joint War Committee (JWC) of Lloyd's Market Association declared it a high-risk area.

This high-risk declaration will have a profound impact on the more than 50,000 ships that annually pass through the Strait and other Indonesian waters. The on-going piracy in the Strait is the key factor behind the JWC's reasoning.

The Strait has now been added to the JWC's list totaling 21 shipping areas worldwide that are in jeopardy of war, strikes, terrorism, and related perils, joining the likes of Somalia, Iraq, and Lebanon.

By including the Strait and Indonesian ports, underwriters can, at their own discretion, issue a seven day notice of cancellation of a vessel's insurance, after which point the underwriter can begin seeking additional premiums.

Basically, this means that a vessel's insurance coverage can be cancelled if it intends to transit these 'excluded areas,' and the ship owner will have to pay a premium to reinstate insurance coverage in order to call on the affected ports or transit the Strait.

Typically shipping companies attempt to reclaim or offset such premiums by applying 'war risk surcharges' on the cargoes they carry.

The premiums have reached nearly 0.4 percent of a ship's hull and machinery value, resulting in an average cost of $150,000 per port call, which has now forced shipping companies to divert from various port calls.